To our Shareholders:
It is with great pride and pleasure that we report that 2015 marked the most profitable year and the highest level
of earnings in the 35 year history of Plumas Bank. In 2015, we increased net income by 23% over last year and
grew earnings per diluted share by 21%, from $0.95 during 2014 to $1.15. Additionally, we reduced the ratio of
nonperforming assets to total assets to 1.06% and increased our book value per common share to $8.79. Each of
these achievements was accomplished in the face of the headwinds associated with the prolonged low interest
rate environment. Our commitment to our purpose and our consistent strategic focus has allowed us to achieve
these important goals.
2015 was a year of expansion and growth. On July 31, 2015 the company acquired the Redding, California branch
of Rabobank N.A. which included the acquisition of approximately $10 million in deposits. Then, on our 35th
Anniversary, December 15, 2015, we entered the Northern Nevada market with the opening of our first out-of-
state branch located in Reno, Nevada. Finally, we expanded our government guaranteed lending operations with
the opening of a new loan production office located in Scottsdale, Arizona.
All acquisitions are made within the context of our overall strategic, long term plan. We are thoughtful and
selective about the markets that we choose to operate in, and understand those markets thoroughly before we
enter into them. And most importantly, in keeping with our community-focused philosophy, in each of those
markets our bankers are deeply engaged in community and philanthropic initiatives and are closely connected to
business and civic leadership.
We continue to invest in better tools and technologies, such as enhanced online banking and mobile deposit, to
streamline various processes. This approach yields an improved client experience, increases employee
productivity and lowers costs. Additionally, we are training our branch associates to meet a broader range of our
client’s needs by becoming universal bankers, positioning us to be more responsive and cost-effective. Finally, we
have adjusted our brand strategy to incorporate our growth into new markets by introducing a new logo and
motto: HERE. For Good. This motto emphasizes our long-term commitment to the communities that we serve in
terms of our stable presence and our community outreach and engagement.
As is always the case, the year ahead is full of uncertainty. How will the markets fare in response to China’s
slowing economy? Will the Federal Reserve continue to raise interest rates? How will lower oil prices impact our
economy? How will the election year affect our industry? Whatever the coming year holds, our clients and
shareholders should rest-assured knowing that Plumas Bank begins another year with a solid financial base and a
dynamic strategic plan, well-prepared to meet all challenges and make the most of all opportunities.
Thank you for your continued confidence in and support of Plumas Bancorp.
Andrew J. Ryback
Director, President & Chief Executive Officer
Daniel E. West
Chairman of the Board
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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 18, 2016 at 9:30 a.m. At this annual meeting,
shareholders will be asked to (i) elect ten directors for the next year, (ii) approve a non-binding advisory
proposal on the Company’s executive compensation and (iii) ratify the appointment of Vavrinek, Trine,
Day & Company, LLP as our independent auditors for the fiscal year ending December 31, 2016.
The Company is requesting your proxy to vote at the annual meeting. The Board of Directors of the
Company recommends that you vote “FOR” the election of each of the nominees for director and “FOR”
proposals Two and Three. The proxy statement contains information about each of the nominees for
directors, the Company’s executive compensation, and each of the other proxy proposals for shareholder
vote.
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, 2016.
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
Compensation Consultant
Proposal No. 2— Non-binding advisory vote on executive compensation
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, 2015
Compensation of Directors
Director Compensation
Non-Qualified Stock Options
Director Retirement Agreement
Post-Retirement Consulting Agreement
Director Compensation Table
Proposal No. 3—Ratification of Appointment of 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 18, 2016 at 9:30 a.m., for
the purpose of considering and voting upon the following matters:
1. Election of Directors. To elect ten (10) persons to serve as directors of the Company 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
Andrew J. Ryback
Daniel E. West
2.
3.
Non-binding Advisory Resolution on Executive Compensation. To vote on a non-binding
advisory vote on the Company’s executive compensation.
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, 2016.
4.
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, 2016 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 in favor of the election of all of the Company’s nominees for directors,
to vote “FOR” approval of a non-binding advisory vote on the Company’s executive compensation
and “FOR” the ratification of the appointment of Vavrinek, Trine, Day & Company, LLP as our
independent auditors for the fiscal year ending December 31, 2016, 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, 2016 Terrance J. Reeson, Vice Chairman and Secretary
iii
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Plumas Bancorp
Proxy Statement
Annual Meeting of Shareholders
May 18, 2016
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 18, 2016
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 6, 2016.
Shareholders may also view this proxy statement and the 2015 Annual Report to
Shareholders 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 10 director nominees named in this proxy
statement;
Proposal 2: Approval of a non-binding advisory vote on the Company’s executive
compensation; and
Proposal 3: Ratification of the appointment of Vavrinek, Trine, Day & Company, LLP as
our independent auditors for the fiscal year ending December 31, 2016.
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, “FOR” approval of a non-binding advisory vote on the Company’s
executive compensation, and “FOR” the ratification of the appointment of Vavrinek, Trine, Day &
Company, LLP as our independent auditors for the fiscal year ending December 31, 2016. 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, 2016 as the record date for purposes of
determining the shareholders entitled to notice of, and to vote at, the Meeting. On March 31, 2016, there
were 4,835,432 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
2
the number of directors to be elected. These votes may be cast for any one nominee, or may be distributed
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 10 nominees for director receiving the most votes will be elected. Therefore, shares voted
“withhold” and broker non-votes will have no impact on the outcome of the election of directors.
Proposal 2 regarding the Company’s executive compensation and Proposal 3 regarding the ratification of
the appointment of the Company’s auditors each requires the approval of a majority of the shares
represented and voting at the Meeting, with affirmative votes constituting at least a majority of the
required quorum. Therefore, shares voted “withhold” and broker non-votes will have no impact on the
outcome of these proposals, assuming that the affirmative votes constitute at least a majority of the
required quorum.
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 15,
2016, 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 15, 2016. 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 that 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
Siena Capital Management, LLC
Directors and Named Executive Officers:
Andrew J. Ryback, President, CEO and Director
Richard L. Belstock, EVP and CFO
BJ North, EVP 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 (2)
324,015 (3)
46,160 (4)
47,591 (5)
19,200 (6)
53,981 (7)
84,431 (8)
77,193 (9)
9,851 (10)
82,210 (11)
35,054 (12)
52,206 (13)
33,278 (14)
88,956 (15)
9.8
6.7
1.0
1.0
*
1.1
1.7
1.6
*
1.7
*
1.1
*
1.8
All 13 Directors and Executive Officers as a Group
* Less than one percent
652,005
13.2
3
(1)
Includes 71,700 shares subject to options held by the directors and executive officers that were
exercisable within 60 days of March 15, 2016. In accordance with SEC rules, 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.
(2)
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.
(3)
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 315,041 shares of common stock of the Company, Siena Capital Partners Accredited, L.P. may
be deemed to own 8,974 shares of common stock of the Company and Siena Capital Management,
LLC may be deemed to own 324,015 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 18,300 of these shares. Mr. Ryback also
has 3,600 shares acquirable by exercise of stock options.
(5) Mr. Belstock has 15,300 shares acquirable by exercise of stock options.
(6) Ms. North has 19,200 shares acquirable by exercise of stock options.
(7)
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 4,800 shares
acquirable by exercise of stock options.
(8)
Mr. Reeson has shared voting and investment powers as to 74,771 of these shares. He also has 4,800
shares acquirable by exercise of stock options.
(9)
Mr. Blickenstaff has shared voting and investment powers as to 69,602 of these shares. He also has
2,400 shares acquirable by exercise of stock options.
(10)
Mr. Coldani has shared voting and investment powers as to 4,976 of these shares. He also has 1,600
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 4,800
shares acquirable by exercise of stock options.
(12)
Mr. Fletcher has shared voting and investment powers as to 32,609 of these shares. He also has
2,400 shares acquirable by exercise of stock options.
(13) Mr. Flournoy has 2,400 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 4,800
shares acquirable by exercise of stock options.
(15 )
Mr. McClintock has shared voting and investment powers as to 47,058 of these shares. He also has
800 shares acquirable by exercise of stock options.
4
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
Company 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 2015 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 2015 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 Company’s 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 10 nominees, as appropriate, or as
many as possible under the rules of cumulative voting. The 10 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 set forth in the Company’s Bylaws. See “Shareholder
Proposals - Nomination of Director Candidates”.
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
62
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
71
1984
Retired. Formerly with the U.S. Forestry
Service, Quincy, CA.
Alvin G. Blickenstaff
80
1988
Farmer and Rancher, partner in Blickenstaff Ranch,
Janesville, CA.
Steven M. Coldani
62
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
75
1987
Retired. Formerly President and CEO of the Company
and Plumas Bank, Quincy, CA.
Gerald W. Fletcher
73
1988
Forest Products Wholesaler, Susanville, CA.
John Flournoy
71
2005
Rancher and Chief Financial Officer of Likely
Land and Livestock Corporation, Likely, CA.
Arthur C. Grohs
79
1988
Retired. Former Retailer, Sparks, NV.
Robert J. McClintock
58
2008
Certified Public Accountant, co-owner of
McClintock Accountancy Corporation, Tahoe City, CA.
Andrew J. Ryback
50
2016
President and CEO Plumas Bancorp and Plumas Bank
6
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
7
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.
8
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.
Andrew J. Ryback
Director, President and CEO
Director since 2016
Mr. Andrew J. Ryback joined Plumas Bank in 2001. In 2005 he was appointed Executive Vice
President and Chief Financial Officer of the Company and the Bank. In 2010 he was appointed interim
President and Chief Executive officer and in 2011 that position became permanent.
Ryback received his Bachelor of Science degree in Business Administration from California State
University, Northridge. He is a Certified Public Accountant and a graduate of Pacific Coast Banking
School. Ryback actively serves in a variety of organizations in his community. He is currently the
immediate past President of the Rotary Club of Quincy. He also serves as Treasurer on the Board of
Directors of Sierra Cascade Family Opportunities and he chairs the Plumas District Hospital Bond
Oversight Committee. Additionally, Ryback serves as Commissioner and Treasurer of the Quincy Fire
Protection District; he previously served as a volunteer firefighter.
All nominees will continue to serve if elected at the Meeting until the 2017 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 2015, the Company’s Board of Directors met 19 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 2015
annual meeting of shareholders. The Board has established, among others, an Audit Committee and a
Corporate Governance Committee, which serves as a nominating committee and a compensation
committee, and each of these committees have charters. Charters for each of these committees are
available on the Company’s website www.plumasbank.com.
9
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.
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 2015, 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
2015, the entire $600,000 was earned. No individual officer’s earnings under the NEI exceeded $25,300
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
10
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.
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.
11
The Audit Committee met 10 times during 2015. The Audit Committee reviews all internal and
external audits including the audit by Vavrinek, Trine, Day & Company, LLP, the Company’s
independent auditor for 2015. 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 2015 and 2014 were approved per the Audit Committee’s pre-approval policies.
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 2015, 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, 2015, 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 6 times during 2015. 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,
12
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.
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 nomination procedures set forth in the Company’s
Bylaws, which are summarized below. See “Shareholder Proposals - Nomination of Director
Candidates.” Any such notices should be addressed to:
President
Plumas Bancorp
35 S. Lindan Avenue
Quincy, CA 95971
13
Compensation Consultant
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 2015, the Corporate Governance Committee consulted
with Pearl Meyer & Partners, LLC, (“Pearl Meyer”), a compensation consulting firm. Pearl Meyer served
as an independent compensation consultant to advise the Corporate Governance Committee on matters
related to the Executives and non-employee Directors compensation. Pearl Meyer also provided guidance
on industry best practices and assisted the Corporate Governance Committee by providing comparative
market data on compensation practices and programs for the Executives and Directors based on an
analysis of peer competitors. Related to Executive’s compensation, Pearl Meyer advised the Corporate
Governance Committee in (1) determining base salaries, (2) setting competitive levels for the Company’s
Executive Incentive Plan, (3) determining the appropriateness of individual grant levels for equity awards,
(4) evaluating the retirement plans and benefit amounts, (5) evaluating the perquisite program and
allowances provided, and (6) determining the appropriateness of the change in control and termination
benefits. Pearl Meyer’s non-employee Director Compensation plan review included a review of Board
fees, Committee fees and equity awards.
Other than compensation related consulting, Pearl Meyer did not provide any other services. The Board of
Directors and management do not believe the services provided by Pearl Meyer created a conflict of
interest. No services performed by Pearl Meyer exceeded in the aggregate, more than $120,000 in the last
fiscal year.
NON-BINDING ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION
PROPOSAL 2
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
requires that stockholders cast an advisory (non-binding) vote on the executive compensation paid to the
executive officers listed in the Summary Compensation Table at least every three years.
This proposal, commonly known as a “Say-on-Pay” proposal, gives you as a shareholder the
opportunity to provide an advisory vote on the Company's executive compensation as disclosed in this
proxy statement through the following resolution:
“RESOLVED, that the compensation paid to the Company’s named executive officers, as
disclosed pursuant to Item 402 of Regulation S-K is hereby APPROVED.”
Because the vote is advisory, it will not be binding upon the Board of Directors, will not overrule
any decision made by the Board of Directors, and will not create or imply any additional fiduciary duty
on the Board of Directors. The Corporate Governance Committee may, however, take into account the
outcome of the vote when considering future executive compensation arrangements.
The Board of Directors believes that the Company's executive compensation program is reasonable
in comparison both to similar sized companies in the industry and to the performance of the Company
during 2015. We also believe that the Company's compensation program is effective in aligning the
interests of the executives with the interests of the Company's shareholders on a long-term basis and is
appropriate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF A NON-
BINDING ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION AS DESCRIBED
IN THIS PROXY STATEMENT.
14
Executive Officers
The following table sets forth information concerning the executive officers of the Company and
Plumas Bank:
Name
Age
Andrew J. Ryback
50
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 beginning March 29, 2010.
Richard L. Belstock
59
BJ North
65
Kerry D. Wilson
59
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 beginning March 31, 2010.
Executive Vice President of Retail Banking, Marketing and
Commercial Lending of Plumas Bank since July 1, 2011. Executive
Vice President of Retail Banking and Marketing beginning July 7,
2008.
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)
2015
2014
$210,000
$210,000
2015
2014
2015
2014
$170,000
$145,000
$165,000
$145,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$ 0
$ 43,452
$ 100,000
$ 100,000
$ 0
$ 0
$ 6,326
$ 6,456
$316,326
$359,908
$ 0
$ 28,968
$ 25,300
$ 19,600
$ 0
$ 28,968
$ 24,500
$ 17,200
$ 0
$ 0
$ 0
$ 0
$ 1,629
$ 2,172
$ 4,673
$ 2,793
$196,929
$195,740
$194,173
$193,961
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
BJ North EVP, Retail
Banking, Marketing and
Commercial Lending
(1) The Company did not grant any stock awards in 2015 or 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. No stock options were granted in 2015.
The amounts in column (i) include premiums paid and accrued on life insurance policies,
personal use of a Company automobile (Mr. Ryback and Ms. North in 2015), Company-provided
gasoline and cell phone allowance.
(3)
15
Non-Equity Incentive Plan
Under the Company’s non-equity incentive plans (the NEIs), for 2015 and 2014, 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 both
2015 and 2014 the entire $600,000 was earned. No individual officer’s earnings under the NEIs exceeded
$25,300 in either year with the exception of Mr. Ryback who earned an incentive of $100,000 in each of
2015 and 2014. A total of thirty-six and forty employees received a bonus payment under the NEIs in
2015 and 2014, respectively. These payments were made during the first quarter of the following year.
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 has 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 a total of 110,400 stock options, to officers at the level of
Senior Vice President and above, 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, 2015. 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. In 2005 the Company entered into a salary
continuation agreement with Mr. Ryback. The purpose of the salary continuation agreement is to provide
a special incentive to the experienced executive officer to continue employment with the Company on a
long-term basis. The agreement provides Mr. Ryback 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, Mr. Ryback’s
beneficiary is entitled to a portion of the death benefits pursuant to a split dollar agreement. In the event
of disability wherein Mr. Ryback does not continue employment with the Company, he 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 Mr. Ryback terminates employment with
the Company for a reason other than death or disability prior to the retirement age of 65, he 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.
16
In the event of a change of control of the Company and Mr. Ryback terminates employment with
the Company or its successor within a period of 24 months after such change in control, then he 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 Mr. Ryback as the insured party 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. During 2015, Ms. North was provided a Company automobile and maintenance on
the automobile. Mr. Ryback, Mr. Belstock and Ms. North 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.
17
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
5,900 (3)
3,600 (1)
0
10,800
N/A
$12.40
$6.32
02/20/2016
04/28/2022
0
$0
5,000 (4)
1,500 (3)
5,500 (2)
2,400 (1)
0
0
0
7,200
Richard L.
Belstock
BJ North
14,400 (2)
2,400 (1)
0
7,200
$16.89
$12.40
$2.95
$6.32
09/20/2016
02/20/2016
03/16/2019
04/28/2022
$2.95
$6.32
03/16/2019
04/28/2022
N/A
N/A
0
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 3/16/2011, have an eight year life and vest 25% per year beginning 3/16/2012
(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 9/20/2006, have a ten year life and vest 20% per year beginning 9/20/2007
0
0
0
Compensation of Directors
(j)
$0
$0
$0
Director Compensation: During 2015 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 $6.32 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
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
18
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, 2015.
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
$25,200
Stock
Awards
(1)
(c)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Option
Awards ($)
(1)
(d)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
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)
$31,800
$25,200
$25,200
$25,200
$25,200
$25,200
$25,200
$25,200
$25,200
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 or option awards to the listed directors in 2015. As of December
31, 2015, each of Messrs. Elliott, Grohs, Reeson and West held options to purchase 7,400 shares of
common stock; each of Messrs. Blickenstaff and Fletcher held options to purchase 5,000 shares of
common stock; Mr. Coldani held options to purchase 3,200 shares of common stock; Mr. Flournoy held
options to purchase 7,500 shares of common stock; and Mr. McClintock held options to purchase 2,400.
19
PROPOSAL 3
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, 2016.
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 years ended
December 31, 2015 and 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 3 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, 2016.
Fees Paid to Independent Auditors:
Aggregate fees billed by Vavrinek, Trine, Day & Company, LLP 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 2015 and 2014 are as follows:
Audit fees
Audit-related fees
Tax fees
Total fees
Percentage
Pre-
Approved
100 % $
100%
100%
100% $
2015
$ 103,000
15,000
15,450
$ 133,450
2014
100,000
15,000
15,000
130,000
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 to be compatible with maintaining the independence of
Vavrinek, Trine, Day & Company, 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 7, 2016 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.
20
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 6, 2016. 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 7, 2016. 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.
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, 2015 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
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2015
or
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)
35 S. Lindan Avenue, Quincy, CA
(Address of principal executive offices)
75-2987096
(IRS Employer Identification No.)
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.
Yes
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.
Yes
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.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
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.
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 Accelerated Filer Non-Accelerated Filer Smaller Reporting Company
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
As of June 30, 2015 the aggregate market value of the voting and non-voting common equity held by non-affiliates of the
Registrant was approximately $39.7 million, based on the closing price reported to the Registrant on June 30, 2015 of $9.32 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 14, 2016 was 4,852,875.
Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2016 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
13
18
19
20
20
21
22
23
43
44
45
45
46
46
46
46
46
46
47
50
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 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:
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 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.
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.
Credit quality deterioration, which could cause an increase in the provision for loan and lease losses.
Devaluation of fixed income securities.
Asset/liability matching risks and liquidity risks.
Loss of key personnel.
Operational interruptions including data processing systems failure and fraud.
Our success at managing the risks involved in the foregoing items.
Plumas Bancorp 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”, “we”, “us”) 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, 2015, the Company had consolidated assets of $599.3 million, deposits of $527.3 million, other
liabilities of $29.5 million and shareholders’ equity of $42.5 million. The Company’s other liabilities include $10.3
million in junior subordinated deferrable interest debentures and a $4.9 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, 2015 the Bank had
approximately $599 million in assets, $397 million in net loans and $528 million in deposits (including deposits of
$0.8 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 twelve branch network, serves Washoe county Nevada and
the seven contiguous California counties of Plumas, Nevada, Sierra, Placer, Lassen, Modoc and Shasta. The
branches are located in the California communities of Quincy, Portola, Greenville, Truckee, Fall River Mills,
Alturas, Susanville, Chester, Tahoe City, Kings Beach and Redding; in addition, during December, 2015 the Bank
opened a branch in Reno, Nevada. The Bank maintains sixteen 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 Auburn, California and Scottsdale, Arizona and a
commercial/agricultural lending office located in Chico, California. 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.
in government-guaranteed
lending
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
services include term real estate, commercial and industrial term loans. In addition, we provide government-
3
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 Scottsdale, Arizona provides Small Business Administration (SBA) and USDA Rural
Development loans to qualified borrowers throughout Northern California, Arizona, 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 2015 proceeds from the sale of government-guaranteed loans totaled $29.4 million and we
generated a gain on sale of $1.9 million. In 2014 proceeds from the sale of government guaranteed loans totaled
$21.6 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, 2015, 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 – 47.9%; (ii) commercial and
industrial loans – 9.2%; (iii) consumer loans (including residential equity lines of credit and automobile loans) –
22.6%; (iv) agricultural loans (including agricultural real estate loans) – 9.9%; (v) residential real estate – 6.4%; and
(vi) construction and land development – 4.0% .
In addition to the lending activities noted above, we offer a wide range of deposit products for the retail and
commercial banking markets including checking, interest-bearing checking, business sweep, public funds sweep,
savings, time deposit and retirement accounts, as well as remote deposit, telephone and mobile banking, including
mobile deposit, 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, 2015, the Bank had
29,518 deposit accounts with balances totaling approximately $528 million, compared to 28,821 deposit accounts
with balances totaling approximately $469 million at December 31, 2014. We attract deposits through our
customer-oriented product mix, competitive pricing, convenient locations, mobile and internet banking, 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 $17.9 thousand at
December 31, 2015. 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 and other customary banking services.
Through our offering of a Remote Deposit product our business 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 2015 we enhanced our mobile banking services and began offering mobile
deposit services. 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
4
product at December 31, 2015 was $7.7 million. Interest paid on this product is similar to that which 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 and Redding have expanded and with the opening of our Auburn SBA lending office and growth in our
indirect automobile lending, 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 loans. Many banking decisions are made locally with the goal of maintaining customer
satisfaction through the timely delivery of high quality products and services.
Recent Developments. On July 31, 2015 the Bank completed its acquisition of the Redding, California, branch of
Rabobank N.A. The transaction included the acquisition of approximately $10 million in deposits. The branch,
located at 1335 Hilltop Dr. in Redding, now operates as a branch of the Bank. The Bank has consolidated its Civic
Center Drive branch into this new location. The Civic Center Drive facility was sold to an unrelated third party in
December, 2015. In December, 2015 the Bank opened a new full service Branch located at 5050 Meadowood Mall
Circle, Reno, Nevada. This is the Bank’s first branch location outside of California. Also in December, 2015 the
Bank opened a SBA lending office in Scottsdale, Arizona.
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 Company’s 11,949 Series A Preferred Stock. The Company sought and obtained
regulatory permission to participate in the auction. The Company 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 Company 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
Company repurchased 250 shares at $985 per share from another one of the third party investors leaving 3,133
5
shares outstanding as of September 30, 2013. On October 25, 2013, the Company 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
Company 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
(“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 Delaware 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 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 Debenture. On April 15, 2013 the Bancorp issued a $7.5 million subordinated debenture. 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. On April 16, 2015 the Company paid off the
subordinated debt.
The subordinated debt had an interest rate of 7.5% per annum and a term of 8 years with no prepayment allowed
during the first two years and was made in conjunction with an eight-year warrant to purchase up to 300,000 shares
of the Bancorp’s common stock 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, 2015, 2014 and 2013 totaled $219,000,
$756,000 and $541,000, respectively.
Promissory Note. The Company has a $4.9 million note payable outstanding at December 31, 2015 with an
unrelated commercial bank. In addition, the Company has the ability to borrow an additional $2.5 million from this
same bank under a line of credit agreement. There were no outstanding borrowings on the line of credit at
December 31, 2015. See “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS – Financial Condition – Note Payable” for detail information
related to these borrowing agreements.
Business Concentrations. No individual or single group of related customer accounts is considered material in
relation to the Bank’s assets or deposits, or in relation to our overall business. However, at December 31, 2015
approximately 73% 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
6
estate. Moreover, our business activities are currently focused in the California counties of Plumas, Nevada, Placer,
Lassen, Modoc, Shasta and Sierra and Washoe County in Nevada. Consequently, our results of operations and
financial condition are dependent upon the general trends in these economies and, in particular, the residential and
commercial real estate markets. In addition, the concentration of our operations in these areas of California and
Nevada exposes us to greater risk than other banking companies with a wider geographic base in the event of
catastrophes, such as earthquakes, fires and floods in these regions in California and Nevada.
Competition. With respect to commercial bank competitors, the business is largely dominated by a relatively small
number of major banks with many offices operating over a wide geographical area. These banks have, among other
advantages, the ability to finance wide-ranging and effective advertising campaigns and to allocate their resources to
regions of highest yield and demand. Many of the major banks operating in the area offer certain services that we
do not offer directly but may offer indirectly through correspondent institutions. By virtue of their greater total
capitalization, such banks also have substantially higher lending limits than we do. For customers whose loan
demands exceed our legal lending limit, we attempt to arrange for such loans on a participation basis with
correspondent or other banks.
In addition to other banks, our competitors include savings institutions, credit unions, and numerous non-banking
institutions such as finance companies, leasing companies, insurance companies, brokerage firms, and investment
banking firms. In recent years, increased competition has also developed from specialized finance and non-finance
companies that offer wholesale finance, credit card, and other consumer finance services, including on-line banking
services and personal financial software. Strong competition for deposit and loan products affects the rates of those
products as well as the terms on which they are offered to customers. Mergers between financial institutions have
placed additional competitive pressure on banks within the industry to streamline their operations, reduce expenses,
and increase revenues. Competition has also intensified due to federal and state interstate banking laws enacted in
the mid-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 California 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, 2015, the FDIC estimated the Bank’s market share of insured deposits within the
communities it serves to be as follows: Chester 65%, Quincy 55%, Alturas 65%, Fall River Mills 38%, Kings Beach
35%, Susanville 27%,Truckee 18%, Tahoe City 10%, Redding less than 1% and 100% in Greenville and Portola.
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.
7
Employees. At December 31, 2015, the Company and its subsidiary employed 151 persons. On a full-time
equivalent basis, we employed 134 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 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 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.
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.
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”).
Federal and State Bank Regulation. As a California-chartered commercial bank with deposits insured by the
FDIC, the Bank is subject to the supervision and regulation of the DBO and the FDIC, as well as certain of the
regulations of the FRB and the Consumer Financial Protection Bureau (“CFPB”). The DBO and the FDIC regularly
examine the Bank and may prohibit the Bank from engaging in what they believe constitute unsafe or unsound
banking practices.
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.
Capital Adequacy. 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.
8
The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal
banking agencies.
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.
In July, 2013, the federal bank regulatory agencies approved the final rules implementing the Basel Committee on
Banking Supervision’s capital guidelines for U.S. banks. The phase-in period for the final rules began on January 1,
2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. Under the
final rules, minimum requirements increased for both the quantity and quality of capital held by the Company and
the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a
common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the
minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of
4.0%. The final rules also implement strict eligibility criteria for regulatory capital instruments.
The Board of Governors of the Federal Reserve System has adopted final amendments to the Small Bank Holding
Company Policy Statement (Regulation Y, Appendix C) ( the “Policy Statement”) that, among other things, raised
from $500 million to $1 billion the asset threshold to qualify for the Policy Statement. The Company qualifies for
treatment under the Policy Statement and is no longer subject to consolidated capital rules at the bank holding
company level.
For additional information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Capital Standards.”
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 permits a California corporation such as the Company
to make a distribution to its shareholders if its retained earnings equal at least the amount of the proposed
distribution or if after giving effect to the distribution, the value of the corporation’s assets exceed the amount of its
liabilities plus the amount of shareholders preferences, if any, and certain other conditions are met.
It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock
only out of income available over the past year, and only if prospective earnings support the organization’s expected
future needs and financial condition. Further, it is the FRB’s policy that bank holding companies should not
maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. The
Federal Reserve also discourages dividend payment ratios that are at maximum allowable levels unless both asset
quality and capital are very strong.
The Bank is a legal entity that is separate and distinct from its holding company. The Company is dependent on the
performance of the Bank for funds which may be received as dividends from the Bank for use in the operation of the
Company and the ability of the Company to pay dividends to shareholders. Future cash dividends by the Bank will
also depend upon management’s assessment of future capital requirements, contractual restrictions, and other
factors.
9
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, 2015, 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 Company’s business trust subsidiaries.
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 report of 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 the FRB’s 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.
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 $333 thousand for 2015.
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 Bank’s FICO assessments totaled $29 thousand for 2015. These
assessments will continue until the FICO bonds mature in 2017.
10
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 may now 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:
• 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
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.
11
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,
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, including the Bank, 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. .
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 US PATRIOT 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. The 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.
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, the payment of
restitution 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
California 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
12
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 2 – “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
A deterioration of national or local economic conditions could reduce the Company’s profitability.
The Company’s lending operations and its customers are primarily located in the eastern region of Northern
California. A significant downturn in the national economy or the local economy due to agricultural commodity
prices, real estate prices, public policy decisions, natural disaster, drought or other factors could result in a decline in
the local economy in general, which could in turn negatively impact the Company.
The majority of the Company’s assets are loans, which if not repaid would result in losses to the Bank.
The Bank, like other lenders, is subject to credit risk, which is the risk of losing principal or interest due to
borrowers’ failure to repay loans in accordance with their terms. Underwriting and documentation controls cannot
mitigate all credit risk. A downturn in the economy or the real estate market in the Company’s market areas or a
rapid increase in interest rates could have a negative effect on collateral values and borrowers’ ability to repay. To
the extent loans are not paid timely by borrowers, the loans are placed on non-accrual status, thereby reducing
interest income. Further, under these circumstances, an additional provision for loan and lease losses or unfunded
commitments may be required. See Management’s Discussion and Analysis of Financial Condition and Results of
Operations – “Analysis of Asset Quality and Allowance for Loan Losses”.
If the Company’s allowance for loan losses is not sufficient to absorb actual loan losses, the Company’s
profitability could be reduced.
The risk of loan losses is inherent in the lending business. The Company maintains an allowance for loan losses
based upon the Company’s actual losses over a relevant time period and management’s assessment of all relevant
qualitative factors that may cause future loss experience to differ from its historical loss experience. Although the
Company maintains a rigorous process for determining the allowance for loan losses, it can give no assurance that it
will be sufficient to cover future loan losses. If the allowance for loan losses is not adequate to absorb future losses,
or if bank regulatory agencies require the Company to increase its allowance for loan losses, earnings could be
significantly and adversely impacted.
A deterioration in the real estate market could have a material adverse effect on the Company’s business,
financial condition and results of operations.
As of December 31, 2015, approximately 73% of the Company’s total loan portfolio is secured by real estate, the
majority of which is commercial real estate. Increases in commercial and consumer delinquency levels or declines in
real estate market values would require increased net charge-offs and increases in the allowance for loan losses,
which could have a material adverse effect on the Company’s business, financial condition and results of operations
and prospects.
13
Fluctuations in interest rates could reduce profitability.
The Company’s earnings depend largely upon net interest income, which is the difference between the total interest
income earned on interest earning assets (primarily loans and investment securities) and the total interest expense
incurred on interest bearing liabilities (primarily deposits and borrowed funds). The interest earned on assets and
paid on liabilities are affected principally by direct competition, and general economic conditions at the state and
national level and other factors beyond the Company’s control such as actions of the FRB, the general supply of
money in the economy, legislative tax policies, governmental budgetary matters, and other state and federal
economic policies. Although the Company maintains a rigorous process for managing the impact of possible interest
rate fluctuations on earnings, the Company can provide no assurance that its management efforts will prevent
earnings from being significantly and adversely impacted by changes in interest rates.
The Company could be required to raise additional capital in the future, but that capital may not be available
when it is needed or may not be available on terms that are favorable to the Company.
Federal and state bank regulatory authorities require the Company and the Bank to maintain adequate levels of
capital to support their operations. The Company’s ability to raise additional capital if and as needed depends on
conditions in the capital markets, which are outside the Company’s control, and on the Company’s financial
performance. Accordingly, the Company may not be able to raise additional capital, if needed, on terms that are
acceptable to the Company. If the Company is unable to raise additional capital when needed, it could be required to
curtail its growth strategy or reduce the levels of assets owned. In addition, although the Company and the Bank are
currently well-capitalized under applicable regulatory frameworks, bank regulators are authorized and sometimes
required to impose a wide range of requirements, conditions, and restrictions on banks and bank holding companies
that fail to maintain adequate capital levels.
The continuing California drought could have an adverse impact on the Company’s business.
During 2015, California continued to experience a severe drought. A significant portion of the Company’s
borrowers are involved in or are dependent on the agricultural industry in California, which requires water. As of
December 31, 2015, approximately 10% of the Company’s loans were categorized as agricultural loans. As a result
of the drought, there have been governmental proposals concerning the distribution or rationing of water. If the
amount of water available to agriculture becomes scarcer due to drought or rationing, growers may not be able to
continue to produce agricultural products profitably, which could force some out of business. Although many of the
Company’s customers are not directly involved in agriculture, they could be impacted by difficulties in the
agricultural industry because many jobs and businesses in the Company’s market areas are related to the production
of agricultural products. Therefore, the drought could adversely impact the Company’s loan portfolio, business,
financial condition and results of operations.
The Company faces substantial competition from larger banks and other financial institutions.
The Company faces substantial competition for deposits and loans. Competition for deposits primarily comes from
other commercial banks, savings institutions, thrift and loan associations, money market and mutual funds and other
investment alternatives. Competition for loans comes from other commercial banks, savings institutions, credit
unions, mortgage banking firms, thrift and loan associations and other financial intermediaries. Larger competitors,
by virtue of their larger capital resources, have substantially greater lending limits and marketing resources than the
Company. In addition, they have greater resources and may be able to offer longer maturities or lower rates. The
Company’s competitors may also provide certain services for their customers, including trust and international
banking, that the Company is only able to offer indirectly through correspondent relationships. Ultimately,
competition can reduce the Company’s profitability, as well as make it more difficult to increase the size of its loan
portfolio and deposit base.
14
There are risks associated with the Company’s growth strategy.
During the past year, the Company completed the purchase and assumption of a branch office in Redding,
California, received regulatory approval to open a branch office in Reno, Nevada and established a loan production
office in Scottsdale, Arizona. The Company may engage in additional acquisition activity and open additional
offices in the future to expand the Company’s markets or further its growth strategy. There is no assurance that
future acquisitions or offices will be successful. Further, growth may strain the Company’s administrative,
managerial, financial and operational resources and increase demands on its systems and controls. If the Company
pursues its growth strategy too aggressively, fails to attract qualified personnel, control costs or maintain asset
quality, or if factors beyond management’s control divert attention away from its business operations, the
Company’s pursuit of its growth strategy could have a material adverse impact on its existing business.
The Company relies on key executives and personnel and the loss of any of them could have a material adverse
impact on the Company’s prospects.
Competition for qualified employees and personnel in the banking industry is intense and there are a limited number
of qualified persons with knowledge of, and experience in, the California community banking industry. The process
of recruiting personnel with the combination of skills and attributes required to carry out the Company’s strategies is
often lengthy. The Company’s success depends to a significant degree upon its ability to attract and retain qualified
management, loan origination, finance, administrative, marketing, compliance and technical personnel and upon the
continued contributions of its management and personnel. In particular, the Company’s success has been and
continues to be highly dependent upon the abilities of key executives and certain other employees.
Security breaches and technological disruptions could damage the Company’s reputation and profitability. The
Company’s business is highly reliant on third party vendors and its ability to manage the operational risks
associated with outsourcing those services.
The Company’s electronic banking activities expose it to possible liability and loss of reputation should an
unauthorized party gain access to confidential customer information. Despite its considerable efforts and investment
to provide the security and authentication necessary to effect secure transmission of data, the Company cannot fully
guarantee that these precautions will protect its systems from future compromises or breaches of its security
measures. Although the Company has developed systems and processes that are designed to recognize and assist in
preventing security breaches (and periodically test its security), failure to protect against or mitigate breaches of
security could adversely affect its ability to offer and grow its online services, constitute a breach of privacy or other
laws, result in costly litigation and loss of customer relationships, negatively impact the Bank’s reputation, and
could have an adverse effect on its business, results of operations and financial condition. The Company may also
incur substantial increases in costs in an effort to minimize or mitigate cyber security risks and to respond to cyber
incidents.
The potential for operational risk exposure exists throughout the Company’s business. Integral to the Company’s
performance is the continued efficacy of the Company’s technology and information systems, operational
infrastructure and relationships with third parties and its colleagues in its day-to-day and ongoing operations. Failure
by any or all of these resources subjects us to risks that may vary in size, scale and scope. This includes, but is not
limited to, operational or systems failures, disruption of client operations and activities, ineffectiveness or exposure
due to interruption in third party support as expected, as well as, the loss of key colleagues or failure on the part of
key colleagues to perform properly.
Additionally, the Company outsources a large portion of its data processing to third parties which may encounter
technological or other difficulties that may significantly affect the Company’s ability to process and account for
customer transactions. These vendors provide services that support its operations, including the storage and
processing of sensitive consumer and business customer data, as well as its sales efforts. A cyber security breach of
a vendor’s system may result in theft of the Company’s data or disruption of business processes. In most cases, the
Company will remain primarily liable to its customers for losses arising from a breach of a vendor’s data security
system. The Company relies on its outsourced service providers to implement and maintain prudent cyber security
15
controls. The loss of these vendor relationships could disrupt the services the Company provides to its customers
and cause us to incur significant expense in connection with replacing these services.
The Company may incur fines, penalties and other negative consequences from regulatory violations, possibly
even inadvertent or unintentional violations.
The Company is subject to significant federal and state regulation and supervision. In the past, the Company’s
business has been increasingly affected by these regulations, and this trend is likely to continue into the future.
Many of these laws are subject to interpretation and changing regulatory approaches to supervision and
enforcement. The Company maintains systems and procedures designed to ensure that it complies with applicable
laws and regulations, but there can be no assurance that these will be effective. The Company may incur fines,
penalties and other negative consequences from regulatory violations. The Company may also suffer other negative
consequences resulting from findings of noncompliance with laws and regulations, that may also damage its
reputation, and this in turn might materially affect its business and results of operations. Further, some
legal/regulatory frameworks provide for the imposition of fines, restitution or penalties for noncompliance even
though the noncompliance was inadvertent or unintentional and even though there were in place at the time systems
and procedures designed to ensure compliance.
The Company’s disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information
required to be disclosed by us in reports it files under the Exchange Act is accurately accumulated and
communicated to management, and recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms. The Company believes that any disclosure controls and procedures or internal controls
and procedures, no matter how well conceived and operated, cannot provide absolute assurance that the objectives
of the control system are met.
These inherent limitations include the realities that judgments in decision making can be faulty, that alternative
reasoned judgments can be drawn, or that breakdowns can occur because of a simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an
unauthorized override of the controls. Accordingly, because of the inherent limitations in its control system,
misstatements due to error or fraud may occur and not be detected, which could result in a material weakness in its
internal controls over financial reporting and the restatement of previously filed financial statements.
The price of the Company’s common stock may be volatile or may decline
The trading price of the Company’s common stock may fluctuate as a result of a number of factors, many of which
are outside its control. Among the factors that could affect the Company’s stock price are:
•
•
•
•
•
•
•
actual or anticipated quarterly fluctuations in the Company’s operating results and financial condition;
research reports and recommendations by financial analysts;
failure to meet analysts’ revenue or earnings estimates;
speculation in the press or investment community;
actions by the Company or its competitors, such as acquisitions or restructurings;
actions by institutional shareholders;
fluctuations in the stock prices and operating results of its competitors;
16
•
•
•
•
general market conditions and, in particular, developments related to market conditions for the
financial services industry;
proposed or adopted regulatory changes or developments;
anticipated or pending investigations, proceedings or litigation that involve or affect us;
domestic and international economic factors unrelated to its performance.
Significant decline in the Company’s stock price could result in substantial losses for individual shareholders and
could lead to costly and disruptive securities litigation.
The trading volume of the Company’s common stock is limited.
Although the Company’s common stock is traded on the Nasdaq Stock Market, trading to date has been relatively
modest. The limited trading market for the Company’s common stock may lead to exaggerated fluctuations in
market prices and possible market inefficiencies compared to more actively traded securities. It may also make it
more difficult for investors to sell the Company’s common stock at desired prices, especially for holders seeking to
dispose of a large number shares of stock.
The Company depends primarily on the operations of the Bank to repay its indebtedness. The Company’s ability
to pay any dividends or repurchase any of its shares in the future will also depend on the success of the Bank’s
operations.
The Company is a separate and distinct legal entity from its subsidiary, the Bank, and it receives substantially all of
its revenue from dividends paid by the Bank. There are legal limitations on the extent to which the Bank may extend
credit, pay dividends or otherwise supply funds to, or engage in transactions with, the Company. The Company’s
inability to receive dividends from the Bank could adversely affect its business, financial condition, results of
operations and prospects.
Disruptions in market conditions may adversely impact the fair value of available-for-sale investment securities.
Generally Accepted Accounting Principles (“GAAP”) require the Company to carry its available-for-sale investment
securities at fair value on its balance sheet. Unrealized gains or losses on these securities, reflecting the difference
between the fair market value and the amortized cost, net of its tax effect, are reported as a component of
shareholders’ equity. In certain instances GAAP requires recognition through earnings of declines in the fair value
of securities that are deemed to be other than temporarily impaired. Changes in the fair value of these securities may
result from a number of circumstances that are beyond the Company’s control, such as changes in interest rates, the
financial condition of government sponsored enterprises or insurers of municipal bonds, changes in demand for
these securities as a result of economic conditions, or reduced market liquidity. There can be no assurance that the
declines in market value will not result in other than temporary impairments of these assets, which would lead to
loss recognition that could have a material adverse effect on the Company’s net income and capital levels.
Damage to the Company’s reputation could significantly harm the Company’s business and prospects.
The Company’s reputation is an important asset. The Company’s relationship with many of its customers is
predicated upon its reputation as a high quality provider of financial services that adheres to the highest standards of
ethics, service quality and regulatory compliance. The Company’s ability to attract and retain customers, investors
and employees depends upon external perceptions. Damage to its reputation among existing and potential
customers, investors and employees could cause significant harm to the Company’s business and prospects and may
arise from numerous sources, including litigation or regulatory actions, failing to deliver minimum standards of
service and quality, lending practices, inadequate protection of customer information, sales and marketing efforts,
compliance failures, unethical behavior and the misconduct of employees. Adverse developments in the banking
industry may also, by association, negatively impact the Company’s reputation or result in greater regulatory or
17
legislative scrutiny or litigation against us. The Company has policies and procedures in place that seek to protect
its reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative
publicity regarding the Company’s business, employees, or customers, with or without merit, may result in the loss
of customers, investors, and employees, costly litigation, a decline in revenues and increased governmental
regulation.
The markets in which the Company operates are subject to the risk of earthquakes and other natural disasters.
Most of the Company’s offices are located in California. Also, most of the real and personal properties securing the
Company’s loans are located in California. California its prone to earthquakes, brush fires, flooding and other
natural disasters. In addition to possibly sustaining damage to its own properties, if there is a major earthquake,
brush fires, flood or other natural disaster, the Company faces the risk that many of the Company’s borrowers may
experience uninsured property losses, or sustained job interruption and/or loss which may materially impair their
ability to meet the terms of their loan obligations. Therefore, a major earthquake, brush fire, flood or other natural
disaster in California could have a material adverse effect on the Company’s business, financial condition, results of
operations and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
18
ITEM 2. PROPERTIES
Of the Company’s twelve depository branches, ten are owned and two are leased. The Company also leases three
lending offices 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
Owned Properties
32 Central Avenue
Quincy, California (1)
336 West Main Street
Quincy, California
121 Crescent Street
Greenville, California
3000 Riverside Drive
Susanville, California
11638 Donner Pass Road
5050 Meadowood Mall Circle
Truckee, California
Reno, Nevada
243 North Lake Boulevard
Tahoe City, California
Leased Properties
1335 Hilltop Drive
Redding, California
11111 North Scottsdale Road, Unit C
Scottsdale, Arizona (2)
2585 Ceanothus Avenue, Suite 173
Chico, CA (3)
(1) Non-branch administrative or credit administrative offices.
(2) SBA lending office.
(3) Commercial lending office.
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
470 Nevada St., Suite 108
Auburn, California (2)
Total rental expenses under all leases totaled $233,000, $192,000 and $154,000, in 2015, 2014 and 2013
respectively. The expiration dates of the leases vary, with the first such lease expiring during 2016 and the last such
lease expiring during 2020.
Future minimum lease payments are as follows:
Year Ending December 31,
2016
2017
2018
2019
2020
$ 242,000
151,000
108,000
99,000
74,000
$ 674,000
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.
19
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.
20
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, 2015, there were 4,835,432 shares of the Company’s common 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 2015
3rd Quarter 2015
2nd Quarter 2015
1st Quarter 2015
4th Quarter 2014
3rd Quarter 2014
2nd Quarter 2014
1st Quarter 2014
Common
Dividends
-
-
-
-
-
-
-
-
High
$ 9.35
$ 10.23
$ 10.00
$ 10.00
$ 8.25
$ 8.50
$ 7.74
$ 6.75
Low
$ 8.50
$ 8.04
$ 8.77
$ 7.73
$ 7.52
$ 6.77
$ 6.12
$ 5.96
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 2015 or 2014.
The Company is subject to various restrictions on the payment of dividends. See Note 12 “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, 2015.
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)
295,293
None
295,293
$ 5.95
Not Applicable
$ 5.95
294,400
None
294,400
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 12 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 2015.
21
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.
2015
At or for the year ended December 31,
2013
2012
2014
2011
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
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
Capital ratios – Plumas Bank
Leverage ratio
Tier 1 risk-based capital
Total risk-based capital
$ 21,147
1,693
19,454
1,100
7,315
17,845
3,086
(dollars in thousands except per share information)
$ 19,460
1,534
17,926
1,400
6,642
17,570
2,167
$ 22,615
1,204
21,411
1,100
7,715
18,491
3,717
$ 5,818 $ 4,738 $ 3,431 $ 1,950 $ 941
-
-
$ 5,818
$ 18,425
1,274
17,151
2,350
6,596
18,377
1,070
$ 18,668
1,848
16,820
3,500
7,162
19,246
295
-
684
$ 257
-
-
$ 4,738
-
684
$ 1,266
565
347
$ 3,649
$ 538,862
$ 370,390
$ 515,725
$ 599,286
$ 400,971
$ 338,551
$ 6,078 $ 5,451 $ 5,517 $ 5,686 $ 6,908
$ 527,276
$ 42,496
$ 42,496
$ 411,562
$ 29,995
$ 41,850
$ 449,439
$ 30,593
$ 30,593
$ 467,891
$ 36,497
$ 36,497
$ 391,140
$ 27,865
$ 39,634
$ 455,349
$ 293,865
$ 477,802
$ 315,057
$ 571,990
$ 386,070
$ 503,343
$ 39,844
$ 531,528
$ 353,389
$ 464,067
$ 33,810
$ 464,609
$ 497,711
$ 301,799
$ 321,210
$ 432,284
$ 401,110
$ 36,032 $ 41,023
$ 467,354
$ 302,841
$ 407,982
$ 39,244
1.13%
1.06%
1.52%
$ 473
1.79%
1.90%
1.47%
$ 1,166
1.64%
2.33%
1.63%
$ 1,569
4.35%
3.98%
1.80%
$ 3,572
5.73%
5.60%
2.35%
$ 3,916
1.02%
14.6%
14.6%
4.10%
76.0%
63.5%
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%
$ 1.21 $ 0.99
$ 1.15 $ 0.95
$ 0.00
$ 8.79
4,835,432
$ 0.00
$ 7.61
4,799,139
$ 0.76 $ 0.26 $ 0.05
$ 0.05
$ 0.75 $ 0.26
$ 0.00
$ 0.00
$ 5.83
$ 6.39
4,776,339
4,787,739
$ 0.00
$ 6.28
4,776,339
9.8%
13.2%
14.4%
9.7%
13.2%
14.5%
10.4%
14.1%
15.3%
9.8%
13.7%
15.0%
9.4%
12.7%
14.0%
22
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 government guaranteed 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.
23
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, 2015 and 2014 and for each of the three
years in the period ended December 31, 2015. 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 $5.8 million for the year ended December 31, 2015, a 23% increase over net
income of $4.7 million during the year ended December 31, 2014. Pretax income increased by $1.7 million, or 22%,
from to $9.5 million in 2015 from $7.8 million during the year ended December 31, 2014.
Net interest income increased by $2.0 million to $21.4 million during 2015 from $19.4 million for the year ended
December 31, 2014. This increase in net interest income resulted from an increase in interest income of $1.5 million
and a decrease in interest expense of $489 thousand. Interest on loans increased by $1.3 million and interest on
investment securities increased by $179 thousand. An increase of $2 thousand in interest expense on deposits was
offset by a decrease in interest expense on borrowings of $491 thousand. The largest component of this decrease was
a decrease of $537 thousand in interest expense related to the redemption of the Company’s $7.5 million
subordinated debenture in April, 2015. The provision for loan losses was $1.1 million during 2015 and 2014.
During the year ended December 31, 2015 non-interest income totaled $7.7 million an increase of $400 thousand
from the year ended December 31, 2014. The largest component of this increase was an increase in gain on sale of
SBA loans of $546 thousand. Gains on sale of securities were $21 thousand during 2015 and $128 thousand in 2014.
In addition, the 2014 quarter included a $148 thousand gain on sale of our credit card portfolio.
Non-interest expense increased by $646 thousand to $18.5 million during the twelve months ended December 31,
2015, up from $17.8 million during 2014. The largest component of this increase was an increase in salary expense
of $559 thousand. This increase includes an increase in loan production personnel costs, costs associated with our
new Reno, Nevada branch, an increase in commissions earned on the sale of SBA loans, related to an increase in
sales volume, and merit and promotional wage increases.
The provision for income taxes increased by $631 thousand from $3.1 million in 2014 to $3.7 million during the
year ended December 31, 2015.
Total assets at December 31, 2015 were $599 million, an increase of $60.4 million from $539 million at December
31, 2014. This increase included increases of $22.6 million in cash and due from banks, $6.4 million in investment
securities, $30.0 million in net loans, $0.6 million in premises and equipment, $0.3 million in bank owned life
insurance and $2.3 million in other assets exclusive of OREO. OREO decreased by $1.8 million.
Loans increased by $30.6 million, or 8%, from $370.4 million at December 31, 2014 to $401.0 million at December
31, 2015. The increase in loan balances includes $28.8 million in commercial real estate loans, $5.6 million in
commercial loans, $4.5 million in agricultural loans and $3.7 million in automobile loans. These increases were
partially offset by declines of $8.4 million in construction and land development loans and $3.6 million in all other
loan types. Construction and land development loans, which management has identified as a higher-risk loan
category, represented 4.0% and 6.6% of the loan portfolio as of December 31, 2015 and December 31, 2014,
respectively.
Total deposits increased by $59.4 million from $468 million at December 31, 2014 to $527 million at December 31,
2015. In addition to deposit growth from our branch network, we acquired approximately $10 million in deposits
with our acquisition of the Redding, California, branch of Rabobank N.A. effective July 31, 2015. No loans were
acquired in this transaction. Core deposit growth remained strong in 2015 as evidenced by increases of $28.4
million in demand deposits, $19.6 million in savings accounts, $9.1 million in interest-bearing transaction accounts
(NOW) and $6.4 million in money market accounts. Time deposits declined by $4.1 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. The Company has no brokered deposits.
24
Total shareholders’ equity increased by $6.0 million from $36.5 million at December 31, 2014 to $42.5 million at
December 31, 2015. The $6.0 million includes earnings during the twelve month period totaling $5.8 million with
the balance of $0.2 million mostly representing stock option activity.
The return on average assets was 1.02% for 2015, up from 0.89% for 2014. The return on average equity was
14.6% for 2015, up from 14.0% for 2014.
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:
2015
Interest
income/
expense
Rates
earned
/ paid
Average
balance
$ 174
1,694
20,747
22,615
0.39%
1.86
5.37
4.34%
$ 44,302
91,309
386,070
521,681
17,332
32,977
$ 571,990
$ 88,220
47,149
119,071
54,418
3,858
2,150
10,310
6,529
80
66
191
181
155
219
306
6
0.09%
0.14
0.16
0.33
4.02
10.19
2.97
0.09
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
$ 38,626
87,906
353,389
479,921
16,323
35,284
$ 531,528
$ 83,398
46,691
102,664
59,063
2,299
7,371
10,310
7,529
Year ended December 31,
Average
balance
2014
Interest
income/
expense
Rates
earned
/ paid
(dollars in thousands)
$ 137
1,515
19,495
21,147
0.35%
1.72
5.52
4.41%
2013
Interest
income/
expense
Rates
earned
/ paid
Average
balance
$ 124
1,162
18,174
19,460
0.30%
1.40
5.66
4.37%
$ 41,262
82,820
321,210
445,292
14,572
37,847
$ 497,711
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
7,298
90
82
147
281
23
541
313
57
0.11%
0.17
0.17
0.43
4.06
10.43
3.04
0.78
liabilities
331,705
1,204
0.36%
319,325
1,693
0.53%
306,577
1,534
0.50%
Noninterest bearing demand
deposits
Other liabilities
Shareholders’ equity
Total liabilities and
194,485
5,956
39,844
shareholders’ equity
$ 571,990
172,251
6,142
33,810
$ 531,528
149,067
6,035
36,032
$ 497,711
Net interest income
Net interest spread (4)
Net interest margin (5)
$21,411
$19,454
$17,926
3.98%
4.10%
3.88%
4.05%
3.87%
4.03%
Interest income is reflected on an actual basis and is not computed on a tax-equivalent basis.
(1)
(2) Average nonaccrual loan balances of $5.6 million for 2015, $6.7 million for 2014 and $9.3 million for 2013 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 $696,000, $380,000 and $371,000 for 2015, 2014 and 2013, 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.
25
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:
2015 compared to 2014
Increase (decrease) due to change in:
2014 compared to 2013
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
$ 20
59
1,803
1,882
$ 15
116
(504)
(373)
$ 2
4
(47)
(41)
$ 37
179
1,252
1,468
$ (8)
72
1,821
1,885
$ 22
265
(454)
(167)
$ (1)
16
(46)
(31)
$ 13
353
1,321
1,687
4
1
26
(17)
75
(535)
-
(1)
(447)
-
-
2
(15)
(19)
(5)
3
-
(34)
-
-
-
1
(12)
3
-
-
(8)
4
1
28
(31)
44
(537)
3
(1)
(489)
(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
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
$ 2,329
$ (339)
$ (33)
$ 1,957
$ 1,587
$ (18)
$ (41)
$ 1,528
(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.
2015 compared to 2014. Net interest income is the difference between interest income and interest expense. Net
interest income, on a nontax-equivalent basis, was $21.4 million for the year ended December 31, 2015, up $2.0
million, or 10.1%, from $19.4 million for 2014. The $2.0 million included an increase of $1.5 million, or 6.9% in
interest income, from $21.1 million during 2014 to $22.6 million during the current year and a decrease of $489
thousand in interest expense.
Interest and fees on loans increased by $1.3 million, interest on investment securities increased by $179 thousand
and interest on deposits increased by $37 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 $20.8 million during 2015 and $19.5 million for the year ended December 31, 2014.
The average loan balances were $386.1 million for 2015, up $32.7 million from the $353.4 million for 2014. The
following table compares loan balances by type at December 31, 2015 and 2014.
(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
12/31/15
9.2%
9.9%
6.4%
47.9%
4.0%
9.6%
12.1%
0.9%
100%
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%
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
Balance at
End of
Period
12/31/15
$ 37,084
39,856
25,474
192,095
16,188
38,327
48,365
3,582
$ 400,971
26
The average yield on loans was 5.37% for 2015 down from 5.52% for 2014. We attribute much of the decrease in
yield to price competition in our service area. In addition, during the fourth quarter of 2014 the Company benefited
from a prepayment fee of approximately $0.2 million on a large commercial real estate loan which increased overall
loan yield by approximately 5 basis points.
Interest on investment securities increased by $179 thousand as a result of an increase in yield of 14 basis points
from 1.72% during 2014 to 1.86% during 2015 and an increase in average balance from $87.9 million in 2014 to
$91.3 million in 2015. The increase in yield on investment securities includes an increase in municipal securities as
a percentage of total securities and an increase in market yields. Interest income on other interest-earning assets,
which totaled $174 thousand in 2015 and $137 thousand in 2014, primarily relates to interest on cash balances held
at the Federal Reserve.
Interest expense on deposits increased by $2 thousand to $518 thousand for the twelve months ended December 31,
2015, up from $516 thousand in 2014. Interest expense on time deposits declined by $31 thousand from $212
thousand during 2014 to $181 thousand at during 2015. Average time deposits declined by $4.7 million from $59.1
million during 2014 to $54.4 million during the year ended December 31, 2015. 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 0.36% during 2014 to 0.33% during the current twelve month
period. This decrease primarily relates to the maturity of higher rate time deposits.
Interest expense on NOW accounts increased by $4 thousand. Rates paid on NOW accounts averaged 0.09% during
2015 and 2014. Average balances increased by $4.8 million from 2014 to $88.2 million. Interest expense on money
market accounts increased by $1 thousand to $66 thousand during the year ended December 31, 2015. Interest
expense on savings accounts increased by $28 thousand as we continued to experience strong growth in this
category of deposits. Average savings deposits increased by $16.4 million from $102.7 million during 2014 to
$119.1 million during 2015. The average rate paid on savings accounts during these same periods was 16 basis
points.
Interest expense on other interest-bearing liabilities decreased by $491 thousand from $1.2 million during the year
ended December 31, 2014 to $686 thousand during the current twelve month period. On April 15, 2013, to help
fund the repurchase of preferred stock during 2013, the Company issued a $7.5 million subordinated debenture. 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 Company’s common stock, no par value at an exercise price, subject to anti-
dilution adjustments, of $5.25 per share. On April 16, 2015 we paid off the subordinated debenture resulting in a
reduction in interest expense related to this debt of $537 thousand from $756 thousand during 2014 to $219
thousand during 2015. The effective yield on the debenture during 2015 was 10.2% which was in excess of the 7.5%
rate due to amortization of a $75 thousand commitment fee and a discount recorded on issuance of $318 thousand.
Interest expense on the Company’s note payable (see “Financial Condition – Note Payable”) increased by $44
thousand to $155 thousand during the twelve months ended December 31, 2015. This increase was related to an
increase in average borrowings on this note from $2.3 million during the 2014 period to $3.9 million during the year
ended December 31, 2015. During April of 2015 we borrowed an additional $4 million on the note bringing the
balance to $5 million. This $4 million along with a dividend from Plumas Bank to Plumas Bancorp were used to
fund the payoff of the subordinated debenture. The average rate paid on the note payable was 4.02% during 2015
and 4.83% during the twelve months ended December 31, 2014.
Interest expense on junior subordinated debentures, which increased by $3 thousand to $306 thousand, fluctuates
with changes in the 3-month London Interbank Offered Rate (LIBOR) rate. Interest on other borrowings, which
mostly relates to repurchase agreements, totaled $6 thousand in 2015 and $7 thousand in 2014.
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 2015 increased to 4.10%, from 4.05% for 2014.
27
2014 compared to 2013. 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 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 $1.2 million during 2014. This increase was mostly related to an
increase of $215 thousand in interest expense on the $7.5 million subordinated debenture which was only
outstanding for 8.5 months during 2013. 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.
Interest expense on the Company’s note payable 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 LIBOR rate.
28
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.
Provision for Loan Losses
During the years ended December 31, 2015 and 2014 we recorded a provision for loan losses of $1.1 million. 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, 2015, 2014
and 2013.
Years Ended December 31,
2015
2014
2013
(dollars in thousands)
Change during Year
2015
2014
Service charges on deposit
accounts
Gain on sale of loans, net
Loan servicing fees
Earnings on bank owned life
insurance policies
Gain on sale of investments
Other income
Total non-interest income
$ 3,954
1,942
$ 4,108
1,396
$ 3,912
1,399
$ (154)
546
$ 196
(3)
562
502
323
60
179
342
21
894
$ 7,715
341
128
840
$ 7,315
344
-
664
$ 6,642
1
(107)
54
$ 400
(3)
128
176
$ 673
2015 compared to 2014. During the twelve months ended December 31, 2015 non-interest income totaled $7.7
million an increase of $400 thousand from the year ended December 31, 2014. The largest component of this
increase was an increase of $546 thousand in gains on the sale of government guaranteed SBA loans mostly related
to an increase in the volume of loans originated and sold. During 2015, proceeds from SBA loan sales totaled $29.4
million resulting in a gain on sale of $1.9 million. This compares to proceeds of $21.6 million and a gain on sale of
$1.4 million during 2014. Loan servicing income, which increased by $60 thousand, represents servicing income
received on the guaranteed portion of small business administration (“SBA”) loans sold into the secondary market.
At December 31, 2015 we were servicing over $86 million in guaranteed portions of loans an increase of $10
million from over $76 million at December 31, 2014. Other non-interest income increased by $54 thousand to $894
thousand mostly related to an increase of $126 thousand in dividends received on Federal Home Loan Bank of San
Francisco (FHLB) stock. Of the $126 thousand, $88 thousand was a one-time special dividend paid by the FHLB
during June 2015. The effect of the increase in FHLB dividends and increases in other items of other non-interest
income were partially offset by a $148 thousand gain on the sale of our credit card portfolio during the fourth
quarter of 2014. The largest decrease in non-interest income was $154 thousand in service charge income most of
29
which was related to a reduction in NSF and overcharge income which we attribute to improved economic
conditions as well as working with our customers to help them reduce NSF activity. Additionally, gain on sale of
investments declined by $107 thousand from $128 thousand during the twelve months ended December 31, 2014 to
$21 thousand during 2015.
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. 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.
Non-Interest Expense
The following table sets forth the components of other non-interest expense for the years ended December 31, 2015,
2014 and 2013.
$ 10,277
2,782
2,003
707
376
362
332
305
300
234
200
182
105
95
Salaries and employee benefits
Occupancy and equipment
Outside service fees
Professional fees
Telephone and data
Communications
Deposit insurance
Business development
Advertising and promotion
Director compensation and
retirement
Armored car and courier
Loan collection costs
OREO expenses
Stationery and supplies
Insurance
Provision from change in
OREO valuation
Postage
Gain on sale of OREO
Other operating expense
Total non-interest expense
Years Ended December 31,
2014
2015
Change during Year
2015
2014
2013
(dollars in thousands)
$ 8,729
2,874
1,855
831
$ 9,474
2,902
2,042
583
$ 803 $ 745
(120) 28
(39) 187
(248)
124
351
387
279
282
298
224
182
362
122
(9)
287
435
291
281
232
228
212
310
113
112
25 64
(48)
(25)
53
(12)
23 1
2 66
(4)
10
18
(30)
(180) 52
(17) 9
(121)
104
79
41
(198)
309
486
51
(171)
414
$ 18,491 $ 17,845 $ 17,570
240
45
(101)
182
(161)
(4)
(246)
(6)
(97) 70
127
(232)
$ 646 $ 275
2015 compared to 2014. Non-interest expense increased by $646 thousand to $18.5 million during the twelve
months ended December 31, 2015, up from $17.8 million during 2014. The largest components of this increase were
$803 thousand in salary and benefit expense, $124 thousand professional fees, $104 thousand in insurance expense
and $127 thousand in other operating expenses. The largest declines in non-interest expense were $180 thousand in
OREO expenses, $161 thousand in the provision from change in OREO valuation and $120 thousand in occupancy
and equipment expense.
30
The increase in salary and benefits includes an increase in salary expense, exclusive of commissions, of $412
thousand mostly related to merit and promotion increases, new hires including three loan officers; one serving Reno,
Nevada, one located in Chico, California and an SBA loan officer in Scottsdale Arizona, and a branch manager for
our new Reno, Nevada location. Other significant increases in salary and benefit expense include an increase of
$147 thousand in commission expense, $111 thousand in 401k plan contributions and a reduction of $104 thousand
in the deferral of loan origination costs. The increase in commission expense is mostly related to an increase in SBA
activity. Effective January 1, 2015, we reestablished a 401k matching benefit resulting in $111 thousand in matching
contributions. During each of 2015 and 2014 the Company’s bonus expense totaled $600 thousand, the maximum
payable under the terms of the respective bonus plans.
The largest component of the increase in professional fees was an increase of $79 thousand in legal fees related to
loan collection activities and general corporate matters including costs associated with our Redding branch
acquisition and our future Reno, Nevada branch. The second largest increase in professional fees was an increase of
$52 thousand in audit expense related to lending functions, including the cost of our semi-annual loan review, an
annual review of our SBA loan operations by the SBA and a review of our loan compliance systems. Insurance
expense, during 2014, benefited from a one-time adjustment to accrued life insurance costs.
The decline in OREO costs includes a decrease in OREO legal expense of $125 thousand and a decline in repair and
maintenance costs of $54 thousand. During 2014 we incurred $142 thousand in legal costs, related to OREO,
pursuing additional recoveries on selected OREO properties through legal channels. In addition, OREO repair
expense during 2014 totaled $93 thousand much of which was used to fix up several properties in an effort to
increase their marketability. OREO repair costs were $62 thousand in 2015. OREO maintenance costs declined by
$23 thousand related to a decline in OREO properties.
OREO represents real property taken by the Bank either through foreclosure or through a deed in lieu thereof from
the borrower. When other real estate is acquired, any excess of the Bank’s recorded investment in the loan balance
and accrued interest income over the estimated fair market value of the property less costs to sell is charged against
the allowance for loan losses. A valuation allowance for losses on other real estate is maintained to provide for
temporary declines in value. The allowance is established through a provision for subsequent losses on other real
estate which is included in other expenses. Subsequent gains or losses on sales or from impairment are recorded as
incurred. The provision from change in OREO valuation declined by $161 thousand from $240 thousand during the
year ended December 31, 2014 to $79 thousand during the current period. During the first three months of 2015 we
recorded a net credit provision of $129 thousand. The credit resulted from a significant increase in value of one
OREO property based on a recent appraisal. This property was originally transferred to OREO at a value, net of
estimated costs selling costs, of $1 million. Subsequently, based on declines in value it was written down to $0.7
million with a $0.3 million valuation allowance; however, recently the surrounding area in which the property is
located has enjoyed significant new business activity and the value of this property has increased resulting in a
reduction in the valuation allowance of $0.2 million. The $0.2 million was offset by declines in value on other
OREO properties.
The decline in occupancy and equipment expense includes several reductions the largest of which was a savings of
$49 thousand in equipment expense and maintenance. During 2014 equipment expense was high as we chose to
replace all of our personal computers running Windows XP with machines running Windows 7.
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.
31
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 provided 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.
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.
The provision from change in OREO valuation declined by $246 thousand from $486 thousand during the twelve
months ended December 31, 2013 to $240 thousand during the 2014. 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.
Provision for Income Taxes. The Company recorded an income tax provision of $3.7 million, or 39.0% of pre-tax
income for the year ended December 31, 2015. During 2014 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. The percentages for 2015 and 2014
differ from the statutory rate as tax exempt income such as earnings on Bank owned life insurance and interest on
qualified municipal securities.
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, 2015 and 2014 will be fully realized and therefore no valuation
allowance was recorded.
32
Financial Condition
Loan Portfolio. Net loans increased by $30 million, or 8%, from $367 million at December 31, 2014 to $397
million at December 31, 2015. The two largest areas of growth in the Company’s loan portfolio were $28.8 million
in commercial real estate loans and $5.6 million in commercial loans. Additionally, agricultural loans increased by
$4.5 million and automobile loans increased $3.7 million. The largest decrease in any loan category was a decline
of $8.4 million in construction and land development loans. 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 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
12/31/15
9.2%
9.9%
6.4%
47.9%
4.0%
9.6%
12.1%
0.9%
100%
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%
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
Balance at
End of
Period
12/31/15
$ 37,084
39,856
25,474
192,095
16,188
38,327
48,365
3,582
$ 400,971
Construction and land development loans represented 4.0% and 6.6% of the loan portfolio as of December 31, 2015
and December 31, 2014, respectively. The construction and land development portfolio component has been
identified by Management as a higher-risk loan category. The quality of the construction and land development
category is highly dependent on property values both in terms of the likelihood of repayment once the property is
transacted by the current owner as well as the level of collateral the Company has securing the loan in the event of
default. Loans in this category are characterized by the speculative nature of commercial and residential
development properties and can include property in various stages of development 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 73% of
the total loan portfolio at December 31, 2015. 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.
33
The rates of interest charged on variable rate loans are set at specific increments in relation to the Company's
lending rate or other indexes such as the published prime interest rate or U.S. Treasury rates and vary with changes
in these indexes. The frequency in which variable rate loans reprice can vary from one day to several years. At
December 31, 2015 and December 31, 2014, approximately 72% and 71%, respectively of the Company's loan
portfolio was comprised of variable rate loans. At December 31, 2015 and December 31, 2014, 39% and 42%,
respectively of the variable loans were at their respective floor rate. While real estate mortgage, commercial and
consumer lending remain the foundation of the Company's historical loan mix, some changes in the mix have
occurred due to the changing economic environment and the resulting change in demand for certain loan types. The
most significant change has been an increase in indirect auto lending with automobile loans increasing from 2.5% of
gross loans at December 31, 2011 to 12.1% of gross loans at December 31, 2015. The automobile portfolio provides
diversification to the loan portfolio in terms of rate, term and balance as these loans tend to have a much shorter
term and balance than commercial real-estate loans and are fixed rate. 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 $40 million at December 31, 2015 and $35 million at December 31, 2014.
The following table sets forth the amounts of loans outstanding by category as of the dates indicated.
2015
2014
2013
2012
2011
At December 31,
$ 217,569
$ 192,590
$ 187,264
$ 174,212
$ 158,431
(dollars in thousands)
16,188
37,084
90,274
39,856
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
400,971
370,390
338,551
315,057
293,865
1,940
1,848
1,340
900
475
6,078
$ 396,833
5,451
$ 366,787
5,517
$ 334,374
5,686
$ 310,271
6,908
$ 287,432
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, 2015. 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)
$ 21,274
$ 55,050
$ 141,245
$ 217,569
4,795
16,081
41,527
5,764
11,268
36,004
16,188
37,084
90,274
39,856
$ 126,550 $ 210,396 $ 400,971
16,115
9,097
$ 56,619 $ 33,418
176,978
$ 210,396
69,931
$ 126,550
$ 90,037
246,909
$ 336,946
5,629
9,735
12,743
14,644
$ 64,025
34
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.
35
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.
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
For the Year Ended December 31,
2015
2014
2013
(dollars in thousands)
2012
2011
$ 5,451
$ 5,517
$ 5,686
$ 6,908
$ 7,324
91
132
55
549
827
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
173
8
-
173
354
473
1,100
$ 6,078
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
0.12%
1.52%
0.33%
1.47%
0.49%
1.63%
1.18%
1.80%
1.29%
2.35%
During each of the years ended December 31, 2015 and 2014 we recorded a provision for loan losses of $1.1
million. Net charge-offs totaled $473 thousand during the year ended December 31, 2015 down $693 thousand from
$1.2 million during 2014. Net charge-offs as a percentage of average loans decreased from 0.33% during 2014 to
0.12% during the year ended December 31, 2015.
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
2015
$ 933
2,866
874
1,405
$ 6,078
Percent of
Loans in Each
Category to
Total Loans
2015
19.1%
54.3%
4.0%
22.6%
100.0%
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%
The allowance for loan losses totaled $6.1 million at December 31, 2015 and $5.5 million at December 31, 2014.
Specific reserves related to impaired loans increased by $187 thousand from $564 thousand at December 31, 2014 to
$751 thousand at December 31, 2015. At least quarterly the Company evaluates each specific reserve and if it
determines that the loss represented by the specific reserve is uncollectable it records a charge-off for the
uncollectable portion. General reserves were $5.3 million at December 31, 2015 and $4.9 million at December 31,
2014. The allowance for loan losses as a percentage of total loans increased from 1.47% at December 31, 2014 to
1.52% at December 31, 2015. The percentage of general reserves to unimpaired loans totaled 1.35% at December
31, 2015 and December 31, 2014.
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
36
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, $2.0
million, $4.5 million, $5.4 million and $8.6 million at December 31, 2015, 2014, 2013, 2012 and 2011, respectively.
For additional information related to restructured loans see Note 5 of the Company’s Consolidated Financial
Statements in Item 8 – Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
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
Nonperforming loans to total loans
Nonperforming assets to total assets
2015
2014
At December 31,
2013
(dollars in thousands)
2012
2011
$ 4,546
$ 6,625
$ 5,519
$ 13,683
$ 16,757
-
4,546
1,756
30
-
6,625
3,590
13
17
5,536
6,399
60
15
13,698
5,295
41
72
16,829
8,623
57
$ 6,332 $ 10,228 $ 11,995 $ 19,034 $ 25,509
$ 303
$ 345
$ 280
$ 646
$ 510
$ -
$ 31
$ 22
$ 192
$ 285
1.13%
1.06%
1.79%
1.90%
1.64%
2.33%
4.35%
3.98%
5.73%
5.60%
Nonperforming loans at December 31, 2015 were $4.5 million, a decrease of $2.1 million from the $6.6 million
balance at December 31, 2014. Specific reserves on nonaccrual loans totaled $683 thousand at December 31, 2015
and $522 thousand at December 31, 2014, respectively. Performing loans past due thirty to eighty-nine days were
$1.5 million at December 31, 2015 and $1.6 million at December 31, 2014.
A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or
the value of the collateral pledged, if any. Total substandard loans decreased by $2.1 million from $8.1 million at
December 31, 2014 to $6.0 million at December 31, 2015. Loans classified as watch decreased by $0.3 million from
$4.4 million at December 31, 2014 to $4.1 million at December 31, 2015. At December 31, 2015, $1.5 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.
37
At December 31, 2015 and December 31, 2014, the Company's recorded investment in impaired loans totaled $6.5
million and $8.6 million, respectively. The specific allowance for loan losses related to impaired loans totaled $751
thousand and $564 thousand at December 31, 2015 and December 31, 2014, respectively. Additionally, $0.7 million
has been charged off against the impaired loans at December 31, 2015 and December 31 2014.
It is the policy of management to make additions to the allowance for loan losses so that it remains appropriate to
absorb the inherent risk of loss in the portfolio. Management believes that the allowance at December 31, 2015 is
appropriate. However, the determination of the amount of the allowance is judgmental and subject to economic
conditions which cannot be predicted with certainty. Accordingly, the Company cannot predict whether charge-offs
of loans in excess of the allowance may occur in future periods.
OREO represents real property acquired by the Bank either through foreclosure or through a deed in lieu thereof
from the borrower. Repossessed assets include vehicles and other commercial assets acquired under agreements with
delinquent borrowers. OREO holdings represented seven properties totaling $1.8 million at December 31, 2015 and
fifteen properties totaling $3.6 million at December 31, 2014. Nonperforming assets as a percentage of total assets
were 1.06% at December 31, 2015 and 1.90% at December 31, 2014.
The following table provides a summary of the change in the number and balance of OREO properties for the years
ended December 31, 2015 and 2014, dollars in thousands:
Year Ended December 31,
Beginning Balance
Additions
Dispositions
Provision from change in OREO valuation
Ending Balance
#
15
4
(12)
-
7
2015
$ 3,590
328
#
26
6
(2,083) (17)
-
15
(79)
$ 1,756
2014
$ 6,399
729
(3,298)
(240 )
$ 3,590
Investment Portfolio and Federal Funds Sold. Total investment securities were $96.7 million as of December 31,
2015 and $90.3 million as of December 31, 2014. During the year ended December 31, 2015 the Company sold
fifteen available-for-sale investment securities for total proceeds of $12,260,000 recording a $21,000 net gain on
sale. The investment portfolio at December 31, 2015 consisted of $74.3 million in securities of U.S. Government-
sponsored agencies and 83 municipal securities totaling $22.4 million. 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 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. There were no Federal funds sold at December 31, 2015 and December 31, 2014; however, the
Bank maintained interest earning balances at the Federal Reserve Bank totaling $47.6 million at December 31, 2015
and $22.9 million at December 31, 2014. The balances, at December 31, 2015, earn interest at the rate of 0.5%.
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.
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,
2015
2014
2013
(dollars in thousands)
$ 1,977 $ 7,002 $ 27,097
72,370
70,280
61,875
22,357
-
$ 96,704
12,532
506
1,371
-
$ 90,320 $ 90,343
38
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, 2015. 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.
(dollars in thousands)
Within One
Year
After One Through
Five Years
Available-for-sale (Fair Value) Amount Yield Amount
U.S. Government-
sponsored agencies $ -
-%
$ -
Yield
After Five
Through Ten Years After Ten Years
Amount Yield
Amount Yield
Total
Amount Yield
-%
$ 1,977
1.96% $ -
-% $ 1,977 1.96%
U.S. Government-sponsored
agency residential mortgage-
backed securities
Municipal obligations
Total
-
-
$ -
-
-%
-%
160
-% $ 160
-%
2.71%
2.71%
7,661
14,902
$ 24,540
72,370 1.91%
1.64% 64,709 1.94%
3.54%
22,357 3.59%
7,295 3.71%
2.82% $ 72,004 2.12% $ 96,704 2.30%
Deposits. Total deposits increased by $59.4 million from $468 million at December 31, 2014 to $527 million at
December 31, 2015. In addition to deposit growth from our branch network, we acquired approximately $10 million
in deposits with our acquisition of the Redding, California, branch of Rabobank N.A. effective July 31, 2015. Core
deposit growth remained strong in 2015 as evidenced by increases in all major deposit categories with the exception
of time. The two largest increases were $28.4 million in non-interest bearing demand deposits and $19.6 million in
savings accounts. Time deposits declined by $4.1 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. 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, 2015 and 2014.
(dollars in thousands)
Non-interest bearing
NOW
Money Market
Savings
Time
Total Deposits
Balance at
End of
Period
12/31/15
$ 209,044
91,225
48,848
125,896
52,263
$ 527,276
Percent of
Deposits in Each
Category to
Total Deposits
12/31/15
Balance at
End of
Period
12/31/14
Percent of
Deposits in Each
Category to Total
Deposits
12/31/14
39.6% $ 180,649
82,144
17.3%
42,499
9.3%
106,257
23.9%
9.9% 56,342
$ 467,891
100%
38.6%
17.6%
9.1%
22.7%
12.0%
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, 2015 or 2014.
The Company's time deposits of $100,000 or more had the following schedule of maturities at December 31, 2015:
(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
39
Amount
$ 7,463
2,685
4,056
7,341
$ 21,545
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
$154,000,000 from the FHLB secured by commercial and residential mortgage loans with carrying values totaling
$231,000,000. The Company is required to hold FHLB stock as a condition of membership. At December 31, 2015
and 2014, the Company held $2,380,000 of FHLB stock which is recorded as a component of other assets. Based on
this level of stock holdings at December 31, 2015, the Company can borrow up to $88,159,000. To borrow the
$154,000,000 in available credit the Company would need to purchase $1,787,000 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 $20 million, $11 million and $10 million. There were no outstanding
borrowings to the FHLB or the correspondent banks under these agreements at December 31, 2015 and 2014.
Note Payable and Term Loan. On October 24, 2013 the Company issued a $3.0 million promissory note (the
“Note”) payable to an unrelated commercial bank. As originally issued, the Note provided for an interest rate of U.S.
“Prime Rate” plus three-quarters percent per annum, 4.00% at December 31, 2014 and 2013, had a term of 18
months and subjected the Bank 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 Note is secured by 100 shares of the Bank’s stock
representing the 100% of the Company's ownership interest in the Bank.
On July 28, 2014, the Company and the borrower modified the Note to (1) extend the maturity date to October 24,
2015, (2) increase the maximum principal amount to $7.5 million and (3) permit the Company to borrow, repay and
reborrow up to the maximum principal amount of the Note, among other things.
On October 1, 2015, the Company and the borrower further modified the Note to (1) extend the maturity date to
October 1, 2016, (2) reduce the maximum principal amount to $2.5 million and (3) change the interest rate to U.S.
"Prime Rate" plus one-half percent per annum.
Concurrently, with entering into the second modification of the note on October 1, 2015, the Company entered into a
$5.0 million term loan (the “Term Loan”), which matures on October 1, 2018. The Term Loan requires quarterly
principal payments of $125,000 plus accrued interest. Both the Term Loan and the Note bear interest at a rate of
the U.S. "Prime Rate" plus one-half percent per annum and are secured by 100 shares of Plumas Bank stock
representing the Company's 100% ownership interest in Plumas Bank.
Under the Term Loan and the Note, the Bank is subject to several negative and affirmative covenants similar to the
covenants under the original Note but in several cases less restrictive. The Bank was in compliance with all such
covenants related to the Note and the Term Loan at December 31, 2015 and December 31, 2014. Interest expense
related to the Note and the Term Loan for the years ended December 31, 2015, December 31, 2014 and 2013 totaled
$155,000, $111,000 and $23,000, respectively. The ending balance of the Note at December 31, 2014 was
$1,000,000. There was no balance outstanding on the Note at December 31, 2015. The balance of the Term Loan
was $4,875,000 at December 31, 2015.
Repurchase Agreements. In 2011 the Bank introduced a new product for its larger business customers which use
repurchase agreements as an alternative to interest-bearing deposits. The balance in this product at December 31,
2015 was $7.7 million, a decrease of $1.9 million from the December 31, 2014 balance of $9.6 million. Interest
paid on this product is similar to that which is paid on the Bank’s premium money market account; however, these
are not deposits and are not FDIC insured.
Subordinated Debentures. On April 15, 2013 the Company issued a $7.5 million subordinated debenture
(“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. On April 16,
2015 the Company paid off the subordinated debt. Interest expense related to the subordinated debt for the years
ended December 31, 2015, 2014 and 2013 totaled $219,000, $756,000 and $541,000, respectively.
40
The subordinated debt had an interest rate of 7.5% per annum and a term of 8 years with no prepayment allowed
during the first two years and was made in conjunction with an eight-year warrant to purchase up to 300,000 shares
of the Bancorp’s common stock, no par value at an exercise price, subject to anti-dilution adjustments, of $5.25 per
share.
Junior Subordinated Deferrable Interest Debentures. Plumas Statutory Trust I and II are business trust
subsidiaries formed by the Company with capital of $311,000 and $163,000, respectively, for the sole purpose of
issuing trust preferred securities fully and unconditionally guaranteed by the Company.
During 2002, Trust I issued 6,000 Floating Rate Capital Trust Pass-Through Securities ("Trust Preferred
Securities"), with a liquidation value of $1,000 per security, for gross proceeds of $6,000,000. During 2005, Trust II
issued 4,000 Trust Preferred Securities with a liquidation value of $1,000 per security, for gross proceeds of
$4,000,000. The entire proceeds were invested by Trust I in the amount of $6,186,000 and Trust II in the amount of
$4,124,000 in Floating Rate Junior Subordinated Deferrable Interest Debentures (the "Subordinated Debentures")
issued by the Company, with identical maturity, repricing and payment terms as the Trust Preferred Securities. The
Subordinated Debentures represent the sole assets of Trusts I and II.
Trust I’s Subordinated Debentures mature on September 26, 2032, bear a current interest rate of 4.00% (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 1.99% (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, 2015, 2014 and 2013 related to the
subordinated debentures was $306,000, $303,000 and $313,000, respectively.
Capital Resources
Total shareholders’ equity increased by $6.0 million from $36.5 million at December 31, 2014 to $42.5 million at
December 31, 2015. The $6.0 million includes earnings during the twelve month period totaling $5.8 million with
the balance of $0.2 million mostly representing stock option activity.
It is the policy of the Company to periodically distribute excess retained earnings to the shareholders through the
payment of cash dividends. Such dividends help promote shareholder value and capital adequacy by enhancing the
marketability of the Company’s stock. All authority to provide a return to the shareholders in the form of a cash or
stock dividend or split rests with the Board of Directors. The Board will periodically, but on no regular schedule,
review the appropriateness of a cash dividend payment. Banking regulations limit the amount of dividends that may
be paid without prior approval of regulatory agencies. No common cash dividends were paid during the last seven
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. Management reviews these capital
measurements on a monthly basis and takes appropriate action to ensure that they are within established internal and
external guidelines. The FDIC has promulgated risk-based capital guidelines for all state non-member banks such as
the Bank. These guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-
balance sheet exposures.
In July, 2013, the federal bank regulatory agencies approved the final rules implementing the Basel Committee on
Banking Supervision’s capital guidelines for U.S. banks. The phase-in period for the final rules began on January 1,
2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. Under the
final rules, minimum requirements increased for both the quantity and quality of capital held by the Company and
41
the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a capital
conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to
risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules also
implement strict eligibility criteria for regulatory capital instruments.
The Board of Governors of the Federal Reserve System has adopted final amendments to the Small Bank Holding
Company Policy Statement (Regulation Y, Appendix C) ( the “Policy Statement”) that, among other things, raised
from $500 million to $1 billion the asset threshold to qualify for the Policy Statement. Plumas Bancorp qualifies for
treatment under the Policy Statement and is no longer subject to consolidated capital rules at the bank holding
company level.
The following table sets forth the Bank's actual capital amounts and ratios (dollar amounts in thousands):
Amount of Capital Required
Actual
For Capital
Adequacy Purposes
To be Well-Capitalized
Under Prompt
Corrective Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2015
Common Equity Tier 1 Ratio
Tier 1 Leverage Ratio
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
$56,300
56,300
56,300
61,839
December 31, 2014
Common Equity Tier 1 Ratio
Tier 1 Leverage Ratio
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
N/A
$53,925
53,925
59,039
12.7%
9.4%
12.7%
14.0%
N/A
9.8%
13.2%
14.4%
$19,908
23,999
26,544
35,392
N/A
$22,144
16,344
32,689
4.5%
4.0%
6.0%
8.0%
N/A
4.0%
4.0%
8.0%
$28,756
29,999
35,392
44,240
N/A
$27,643
24,517
40,860
6.5%
5.0%
8.0%
10.0%
N/A
5.0%
6.0%
10.0%
Management believes that Plumas Bank currently meets all its capital adequacy requirements.
The current and projected capital positions of the Bank and the impact of capital plans and long-term strategies are
reviewed regularly by management. The Company policy is to maintain the Bank’s ratios above the prescribed
well-capitalized ratios at all times.
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, 2015, the Company had $83.0 million in unfunded
loan commitments and $265 thousand in letters of credit. This compares to $89.7 million in unfunded loan
commitments and no letters of credit at December 31, 2014. Of the $83.0 million in unfunded loan commitments,
$46.1 million and $36.9 million represented commitments to commercial and consumer customers, respectively. Of
the total unfunded commitments at December 31, 2015, $42.6 million were secured by real estate, of which $16.0
million was secured by commercial real estate and $26.6 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
42
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 two depository branches and three lending offices and two non-branch
automated teller machine locations. Total rental expenses under all operating leases were $233,000 and $192,000
during the years ended December, 31, 2015 and 2014, respectively. The expiration dates of the leases vary, with the
first such lease expiring during 2016 and the last such lease expiring during 2020.
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 $154,000,000 from the FHLB secured by commercial
and residential mortgage loans with carrying values totaling $231,000,000. See “Short-term Borrowing
Arrangements” for additional information on our FHLB borrowing capacity. In addition to its FHLB borrowing line,
the Company has unsecured short-term borrowing agreements with three of its correspondent banks in the amounts
of $20 million, $11 million and $10 million. There were no outstanding borrowings under the FHLB or the
correspondent bank borrowing lines at December 31, 2015 or 2014.
Customer deposits are the Company’s primary source of funds. Total deposits increased by $59.4 million from $468
million at December 31, 2014 to $527 million at December 31, 2015. 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.
43
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, 2015, 2014 and 2013.
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and
2013
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2015,
2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Page
F-1
F-2
F-3
F-4
F-6
F-7
F-8
F-11
44
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, 2015 and 2014 and the related consolidated statements of income and
comprehensive income, changes in shareholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits 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 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, 2015 and 2014
and the results of its operations and its cash flows for the years 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 17, 2016
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 statements of income, comprehensive income, changes
in shareholders' equity, and cash flows of Plumas Bancorp and Subsidiary (the "Company") for the year
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 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. 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 audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the results of the Company’s operations and their cash flows for the year 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, 2015 and 2014
ASSETS
Cash and cash equivalents
Investment securities available for sale
Loans, less allowance for loan losses of $6,078,000
in 2015 and $5,451,000 in 2014
Real estate acquired through foreclosure
Premises and equipment, net
Bank owned life insurance
Accrued interest receivable and other assets
2015
2014
$
68,195,000 $
96,704,000
45,574,000
90,320,000
396,833,000
1,756,000
12,234,000
12,187,000
11,377,000
366,787,000
3,590,000
11,642,000
11,845,000
9,104,000
Total assets
$
599,286,000 $
538,862,000
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
$
209,044,000 $
318,232,000
180,649,000
287,242,000
527,276,000
467,891,000
7,671,000
4,875,000
-
6,658,000
10,310,000
9,626,000
1,000,000
7,454,000
6,084,000
10,310,000
Total liabilities
556,790,000
502,365,000
Commitments and contingencies (Note 11)
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 – 4,835,432 at
December 31, 2015 and 4,799,139 at
December 31, 2014
Retained earnings
Accumulated other comprehensive loss, net of taxes
-
-
6,475,000
36,063,000
(42,000)
6,312,000
30,245,000
(60,000)
Total shareholders' equity
42,496,000
36,497,000
Total liabilities and shareholders' equity
$
599,286,000 $
538,862,000
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, 2015, 2014 and 2013
2015
2014
2013
Interest income:
Interest and fees on loans
Interest on investment securities:
Taxable
Exempt from Federal income taxes
Other
$
20,747,000 $
19,495,000 $
18,174,000
1,351,000
343,000
174,000
1,368,000
147,000
137,000
1,155,000
7,000
124,000
Total interest income
22,615,000
21,147,000
19,460,000
Interest expense:
Interest on deposits
Interest on note payable
Interest on subordinated debenture
Interest on junior subordinated
deferrable interest debentures
Other
518,000
155,000
219,000
306,000
6,000
516,000
111,000
756,000
303,000
7,000
600,000
23,000
541,000
313,000
57,000
Total interest expense
1,204,000
1,693,000
1,534,000
Net interest income before
provision for loan losses
21,411,000
19,454,000
17,926,000
Provision for loan losses
1,100,000
1,100,000
1,400,000
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
20,311,000
18,354,000
16,526,000
3,954,000
1,942,000
21,000
4,108,000
1,396,000
128,000
3,912,000
1,399,000
-
342,000
1,456,000
341,000
1,342,000
344,000
987,000
Total non-interest income
7,715,000
7,315,000
6,642,000
(Continued)
F - 4
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Continued)
For the Years Ended December 31, 2015, 2014 and 2013
2015
2014
2013
Non-interest expenses:
Salaries and employee benefits
Occupancy and equipment
Other
$
10,277,000 $
2,782,000
5,432,000
9,474,000 $
2,902,000
5,469,000
8,729,000
2,874,000
5,967,000
Total non-interest expenses
18,491,000
17,845,000
17,570,000
Income before income
taxes
9,535,000
7,824,000
5,598,000
Provision for income taxes
3,717,000
3,086,000
2,167,000
Net income
Discount on redemption of preferred
stock
Preferred stock dividends and
discount accretion
Net income available
to common shareholders
5,818,000
4,738,000
3,431,000
-
-
-
-
565,000
(347,000)
$
5,818,000 $
4,738,000 $
3,649,000
Basic earnings per common share
Diluted earnings per common share
Common dividends per share
$
$
$
1.21
1.15
-
$
$
$
0.99
0.95
-
$
$
$
0.76
0.75
-
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, 2015, 2014 and 2013
Net Income
Other comprehensive income (loss):
Change in net unrealized gain (loss)
Less: reclassification adjustments
for net gains included in net income
$
2015
2014
2013
5,818,000 $
4,738,000 $
3,431,000
51,000
2,006,000
(2,540,000)
(21,000)
(128,000)
-
Net unrealized holding gain (loss)
30,000
1,878,000
(2,540,000)
Related income tax effect:
Change in unrealized (gain) loss
Reclassification of gains included in
net income
(21,000)
(828,000)
1,048,000
9,000
53,000
-
Income tax effect
(12,000)
(775,000)
1,048,000
Total other comprehensive income (loss)
18,000 1,103,000 (1,492,000)
Comprehensive income
$ 5,836,000 $ 5,841,000 $ 1,939,000
The accompanying notes are an integral
part of these consolidated financial statements.
F - 6
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B
l
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2015, 2014 and 2013
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
2015
2014
2013
$
5,818,000 $
4,738,000 $
3,431,000
1,100,000
1,100,000
1,400,000
costs/fees, net
(350,000)
Stock-based compensation expense 70,000
Depreciation and amortization
Amortization of investment security
1,151,000
(752,000)
81,000
1,306,000
(667,000)
38,000
1,408,000
premiums
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 from change in OREO valuation
Net (gain) loss on sale of OREO
Net (gain) loss on sale of other
vehicles owned
Earnings on bank owned life insurance
policies
(Benefit) 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
activities
506,000
487,000
(4,000)
(21,000)
(1,942,000)
(26,699,000)
29,430,000
(8,000)
(128,000)
(1,396,000)
(22,063,000)
21,592,000
79,000 240,000
(198,000)
(101,000)
445,000
(6,000)
-
(1,399,000)
(17,609,000)
21,733,000
486,000
(171,000)
(78,000)
(59,000)
(12,000)
(342,000)
(539,000)
(341,000)
1,165,000
(344,000)
2,085,000
(1,294,000)
(620,000)
613,000
540,000
104,000
(724,000)
7,227,000
5,345,000
10,707,000
(Continued)
F - 8
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2015, 2014 and 2013
2015
2014
2013
Cash flows from investing activities:
Proceeds from matured and called available-
for-sale investment securities
$
3,499,000 $
Proceeds from sale of available-for-sale securities
Purchases of available-for-sale investment
12,260,000
16,044,000 $
16,325,000
14,000,000
-
securities
(34,609,000)
(40,511,000)
(34,734,000)
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
Proceeds from sale of premises and equipment
Purchases of premises and equipment
Net cash used in investing
12,015,000
(32,777,000)
445,000
2,281,000
1,032,000
(2,645,000)
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)
activities
(38,499,000)
(26,691,000)
(42,022,000)
Issuance of subordinated debenture, net of discount
-
Cash flows from financing activities:
Net increase in demand,
interest-bearing and savings deposits
Net decrease in time deposits
Net (decrease) increase in securities sold under
agreements to repurchase
Redemption of subordinated debenture
Issuance of common stock warrant
Issuance of note payable
Increase in note payable
Principal 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
63,464,000
(4,079,000)
24,793,000
(6,341,000)
45,770,000
(7,893,000)
(1,955,000)
(7,500,000)
-
-
4,000,000
517,000
-
-
-
-
-
(125,000)
(2,000,000)
-
-
-
88,000
-
-
-
34,000
1,732,000
7,182,000
-
318,000
3,000,000
-
-
(234,000)
(11,384,000)
(1,968,000)
34,000
activities
53,893,000
17,003,000
36,557,000
Increase (decrease) in cash and cash
equivalents
22,621,000
(4,343,000)
5,242,000
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
45,574,000
68,195,000 $
49,917,000
45,574,000 $
44,675,000
49,917,000
$
F - 9
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2015, 2014 and 2013
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense
Income taxes
Non-cash investing activities:
2015
2014
2013
$ 1,172,000 $
$ 4,405,000 $
1,560,000 $
1,916,000 $
2,438,000
30,000
Real estate acquired through foreclosure
Vehicles acquired through repossession
Loans provided for sales of real estate owned
$
$
$
328,000 $
382,000 $ 211,000 $
593,000 $ 95,000 $
729,000 $ 3,824,000
155,000
40,000
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. In December, 2015 the Bank opened a Branch in Reno,
Nevada; it’s first Branch outside of California. The Bank’s administrative headquarters is
in Quincy, California. In addition, the Bank operates lending offices specializing in
government-guaranteed
in Auburn, California, Scottsdale, Arizona 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.
lending
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and the
consolidated accounts of its wholly-owned subsidiary, Plumas Bank. All significant
intercompany balances and transactions have been eliminated.
Plumas Statutory Trust I and Trust II are not consolidated into the Company's
consolidated financial statements and, accordingly, are accounted for under the equity
method. The Company's investment in Trust I of $311,000 and Trust II of $163,000 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 2015. These reclassifications had no impact on the Company’s
consolidated financial position, results of operations or net change in cash and cash
equivalents.
F - 11
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Information
Management has determined that since all of the banking products and services offered
by the Company are available in each branch of the Bank, all branches are located
within the same economic environment and management does not allocate resources
based on the performance of different lending or transaction activities, it is appropriate to
aggregate the Bank branches and report them as a single operating segment. No
customer accounts for more than 10 percent of revenues for the Company or the Bank.
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, 2015 was $9.8 million. Net cash flows are reported for
customer loans and deposit transactions and repurchase agreements.
Investment Securities
Investments are classified into one of the following categories:
• Available-for-sale securities reported at fair value, with unrealized gains and
losses excluded from earnings and reported, net of taxes, as accumulated other
comprehensive income (loss) within shareholders' equity.
• Held-to-maturity securities, which management has the positive intent and ability
to hold, reported at amortized cost, adjusted for the accretion of discounts and
amortization of premiums. As of December 31, 2015 and 2014 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, 2015 and 2014 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
F - 12
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment Securities (continued)
An investment security is impaired when its carrying value is greater than its fair value.
Investment securities that are impaired are evaluated on at least a quarterly basis and
more frequently when economic or market conditions warrant such an evaluation to
determine whether such a decline in their fair value is other than temporary.
Management utilizes criteria such as the magnitude and duration of the decline and the
intent and ability of the Company to retain its investment in the securities for a period of
time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons
underlying the decline, to determine whether the loss in value is other than temporary.
The term "other than temporary" is not intended to indicate that the decline is
permanent, but indicates that the prospects for a near-term recovery of value is not
necessarily favorable, or that there is a lack of evidence to support a realizable value
equal to or greater than the carrying value of the investment. Once a decline in value is
determined to be other than temporary, and management does not intend to sell the
security or it is more likely than not that the Company will not be required to sell the
security before recovery, only the portion of the impairment loss representing credit
exposure is recognized as a charge to earnings, with the balance recognized as a
charge to other comprehensive income. If management intends to sell the security or it
is more likely than not that the Company will be required to sell the security before
recovering its forecasted cost, the entire impairment loss is recognized as a charge to
earnings.
Investment in Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank (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, 2015 and 2014, FHLB stock totaled
$2,380,000. 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, 2015 and 2014 the Company had $2.1 million and $3.0 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.
F - 13
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Held for Sale, Loan Sales and Servicing (continued)
Government guaranteed loans with unpaid balances of $86,589,000 and $76,797,000
were being serviced for others at December 31, 2015 and 2014, 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.
The Company's investment in the loan is allocated between the retained portion of the
loan 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.
F - 14
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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, 2015 and
2014, there were no such loans being accounted for under this policy.
F - 15
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
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.
F - 16
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (continued)
The Company assigns a risk rating to all loans, with the exception of automobile and
other loans and periodically, but not less than annually, performs detailed reviews of all
such loans over $100,000 to identify credit risks and to assess the overall collectability
of the portfolio. These risk ratings are also subject to examination by independent
specialists engaged by the Company and the Company’s regulators. During these
internal reviews, management monitors and analyzes the financial condition of
borrowers and guarantors, trends in the industries in which borrowers operate and the
fair values of collateral securing these loans. These credit quality indicators are used to
assign a risk rating to each individual loan.
The risk ratings can be grouped into five major categories, defined as follows:
Pass – A pass loan is a strong credit with no existing or known potential
weaknesses deserving of management's close attention.
Watch – A Watch loan has potential weaknesses that deserve management's
close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan or in the Company’s credit
position at some future date. Watch loans are not adversely classified and do
not expose the Company to sufficient risk to warrant adverse classification.
Substandard – A substandard loan is not adequately protected by the current
sound worth and paying capacity of the borrower or the value of the collateral
pledged, if any. Loans classified as substandard have a well-defined weakness
or weaknesses that jeopardize the liquidation of the debt. Well defined
weaknesses include a project's lack of marketability, inadequate cash flow or
collateral support, failure to complete construction on time or the project's failure
to fulfill economic expectations. They are characterized by the distinct possibility
that the Company will sustain some loss if the deficiencies are not corrected.
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 - 17
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
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.
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,
F - 18
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (continued)
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 $200,000 and $141,000 at
December 31, 2015 and 2014, 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 $1,756,000 ($3,106,000
less a valuation allowance of
$1,350,000) at December 31, 2015 and $3,590,000 ($5,884,000 less a valuation
allowance of $2,294,000) at December 31, 2014. Of these amounts $84,000 at
December 31, 2015 and $146,000 at December 31, 2014 represent foreclosed
residential real estate property. There was one consumer mortgage loans with a balance
of $23 thousand secured by residential real estate properties for which formal
foreclosure proceedings are in process at December 31, 2015. There were no consumer
mortgage loans secured by residential real estate properties for which formal foreclosure
proceedings were in process at December 31, 2014. Proceeds from sales of other real
estate owned totaled $2,281,000, $3,399,000 and $2,404,000 for the years ended
December 31, 2015, 2014 and 2013, respectively. For the years ended December 31,
2015, 2014 and 2013 the Company recorded gains on sale of other real estate owned of
$198,000, $101,000 and $171,000, respectively. 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, 2015 and 2014:
Beginning balance
Additions
Dispositions
Write-downs
Ending balance
Year Ended December 31,
2014
2015
$ 6,399,000
$ 3,590,000
729,000
328,000
(3,298,000)
(2,083,000)
( 240,000)
(79,000)
$ 1,756,000
$ 3,590,000
F - 19
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
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 a period not to exceed fifteen years.
The Company evaluates the recoverability and remaining useful life annually to
determine whether events or circumstances warrant a revision to the intangible asset or
the remaining period of amortization. There were no such events or circumstances
during the periods presented. At December 31, 2015 and 2014, intangible assets
totaled $94,000 and $0, respectively.
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 - 20
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
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, 2015 and 2014.
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. The amount
reclassified out of other accumulated comprehensive income relating to realized gains
on securities available for sale was $21,000 and $128,000 for 2015 and 2014, with the
related tax effect of $9,000 and $53,000, respectively. There were no sales of available
for sale investment securities during the year ended December 31, 2013.
F - 21
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
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 2015, 2014 and 2013 totaled $70,000, $75,000 and $37,000 or
$0.01, $0.02 and $0.01 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, 2015 and 2013.
F - 22
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Adopted Accounting Pronouncements
In January 2014, the FASB issued ASU No. 2014-04, Reclassification of Residential
Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The objective
of this guidance is to clarify when an in substance repossession or foreclosure occurs,
that is, when a creditor should be considered to have received physical possession of
residential real estate property collateralizing a consumer mortgage loan such that the
loan receivable should be derecognized and the real estate property recognized. ASU
No. 2014-04 states that an in substance repossession or foreclosure occurs, and a
creditor is considered to have received physical possession of residential real estate
property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining
legal title to the residential real estate property upon completion of a foreclosure or (2)
the borrower conveying all interest in the residential real estate property to the creditor to
satisfy that loan through completion of a deed in lieu of foreclosure or through a similar
legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure
of both (1) the amount of foreclosed residential real estate property held by the creditor
and (2) the recorded investment in consumer mortgage loans collateralized by
residential real estate property that are in the process of foreclosure according to local
requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and
annual reporting periods beginning after December 15, 2014. The adoption of ASU No.
2014-04 did not have a material impact on the Company's Financial Statements.
In June 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions,
Repurchase Financings, and Disclosures. The Update improves the financial reporting of
repurchase agreements and other similar transactions through a change in accounting
for repurchase-to-maturity transactions and repurchase financings, and the introduction
of two new disclosure requirements. New disclosures are required for (1) transfers
accounted for as sales in transactions that are economically similar to repurchase
agreements, in which the transferor retains substantially all of the exposure to the
economic return on the transferred financial asset throughout the term of the transaction
and (2) repurchase agreements, securities lending transactions, and repurchase-to-
maturity transactions accounted for as secured borrowings about the nature of collateral
pledged and the time to maturity of those transactions The adoption of ASU No. 2014-11
did not have a material impact on the Company's Financial Statements.
Pending Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with
Customers. This update to the ASC is the culmination of efforts by the FASB and the
International Accounting Standards Board (IASB) to develop a common revenue
standard for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU
2014-09 supersedes Topic 605 – Revenue Recognition and most industry-specific
guidance. The core principal of the guidance is that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. The guidance in ASU 2014-09 describes a 5-step process entities
can apply to achieve the core principle of revenue recognition and requires disclosures
sufficient to enable users of financial statements to understand the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers
and the significant judgments used in determining that information.
F - 23
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pending Accounting Pronouncements (continued)
This update was originally effective for annual reporting periods beginning on or after
December 15, 2016 and interim periods therein and requires expanded disclosures. In
July 2015 the FASB issued a deferral of ASU 2014-09 of one year making it effective for
annual reporting periods beginning on or after December 15, 2017 while also providing
for early adoption but not before the original effective date. The Company is currently
evaluating the effects of ASU 2014-09 on its financial statements and disclosures, if any.
On January 5, 2016, the FASB issued Accounting Standards Update 2016-01, Financial
Instruments–Overall: Recognition and Measurement of Financial Assets and Financial
Liabilities. Changes made to the current measurement model primarily affect the
accounting for equity securities with readily determinable fair values, where changes in
fair value will impact earnings instead of other comprehensive income. The accounting
for other financial instruments, such as loans, investments in debt securities, and
financial liabilities is largely unchanged. The Update also changes the presentation and
disclosure requirements for financial instruments including a requirement that public
business entities use exit price when measuring the fair value of financial instruments
measured at amortized cost for disclosure purposes. This Update is generally effective
for public business entities in fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. The Company is currently evaluating the
effects of ASU 2016-01 on its financial statements and disclosures.
On February 25, 2016, the Financial Accounting Standards Board issued ASU 2016-02,
Leases. The most significant change for lessees is the requirement under the new
guidance to recognize right-of-use assets and lease liabilities for all leases not
considered short-term leases, which is generally defined as a lease term of less than 12
months. This change will result in lessees recognizing right-of-use assets and lease
liabilities for most leases currently accounted for as operating leases under current lease
accounting guidance. The amendments in this Update are effective for interim and
annual periods beginning after December 15, 2018. The Company is currently
evaluating the effects of ASU 2016-02 on its financial statements and disclosures.
3.
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.
F - 24
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
Level 3: Model based techniques that use one significant assumption not observable
in the market. These unobservable assumptions reflect the Company’s estimates of
assumptions that market participants would use on pricing the asset or liability.
Valuation techniques include management judgment and estimation which may be
significant.
In certain cases, the inputs used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, the level in the fair value hierarchy within which the
fair value measurement in its entirety falls has been determined based on the lowest
level input that is significant to the fair value measurement in its entirety. The Company’s
assessment of the significance of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to the asset or liability.
Management monitors the availability of observable market data to assess the
appropriate classification of financial instruments within the fair value hierarchy.
Changes in economic conditions or model-based valuation techniques may require the
transfer of financial instruments from one fair value level to another. In such instances,
the transfer is reported at the beginning of the reporting period.
Management evaluates the significance of transfers between levels based upon the
nature of the financial instrument and size of the transfer relative to total assets, total
liabilities or total earnings.
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments, at December
31, 2015 are as follows:
Fair Value Measurements at December 31, 2015 Using:
Carrying
Value
$68,195,000
96,704,000
396,833,000
2,380,000
2,048,000
527,276,000
7,671,000
4,875,000
Financial assets:
Cash and cash equivalents
Investment securities
Loans, net
FHLB stock
Accrued interest receivable
Financial liabilities:
Deposits
Repurchase agreements
Note payable
Junior subordinated deferrable
interest debentures
Accrued interest payable
10,310,000
58,000
Level 1
$68,195,000
26,000
Level 2
Level 3
Total Fair
Value
$96,704,000
$68,195,000
96,704,000
$395,338,000 395,338,000
N/A
2,048,000
328,000 1,694,000
475,013,000
52,287,000
7,671,000
527,300,000
7,671,000
4,875,000 4,875,000
8,000
38,000
6,662,000 6,662,000
58,000
12,000
F - 25
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
The carrying amounts and estimated fair values of financial instruments, at December
31, 2014 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
467,891,000
9,626,000
1,000,000
7,454,000
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
10,310,000
72,000
Level 1
$45,574,000
$90,320,000
Level 2
Level 3
Total Fair
Value
$45,574,000
90,320,000
$368,442,000 368,442,000
N/A
1,727,000
281,000 1,446,000
411,549,000
56,364,000
9,626,000
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
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.
F - 26
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
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.
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, 2015
and December 31, 2014, and indicates the fair value hierarchy of the valuation
techniques utilized by the Company to determine such fair value:
F - 27
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
Assets and liabilities measured at fair value on a recurring basis at December 31, 2015
are summarized below:
Fair Value Measurements at December 31, 2015 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
$ 1,977,000
$ 1,977,000
$ -
U.S. Government-
sponsored agencies
collateralized by
mortgage obligations-
residential
Obligations of states and
political subdivisions
72,370,000
22,357,000
72,370,000
22,357,000
$ 96,704,000
$ -
$ 96,704,000
$ -
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
$ 7,002,000
$ 7,002,000
$ -
U.S. Government-
sponsored agencies
collateralized by
mortgage obligations-
residential
Obligations of states and
political subdivisions
Corporate debt
70,280,000
12,532,000
506,000
70,280,000
12,532,000
506,000
$ 90,320,000
$ -
$ 90,320,000
$ -
The fair value of securities available-for-sale equals quoted market price, if available. If
quoted market prices are not available, fair value is determined using quoted market
prices for similar securities or matrix pricing. There were no changes in the valuation
techniques used during 2015 or 2014. Transfers between hierarchy measurement levels
are recognized by the Company as of the beginning of the reporting period. Changes in
fair market value are recorded in other comprehensive income.
F - 28
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
Assets and liabilities measured at fair value on a non-recurring basis at December 31,
2015 are summarized below:
Fair Value Measurements at December 31, 2015 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
$ -
$ -
$ -
$ -
$ -
-
-
1,214,000
30,000
83,000
-
-
1,327,000
-
-
-
-
-
(53,000)
6,000
-
-
(47,000)
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
-
-
1,214,000
30,000
83,000
-
-
1,327,000
-
156,000
-
-
156,000
(127,000)
1,516,000
84,000
1,756,000
$ 3,083,000
75,000
(27,000)
(79,000)
$ (126,000)
1,516,000
84,000
1,756,000
$ 3,083,000
-
$ -
-
$ -
F - 29
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
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)
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
$47,000 and $125,000 represent impairment charges recognized during the years ended
December 31, 2015 and 2014, respectively, related to the above impaired loans.
F - 30
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
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.
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, 2015 and
2014 (dollars in thousands):
Description
Impaired Loans:
Fair Value
12/31/2015
Fair Value
12/31/2014
Valuation Technique
Significant Unobservable
Input
Range
(Weighted
Average)
12/31/2015
Range
(Weighted
Average)
12/31/2014
Commercial
$ - $ - Sales Comparison
Agricultural
$ - $ - Sales Comparison
RE – Residential
$ -
$ 838
Sales Comparison
RE – Commercial
$ 1,214 $ 1,479 Sales Comparison
Land and Construction
$ 30 $ 27 Sales Comparison
Equity Lines of Credit
$ 83
$ 80
Sales Comparison
Other Real Estate:
RE – Residential
$ -
$ 146
Sales Comparison
Land and Construction
$ 1,516 $ 1,984 Sales Comparison
RE – Commercial
$ 156
$ 1,052
Sales Comparison
Adjustment for differences
between comparable sales
N/A
Adjustment for differences
between comparable sales
N/A
Adjustment for differences
between comparable sales
N/A
N/A
N/A
8% (8%)
Adjustment for differences
between comparable sales
Adjustment for differences
between comparable sales
Adjustment for differences
between comparable sales
9%-12% (10%)
9%-12% (10%)
8% (8%)
8% (8%)
8% (8%)
8% (8%)
Adjustment for differences
between comparable sales N/A
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
$ 84 $ 408 Sales Comparison
Adjustment for differences
between comparable sales
10% (10%)
10% (10%)
F - 31
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities at December 31,
2015 and 2014 consisted of the following:
Available-for-Sale
2015
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
$ 1,994,000 $ - $ (17,000) $ 1,977,000
72,965,000
56,000 (651,000) 72,370,000
21,817,000
$ 96,776,000 $
548,000
604,000 $
(8,000) 22,357,000
(676,000) $ 96,704,000
Net unrealized loss on available-for-sale investment securities totaling $72,000 were
recorded, net of $30,000 in tax benefits, as accumulated other comprehensive income
within shareholders' equity at December 31, 2015. During the year ended December 31,
2015 the Company sold fifteen available-for-sale investment securities for total proceeds
of $12,260,000 recording a $21,000 net gain on sale. The Company realized a gain on
sale from eight of these securities totaling $62,000 and a loss on sale on seven of these
securities of $41,000.
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
F - 32
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
INVESTMENT SECURITIES (Continued)
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.
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.
There were no transfers of available-for-sale investment securities during the years
ended December 31, 2015, 2014 or 2013. There were no securities classified as held-
to-maturity at December 31, 2015 or December 31, 2014.
Investment securities with unrealized losses at December 31, 2015 and 2014 are
summarized and classified according to the duration of the loss period as follows:
December 31, 2015
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, 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
Less than 12 Months
Fair
Value
Unrealized
Losses
12 Months or More
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$ 1,977,000 $
17,000 $
- $
- $
1,977,000 $
17,000
45,398,000
327,000
11,880,000
324,000
57,278,000
651,000
1,037,000
$ 48,412,000 $
7,000
351,000
160,000
$12,040,000 $
1,000
1,197,000
8,000
325,000 $ 60,452,000 $
676,000
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
F - 33
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
INVESTMENT SECURITIES (Continued)
At December 31, 2015, the Company held 150 securities of which 57 were in a loss
position. Of the securities in a loss position, 43 were in a loss position for less than
twelve months. Of the 57 securities 2 are U.S. Government-sponsored agencies 51 are
U.S. Government-sponsored agencies collateralized by residential mortgage obligations
and 4 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,
2015, management does not have the intent to sell these securities nor does it believe it
is more likely than not that it will be required to sell these securities before the recovery
of its amortized cost basis. Based on the Company’s evaluation of the above and other
relevant factors, the Company does not believe the securities that are in an unrealized
loss position as of December 31, 2015 are other than temporarily impaired.
The amortized cost and estimated fair value of investment securities at December 31,
2015 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.
Amortized
Cost
Estimated
Fair
Value
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
$
16,498,000
161,000 $
160,000
16,879,000
7,152,000 7,295,000
72,965,000
96,776,000 $
72,370,000
96,704,000
$
Investment securities with amortized costs totaling $62,914,000 and $57,793,000 and
estimated fair values totaling $62,483,000 and $57,636,000 at December 31, 2015 and
2014, respectively, were pledged to secure deposits and repurchase agreements.
F - 34
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Outstanding loans are summarized below:
December 31,
2015
2014
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land development
Equity lines of credit
Auto
Other
39,856,000
25,474,000
$ 37,084,000 $ 31,465,000
35,355,000
29,284,000
192,095,000 163,306,000
24,572,000
38,972,000
44,618,000
2,818,000
400,971,000 370,390,000
16,188,000
38,327,000
48,365,000
3,582,000
Deferred loan costs, net
Allowance for loan losses
1,940,000
1,848,000
(6,078,000) (5,451,000)
$ 396,833,000 $ 366,787,000
Changes in the allowance for loan losses were as follows:
Year Ended December 31,
2014
2013
2015
Balance, beginning of year
Provision charged to operations
Losses charged to allowance
Recoveries
Balance, end of year
$
$
5,451,000 $
1,100,000
(827,000)
354,000
6,078,000 $
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
The recorded investment in impaired loans totaled $6,461,000 and $8,582,000 at
December 31, 2015 and 2014, respectively. The Company had specific allowances for
loan losses of $751,000 on impaired loans of $2,346,000 at December 31, 2015 as
compared to specific allowances for loan losses of $564,000 on impaired loans of
$2,401,000 at December 31, 2014. The balance of impaired loans in which no specific
reserves were required totaled $4,115,000 and $6,181,000 at December 31, 2015 and
2014, respectively. The average recorded investment in impaired loans for the years
ended December 31, 2015, 2014 and 2013 was $6,528,000, $8,070,000 and
$10,182,000, respectively. The Company recognized $119,000, $152,000 and $298,000
in interest income on impaired loans during the years ended December 31, 2015, 2014
and 2013, respectively. Of these amounts $0, $31,000 and $22,000 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 - 35
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
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, 2015 and December
31, 2014 was $4,661,000 and $5,738,000, respectively. The Company has allocated
$311,000 and $319,000 of specific reserves on loans to customers whose loan terms
have been modified in troubled debt restructurings as of December 31, 2015 and
December 31, 2014, respectively. The Company has not committed to lend additional
amounts on loans classified as troubled debt restructurings at December 31, 2015 and
December 31, 2014.
There were no troubled debt restructurings during the twelve months ending December
31, 2015.
During the twelve month period ended December 31, 2014, the terms of two loans were
modified as troubled debt restructurings. Modifications involved an extension of the
maturity date for up to two years.
The following table presents loans by class modified as troubled debt restructurings that
occurred during the twelve months ended December 31, 2014:
Number of
Loans
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Recorded
Investment
Troubled Debt Restructurings:
Auto
2 $ 29,000
$ 29,000
The troubled debt restructurings described above resulted in no allowance for loan
losses or charge-offs during the year ended December 31, 2014.
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,
2015 and 2014.
At December 31, 2015 and 2014, nonaccrual loans totaled $4,546,000 and $6,625,000,
respectively. Interest foregone on nonaccrual loans totaled $303,000, $345,000 and
$280,000 for the twelve months ended December 31, 2015, 2014 and 2013,
respectively. The Company recognized $0, $31,000 and $22,000 in interest income on
nonaccrual loans during the years ended December 31, 2015, 2014 and 2013,
respectively. There were no loans past due 90 days or more and on accrual status at
December 31, 2015 and 2014.
Salaries and employee benefits totaling $1,337,000, $1,441,000 and $1,337,000 have
been deferred as loan origination costs during the years ended December 31, 2015,
2014 and 2013, respectively.
F - 36
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l
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
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, 2015
90 Days and
30-89 Days
Past Due Still Accruing
Total
Past Due
Nonaccrual and Nonaccrual Current
Total
$
Commercial
Agricultural
Real estate - residential
Real estate - commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
Total
$
457 $
-
472
-
9
8
586
15
1,547 $
- $
-
-
-
-
-
-
-
- $
56 $
-
90
3,130
893
312
65
-
4,546 $
513 $
-
562
3,130
902
320
651
15
6,093 $
36,571 $
39,856
24,912
188,965
15,286
38,007
47,714
3,567
394,878 $
37,084
39,856
25,474
192,095
16,188
38,327
48,365
3,582
400,971
December 31, 2014
30-89 Days
90 Days and
Past Due Still Accruing
Total
Past Due
Nonaccrual and Nonaccrual Current
Total
$
Commercial
Agricultural
Real estate - residential
Real estate - commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
Total
$
131 $
-
292
-
345
194
601
43
1,606 $
- $
-
-
-
-
-
-
-
- $
38 $
339
985
3,643
1,111
415
93
1
6,625 $
169 $
339
1,277
3,643
1,456
609
694
44
8,231 $
31,296 $
35,016
28,007
159,663
23,116
38,363
43,924
2,774
362,159 $
31,465
35,355
29,284
163,306
24,572
38,972
44,618
2,818
370,390
F - 40
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables show information related to impaired loans at the dates indicated, in thousands:
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
39 $
1
As of December 31, 2015:
With no related allowance recorded:
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
With an allowance recorded:
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
Total:
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
Total
As of December 31, 2014:
With no related allowance recorded:
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
With an allowance recorded:
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
Total:
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
Total
262
1,346
2,057
232
156
21
-
605
1,443
2,460
512
130
81
-
-
1,112
589
778
299
-
-
26 $
-
245
1,154
808
113
-
-
$
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-
246
1,203
822
115
-
-
-
54
371
269
31
-
-
73 $ 26 $
-
54
371
269
31
-
-
751 $
260
1,604
3,776
1,029
312
65
-
7,119 $
68 $
262
1,592
3,260
1,054
271
21
-
6,528 $
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
61 $
1
$
47 $
260
1,347
1,976
221
199
65
-
26 $
-
245
1,154
808
113
-
-
73 $
260
1,592
3,130
1,029
312
65
-
6,461 $
$
$
$
$
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$
605
1,422
3,389
495
121
93
1
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1,096
254
757
294
-
-
47
260
1,359
2,622
221
199
65
-
55
605
1,433
4,036
495
121
93
1
1,102
254
757
294
-
-
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-
-
51
65
274
174
-
-
$
55 $
605
2,518
3,643
1,252
415
93
1
55 $ - $
-
51
65
274
174
-
-
605
2,535
4,290
1,252
415
93
1
61 $
605
2,555
3,049
1,290
429
81
-
$ 8,582 $ 9,246 $
564 $ 8,070 $
F - 41
20
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-
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8
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-
119
51
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-
9
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11
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-
-
1
51
91
-
9
-
-
-
152
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
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, 2013:
With no related allowance recorded:
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
With an allowance recorded:
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
Total:
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
Total
$
$
$
$
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
1,224 $
267
2,024
2,237
1,325
339
77
-
100 $
-
451
837
412
522
-
-
1,324 $
267
2,475
3,074
1,737
861
77
-
9,815 $
1,493
267
2,035
2,675
1,325
339
77
-
$
1,239 $
267
2,057
2,489
1,384
294
20
-
-
100 $ 79 $ 58 $
-
200
232
13
105
-
-
-
452
994
417
511
-
-
451
837
412
522
-
-
1,593 $ 79 $
267
2,486
3,512
1,737
861
77
-
-
200
232
13
105
-
-
629 $
10,533 $
1,297 $
267
2,509
3,483
1,801
805
20
-
10,182 $
3
20
89
53
79
9
3
-
-
-
10
-
25
7
-
-
3
20
99
53
104
16
3
-
298
F - 42
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.
PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
Land
Premises
Furniture, equipment and leasehold improvements
Less accumulated depreciation
and amortization
December 31,
2015
2014
$
2,863,000 $
15,833,000
7,491,000
26,187,000
2,628,000
15,768,000
6,599,000
24,995,000
(13,953,000)
(13,353,000)
$ 12,234,000 $ 11,642,000
Depreciation and amortization included in occupancy and equipment expense totaled
$1,055,000, $1,147,000 and $1,166,000 for the years ended December 31, 2015, 2014
and 2013, respectively.
7.
DEPOSITS
Interest-bearing deposits consisted of the following:
December 31,
2015
2014
Interest-bearing demand deposits
Money market
Savings
Time, $250,000 or more
Other time
48,848,000
$ 91,225,000 $ 82,144,000
42,499,000
125,896,000 106,257,000
3,291,000
53,051,000
$ 318,232,000 $ 287,242,000
3,079,000
49,184,000
At December 31, 2015, the scheduled maturities of time deposits were as follows:
Year Ending
December 31,
2016
2017
2018
2019
2020
thereafter
$ 38,388,000
9,246,000
2,208,000
2,114,000
307,000
-
$ 52,263,000
Deposit overdrafts reclassified as loan balances were $364,000 and $269,000 at
December 31, 2015 and 2014, respectively.
F - 43
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaling $7,671,000 and $9,626,000 at
December 31, 2015, and 2014, respectively are secured by U.S. Government agency
securities with a carrying amount of $13,171,000 and $14,879,000 at December 31, 2015
and 2014, 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
2015 and 2014 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 0.08% 0.11%
$7,519,000
0.09%
$11,466,000
2015 2014
$6,529,000
0.08%
$8,708,000
9.
BORROWING ARRANGEMENTS
The Company is a member of the FHLB and can borrow up to $154,000,000 from the
FHLB secured by commercial and residential mortgage loans with carrying values totaling
$231,000,000. The Company is required to hold FHLB stock as a condition of
membership. At December 31, 2015 and 2014, the Company held $2,380,000 of FHLB
stock which is recorded as a component of other assets. Based on this level of stock
holdings at December 31, 2015, the Company can borrow up to $88,159,000. To borrow
the $154,000,000 in available credit the Company would need to purchase $1,787,000 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
$20 million, $11 million and $10 million. There were no outstanding borrowings to the
FHLB or the correspondent banks under these agreements at December 31, 2015 and
2014.
On October 24, 2013 the Company issued a $3.0 million promissory note (the “Note”)
payable to an unrelated commercial bank. As originally issued, the Note provided for an
interest rate of U.S. “Prime Rate” plus three-quarters percent per annum, 4.00% at
December 31, 2014 and 2013, had a term of 18 months and subjected the Bank 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 Note is secured by
100 shares of the Bank’s stock representing the 100% of the Company's ownership
interest in the Bank.
On July 28, 2014, the Company and the borrower modified the Note to (1) extend the
maturity date to October 24, 2015, (2) increase the maximum principal amount to $7.5
million and (3) permit the Company to borrow, repay and reborrow up to the maximum
principal amount of the Note, among other things.
F - 44
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9.
BORROWING ARRANGEMENTS (Continued)
On October 1, 2015, the Company and the borrower further modified the Note to (1)
extend the maturity date to October 1, 2016, (2) reduce the maximum principal amount to
$2.5 million and (3) change the interest rate to U.S. "Prime Rate" plus one-half percent per
annum.
Concurrently, with entering into the second modification of the note on October 1, 2015,
the Company entered into a $5.0 million term loan (the “Term Loan”), which matures on
October 1, 2018. The Term Loan requires quarterly principal payments of $125,000 plus
accrued interest. Both the Term Loan and the Note bear interest at a rate of the U.S.
"Prime Rate" plus one-half percent per annum and are secured by 100 shares of Plumas
Bank stock representing the Company's 100% ownership interest in Plumas Bank.
Under the Term Loan and the Note, the Bank is subject to several negative and affirmative
covenants similar to the covenants under the original Note but in several cases less
restrictive. The Bank was in compliance with all such covenants related to the Note and
the Term Loan at December 31, 2015 and December 31, 2014. Interest expense related to
the Note and the Term Loan for the years ended December 31, 2015, December 31, 2014
and 2013 totaled $155,000, $111,000 and $23,000, respectively. The ending balance of
the Note at December 31, 2014 was $1,000,000. There was no balance outstanding on
the Note at December 31, 2015. The balance of the Term Loan was $4,875,000 at
December 31, 2015.
On April 15, 2013 the Company issued a $7.5 million subordinated debenture
(“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. On April 16, 2015 the Bancorp paid off the
subordinated debt. Interest expense related to the subordinated debt for the years ended
December 31, 2015, 2014 and 2013 totaled $219,000, $756,000 and $541,000,
respectively.
The subordinated debt had an interest rate of 7.5% per annum and a term of 8 years with
no prepayment allowed during the first two years and was made in conjunction with an
eight-year warrant (the “Warrant”) to purchase up to 300,000 shares of the Company’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 qualified 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 qualified as capital.
The Company allocated the proceeds received on April 15, 2013 between the
subordinated debt and the Warrant based on the estimated relative fair value of each. The
fair value of the Warrant was estimated based on a Black-Scholes-Merton model and
totaled $318,000. The discount recorded on the subordinated noted was amortized by the
level-yield method over 2 years.
F - 45
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9.
BORROWING ARRANGEMENTS (Continued)
Proceeds from the Note and the subordinated debt were used to partially fund the
repurchase of preferred stock. (see Note 12 - 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”).
10.
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
Plumas Statutory Trust I and II are business trusts formed by the Company with capital of
$311,000 and $163,000, respectively, for the sole purpose of issuing trust preferred
securities fully and unconditionally guaranteed by the Company.
During 2002, Plumas Statutory Trust I issued 6,000 Floating Rate Capital Trust Pass-
Through Securities ("Trust Preferred Securities"), 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 4.00% (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 1.99% (based on 3-month LIBOR plus 1.48%), with repricing and
payments due quarterly. The Subordinated Debentures are redeemable by the Company,
subject to receipt by the Company of prior approval from the Federal Reserve Board of
Governors, on any quarterly anniversary date on or after the 5-year anniversary date of
the issuance. The redemption price is par plus accrued and unpaid interest, except in the
case of redemption under a special event which is defined in the debenture. The Trust
Preferred Securities are subject to mandatory redemption to the extent of any early
redemption of the Subordinated Debentures and upon maturity of the Subordinated
Debentures on September 26, 2032 for Trust I and September 28, 2035 for Trust II.
Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on
the liquidation amount of $1,000 per security. The interest rate of the Trust Preferred
Securities issued by Trust I adjust on each quarterly anniversary date to equal the 3-month
LIBOR plus 3.40%. The Trust Preferred Securities issued by Trust II adjust on each
quarterly anniversary date to equal the 3-month LIBOR plus 1.48%. Both Trusts I and II
have the option to defer payment of the distributions for a period of up to five years, as
long as the Company is not in default on the payment of interest on the Subordinated
Debentures.
The Trust Preferred Securities were sold and issued in private transactions pursuant to an
exemption from registration under the Securities Act of 1933, as amended. The Company
has guaranteed, on a subordinated basis, distributions and other payments due on the
Trust Preferred Securities.
F - 46
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10.
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES (Continued)
Interest expense recognized by the Company for the years ended December 31, 2015,
2014 and 2013 related to the subordinated debentures was $306,000, $303,000 and
$313,000, respectively.
11.
COMMITMENTS AND CONTINGENCIES
Leases
The Company has commitments for leasing premises under the terms of noncancelable
operating leases expiring from 2016 to 2020. Future minimum lease payments are as
follows:
Year Ending
December 31,
2016
2017
2018
2019
2020
$
$
242,000
151,000
108,000
99,000
74,000
674,000
Rental expense included in occupancy and equipment expense totaled $233,000,
$192,000 and $154,000 for the years ended December 31, 2015, 2014 and 2013,
respectively.
Financial Instruments With Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk in the normal
course of business in order to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized on the consolidated balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the other party
for commitments to extend credit and letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
commitments and letters of credit as it does for loans included on the consolidated
balance sheet.
The following financial instruments represent off-balance-sheet credit risk:
Commitments to extend credit
Letters of credit
December 31,
2015
2014
$ 82,995,000 $ 89,735,000
$ -
$ 265,000
F - 47
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES (Continued)
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, 2015 and 2014. The
Company recognizes these fees as revenues over the term of the commitment or when
the commitment is used.
At December 31, 2015, consumer loan commitments represent approximately 12% of total
commitments and are generally unsecured.
loan
commitments represent approximately 41% 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 47% 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
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.
F - 48
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12.
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 permits a California corporation such as the Company
to make a distribution to its shareholders if its retained earnings equal at least the amount
of the proposed distribution or if after giving effect to the distribution, the value of the
corporation’s assets exceed the amount of its liabilities plus the amount of shareholders
preferences, if any, and certain other conditions are met.
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,
2015, 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 (see Note 10 for additional information related to the Trust
Preferred Securities).
Preferred Stock
On January 30, 2009 the Company entered into a Letter Agreement (the “Purchase
Agreement”) with the United States Department of the Treasury (“Treasury”), pursuant to
which the 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
Company sought and obtained regulatory permission to participate in the auction. The
Company 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.
F - 49
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12.
SHAREHOLDERS' EQUITY (Continued)
Preferred Stock (continued)
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.
(In thousands, except per share data)
For the Year Ended December 31,
2014
2015
2013
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:
$
5,818 $
-
-
5,818 $
4,738 $ 3,431
565
(347)
3,649
-
-
4,738 $
Basic earnings per share
Diluted earnings per share
Weighted Average Number of Shares Outstanding:
Basic shares
Diluted shares
$
$
1.21 $
1.15 $
0.99 $
0.95 $
0.76
0.75
4,817
5,058
4,793
4,977
4,780
4,883
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 53,000, 238,000 and 172,000 for the
years ended December 31, 2015, 2014 and 2013, respectively. At December 31, 2015,
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.
F - 50
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12.
SHAREHOLDERS' EQUITY (Continued)
Stock Options
In 2001, the Company established a Stock Option Plan for which 192,893 shares of
common stock remain reserved for issuance to employees and directors and no shares
are available for future grants as of December 31, 2015.
As of December 31, 2015, all remaining shares in this plan have vested and no
compensation cost remains unrecognized.
The total fair value of options vested was $49,000 for the years ended December 31, 2015
and 2014. The total intrinsic value of options at time of exercise was $240,000 and
$51,000 for the years ended December 31, 2015 and 2014, respectively.
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Shares
Intrinsic Value
Options outstanding at January 1, 2013
Options forfeited
Options exercised
Options outstanding at December 31, 2013
Options forfeited
Options exercised
Options outstanding at December 31, 2014
Options forfeited
Options exercised
Options outstanding at December 31, 2015
Options exercisable at December 31, 2015
Expected to vest after December 31, 2015
419,806
(43,347)
(11,400)
365,059
(47,266)
(11,400)
306,393
(74,600)
(38,900)
192,893
192,893
-
$ 8.67
11.34
2.95
8.53
13.64
2.95
7.95
16.26
2.95
$ 5.75
$ 5.75
2.4 $
2.4 $
802,000
802,000
In May 2013, the Company established the 2013 Stock Option Plan for which 500,000
shares of common stock are reserved and 396,800 shares are available for future grants
as of December 31, 2015. The 2013 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. No options were granted during the years ended December 31, 2015 and 2013.
During the year ended December 31, 2014,110,400 options were granted.
As of December 31, 2015, there was $124,000 of total unrecognized compensation cost
related to non-vested, share-based compensation arrangements granted under the 2013
Plan. That cost is expected to be recognized over a weighted average period of 2.3 years.
F - 51
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12.
SHAREHOLDERS' EQUITY (Continued)
Stock Options (continued)
A summary of the activity within the 2013 Plan follows:
Weighted
Average
Exercise
Price
$ -
6.32
6.32
6.32
6.32
$ 6.32
$ 6.32
$ 6.32
Shares
-
110,400
110,400
(7,200)
(800)
102,400
26,800
65,507
Weighted
Average
Remaining
Contractual
Term in
Years
Intrinsic Value
6.3 $
6.3 $
6.3 $
242,000
63,000
155,000
Options outstanding at January 1, 2014
Options granted
Options outstanding at December 31, 2014
Options cancelled
Options exercised
Options outstanding at December 31, 2015
Options exercisable at December 31, 2015
Expected to vest after December 31, 2015
Compensation cost related to stock options recognized in operating results under the two
stock option plans was $70,000 and $81,000 for the years ended December 31, 2015 and
2014, respectively. The associated future income tax benefit recognized was $7,000 for
the year ended December 31, 2015 and $6,000 for the year ended December 31, 2014.
Cash received from option exercises for the years ended December 31, 2015 and 2014
was $88,000 and $34,000, respectively. The tax benefit realized for the tax deductions
from option exercise totaled $13,000 for each of the years ended December 31, 2015 and
2014.
Regulatory Capital
The Bank is subject to certain regulatory capital requirements administered by 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 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.
F - 52
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12.
SHAREHOLDERS' EQUITY (Continued)
Regulatory Capital (continued)
In July, 2013, the federal bank regulatory agencies approved the final rules implementing
the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. The
phase-in period for the final rules began on January 1, 2015, with full compliance with all
of the final rule’s requirements phased in over a multi-year schedule. Under the final rules,
minimum requirements increased for both the quantity and quality of capital held by the
Company and the Bank. The rules include a new common equity Tier 1 capital to risk-
weighted assets ratio of 4.5% and a capital conservation buffer of 2.5% of risk-weighted
assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted
assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules
also implement strict eligibility criteria for regulatory capital instruments.
The Board of Governors of the Federal Reserve System has adopted final amendments to
the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) ( the
“Policy Statement”) that, among other things, raised from $500 million to $1 billion the
asset threshold to qualify for the Policy Statement. Plumas Bancorp qualifies for treatment
under the Policy Statement and is no longer subject to consolidated capital rules at the
bank holding company level.
The following table sets forth the Bank's actual capital amounts and ratios (dollar amounts
in thousands):
Amount of Capital Required
To be Well-Capitalized
For Capital
Under Prompt
Actual
Adequacy Purposes
Corrective Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2015
Common Equity Tier 1 Ratio
$56,300
12.7%
$19,908
Tier 1 Leverage Ratio
56,300
Tier 1 Risk-Based Capital Ratio
56,300
Total Risk-Based Capital Ratio
61,839
9.4%
12.7%
14.0%
23,999
26,544
35,392
December 31, 2014
Common Equity Tier 1 Ratio
N/A
N/A
N/A
Tier 1 Leverage Ratio
$53,925
9.8%
$22,144
Tier 1 Risk-Based Capital Ratio
53,925
Total Risk-Based Capital Ratio
59,039
13.2%
14.4%
16,344
32,689
4.5%
4.0%
6.0%
8.0%
N/A
4.0%
4.0%
8.0%
$28,756
29,999
35,392
44,240
N/A
$27,643
24,517
40,860
6.5%
5.0%
8.0%
10.0%
N/A
5.0%
6.0%
10.0%
The current and projected capital positions of the Company and the Bank and the impact
of capital plans and long-term strategies are reviewed regularly by management. The
Company policy is to maintain the Bank’s ratios above the prescribed well-capitalized
ratios at all times. Management believes that the Bank currently meets all its capital
adequacy requirements.
F - 53
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13.
OTHER EXPENSES
Other expenses consisted of the following:
Year Ended December 31,
2014
2013
2015
2,003,000 $
$
Outside service fees
707,000
Professional fees
Telephone and data communications
376,000
Deposit insurance 362,000
332,000
Business development
305,000
Advertising and promotion
300,000
Director compensation and retirement
234,000
Armored car and courier
200,000
Loan collection expenses
182,000
OREO expenses
Stationery and supplies
105,000
Provision from change in OREO
valuation
Postage
Gain on sale of other real estate
Other operating expenses
79,000
41,000
(198,000)
404,000
5,432,000 $
14.
INCOME TAXES
$
2,042,000 $
583,000
351,000
1,855,000
831,000
287,000
387,000 435,000
291,000
281,000
232,000
228,000
212,000
310,000
113,000
279,000
282,000
298,000
224,000
182,000
362,000
122,000
240,000
45,000
(101,000)
173,000
5,469,000 $
486,000
51,000
(171,000)
526,000
5,967,000
The provision for income taxes for the years ended December 31, 2015, 2014 and 2013
consisted of the following:
2015
Current
Deferred
Provision for income taxes
2014
Current
Deferred
Provision for income taxes
$
$
$
$
Federal
State
Total
3,625,000 $
(848,000)
2,777,000 $
631,000 $
309,000
940,000 $
4,256,000
(539,000)
3,717,000
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
State
Total
22,000 $
507,000
529,000 $
82,000
2,085,000
2,167,000
Federal
$
60,000 $
1,578,000
1,638,000 $
$
F - 54
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14.
INCOME TAXES (Continued)
Deferred tax assets (liabilities) consisted of the following:
Deferred tax assets:
Allowance for loan losses
Deferred compensation
OREO valuation allowance
Premises and equipment
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,
2015
2014
$
903,000 $
1,774,000
556,000
619,000
4,000
181,000
1,773,000
944,000
475,000
236,000
30,000
717,000
4,603,000
42,000
372,000
4,023,000
(1,436,000)
(244,000)
(1,680,000)
2,923,000 $
(1,397,000)
(229,000)
(1,626,000)
2,397,000
$
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, 2015 total deferred tax assets were approximately $4,603,000 and total
deferred tax liabilities were approximately $1,680,000 for a net deferred tax asset of
$2,923,000. The Company’s deferred tax assets primarily relate timing differences in the
tax deductibility of impairment charges on other real estate owned, deprecation on
premises and equipment, the provision for loan losses 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,
2015 and 2014 will be fully realized and therefore no valuation allowance was recorded.
On the consolidated balance sheet, net deferred tax assets are included in accrued
interest receivable and other assets.
F - 55
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14.
INCOME TAXES (Continued)
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
2015
2014
2013
34.0 %
6.9 %
34.0 %
6.9 %
34.0 %
6.0 %
(1.3)%
(0.7)%
(0.1)%
(1.2)%
0.6 %
(1.5)%
0.7 %
39.0 %
39.4 %
(2.1)%
0.9 %
38.7 %
At year-end 2015, the Company had state operating loss carry-forwards of approximately
$62,000 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, 2012, and by state and
local taxing authorities for years ended before December 31, 2011.
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, 2015 and 2014 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.
15.
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 2015:
Balance, January 1, 2015
Disbursements
Amounts repaid
Balance, December 31, 2015
Undisbursed commitments to related parties, December 31, 2015
$
$
$
1,749,000
2,673,000
(1,173,000)
3,249,000
1,518,000
F - 56
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16.
EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The Plumas Bank Profit Sharing Plan commenced April 1, 1988 and is available to
employees meeting certain service requirements. Under the Plan, employees are able to
defer a selected percentage of their annual compensation. Included under the Plan's
investment options is the option to invest in Company stock. During 2015, the Company’s
contribution consisted of a matching amount of 25% of the employee’s contribution up to a
total of 2% of the employee’s compensation totaling $111,000. No contribution was made
for the years ended December 31, 2014 and 2013.
Salary Continuation and Retirement Agreements
Salary continuation and retirement agreements are in place for the Company’s president
and seven members of the Board of Directors as well as five 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, 2015, 2014 and 2013 totaled
$258,000, $289,000 and $286,000, respectively. Accrued compensation payable under
these plans totaled $3,973,000 and $4,007,000 at December 31, 2015 and 2014,
respectively.
In connection with these agreements, the Bank purchased single premium life insurance
policies with cash surrender values
totaling $12,187,000 and $11,845,000 at
December 31, 2015 and 2014, respectively. Income earned on these policies, net of
expenses, totaled $342,000, $341,000 and $344,000 for the years ended December 31,
2015, 2014 and 2013, respectively.
F - 57
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17.
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
December 31, 2015 and 2014
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
2015
2014
$
849,000 $
56,295,000
552,000
628,000
53,865,000
790,000
$ 57,696,000 $ 55,283,000
$
15,000 $
4,875,000
-
10,310,000
22,000
1,000,000
7,454,000
10,310,000
15,200,000
18,786,000
6,475,000
36,063,000
(42,000)
6,312,000
30,245,000
(60,000)
42,496,000
36,497,000
Total liabilities and shareholders' equity
$ 57,696,000 $ 55,283,000
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended December 31, 2015, 2014 and 2013
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 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
2015
2014
2013
$
4,000,000 $
2,500,000 $
4,500,000
9,000
9,000
9,000
4,009,000
2,509,000
4,509,000
155,000
219,000
306,000
206,000
111,000
756,000
303,000
211,000
23,000
541,000
313,000
309,000
886,000
1,381,000
1,186,000
3,123,000
1,128,000
3,323,000
2,353,000
3,111,000
(330,000)
5,476,000
342,000
4,239,000
499,000
5,818,000 $ 4,738,000 $
2,993,000
438,000
3,431,000
5,836,000 $ 5,841,000 $
1,939,000
$
$
F - 58
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17.
PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2015, 2014 and 2013
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed (income) loss of
subsidiary
Amortization of discount on debentures
Stock-based compensation expense
Decrease in other assets
Decrease in other liabilities
Net cash provided by
operating activities
Cash flows from financing activities:
2015
2014
2013
$ 5,818,000 $ 4,738,000 $ 3,431,000
(2,353,000)
45,000
17,000
238,000
(7,000)
(3,111,000)
159,000
330,000
113,000
14,000 4,000
207,000
(11,000)
285,000
(990,000)
3,758,000
1,996,000
3,173,000
Issuance of subordinated debt, net of discount
Redemption of subordinated debt
Issuance of common stock warrant
Issuance of note payable
Increase in 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
-
-
-
4,000,000
7,182,000
-
(7,500,000) - -
318,000
-
3,000,000
-
-
-
-
(2,000,000)
(234,000)
- -
(11,384,000)
- -
34,000
34,000
- -
(1,968,000)
(3,537,000) (1,966,000)
(3,052,000)
(125,000)
88,000
Increase in cash and cash
equivalents
221,000
30,000
121,000
Cash and cash equivalents at beginning
of year
628,000
598,000
477,000
Cash and cash equivalents at end of year
$
849,000 $
628,000 $
598,000
F - 59
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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, 2015. 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, 2015, 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 17, 2016
45
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.
46
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.
47
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.
48
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 12 –
Shareholders’ Equity.
21.01
Plumas Bank – California.
21.02
Plumas Statutory Trust I – Connecticut.
21.03
Plumas Statutory Trust II – Delaware.
23.01*
23.02*
Independent Registered Public Accountant’s Consent for audit of year ended December 31, 2013
dated March 17, 2016.
Independent Registered Public Accountant’s Consent for audit of years ended December 31, 2015
and December 31, 2014 dated March 17, 2016.
31.1*
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated March 17, 2016.
31.2*
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated March 17, 2016.
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 17, 2016.
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 17, 2016.
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
49
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 17, 2016
/s/ ANDREW J. RYBACK
Andrew J. Ryback, President, Chief Executive Officer and Director
50
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/ ANDREW J. RYBACK
Dated: March 17, 2016
Andrew J. Ryback, President, Chief Executive Officer and Director
/s/ RICHARD L. BELSTOCK
Dated: March 17, 2016
Richard L. Belstock, Executive Vice President and Chief Financial Officer
/s/ DANIEL E. WEST
Dated: March 17, 2016
Daniel E. West, Director and Chairman of the Board
/s/ TERRANCE J. REESON
Dated: March 17, 2016
Terrance J. Reeson, Director and Vice Chairman of the Board
/s/ ALVIN G. BLICKENSTAFF
Dated: March 17, 2016
Alvin G. Blickenstaff, Director
/s/ W. E. ELLIOTT
Dated: March 17, 2016
William E. Elliott, Director
/s/ Steven M. Coldani
Dated: March 17, 2016
Steven M. Coldani, Director
/s/ GERALD W. FLETCHER
Dated: March 17, 2016
Gerald W. Fletcher, Director
/s/ JOHN FLOURNOY
Dated: March 17, 2016
John Flournoy, Director
/s/ ARTHUR C. GROHS
Dated: March 17, 2016
Arthur C. Grohs, Director
/s/ ROBERT J. MCCLINTOCK
Dated: March 17, 2016
Robert J. McClintock, Director
51
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