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, 2016
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)
75-2987096
(IRS Employer Identification No.)
35 S. Lindan Avenue, Quincy, CA
(Address of principal executive offices)
95971
(Zip Code)
Registrant's telephone number, including area code: (530) 283-7305
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Common Stock, no par value
Name of Each Exchange on which Registered:
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, 2016 the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was
approximately $38.5 million, based on the closing price reported to the Registrant on June 30, 2016 of $9.01 per share.
Shares of Common Stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This
determination of the affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares of Common Stock of the registrant outstanding as of March 13, 2017 was 4,921,660.
Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2017 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.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
TABLE OF CONTENTS
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Signatures
PART IV
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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.
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ITEM 1. BUSINESS
General
The Company. Plumas Bancorp 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 and the
cost of servicing debt, will generally be paid from dividends paid to the Company by the Bank.
At December 31, 2016, the Company had consolidated assets of $658 million, deposits of $582 million, other liabilities of
$28 million and shareholders’ equity of $48 million. The Company’s other liabilities include $10.3 million in junior
subordinated deferrable interest debentures and a $2.4 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, 2016 the Bank had approximately $657 million in assets,
$457 million in net loans and $583 million in deposits (including deposits of $0.3 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 in 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 government-guaranteed lending in Auburn, California
Seattle, Washington and Phoenix, Arizona and commercial/agricultural lending offices located in Chico, California and
Klamath Falls, Oregon. The Bank’s primary business is servicing the banking needs of these communities. Its marketing
strategy stresses its local ownership and commitment to serve the banking needs of individuals living and working in the
Bank’s primary service areas.
With a predominant focus on personal service, the Bank has positioned itself as a multi-community independent bank
serving the financial needs of individuals and businesses within the Bank’s geographic footprint. Our principal retail
lending services include consumer, automobile and home equity loans. Our principal commercial lending services include
term real estate, commercial and industrial term loans. In addition, we provide government-guaranteed and agricultural
loans as well as credit lines. We provide land development and construction loans on a limited basis.
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The Bank’s government-guaranteed lending center headquartered in Auburn, California with additional personnel in
Truckee, California, Seattle, Washington and Phoenix, Arizona, provide Small Business Administration (SBA) and USDA
Rural Development loans to qualified borrowers throughout Northern California, Washington, 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 2016 proceeds from the sale of government-guaranteed loans totaled $30.7 million and we generated a
gain on sale of $1.8 million. 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.
The Agricultural Credit Centers located in Susanville, Chico, and Alturas, California and Klamath Falls, Oregon 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, 2016, the principal areas to which we have directed our lending activities, and the percentage of our
total loan portfolio comprised by each, were as follows: (i) commercial real estate – 49.0%; (ii) commercial and industrial
loans – 9.0%; (iii) consumer loans (including residential equity lines of credit and automobile loans) – 21.6%; (iv)
agricultural loans (including agricultural real estate loans) – 11.1%; (v) residential real estate – 4.6%; and (vi) construction
and land development – 4.7% .
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 and premium 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. As of December 31, 2016, the Bank
had 30,591 deposit accounts with balances totaling approximately $583 million, compared to 29,518 deposit accounts with
balances totaling approximately $528 million at December 31, 2015. We attract deposits through our customer-oriented
product mix, competitive pricing, convenient locations, mobile and internet banking and remote deposit operations, 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 $19.0 thousand at December 31,
2016. 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.
The Bank has devoted a substantial amount of time and capital to the improvement of existing Bank services. We added
mobile banking services during the first quarter of 2010. During 2015 we enhanced our mobile banking services and began
offering mobile deposit services. During the first quarter of 2012 we replaced our ATMs with new state of the art machines
that are ADA compliant and 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. We are not dependent on a single customer or group of related customers
for a material portion of our deposits. The Company’s management has established loan concentration guidelines as a
percentage of capital and evaluates loan concentration levels within a single industry or group of related industries on
quarterly basis, or more frequently as loan conditions change. There has been no material effect upon our capital
expenditures, earnings, or competitive position as a result of federal, state, or local environmental regulation.
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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 location. The Civic Center Drive facility was sold to an unrelated third party in December, 2015. In
December, 2015 the Bank opened a 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. In September, 2016 we relocated this office to Phoenix, Arizona. In March, 2016 we opened a SBA
lending office in Seattle, Washington.
On October 20, 2016 the Company announced that its Board of Directors approved the reinstatement of a semi-annual cash
dividend. The dividend, in the amount of $0.10 per share, was paid on November 21, 2016 to shareholders of record at the
close of business day on November 7, 2016.
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. In May of 2016 the Company
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repurchased a portion of the warrant, representing the right to purchase 150,000 shares of the registrant’s common stock at
a cost of $862,000. The remaining warrant represents the right to purchase 150,000 shares of Plumas Bancorp common
stock at an exercise price of $5.25 per share. Interest expense related to the subordinated debt for the years ended
December 31, 2016, 2015 and 2014 totaled $0, $219,000 and $756,000, respectively.
Promissory Note. The Company has a $2.4 million note payable outstanding at December 31, 2016 with an unrelated
commercial bank. In addition, the Company has the ability to borrow an additional $2.6 million from this same bank under
a line of credit agreement. There were no outstanding borrowings on the line of credit at December 31, 2016. 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, 2016 approximately 72% of
the Bank's total loan portfolio consisted of real estate-secured loans, including real estate mortgage loans, real estate
construction loans, consumer equity lines of credit, and agricultural loans secured by real estate. Moreover, our business
activities are currently focused in the California counties of Plumas, Nevada, Placer, Lassen, Modoc, Shasta and Sierra 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 towns in which the Bank has a branch there are 106 banking branch offices of competing institutions
(excluding credit unions, but including savings banks), including 71 branches of 10 banks having assets in excess of $10
billion. As of June 30, 2016, the FDIC estimated the Bank’s market share of insured deposits within the communities it
serves to be as follows: Greenville and Portola 100%, Chester 64%, Alturas 63%, Quincy 53%, Fall River Mills 34%,
Kings Beach 29%, Susanville 28%, Truckee 15%, Tahoe City 12%, Redding 1% and Reno less than 1%.
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,
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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, mobile deposit and internet banking with bill payment
capabilities. This high tech and high touch approach allows the customers to tailor their access to our services based on
their particular preference.
Employees. At December 31, 2016, the Company and its subsidiary employed 155 persons. On a full-time equivalent
basis, we employed 142 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. Our operations may be
affected by legislative changes and by the policies of various regulatory authorities. Any change in applicable laws or
regulations may have a material effect on our business and prospects. 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
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lease losses and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital is
subject to certain other requirements and limitations of the federal banking agencies.
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, sometimes called “Basel III”. The phase-in period for the final rules began
in 2015, with certain of the rules’ 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 new capital
rules include a new minimum “common equity Tier 1” ratio of 4.5%, a Tier 1 capital ratio of 6.0% (increased from 4.0%),
a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of 4.0% (calculated as Tier 1 capital to average
consolidated assets). The effective date of these requirements was January 1, 2015. In addition, the new capital rules
include a capital conservation buffer of 2.5% above each of these levels (to be phased in over three years which beginning
at 0.625% on January 1, 2016 and increasing by that amount on each subsequent January 1, until reaching 2.5% on January
1, 2019) will be required for banking institutions to avoid restrictions on their ability to pay dividends, repurchase stock or
pay discretionary bonuses. Including the capital conservation buffer of 2.5%, the New Capital Rules would result in the
following minimum ratios to be considered well capitalized: (i) a Tier 1 capital ratio of 8.5%, (ii) a common equity Tier 1
capital ratio of 7.0%, and (iii) a total capital ratio of 10.5%. 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.
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, 2016, the maximum amount available for
dividend distribution under this restriction was approximately $9.9 million. 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.
7
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 $255 thousand for 2016.
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 $30 thousand for 2016. These assessments will continue
until the FICO bonds mature in 2017 through 2019.
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.
8
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 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 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.
Penalties for noncompliance or violations under the above laws may include fines, reimbursement and other penalties. Due
to heightened regulatory expectations related to compliance generally, the Company may incur additional compliance costs.
The Dodd-Frank Act created a new, independent federal agency called the Consumer Financial Protection Bureau
(“CFPB”), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer
financial protection laws. The CFPB has examination and primary enforcement authority with respect to depository
institutions with $10 billion or more in assets. Smaller institutions, 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.
9
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. Under federal law, the Bank and 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.
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 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.
10
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, 2016, approximately 72% 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.
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
11
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.
Drought conditions in California could have an adverse impact on the Company’s business.
In recent years, California has experienced a severe drought, though much of California has recently experienced
significant rain during 2016 and the beginning of 2017. 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, 2016, approximately
11% 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.
There are risks associated with the Company’s growth strategy.
During the past two years, the Company completed the purchase and assumption of a branch office in Redding, California,
opened a branch office in Reno, Nevada and established loan production offices in Phoenix, Arizona, Seattle Washington
and Klamath Falls Oregon. 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
12
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 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.
13
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:
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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;
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 volume 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
of shares of stock.
The Company depends primarily on the operations of the Bank to repay its indebtedness and fund its operations. 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
14
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 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 is 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.
15
ITEM 2. PROPERTIES
Of the Company’s twelve depository branches, ten are owned and two are leased. The Company also leases five 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
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
11638 Donner Pass Road
Truckee, California
5050 Meadowood Mall Circle
Reno, Nevada
243 North Lake Boulevard
Tahoe City, California
1335 Hilltop Drive
Redding, California
470 Nevada St., Suite 108
Auburn, California (2)
Leased Properties
2730 Agua Fria Freeway, Ste. 100
Phoenix, Arizona (2)
2585 Ceanothus Avenue, Suite 173
Chico, CA (3)
107 S. 7th St. (3)
Klamath Falls, OR
1601 5th Ave., Ste. 1100 (2)
Seattle WA
(1) Non-branch administrative or credit administrative offices.
(2) SBA lending office.
(3) Commercial lending office.
Total rental expenses under all leases totaled $276,000, $233,000 and $192,000, in 2016, 2015 and 2014 respectively. The
expiration dates of the leases vary, with the first such lease expiring during 2017 and the last such lease expiring during
2021.
Future minimum lease payments are as follows:
Year Ending December 31,
2017
2018
2019
2020
2021
$
$
275,000
219,000
206,000
209,000
187,000
1,096,000
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.
16
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.
17
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, 2016, there were 4,896,875 shares of the Company’s common stock outstanding held by approximately
1,400 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 2016
3rd Quarter 2016
2nd Quarter 2016
1st Quarter 2016
4th Quarter 2015
3rd Quarter 2015
2nd Quarter 2015
1st Quarter 2015
$
Common Dividends per
share
0.10
-
-
-
-
-
-
-
$
$
$
$
$
$
$
$
High
19.23
10.39
9.75
9.46
9.35
10.23
10.00
10.00
$
$
$
$
$
$
$
$
Low
10.00
8.75
8.60
8.20
8.50
8.04
8.77
7.73
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. On October 20, 2016 the
Company announced that its Board of Directors approved the reinstatement of a semi-annual cash dividend. The dividend,
in the amount of $0.10 per share, was paid on November 21, 2016 to shareholders of record at the close of business day on
November 7, 2016. No common cash dividends were paid in 2015.
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, 2016.
Plan Category
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved by
security holders
Total
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)
274,693
None
274,693
$
$
6.21
Not Applicable
6.21
298,400
None
298,400
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 2016 or 2015.
18
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.
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
$
2016
At or for the year ended December 31,
2014
2013
2015
(dollars in thousands except per share information)
25,100 $
1,023
24,077
800
7,652
18,696
4,759
7,474 $
- $
-
7,474 $
$ 657,975 $
$ 461,123 $
$
6,549 $
$ 582,353 $
47,994 $
$
47,994 $
$
$ 622,229 $
$ 428,380 $
$ 549,416 $
46,488 $
$
22,615 $
1,204
21,411
1,100
7,715
18,491
3,717
5,818 $
- $
-
5,818 $
599,286 $
400,971 $
6,078 $
527,276 $
42,496 $
42,496 $
21,147 $
1,693
19,454
1,100
7,315
17,845
3,086
4,738 $
-
$
-
4,738 $
19,460 $
1,534
17,926
1,400
6,642
17,570
2,167
3,431 $
565 $
347
3,649 $
5,451 $
538,862 $ 515,725 $
370,390 $ 338,551 $
5,517 $
467,891 $ 449,439 $
30,593 $
30,593 $
36,497 $
36,497 $
571,990 $
386,070 $
503,343 $
39,844 $
531,528 $ 497,711 $
353,389 $ 321,210 $
464,067 $ 432,284 $
36,032 $
33,810 $
2012
18,425
1,274
17,151
2,350
6,596
18,377
1,070
1,950
-
684
1,266
477,802
315,057
5,686
411,562
29,995
41,850
464,609
301,799
401,110
41,023
0.59%
0.53%
1.42%
329 $
1.20%
16.1%
16.1%
4.21%
79.2%
58.9%
1.13%
1.06%
1.52%
473 $
1.02%
14.6%
14.6%
4.10%
76.0%
63.5%
1.79%
1.90%
1.47%
1,166 $
0.89%
14.0%
14.0%
4.05%
79.2%
66.7%
1.64%
2.33%
1.63%
1,569 $
0.69%
12.0%
9.5%
4.03%
75.3%
71.5%
4.35%
3.98%
1.80%
3,572
0.42%
4.3%
4.8%
4.18%
76.6%
77.4%
1.54 $
1.47 $
0.10 $
9.80 $
0.26
$
0.26
$
0.00
$
6.28
$
4,896,875 4,835,432 4,799,139 4,787,739 4,776,339
0.76 $
0.75 $
0.00 $
6.39 $
0.99 $
0.95 $
0.00 $
7.61 $
1.21 $
1.15 $
0.00 $
8.79 $
9.2%
12.1%
13.3%
9.4%
12.7%
14.0%
9.8%
13.2%
14.4%
9.7%
13.2%
14.5%
10.4%
14.1%
15.3%
19
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 gains 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 are 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.
20
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, 2016 and 2015 and for each of the three years in the period
ended December 31, 2016. 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 $7.5 million for the year ended December 31, 2016, an increase of $1.7 million or
29% over net income of $5.8 million during the year ended December 31, 2015. Pretax income increased by $2.7 million,
or 28%, to $12.2 million in 2016 from $9.5 million during the year ended December 31, 2015.
Net interest income increased by $2.7 million to $24.1 million during 2016 from $21.4 million for the year ended
December 31, 2015. This increase in net interest income resulted from an increase in interest income of $2.5 million and a
decrease in interest expense of $181 thousand. Interest on loans increased by $2.2 million, interest on investment securities
increased by $204 thousand and interest on other interest earning assets increased by $100 thousand. An increase of $19
thousand in interest expense on deposits was offset by a decrease in interest expense on borrowings of $200 thousand. The
largest component of this decrease was a decrease of $219 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 $800 thousand during
2016 and $1.1 million during 2015.
During the years ended December 31, 2016 and 2015 non-interest income totaled $7.7 million. Non-interest expense
increased by $205 thousand to $18.7 million during the twelve months ended December 31, 2016, up from $18.5 million
during 2015. The largest component of the increase in non-interest expense was an increase in salary and benefit expense of
$163 thousand.
The provision for income taxes increased by $1.1 million from $3.7 million in 2015 to $4.8 million during the year ended
December 31, 2016.
Total assets at December 31, 2016 were $658 million, an increase of $58.7 million from $599 million at December 31,
2015. This increase included increases of $4.9 million in investment securities, $59.8 million in net loans ($60.2 million in
gross loans), $0.3 million in bank owned life insurance and $0.7 million in other assets exclusive of OREO. These items
were partially offset by decreases of $5.5 million in cash and due from banks, $0.5 million in premises and equipment and
$1.0 million in OREO.
Loan balances increased by $60.2 million, or 15%, from $401 million at December 31, 2015 to $461 million at December
31, 2016. The increase in loan balances includes $34.0 million in commercial real estate loans, $11.3 million in agricultural
loans, $5.7 million in construction and land development loans, $5.2 million in automobile loans, $4.2 million in
commercial loans and $4.0 million in equity lines of credits. These increases were partially offset by a decline of $4.2
million in residential real estate loans.
Total deposits increased by $55.1 million from $527 million at December 31, 2015 to $582 million at December 31, 2016.
Core deposit growth remained strong in 2016 as evidenced by increases of $27.7 million in demand deposits, $21.6 million
in savings accounts, $8.4 million in money market accounts and $0.1 million in interest-bearing transaction accounts. Time
deposits declined by $2.7 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.
Total shareholders’ equity increased by $5.5 million from $42.5 million at December 31, 2015 to $48.0 million at
December 31, 2016. The $5.5 million increase was related to earnings during 2016 of $7.5 million and an increase of $305
thousand representing stock option activity. These items were partially offset by a decrease in net unrealized gains on
investment securities of $930 thousand, a $0.10 per share cash dividend totaling $489 thousand and the repurchase of a
portion of a warrant, in May of 2016, representing the right to purchase 150,000 shares of the registrant’s common stock at
a cost of $862 thousand. (See “Financial Condition – Subordinated Debentures”).
The return on average assets was 1.20% for 2016, up from 1.02% for 2015. The return on average equity was 16.1% for
2016, up from 14.6% for 2015.
21
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:
2016
Interest
income/
expense
Rates
earned/
paid
Average
balance
Year ended December 31,
2015
Interest
income/
expense
Average
balance
Rates
earned/
paid
2014
Interest
income/
expense
Rates
earned/
paid
Average
balance
Assets
(dollars in thousands)
Interest bearing deposits
Investment securities(1)
Total loans (2)(3)
Total earning assets
Cash and due from banks
Other assets
Total assets
$
43,843 $
99,689
428,380
571,912
17,494
32,823
$ 622,229
274
1,898
22,928
25,100
0.62% $
1.90
5.35
4.39%
44,302 $
91,309
386,070
521,681
17,332
32,977
$ 571,990
174
1,694
20,747
22,615
0.39% $
1.86
5.37
4.34%
38,626 $
87,906
137
1,515
353,389 19,495
479,921 21,147
16,323
35,284
$ 531,528
0.35%
1.72
5.52
4.41%
Liabilities and
shareholders’ equity
Interest bearing demand
deposits
Money market deposits
Savings deposits
Time deposits
Note payable
Subordinated debentures
Junior subordinated
debentures
Other
Total interest bearing
liabilities
Noninterest bearing demand
deposits
Other liabilities
Shareholders’ equity
Total liabilities and
$
92,481
54,559
133,304
50,788
3,289
-
10,310
6,423
85
78
217
157
133
-
348
5
0.09% $
0.14
0.16
0.31
4.04
-
88,220
47,149
119,071
54,418
3,858
2,150
3.38
0.08
10,310
6,529
80
66
191
181
155
219
306
6
0.09% $
0.14
0.16
0.33
4.02
10.19
83,398
46,691
102,664
59,063
2,299
7,371
2.97
0.09
10,310
7,529
76
65
163
212
111
756
303
7
0.09%
0.14
0.16
0.36
4.83
10.26
2.94
0.09
351,154
1,023
0.29%
331,705
1,204
0.36%
319,325
1,693
0.53%
218,284
6,303
46,488
194,485
5,956
39,844
172,251
6,142
33,810
shareholders’ equity
$ 622,229
$ 571,990
$ 531,528
Net interest income
Net interest spread (4)
Net interest margin (5)
$ 24,077
$ 21,411
$ 19,454
4.10%
4.21%
3.98%
4.10%
3.88%
4.05%
(1)
Interest income is reflected on an actual basis and is not computed on a tax-equivalent basis.
(2) Average nonaccrual loan balances of $3.8 million for 2016, $5.6 million for 2015 and $6.7 million for 2014 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 $678,000, $696,000 and $380,000 for 2016, 2015 and 2014, 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.
22
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:
2016 compared to 2015
Increase (decrease) due to change in:
2015 compared to 2014
Increase (decrease) due to change in:
Average Average
Volume(1) Rate(2)
Mix(3)
Average Average
Volume(1)
Rate(2)
Mix(3)
Total
(dollars in thousands)
Total
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
$
(2) $
156
2,274
2,428
103 $
44
(84)
63
(1) $
4
(9)
(6)
100 $
204
2,181
2,485
20 $
59
1,803
1,882
15 $
116
(504 )
(373 )
2 $
4
(47)
(41)
37
179
1,252
1,468
4
11
23
(12)
(23)
(219)
-
-
(216)
1
1
3
(13)
1
-
42
(1)
34
-
-
-
1
-
-
-
-
1
5
12
26
(24)
(22)
(219)
42
(1)
(181)
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)
Net interest income
$
2,644 $
29 $
(7) $
2,666 $
2,329 $
(339 ) $
(33) $
1,957
(1) The volume change in net interest income represents the change in average balance multiplied by the previous year’s rate.
(2) The rate change in net interest income represents the change in rate multiplied by the previous year’s average balance.
(3) The mix change in net interest income represents the change in average balance multiplied by the change in rate.
2016 compared to 2015. Net interest income is the difference between interest income and interest expense. Net interest
income, on a nontax-equivalent basis, was $24.1 million for the year ended December 31, 2016, up $2.7 million, or 12.5%,
from $21.4 million for 2015. The $2.7 million included an increase of $2.5 million, or 11.0% in interest income, from $22.6
million during 2015 to $25.1 million during the current year and a decrease of $181 thousand in interest expense.
Interest and fees on loans increased by $2.2 million, interest on investment securities increased by $204 thousand and
interest on deposits increased by $100 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 $22.9 million during 2016. The average loan balances were $428.4 million for 2016, up
$42.3 million from the $386.1 million for 2015. The following table compares loan balances by type at December 31, 2016
and 2015.
(dollars in thousands)
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land development
Equity Lines of Credit
Auto
Other
Total Gross Loans
Balance at End
of Period
12/31/16
Percent of
Loans in Each
Category to
Total Loans
12/31/16
Balance at End
of Period
12/31/15
Percent of
Loans in Each
Category to
Total Loans
12/31/15
41,293
51,103
21,283
226,136
21,904
42,338
53,553
3,513
461,123
9.0% $
11.1%
4.6%
49.0%
4.7%
9.2%
11.6%
0.8%
100% $
37,084
39,856
25,474
192,095
16,188
38,327
48,365
3,582
400,971
9.2%
9.9%
6.4%
47.9%
4.0%
9.6%
12.1%
0.9%
100%
$
$
23
The average yield on loans was 5.35% for 2016 down slightly from 5.37% for 2015. We attribute much of the decrease in
yield to price competition in our service area for commercial real estate loans mostly offset by the 25 basis point increase in
the prime rate on December 17, 2015.
Interest on investment securities increased by $204 thousand as a result of an increase in yield of 4 basis points from 1.86%
during 2015 to 1.90% during 2016 and an increase in average balance from $91.3 million in 2015 to $99.7 million in 2016.
Interest income on interest bearing deposits, which totaled $274 thousand in 2016 and $174 thousand in 2015, primarily
relates to interest on cash balances held at the Federal Reserve. The $100 thousand increase in interest on interest bearing
deposits was related to an increase in yield of 23 basis points from 39 basis points in 2015 to 62 basis points in 2016 and is
consistent with the increase in the average fed funds rate during these periods.
Interest expense on deposits increased by $19 thousand to $537 thousand for the twelve months ended December 31, 2016,
up from $518 thousand in 2015. Interest expense on time deposits declined by $24 thousand from $181 thousand during
2015 to $157 thousand during 2016. Average time deposits declined by $3.6 million from $54.4 million during 2015 to
$50.8 million during the year ended December 31, 2016. 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 0.33% during 2015 to 0.31% 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 $5 thousand. Rates paid on NOW accounts averaged 0.09% during 2016
and 2015. Average balances increased by $4.3 million from 2015 to $92.5 million. Interest expense on money market
accounts increased by $12 thousand to $78 thousand during the year ended December 31, 2016. Rates paid on money
market accounts averaged 0.14% during 2016 and 2015. Average balances increased by $7.4 million from $47.2 million in
2015 to $54.6 million. Interest expense on savings accounts increased by $26 thousand as we continued to experience
strong growth in this category of deposits. Average savings deposits increased by $14.2 million from $119.1 million during
2015 to $133.3 million during 2016. The average rate paid on savings accounts during these same periods was 16 basis
points.
Interest expense on other interest-bearing liabilities decreased by $200 thousand from $686 thousand during the year ended
December 31, 2015 to $486 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. On April 16, 2015
we paid off the subordinated debenture resulting in a reduction in interest expense related to this debt of $219 thousand.
Interest expense on the Company’s note payable (see “Financial Condition – Note Payable”) decreased by $22 thousand to
$133 thousand during the twelve months ended December 31, 2016. This decrease was related to a decrease in average
borrowings on this note from $3.9 million during the 2015 period to $3.3 million during the year ended December 31,
2016. The average rate paid on the note payable was 4.04% during 2016 and 4.02% during the twelve months ended
December 31, 2015.
Interest expense on junior subordinated debentures, which increased by $42 thousand to $348 thousand, fluctuates with
changes in the 3-month London Interbank Offered Rate (LIBOR). Interest on other borrowings, which mostly relates to
repurchase agreements, totaled $5 thousand in 2016 and $6 thousand in 2015.
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 2016 increased to 4.21%, from 4.10% during 2015.
2015 compared to 2014. 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 during 2015, up $32.7 million from the $353.4 million during 2014.
24
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. The reduction in interest expense was
related to payoff of the subordinated debenture with interest on this debt declining by $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 a
warrant in the amount of $318 thousand.
Interest expense on the Company’s 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). Interest on other borrowings, which mostly relates to
repurchase agreements, totaled $6 thousand in 2015 and $7 thousand in 2014.
As a result of the changes noted above, the net interest margin for 2015 increased to 4.10%, from 4.05% for 2014.
Provision for Loan Losses
During the year ended December 31, 2016 we recorded a provision for loan losses of $800 thousand down $300 thousand
from $1.1 million during the year ended December 31, 2015. 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.
25
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, 2016, 2015 and
2014.
Service charges on deposit accounts $
Gain on sale of loans, net
Loan servicing fees
Earnings on bank owned life
insurance policies
(Loss) gain on sale of investments
Other income
Total non-interest income
$
4,031 $
1,770
642
341
(32)
900
7,652 $
Years Ended December 31,
2015
2016
2014
(dollars in thousands)
4,108 $
1,396
502
3,954 $
1,942
562
342
21
894
7,715 $
341
128
840
7,315 $
Change during Year
2015
2016
77 $
(172)
80
(1)
(53)
6
(63) $
(154)
546
60
1
(107)
54
400
2016 compared to 2015. During the twelve months ended December 31, 2016 and 2015 non-interest income totaled $7.7
million. Increases in service charge income of $77 thousand and loan servicing fees of $80 thousand were offset by a $172
thousand decline in gain on sale of loans and an $53 thousand decline in gain on sale of investments. The increase in
service charge income mostly relates to an increase in interchange fees on debit card transactions. Loan servicing income
represents servicing income received on the guaranteed portion of small business administration (“SBA”) loans sold into
the secondary market. At December 31, 2016 we were servicing over $96 million in guaranteed portions of loans an
increase of $10 million from over $86 million at December 31, 2015. During 2016, we sold $27.8 million in guaranteed
portions of SBA loans, resulting in a gain on sale of $1.8 million. During 2015 we sold $26.5 million in guaranteed
portions of SBA loans recording a gain of sale $1.9 million. We attribute the decline in gain on sale of SBA loans to a
decline in the average of the rate paid on loans sold as well as a reduction in SBA loan sale premiums related to market
conditions. During the twelve months ended December 31, 2016 we sold fourteen investment securities recording a net loss
of $32 thousand. During 2015 we sold fifteen available-for-sale investment securities recording a $21,000 net gain on sale.
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 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 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 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.
26
Non-Interest Expense
The following table sets forth the components of other non-interest expense for the years ended December 31, 2016, 2015
and 2014.
$
Salaries and employee benefits
Occupancy and equipment
Outside service fees
Professional fees
Telephone and data Communications
Advertising and promotion
Director compensation education
and retirement
Business development
Deposit insurance
Armored car and courier
Loan collection costs
Stationery and supplies
Insurance
Postage
Provision from change in OREO
valuation
OREO expenses
Gain on sale of OREO
Other operating expense
Total non-interest expense
$
Years Ended December 31,
2015
2016
2014
(dollars in thousands)
9,474 $
2,902
2,042
583
351
282
10,277 $
2,782
2,003
707
376
305
300
332
362
234
200
105
95
41
298
279
387
224
182
122
(9)
45
10,440 $
2,847
2,105
608
450
366
348
344
285
248
166
119
78
40
37
(34)
(60)
309
18,696 $
79
182
(198)
309
18,491 $
240
362
(101)
182
17,845 $
Change during Year
2015
2016
163 $
65
102
(99)
74
61
48
12
(77)
14
(34)
14
(17)
(1)
(42)
(216)
138
-
205 $
803
(120)
(39)
124
25
23
2
53
(25)
10
18
(17)
104
(4)
(161)
(180)
(97)
127
646
2016 compared to 2015. Non-interest expense increased by $205 thousand to $18.7 million during the twelve months
ended December 31, 2016, up from $18.5 million during 2015. The largest components of this increase were $163 thousand
in salary and benefit expense, $138 thousand related to a reduction in gain on sale of OREO properties, $102 thousand in
outside service fees, $74 thousand in telephone and data communications costs, $65 thousand in occupancy and equipment
expense and $61 thousand in advertising and promotion expense. The largest declines in non-interest expense were $216
thousand in OREO expenses, $99 thousand in professional fees and $77 thousand in deposit insurance expense.
The largest category of non-interest expense is salary and benefits expense. The two largest increases in this category were
$247 thousand in salary expense and $225 thousand in bonus expense. Other increases in salary and benefit include $93
thousand in commissions related to SBA lending activity and $51 thousand in accrued vacation expense. Bonus expense
increased from $600 thousand during the twelve months ended December 31, 2015 to $825 thousand during the current
period. Offsetting the increase in salary and bonus expense was an increase of $545 thousand in the deferral of loan
origination costs related to an increase in loan production. During the year ended December 31, 2015 we sold 12 OREO
properties for total proceeds of $2.1 million recording a net gain on sale of $198 thousand. This compares to net proceeds
of $2.2 million on the sale of 6 properties and a net gain on sale of $60 thousand during 2016. The largest component of the
increase in outside service fees is $37 thousand in costs associated with the outsourcing of our email processing beginning
in February, 2016. Of the $74 thousand increase in telephone and data communications $33 thousand relates to our Reno
Nevada branch which opened in December, 2015 while the remainder is primarily related to an upgrade in our data
communication network. The increase in occupancy and equipment costs and advertising and promotion expense also relate
to the Reno branch. We have developed an aggressive marketing plan for Reno branch which includes print and radio
advertising as well as various efforts to reach out to the community.
OREO costs which declined from $182 thousand during the twelve months ended December 31, 2015 to credit of $34
thousand during 2016 benefited from a reduction in OREO properties, a reimbursement of previously incurred costs and
$86 thousand in rental income on a new OREO property. The OREO property that produced the rental income was sold
during December, 2016. The decrease in professional fees is mostly related to a decline in legal expense related to loan
collection activities as our two largest collection cases were resolved in 2016. One case resulted in a loan loss recovery of
$360 thousand while the other case resulted in foreclosure on a commercial property which was sold in December, 2016.
27
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.
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 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
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.
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 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.
Provision for Income Taxes. The Company recorded an income tax provision of $4.8 million, or 38.9% of pre-tax income
for the year ended December 31, 2016. During 2015 the Company recorded an income tax provision of $3.7 million, or
39.0% of pre-tax income. The percentages for 2016 and 2015 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, 2016 and 2015 will be fully realized and therefore no valuation allowance was recorded.
28
Financial Condition
Loan Portfolio. Loans increased by $60.2 million, or 15%, from $401 million at December 31, 2015 to $461 million at
December 31, 2016. The increase in loan balances includes $34.0 million in commercial real estate loans, $11.3 million in
agricultural loans, $5.7 million in construction and land development loans, $5.2 million in automobile loans, $4.2 million
in commercial loans, and $4.0 million in equity lines of credit. These increases were partially offset by a decline of $4.2
million in residential real estate loans. In 2016 we hired a new agricultural/commercial loan officer located in Klamath
Falls, Oregon. The increase in agricultural loans during 2016 is largely related to his efforts. Loan growth also benefited
from the opening of our branch in Reno, Nevada during December, 2015. Loan growth related to this branch exceeded $11
million in 2016. 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 & land development
Equity Lines of Credit
Auto
Other
Total Gross Loans
Percent of
Loans in
Each
Category to
Total Loans
12/31/16
Percent of
Loans in
Each
Category to
Total Loans
12/31/15
Balance at
End of
Period
12/31/15
9.0% $
11.1%
4.6%
49.0%
4.7%
9.2%
11.6%
0.8%
100% $
37,084
39,856
25,474
192,095
16,188
38,327
48,365
3,582
400,971
9.2%
9.9%
6.4%
47.9%
4.0%
9.6%
12.1%
0.9%
100%
Balance at
End of
Period
12/31/16
41,293
51,103
21,283
226,136
21,904
42,338
53,553
3,513
461,123
$
$
Construction and land development loans represented 4.7% and 4.0% of the loan portfolio as of December 31, 2016 and
December 31, 2015, 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 5% 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 72% of the total
loan portfolio at December 31, 2016. Moreover, the business activities of the Company currently are focused in the
California counties of Plumas, Nevada, Placer, Lassen, Modoc, Shasta, and Sierra and in Washoe County in Northern
Nevada. Consequently, the results of operations and financial condition of the Company are dependent upon the general
trends in these economies and, in particular, the residential and commercial real estate markets. In addition, the
concentration of the Company's operations in these areas of Northeastern California and Northwestern Nevada exposes it to
greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes,
fires and floods in these regions.
29
The rates of interest charged on variable rate loans are set at specific increments in relation to the Company's lending rate
or other indexes such as the published prime interest rate or U.S. Treasury rates and vary with changes in these indexes.
The frequency in which variable rate loans reprice can vary from one day to several years. At December 31, 2016 and
December 31, 2015, approximately 74% and 72%, respectively of the Company's loan portfolio was comprised of variable
rate loans. At December 31, 2016 and December 31, 2015, 42% and 39%, 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 11.6% of gross loans at December 31,
2016. 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 $51 million at December 31, 2016 and $40 million at December 31, 2015. In 2016 we
hired a new agricultural/commercial loan officer located in Klamath Falls, Oregon. The increase in agricultural loans
during 2016 is mostly attributable to his efforts.
The following table sets forth the amounts of loans outstanding by category as of the dates indicated.
2016
2015
At December 31,
2014
(dollars in thousands)
192,590 $
217,569 $
2013
2012
187,264 $
174,212
$
Real estate – mortgage
Real estate – construction and land
development
Commercial
Consumer (1)
Agriculture (2)
Total loans
247,419 $
21,904
41,293
99,404
51,103
461,123
16,188
37,084
90,274
39,856
400,971
24,572
31,465
86,408
35,355
370,390
17,793
32,612
70,235
30,647
338,551
15,801
29,552
60,368
35,124
315,057
Plus:
Deferred costs
Less:
2,006
1,940
1,848
1,340
900
Allowance for loan losses
Net loans
6,549
456,580 $
6,078
396,833 $
5,451
366,787 $
5,517
334,374 $
5,686
310,271
$
(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, 2016. 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
After One
Within
One Year
Through Five
Years
(dollars in thousands)
After
Five Years
24,957 $
7,316
15,722
15,350
21,642
84,987 $
$
$
52,205 $
5,687
14,122
49,406
12,712
134,132 $
62,114 $
72,018
134,132 $
170,257 $
8,901
11,449
34,648
16,749
242,004 $
31,721 $
210,283
242,004 $
Total
247,419
21,904
41,293
99,404
51,103
461,123
93,835
282,301
376,136
30
Analysis of Asset Quality and Allowance for Loan Losses. The Company attempts to minimize credit risk through its
underwriting and credit review policies. The Company’s credit review process includes internally prepared credit reviews
as well as contracting with an outside firm to conduct periodic credit reviews. The Company’s management and lending
officers evaluate the loss exposure of classified and impaired loans on a quarterly basis, or more frequently as loan
conditions change. The Management Asset Resolution Committee (MARC) reviews the asset quality of criticized and past
due loans on a monthly basis and reports the findings to the full Board of Directors. In management's opinion, this loan
review system helps facilitate the early identification of potential criticized loans.
The Company has implemented MARC to develop an action plan to significantly reduce nonperforming assets. It consists
of the Bank’s Chief Executive Officer, Chief Financial Officer and Chief Credit Officer, and the activities are governed by
a formal written charter. The MARC meets at least quarterly and reports to the Board of Directors.
More specifically, a formal plan to effect repayment and/or disposition of every significant nonperforming loan relationship
is developed and documented for review and on-going oversight by the MARC. Some of the strategies used include but are
not limited to: 1) obtaining additional collateral, 2) obtaining additional investor cash infusion, 3) sale of the promissory
note to an outside party, 4) proceeding with foreclosure on the underlying collateral, and 5) legal action against
borrower/guarantors to encourage settlement of debt and/or collect any deficiency balance owed. Each step includes a
benchmark timeline to track progress.
MARC also provides guidance for the maintenance and timely disposition of OREO properties; including developing
financing and marketing programs to incent individuals to purchase OREO.
The allowance for loan losses is established through charges to earnings in the form of the provision for loan losses. Loan
losses are charged to and recoveries are credited to the allowance for loan losses. The allowance for loan losses is
maintained at a level deemed appropriate by management to provide for known and inherent risks in the loan portfolio. The
adequacy of the allowance for loan losses is based upon management's continuing assessment of various factors affecting
the collectability of loans; including current economic conditions, maturity of the portfolio, size of the portfolio, industry
concentrations, borrower credit history, collateral, the existing allowance for loan losses, independent credit reviews,
current charges and recoveries to the allowance for loan losses and the overall quality of the portfolio as determined by
management, regulatory agencies, and independent credit review consultants retained by the Company. There is no precise
method of predicting specific losses or amounts which may ultimately be charged off on particular segments of the loan
portfolio. The collectability of a loan is subjective to some degree, but must relate to the borrower’s financial condition,
cash flow, quality of the borrower’s management expertise, collateral and guarantees, and state of the local economy.
Formula allocations are calculated by applying loss factors to outstanding loans with similar characteristics. Loss factors
are based on the Company’s historical loss experience as adjusted for changes in the business cycle and may be adjusted for
significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date.
Historical loss data from the beginning of the latest business cycle are incorporated in the loss factors.
The discretionary allocation is based upon management’s evaluation of various loan segment conditions that are not
directly measured in the determination of the formula and specific allowances. The conditions may include, but are not
limited to, general economic and business conditions affecting the key lending areas of the Company, credit quality trends,
collateral values, loan volumes and concentrations, and other business conditions.
31
The following table provides certain information for the years indicated with respect to the Company's allowance for loan
losses as well as charge-off and recovery activity.
2016
$
6,078 $
For the Year Ended December 31,
2013
2014
2015
(dollars in thousands)
5,517 $
5,451 $
5,686 $
268
292
5
414
979
53
45
389
163
650
329
800
6,549 $
91
132
55
549
827
173
8
-
173
354
473
1,100
6,078 $
191
1,015
106
601
1,913
89
19
491
148
747
1,166
1,100
5,451 $
401
419
735
360
1,915
140
109
-
97
346
1,569
1,400
5,517 $
$
2012
6,908
1,159
616
1,524
602
3,901
66
8
81
174
329
3,572
2,350
5,686
0.08%
1.42%
0.12%
1.52%
0.33%
1.47%
0.49%
1.63%
1.18%
1.80%
Balance at beginning of period
Charge-offs:
Commercial and agricultural (2)
Real estate mortgage
Real estate construction & land
Consumer (1)
Total charge-offs
Recoveries:
Commercial and agricultural (2)
Real estate mortgage
Real estate construction & land
Consumer (1)
Total recoveries
Net charge-offs
Provision for loan losses
Balance at end of period
Net charge-offs during the period to
average loans
Allowance for loan losses to total loans
(1) Includes equity lines of credit and auto
(2) Includes agriculture real estate
During each of the years ended December 31, 2016 and 2015 we recorded a provision for loan losses of $800 thousand and
$1.1 million, respectively. Net charge-offs totaled $329 thousand during the year ended December 31, 2016 down $144
thousand from $473 thousand during the year ended December 31, 2015. Net charge-offs as a percentage of average loans
decreased from 0.12% during 2015 to 0.08% during the year ended December 31, 2016.
The following table provides a breakdown of the allowance for loan losses:
(dollars in thousands)
Commercial and agricultural
Real estate mortgage
Real estate construction & land
Consumer (includes equity Lines of Credit & Auto)
Total
Percent of
Loans in
Each
Category to
Total Loans
2016
Balance at
End of
Period
2015
Percent of
Loans in
Each
Category to
Total Loans
2015
20.1% $
53.6%
4.7%
21.6%
100.0% $
933
2,866
874
1,405
6,078
19.1%
54.3%
4.0%
22.6%
100.0%
Balance at
End of Period
2016
$
$
1,121
3,020
927
1,481
6,549
The allowance for loan losses totaled $6.5 million at December 31, 2016 and $6.1 million at December 31, 2015. Specific
reserves related to impaired loans decreased by $385 thousand from $751 thousand at December 31, 2015 to $366 thousand
at December 31, 2016. 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 $6.2 million at December 31, 2016 and $5.3 million at December 31, 2015. The allowance for loan losses as a
percentage of total loans decreased from 1.52% at December 31, 2015 to 1.42% at December 31, 2016. The percentage of
general reserves to unimpaired loans totaled 1.36% at December 31, 2016 and 1.35% at December 31, 2015.
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
32
the loan will be repaid or brought current. Generally, this collection period would not exceed 90 days. When a loan is
placed on nonaccrual status the Company's general policy is to reverse and charge against current income previously
accrued but unpaid interest. Interest income on such loans is subsequently recognized only to the extent that cash is
received and future collection of principal is deemed by management to be probable. Where the collectability of the
principal or interest on a loan is considered to be doubtful by management, it is placed on nonaccrual status prior to
becoming 90 days delinquent.
Impaired loans are measured based on the present value of the expected future cash flows discounted at the loan's effective
interest rate or the fair value of the collateral if the loan is collateral dependent. The amount of impaired loans is not
directly comparable to the amount of nonperforming loans disclosed later in this section. The primary difference between
impaired loans and nonperforming loans is that impaired loan recognition considers not only loans 90 days or more past
due, restructured loans and nonaccrual loans but also may include identified problem loans other than delinquent loans
where it is considered probable that we will not collect all amounts due to us (including both principal and interest) in
accordance with the contractual terms of the loan agreement.
A restructuring of a debt constitutes a troubled debt restructuring (TDR) if the Company, for economic or legal reasons
related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider.
Restructured workout loans typically present an elevated level of credit risk as the borrowers are not able to perform
according to the original contractual terms. Loans that are reported as TDRs are considered impaired and measured for
impairment as described above.
Loans restructured (TDRs) and not included in nonperforming loans in the following table totaled $2.6 million, $2.0
million, $2.0 million, $4.5 million and $5.4 million at December 31, 2016, 2015, 2014, 2013 and 2012, 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.
2016
2015
At December 31,
2014
(dollars in thousands)
2013
2012
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
$
2,724 $
4,546 $
6,625 $
5,519 $
13,683
-
2,724
735
12
3,471 $
-
4,546
1,756
30
6,332 $
-
6,625
3,590
13
10,228 $
17
5,536
6,399
60
11,995 $
15
13,698
5,295
41
19,034
164 $
303 $
345 $
280 $
646
29 $
0.59%
0.53%
- $
1.13%
1.06%
31 $
1.79%
1.90%
22 $
1.64%
2.33%
192
4.35%
3.98%
$
$
$
Nonperforming loans at December 31, 2016 were $2.7 million, a decrease of $1.8 million from the $4.5 million balance at
December 31, 2015. Specific reserves on nonaccrual loans totaled $298 thousand at December 31, 2016 and $683 thousand
at December 31, 2015, respectively. Performing loans past due thirty to eighty-nine days were $2.0 million at December
31, 2016 and $1.5 million at December 31, 2015.
A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or the value
of the collateral pledged, if any. Total substandard loans decreased by $2.6 million from $6.0 million at December 31, 2015
to $3.4 million at December 31, 2016. Loans classified as watch decreased by $2.9 million from $4.1 million at December
31, 2015 to $1.2 million at December 31, 2016. At December 31, 2016, $0.4 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.
33
At December 31, 2016 and December 31, 2015, the Company's recorded investment in impaired loans totaled $5.4 million
and $6.5 million, respectively. The specific allowance for loan losses related to impaired loans totaled $366 thousand and
$751 thousand at December 31, 2016 and December 31, 2015, respectively. Additionally, $0.7 million has been charged off
against the impaired loans at December 31, 2016 and December 31 2015.
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, 2016 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 six properties totaling $735 thousand at December 31, 2016 and seven properties
totaling $1.8 million at December 31, 2015. Nonperforming assets as a percentage of total assets were 0.53% at December
31, 2016 and 1.06% at December 31, 2015.
The following table provides a summary of the change in the number and balance of OREO properties for the years ended
December 31, 2016 and 2015, dollars in thousands:
Beginning Balance
Additions
Dispositions
Provision from change in OREO
valuation
Ending Balance
Year Ended December 31,
#
7 $
5
(6)
-
6 $
2016
1,756
1,200
(2,184)
(37)
735
#
15 $
4
(12)
-
7 $
2015
3,590
328
(2,083)
(79)
1,756
Investment Portfolio and Federal Funds Sold. Total investment securities were $101.6 million as of December 31, 2016
and $96.7 million as of December 31, 2015. Unrealized loss on available-for-sale investment securities totaling $1.7
million were recorded, net of $682 thousand in tax benefits, as accumulated other comprehensive income within
shareholders' equity at December 31, 2016. During the year ended December 31, 2016 the Company sold fourteen
available-for-sale investment securities for total proceeds of $14.6 million recording a $32 thousand loss on sale. The
Company realized a gain on sale from eight of these securities totaling $48 thousand and a loss on sale on six securities of
$80 thousand. Unrealized loss on available-for-sale investment securities totaling $72 thousand were recorded, net of $30
thousand 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 $12.3 million recording a $21 thousand net gain on sale. The investment portfolio at December 31, 2016
consisted of $74.9 million in securities of U.S. Government-sponsored agencies and 99 municipal securities totaling $26.7
million. There were no Federal funds sold at December 31, 2016 and December 31, 2015; however, the Bank maintained
interest earning balances at the Federal Reserve Bank totaling $32.4 million at December 31, 2016 and $47.6 million at
December 31, 2015. The balances, at December 31, 2016, earn interest at the rate of 0.75%.
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
$
$
34
2016
December 31,
2015
(dollars in thousands)
2014
- $ 1,977 $ 7,002
74,911 72,370 70,280
26,684 22,357 12,532
506
101,595 $ 96,704 $90,320
-
-
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, 2016. 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
After Five Through
Ten Years
After Ten Years
Total
Available-for-sale (Fair
Value)
Amount Yield
Amount Yield
Amount Yield
Amount Yield
Amount Yield
U.S. Government-sponsored
agency residential
mortgage-backed securities $
Municipal obligations
Total
$
-
-
-
-% $
-%
-% $
-
894
894
-% $
924
3.03% 15,978
3.03% $ 16,902
2.26% $ 73,987
9,812
3.55%
3.48% $ 83,799
2.07% $ 74,911
3.69% 26,684
2.26% $ 101,595
2.08%
3.58%
2.47%
Deposits. Total deposits increased by $55.1 million from $527 million at December 31, 2015 to $582 million at December
31, 2016. Core deposit growth remained strong in 2016 as evidenced by increases of $27.7 million in demand deposits,
$21.6 million in savings accounts, $8.4 million in money market accounts and $0.1 million in interest bearing transaction
accounts. Time deposits declined by $2.7 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, 2016 and 2015.
(dollars in thousands)
Non-interest bearing
NOW
Money Market
Savings
Time
Total Deposits
Percent of
Deposits in
Each Category
to Total
Deposits
12/31/16
Percent of
Deposits in
Each Category
to Total
Deposits
12/31/15
Balance at End
of Period
12/31/15
Balance at End
of Period
12/31/16
$
$
236,779
91,289
57,208
147,474
49,603
582,353
40.7% $
15.7%
9.8%
25.3%
8.5%
100% $
209,044
91,225
48,848
125,896
52,263
527,276
39.6%
17.3%
9.3%
23.9%
9.9%
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, 2016 or 2015.
The Company's time deposits of $100,000 or more had the following schedule of maturities at December 31, 2016 (dollars
in thousands) :
Remaining Maturity:
Three months or less
Over three months to six months
Over six months to 12 months
Over 12 months
Total
Amount
6,249
5,518
4,390
4,246
20,403
$
$
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.
35
Short-term Borrowing Arrangements. The Company is a member of the FHLB and can borrow up to $172 million from
the FHLB secured by commercial and residential mortgage loans with carrying values totaling $270 million. The Company
is required to hold FHLB stock as a condition of membership. At December 31, 2016 and December 31, 2015, the
Company held $2,438,000 and $2,380,000, respectively of FHLB stock which is recorded as a component of other assets.
Based on this level of stock holdings at December 31, 2016, the Company can borrow up to $90.3 million. To borrow the
$172 million in available credit the Company would need to purchase $2.2 million 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, 2016 and 2015.
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. This note was renewed on October 1, 2016 with the following changes in terms:
1.) The maturity date was extended to October 1, 2017
2.) The maximum amount outstanding at any one time on this note and the term loan described below cannot
exceed $5 million.
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. Additional covenant modifications were made on
renewal of the Note on October 1, 2016. The Bank was in compliance with all such covenants related to the Note and the
Term Loan at December 31, 2016 and December 31, 2015. Interest expense related to the Note and the Term Loan years
ended December 31, 2016 and 2015 totaled $133 thousand and $155 thousand, 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, 2016 or
December 31, 2015. On April 21, 2016 Plumas Bancorp made a $2 million payment on the Term Loan. The payment was
funded through a $3 million dividend from Plumas Bank. The balance of the Term Loan was $2,375,000 and $4,875,000 at
December 31, 2016 and December 31, 2015, respectively.
Repurchase Agreements. In 2011 the Bank introduced a new product for its larger business customers which use
securities sold under agreements to repurchase as an alternative to interest-bearing deposits. The balance in this product at
December 31, 2016 was $7.6 million, a decrease of $124 thousand from the December 31, 2015 balance of $7.7 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 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 twelve months ended December 31, 2015 was
$219,000.
36
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. In May of 2016
the Company repurchased a portion of the warrant, representing the right to purchase 150,000 shares of the registrant’s
common stock at a cost of $862 thousand. The remaining warrant represents the right to purchase 150,000 shares of Plumas
Bancorp common stock at an exercise price 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 $319,000 and $166,000, 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 4.40% (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 2.44% (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, 2016, 2015 and 2014 related to the
subordinated debentures was $348,000, $306,000 and $303,000, respectively.
Capital Resources
Total shareholders’ equity increased by $5.5 million from $42.5 million at December 31, 2015 to $48.0 million at
December 31, 2016. The $5.5 million increase was related to earnings during 2016 of $7.5 million and an increase of $305
thousand representing stock option activity. These items were partially offset by a decrease in net unrealized gains on
investment securities of $930 thousand, a $0.10 per share cash dividend totaling $489 thousand and the repurchase of a
portion of a warrant, in May of 2016, representing the right to purchase 150,000 shares of the registrant’s common stock at
a cost of $862 thousand.
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, reviews the appropriateness of a
cash dividend payment. Banking regulations limit the amount of dividends that may be paid without prior approval of
regulatory agencies. The Company is subject to various restrictions on the payment of dividends.
On October 20, 2016 the Company announced that its Board of Directors approved the reinstatement of a semi-annual cash
dividend. The dividend in the amount of $0.10 per share was paid on November 21, 2016 to shareholders of record at the
close of business day on November 7, 2016.
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.
37
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, sometimes called “Basel III”. The phase-in period for the final rules began
in 2015, with certain of the rules’ 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 new capital
rules include a new minimum “common equity Tier 1” ratio of 4.5%, a Tier 1 capital ratio of 6.0% (increased from 4.0%),
a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of 4.0% (calculated as Tier 1 capital to average
consolidated assets). The effective date of these requirements was January 1, 2015. In addition, the new capital rules
include a capital conservation buffer of 2.5% above each of these levels (to be phased in over three years which beginning
at 0.625% on January 1, 2016 and increasing by that amount on each subsequent January 1, until reaching 2.5% on January
1, 2019) will be required for banking institutions to avoid restrictions on their ability to pay dividends, repurchase stock or
pay discretionary bonuses. Including the capital conservation buffer of 2.5%, the New Capital Rules would result in the
following minimum ratios to be considered well capitalized: (i) a Tier 1 capital ratio of 8.5%, (ii) a common equity Tier 1
capital ratio of 7.0%, and (iii) a total capital ratio of 10.5%. 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
For Capital
Under Prompt
To be Well-Capitalized
Actual
Amount
Ratio
Adequacy Purposes
Ratio
Amount
Corrective Provisions
Amount
Ratio
December 31, 2016
Common Equity Tier 1 Ratio
Tier 1 Leverage Ratio
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
December 31, 2015
Common Equity Tier 1 Ratio
Tier 1 Leverage Ratio
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
$
$
60,521
60,521
60,521
66,804
56,300
56,300
56,300
61,839
12.1% $
9.2%
12.1%
13.3%
22,597
26,353
30,130
40,173
4.5% $
4.0%
6.0%
8.0%
32,641
32,941
40,173
50,217
12.7% $
9.4%
12.7%
14.0%
19,908
23,999
26,544
35,392
4.5% $
4.0%
6.0%
8.0%
28,756
29,999
35,392
44,240
6.5%
5.0%
8.0%
10.0%
6.5%
5.0%
8.0%
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.
38
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, 2016, the Company had $93.7 million in unfunded loan commitments and $625
thousand in letters of credit. This compares to $83.0 million in unfunded loan commitments and $265 thousand in letters of
credit at December 31, 2015. Of the $93.7 million in unfunded loan commitments, $52.9 million and $40.8 million
represented commitments to commercial and consumer customers, respectively. Of the total unfunded commitments at
December 31, 2016, $51.4 million were secured by real estate, of which $20.9 million was secured by commercial real
estate and $30.5 million was secured by residential real estate in the form of equity lines of credit. The commercial loan
commitments not secured by real estate primarily represent business lines of credit, while the consumer loan commitments
not secured by real estate primarily represent revolving credit card lines and overdraft protection lines. Since some of the
commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent
future cash requirements.
Operating Leases. The Company leases two depository branches and five lending offices and two non-branch automated
teller machine locations. Total rental expenses under all operating leases were $276,000 and $233,000 during the years
ended December 31, 2016 and 2015, respectively. The increase in rental expense in 2016 mostly relates to the rental of our
Redding, California Branch. The expiration dates of the leases vary, with the first such lease expiring during 2017 and the
last such lease expiring during 2021.
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 $172 million from the FHLB secured by commercial and
residential mortgage loans with carrying values totaling $270 million. See “Short-term Borrowing Arrangements” for
additional information on our FHLB borrowing capacity. In addition to its FHLB borrowing line, the Company has
unsecured short-term borrowing agreements with 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, 2016 or 2015.
Customer deposits are the Company’s primary source of funds. Total deposits increased by $55.1 million from $527
million at December 31, 2015 to $582 million at December 31, 2016. 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.
39
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, 2016, 2015 and 2014.
F-1
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets as of December 31, 2016 and 2015
F-3
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014
F-5
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2016, 2015 and 2014 F-6
F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
F-10
Notes to Consolidated Financial Statements
Page
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Plumas Bancorp and Subsidiary
Quincy, California
We have audited the accompanying consolidated balance sheets of Plumas Bancorp and Subsidiary (the “Company”) as of
December 31, 2016 and 2015 and the related consolidated statements of income and comprehensive income, changes in
shareholders' equity and cash flows for each of the years in the three year period ended December 31, 2016. 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, 2016 and 2015 and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 2016, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Vavrinek, Trine, Day & Co., LLP
Laguna Hills, California
March 17, 2017
F-1
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2016 and 2015
ASSETS
2016
2015
Cash and cash equivalents
Investment securities available for sale
Loans, less allowance for loan losses of $6,549,000 in 2016 and $6,078,000 in 2015
Real estate acquired through foreclosure
Premises and equipment, net
Bank owned life insurance
Accrued interest receivable and other assets
$
68,195,000
62,646,000 $
96,704,000
101,595,000
456,580,000 396,833,000
1,756,000
12,234,000
12,187,000
11,377,000
735,000
11,768,000
12,528,000
12,123,000
Total assets
$ 657,975,000 $ 599,286,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing
Interest bearing
Total deposits
Repurchase agreements
Note payable
Accrued interest payable and other liabilities
Junior subordinated deferrable interest debentures
Total liabilities
Commitments and contingencies (Note 11)
$ 236,779,000 $ 209,044,000
345,574,000 318,232,000
582,353,000 527,276,000
7,547,000
2,375,000
7,396,000
10,310,000
7,671,000
4,875,000
6,658,000
10,310,000
609,981,000 556,790,000
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 –
4,896,875 at December 31, 2016 and 4,835,432 at December 31, 2015
Retained earnings
Accumulated other comprehensive loss, net of taxes
Total shareholders' equity
-
-
5,918,000
43,048,000
(972,000 )
6,475,000
36,063,000
(42,000)
47,994,000
42,496,000
Total liabilities and shareholders' equity
$ 657,975,000 $ 599,286,000
The accompanying notes are an integral part of these consolidated financial statements.
F-2
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2016, 2015 and 2014
Interest income:
Interest and fees on loans
Interest on investment securities:
Taxable
Exempt from Federal income taxes
Other
2016
2015
2014
$
22,928,000 $
20,747,000 $
19,495,000
1,382,000
516,000
274,000
1,351,000
343,000
174,000
1,368,000
147,000
137,000
Total interest income
25,100,000
22,615,000
21,147,000
Interest expense:
Interest on deposits
Interest on note payable
Interest on subordinated debenture
Interest on junior subordinated deferrable interest debentures
Other
537,000
133,000
-
348,000
5,000
518,000
155,000
219,000
306,000
6,000
516,000
111,000
756,000
303,000
7,000
Total interest expense
1,023,000
1,204,000
1,693,000
Net interest income before provision for loan losses
24,077,000
21,411,000
19,454,000
Provision for loan losses
800,000
1,100,000
1,100,000
Net interest income after provision for loan losses
23,277,000
20,311,000
18,354,000
Non-interest income:
Service charges
Gain on sale of loans
Loan servicing fees
(Loss) gain on sale of investments
Earnings on bank owned life insurance policies, net
Other
4,031,000
1,770,000
642,000
(32,000)
341,000
900,000
3,954,000
1,942,000
562,000
21,000
342,000
894,000
4,108,000
1,396,000
502,000
128,000
341,000
840,000
Total non-interest income
7,652,000
7,715,000
7,315,000
(Continued)
F-3
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Continued)
For the Years Ended December 31, 2016, 2015 and 2014
Non-interest expenses:
Salaries and employee benefits
Occupancy and equipment
Other
Total non-interest expenses
Income before income taxes
Provision for income taxes
Net income
Basic earnings per common share
Diluted earnings per common share
Common dividends per share
2016
2015
2014
$
$
$
$
$
10,440,000 $
2,847,000
5,409,000
18,696,000
10,277,000 $
2,782,000
5,432,000
18,491,000
9,474,000
2,902,000
5,469,000
17,845,000
12,233,000
9,535,000
7,824,000
4,759,000
3,717,000
3,086,000
7,474,000 $
5,818,000 $
4,738,000
1.54 $
1.47 $
0.10 $
1.21 $
1.15 $
- $
0.99
0.95
-
The accompanying notes are an integral part of these consolidated financial statements.
F-4
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2016, 2015 and 2014
Net Income
Other comprehensive income (loss):
2016
7,474,000 $
2015
5,818,000 $
2014
4,738,000
$
Change in net unrealized gain (loss)
Less: reclassification adjustments for net losses (gains)
included in net income
(1,614,000)
51,000
2,006,000
32,000
(21,000 )
(128,000)
Net unrealized holding (loss) gain
(1,582,000)
30,000
1,878,000
Related income tax effect:
Change in unrealized (gain) loss
Reclassification of (losses) gains included in net income
665,000
(13,000)
(21,000 )
9,000
(828,000)
53,000
Income tax effect
652,000
(12,000 )
(775,000)
Total other comprehensive (loss) income
Comprehensive income
(930,000)
6,544,000 $
18,000
5,836,000 $
1,103,000
5,841,000
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2016, 2015 and 2014
Common Stock
Shares
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
(Net of Taxes)
Total
Shareholders’
Equity
Balance, January 1, 2014
4,787,739 $ 6,249,000 $ 25,507,000 $
(1,163,000) $
30,593,000
Net lncome
Other comprehensive income
Exercise of stock options and tax effect
Stock-based compensation expense
11,400
(18,000)
81,000
4,738,000
1,103,000
4,738,000
1,103,000
(18,000)
81,000
Balance, December 31, 2014
4,799,139 6,312,000 30,245,000
(60,000)
36,497,000
Net lncome
Other comprehensive income
Exercise of stock options and tax effect
Retirement of common stock in connection with the
exercise of stock options
Stock-based compensation expense
39,700
125,000
(3,407)
(32,000)
70,000
5,818,000
18,000
5,818,000
18,000
125,000
(32,000)
70,000
Balance, December 31, 2015
4,835,432 6,475,000
36,063,000
(42,000)
42,496,000
Net lncome
Other comprehensive loss
Exercise of stock options and tax effect
Repurchase of common stock warrant
Cash dividend on common stock
Stock-based compensation expense
7,474,000
(930,000)
61,443
189,000
(862,000)
(489,000)
116,000
7,474,000
(930,000)
189,000
(862,000)
(489,000)
116,000
Balance, December 31, 2016
4,896,875 $ 5,918,000 $ 43,048,000 $
(972,000) $
47,994,000
The accompanying notes are an integral part of these consolidated financial statements.
F-6
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016, 2015 and 2014
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 costs/fees, net
Stock-based compensation expense
Depreciation and amortization
Amortization of investment security premiums
Accretion of investment security discounts
Loss (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 on sale of OREO
Net gain on sale of other vehicles owned
Earnings on bank owned life insurance policies
(Benefit) provision for deferred income taxes
Decrease (increase) in accrued interest receivable and other
assets
Increase in accrued interest payable and other liabilities
Net cash provided by operating activities
2016
2015
2014
$
7,474,000 $
5,818,000 $
4,738,000
800,000
(491,000)
116,000
1,076,000
650,000
(6,000)
32,000
(1,770,000)
(30,368,000)
30,727,000
37,000
(60,000)
(36,000)
(341,000)
(660,000)
1,100,000
(350,000)
70,000
1,151,000
506,000
(4,000)
(21,000)
(1,942,000)
(26,699,000)
29,430,000
79,000
(198,000)
(78,000)
(342,000)
(539,000)
1,100,000
(752,000)
81,000
1,306,000
487,000
(8,000)
(128,000)
(1,396,000)
(22,063,000)
21,592,000
240,000
(101,000)
(59,000)
(341,000)
1,165,000
981,000
738,000
8,899,000
(1,294,000)
540,000
7,227,000
(620,000)
104,000
5,345,000
(Continued)
F-7
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2016, 2015 and 2014
2016
2015
2014
Cash flows from investing activities:
Proceeds from matured and called available- for-sale investment
securities
Proceeds from sale of available-for-sale securities
Purchases of available-for-sale investment securities
Proceeds from principal repayments from available-for-sale
government-guaranteed mortgage-backed securities
Net increase in loans
Proceeds from sale of vehicles
Proceeds from sale of other real estate
Proceeds from sale of premises and equipment
Purchases of premises and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net increase in demand, interest-bearing and savings deposits
Net decrease in time deposits
Net (decrease) increase in securities sold under agreements to
repurchase
Redemption of subordinated debenture
Cash dividends paid on common stock
Increase in note payable
Principal payment on note payable
Repurchase of common stock warrant
Proceeds from exercise of stock options
Net cash provided by financing activities
$
$
4,000,000
14,589,000
(39,643,000)
3,499,000 $
12,260,000
(34,609,000)
16,044,000
16,325,000
(40,511,000)
13,905,000
(60,619,000)
331,000
2,245,000
42,000
(600,000)
(65,750,000)
12,015,000
(32,777,000)
445,000
2,281,000
1,032,000
(2,645,000)
(38,499,000)
9,692,000
(31,733,000)
318,000
3,399,000
-
(225,000)
(26,691,000)
57,738,000
(2,661,000)
63,464,000
(4,079,000)
24,793,000
(6,341,000)
(124,000)
-
(489,000)
-
(2,500,000)
(862,000)
200,000
51,302,000
(1,955,000)
(7,500,000)
-
4,000,000
(125,000)
-
88,000
53,893,000
517,000
-
-
-
(2,000,000)
-
34,000
17,003,000
(Decrease) increase in cash and cash equivalents
(5,549,000)
22,621,000
(4,343,000)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
68,195,000
62,646,000 $
45,574,000
68,195,000 $
49,917,000
45,574,000
$
(Continued)
F-8
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2016, 2015 and 2014
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense
Income taxes
Non-cash investing activities:
Real estate acquired through foreclosure
Vehicles acquired through repossession
Loans provided for sales of real estate owned
2016
2015
2014
$
$
$
$
$
1,022,000 $
5,206,000 $
1,172,000 $
4,405,000 $
1,560,000
1,916,000
1,201,000 $
277,000 $
2,073,000 $
328,000 $
382,000 $
593,000 $
729,000
211,000
95,000
The accompanying notes are an integral part of these consolidated financial statements.
F-9
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
THE BUSINESS OF PLUMAS BANCORP
During 2002, Plumas Bancorp (the "Company") was incorporated as a bank holding company for the purpose of
acquiring Plumas Bank (the "Bank") in a one bank holding company reorganization. This corporate structure gives
the Company and the Bank greater flexibility in terms of operation, expansion and diversification. The Company
formed Plumas Statutory Trust I ("Trust I") for the sole purpose of issuing trust preferred securities on September
26, 2002. The Company formed Plumas Statutory Trust II ("Trust II") for the sole purpose of issuing trust
preferred securities on September 28, 2005.
The Bank operates eleven branches in California, including branches in Alturas, Chester, Fall River Mills,
Greenville, Kings Beach, Portola, Quincy, Redding, Susanville, Tahoe City, and Truckee. In December, 2015 the
Bank opened a branch in Reno, Nevada; its 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 lending in Auburn, California, Phoenix, Arizona and Seattle, Washington and commercial/agricultural
lending offices in Chico, California and Klamath Falls, Oregon. The Bank's primary source of revenue is generated
from providing loans to customers who are predominately small and middle market businesses and individuals
residing in the surrounding areas.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and the consolidated accounts of its
wholly-owned subsidiary, Plumas Bank. All significant intercompany balances and transactions have been
eliminated.
Plumas Statutory Trust I and Trust II are not consolidated into the Company's consolidated financial statements
and, accordingly, are accounted for under the equity method. The Company's investment in Trust I of $319,000
and Trust II of $166,000 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 2016.
These reclassifications had no impact on the Company’s consolidated financial position, results of operations or
net change in cash and cash equivalents.
F-10
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Information
Management has determined that since all of the banking products and services offered by the Company are
available in each branch of the Bank, all branches are located within the same economic environment and
management does not allocate resources based on the performance of different lending or transaction activities, it
is appropriate to aggregate the Bank branches and report them as a single operating segment. No customer
accounts for more than 10 percent of revenues for the Company or the Bank.
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, 2016 was $9.9 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,
2016 and 2015 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, 2016 and 2015 the Company did not have any investment securities classified as trading and
gains or losses on the sale of securities are computed on the specific identification method. Interest earned on
investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and
amortization of premiums accounted for by the level yield method with no pre-payment anticipated.
F-11
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, 2016 and December 31, 2015,
the Company held $2,438,000 and $2,380,000, respectively of FHLB stock. 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, 2016 and 2015 the Company had $2.5 million and $2.1 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-12
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Held for Sale, Loan Sales and Servicing (continued)
Government guaranteed loans with unpaid balances of $96,592,000 and $86,589,000 were being serviced for
others at December 31, 2016 and 2015, 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-13
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, 2016 and 2015, there were no such loans being accounted for under
this policy.
F-14
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-15
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-16
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, 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.
F-17
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (continued)
The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates
anticipated losses using historical data and utilization assumptions. The allowance for these commitments totaled
$200,000 at December 31, 2016 and 2015 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
$735,000 ($2,005,000 less a valuation allowance of $1,270,000) at December 31, 2016 and $1,756,000
($3,106,000 less a valuation allowance of $1,350,000) at December 31, 2015. Of these amounts $84,000 at
December 31, 2016 and 2015 represent foreclosed residential real estate property. There were four consumer
mortgage loans with a balance of $335 thousand secured by residential real estate properties for which formal
foreclosure proceedings are in process at December 31, 2016. 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. Proceeds from sales of other real estate owned totaled $2,245,000, $2,281,000
and $3,399,000 for the years ended December 31, 2016, 2015 and 2014, respectively. For the years ended
December 31, 2016, 2015 and 2014 the Company recorded gains on sale of other real estate owned of $60,000,
$198,000 and $101,000, 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,
2016 and 2015:
Beginning balance
Additions
Dispositions
Write-downs
Ending balance
Intangible Assets
Year Ended December 31,
2015
2016
1,756,000 $
1,200,000
(2,184,000)
(37,000)
735,000 $
3,590,000
328,000
(2,083,000)
(79,000)
1,756,000
$
$
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, 2016 and 2015, intangible assets totaled $87,000 and $94,000, respectively.
F-18
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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, 2016 and 2015.
F-19
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common
stockholders (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 (losses) gains on securities available for sale was $(32,000), $21,000 and $128,000 for 2016, 2015 and
2014, with the related tax effect of $(13,000), $9,000 and $53,000, respectively.
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 2016,
2015 and 2014 totaled $103,000, $70,000 and $75,000 or $0.02, $0.01 and $0.02 per diluted share, respectively.
Compensation expense is recognized over the vesting period on a straight line accounting basis.
The Company determines the fair value of options on the date of grant using a Black-Scholes-Merton option pricing
model that uses assumptions based on expected option life, expected stock volatility and the risk-free interest rate.
The expected volatility assumptions used by the Company are based on the historical volatility of the Company’s
common stock over the most recent period commensurate with the estimated expected life of the Company’s stock
options. The Company bases its expected life assumption on its historical experience and on the terms and
conditions of the stock options it grants to employees. The risk-free rate is based on the U.S. Treasury yield curve
for the periods within the contractual life of the options in effect at the time of the grant. The Company also makes
assumptions regarding estimated forfeitures that will impact the total compensation expenses recognized under the
Plans.
F-20
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation (continued)
During 2016 and 2014 the Company granted options to purchase 108,000 and 110,400 shares of common stock,
respectively. 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
No options were granted during the year ended December 31, 2015.
Pending Accounting Pronouncements
2016
5.1
1.52%
53.6%
2.00%
$3.55
2014
5.2
1.64%
63.8%
2.00%
$3.02
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.
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. Since the guidance does not apply to
revenue associated with financial instruments, including loans and securities that are accounted for under other
GAAP, the Company does not expect the new guidance to have a material impact on revenue most closely
associated with financial instruments, including interest income. The Company is currently performing an overall
assessment of revenue streams potentially affected by the ASU including deposit related fees and interchange fees
to determine the potential impact the new guidance is expected to have on the Company’s Consolidated Financial
Statements. The Company plans to adopt ASU No. 2014-09 on January 1, 2018 utilizing the modified
retrospective approach.
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 has performed a preliminary evaluation of the provisions of ASU No. 2016-01. Based on this
evaluation, the Company has determined that ASU No. 2016-01 is not expected to have a material impact on the
Company’s Consolidated Financial Statements; however, the Company will continue to closely monitor
developments and additional guidance.
F-21
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pending Accounting Pronouncements (continued)
On February 25, 2016, the FASB 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. ASU 2016-02 is effective for interim and annual
periods beginning after December 15, 2018. The Company has several lease agreements, including two branch
locations, which are currently considered operating leases, and therefore, not recognized on the Company’s
consolidated statements of condition. The Company expects the new guidance will require some of these lease
agreements to now be recognized on the consolidated statements of condition as a right-of-use asset and a
corresponding lease liability. Therefore, the Company’s preliminary evaluation indicates the provisions of ASU
No. 2016-02 are expected to impact the Company’s consolidated statements of condition. However, the Company
continues to evaluate the extent of potential impact the new guidance will have on the Company’s Consolidated
Financial Statements.
On March 30, 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to
Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for
share-based payment transactions, including the income tax consequences, classification of awards as either equity
or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual
periods beginning after December 15, 2016. Early application is permitted. The Company adopted ASU No. 2016-
09 on January 1, 2017 and elected to recognize forfeitures as they occur. The cumulative effect adjustment from
the modified retrospective transition of the forfeitures and the classification of awards did not have a material
effect on the Company’s financial statements or disclosures. The Company expects adoption of ASU No. 2016-09
could result in increased volatility to reported income tax expense related to excess tax benefits and tax.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. ASU
No. 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain
other instruments that aren’t measured at fair value through net income. The standard will replace today’s
“incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit
loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost,
and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-
maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-
sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a
manner similar to what they do today, except that the losses will be recognized as allowances rather than
reductions in the amortized cost of the securities. The ASU also simplifies the accounting model for purchased
credit-impaired debt securities and loans. ASU No. 2016-13 also expands the disclosure requirements regarding
an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. ASU No.
2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is
permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the
standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first
reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company has
begun its implementation efforts by establishing an implementation team chaired by the Company’s Chief Lending
Officer and composed of members of the Company’s credit administration and accounting departments. The
Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the
Company’s Consolidated Financial Statements, in particular the level of the reserve for credit losses. However, the
Company continues to evaluate the extent of the potential impact.
F-22
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
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, 2016 are as follows:
Fair Value Measurements at December 31, 2016 Using:
Carrying Value
Level 1
Level 2
Level 3
Total Fair
Value
Financial assets:
Cash and cash equivalents
Investment securities
Loans, net
FHLB stock
Accrued interest receivable
Financial liabilities:
$
62,646,000 $
101,595,000
456,580,000
2,438,000
2,312,000
62,646,000
$ 101,595,000
7,000
398,000
$
62,646,000
101,595,000
$ 459,618,000 459,618,000
N/A
2,312,000
1,907,000
Deposits
Repurchase agreements
Note payable
Junior subordinated deferrable interest
debentures
Accrued interest payable
582,353,000
7,547,000
2,375,000
532,750,000 49,586,000
7,547,000
10,310,000
59,000
9,000
36,000
F-23
582,336,000
7,547,000
2,375,000
2,375,000
7,762,000
14,000
7,762,000
59,000
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
Fair Value of Financial Instruments (continued)
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
Level 1
Level 2
Level 3
Total Fair
Value
Financial assets:
Cash and cash equivalents
Investment securities
Loans, net
FHLB stock
Accrued interest receivable
Financial liabilities:
$
68,195,000 $
96,704,000
396,833,000
2,380,000
2,048,000
68,195,000
$ 96,704,000
26,000
328,000
$
68,195,000
96,704,000
$ 395,338,000 395,338,000
N/A
2,048,000
1,694,000
Deposits
Repurchase agreements
Note payable
Junior subordinated deferrable interest
527,276,000
7,671,000
4,875,000
debentures
Accrued interest payable
10,310,000
58,000
475,013,000 52,287,000
7,671,000
8,000
38,000
527,300,000
7,671,000
4,875,000
4,875,000
6,662,000
12,000
6,662,000
58,000
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-24
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
Fair Value of Financial Instruments (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.
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.
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.
F-25
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
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, 2016 and December 31, 2015, and indicates the fair value
hierarchy of the valuation techniques utilized by the Company to determine such fair value:
Assets and liabilities measured at fair value on a recurring basis at December 31, 2016 are summarized below:
Fair Value Measurements at
December 31, 2016 Using
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair
Value
$ 74,911,000
26,684,000
$ 101,595,000 $
$ 74,911,000
26,684,000
- $ 101,595,000 $
-
Assets:
U.S. Government-sponsored agencies collateralized by
mortgage obligations-residential
Obligations of states and political subdivisions
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)
$ 1,977,000
$ 1,977,000
72,370,000
22,357,000
$ 96,704,000 $
72,370,000
22,357,000
- $ 96,704,000 $
-
Assets:
U.S. Government-sponsored agencies
U.S. Government-sponsored agencies collateralized by
mortgage obligations-residential
Obligations of states and political subdivisions
The fair value of securities available-for-sale equals quoted market price, if available. If quoted market prices are
not available, fair value is determined using quoted market prices for similar securities or matrix pricing. There
were no changes in the valuation techniques used during 2016 or 2015. 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-26
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, 2016 are summarized below:
Fair Value Measurements at December 31, 2016 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)
Total
Gains (Losses)
$
453,000 $
83,000
536,000
10,000
84,000
641,000
735,000
$ 1,271,000 $
$
-
-
-
- $
$
-
-
453,000 $
83,000
536,000
(81,000)
6,000
(75,000)
10,000
84,000
-
(37,000)
641,000
735,000
-
- $ 1,271,000 $
-
(37,000)
(112,000)
Assets:
Impaired loans:
Real estate – commercial
Equity lines of credit
Total impaired loans
Other real estate:
Real estate – residential
Real estate – commercial
Real estate – construction and land
development
Total other real estate
Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2015 are summarized below:
Assets:
Impaired loans:
Real estate – commercial
Real estate – construction and land
development
Equity lines of credit
Total impaired loans
Other real estate:
Real estate – commercial
Real estate – construction and land
development
Equity lines of credit
Total other real estate
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)
Total
Gains (Losses)
$ 1,214,000 $
$
$ 1,214,000 $
-
-
-
30,000
83,000
1,327,000
(53,000)
6,000
(47,000)
156,000
(127,000)
1,516,000
84,000
1,756,000
-
- $ 3,083,000 $
75,000
(27,000)
(79,000)
(126,000)
-
- $
30,000
83,000
1,327,000
156,000
1,516,000
84,000
1,756,000
$ 3,083,000 $
F-27
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
The Company has no liabilities which are reported at fair value.
The following methods were used to estimate fair value.
Collateral-Dependent Impaired Loans: The Bank does not record loans at fair value on a recurring basis. However,
from time to time, fair value adjustments are recorded on these loans to reflect partial write-downs, through
charge-offs or specific reserve allowances, that are based on fair value estimates of the underlying collateral. The
fair value estimates for collateral-dependent impaired loans are generally based on recent real estate appraisals or
broker opinions, obtained from independent third parties, which are frequently adjusted by management to reflect
current conditions and estimated selling costs (Level 3). Total losses of $75,000 and $47,000 represent
impairment charges recognized during the years ended December 31, 2016 and 2015, respectively, related to the
above impaired loans.
Other Real Estate: Nonrecurring adjustments to certain real estate properties classified as other real estate owned
are measured at the lower of carrying amount or fair value, less costs to sell. In cases where the carrying amount
exceeds the fair value, less costs to sell, an impairment loss is recognized. Fair values are generally based on third
party appraisals of the property which are commonly adjusted by management to reflect current conditions and
selling costs (Level 3).
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, 2016 and 2015 (dollars in thousands):
Fair Value
12/31/2016
Fair Value
12/31/2015
Valuation
Technique
Significant Unobservable Input
Range
(Weighted Average)
12/31/2016
Range
(Weighted Average)
12/31/2015
Description
Impaired Loans:
RE – Commercial $
453 $
1,214
Land and
Construction
Equity Lines of
Credit
$
$
Other Real Estate:
- $
83 $
30
83
Third Party
appraisals
Third Party
appraisals
Third Party
appraisals
Management Adjustments to Reflect
Current Conditions and Selling Costs
Management Adjustments to Reflect
Current Conditions and Selling Costs
Management Adjustments to Reflect
Current Conditions and Selling Costs
12% (12%)
9% - 12%
(10%)
8%
(8%)
8% (8%)
8%
(8%)
RE – Residential
$
10 $
Third Party
appraisals
-
Management Adjustments to Reflect
Current Conditions and Selling Costs
48% (48%)
Land and
Construction
$
641 $
1,516
RE – Commercial $
84 $
156
Equity Lines of
Credit
$
- $
84
Third Party
appraisals
Third Party
appraisals
Third Party
appraisals
Management Adjustments to Reflect
Current Conditions and Selling Costs 10% - 36% (33%)
10%
(10%)
Management Adjustments to Reflect
Current Conditions and Selling Costs
Management Adjustments to Reflect
Current Conditions and Selling Costs
40% (40%)
10%
(10%)
10%
(10%)
F-28
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, 2016 and 2015 consisted of
the following:
Available-for-Sale
Amortized
Cost
2016
Gross
Gross
Unrealized Unrealized
Gains
Losses
Estimated
Fair
Value
Debt securities:
U.S. Government-sponsored agencies collateralized by
mortgage obligations-residential
Obligations of states and political subdivisions
$ 76,207,000 $ 11,000 $(1,307,000) $ 74,911,000
27,042,000
(447,000) 26,684,000
$ 103,249,000 $ 100,000 $ (1,754,000) $ 101,595,000
89,000
Unrealized loss on available-for-sale investment securities totaling $1,654,000 were recorded, net of $682,000 in
tax benefits, as accumulated other comprehensive loss within shareholders' equity at December 31, 2016. During
the year ended December 31, 2016 the Company sold fourteen available-for-sale investment securities for total
proceeds of $14,589,000 recording a $32,000 loss on sale. The Company realized a gain on sale from eight of
these securities totaling $48,000 and a loss on sale on six securities of $80,000.
Available-for-Sale
2015
Gross
Amortized Unrealized Unrealized
Gains
Losses
Gross
Cost
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
56,000 (651,000) 72,370,000
72,965,000
21,817,000 548,000
(8,000) 22,357,000
$96,776,000 $ 604,000 $ (676,000) $96,704,000
Unrealized loss on available-for-sale investment securities totaling $72,000 were recorded, net of $30,000 in tax
benefits, as accumulated other comprehensive loss 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.
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 loss 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.
F-29
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
INVESTMENT SECURITIES (Continued)
There were no transfers of available-for-sale investment securities during the years ended December 31, 2016,
2015 or 2014. There were no securities classified as held-to-maturity at December 31, 2016 or December 31, 2015.
Investment securities with unrealized losses at December 31, 2016 and 2015 are summarized and classified
according to the duration of the loss period as follows:
December 31, 2016
Debt securities:
U.S. Government agencies collateralized by
mortgage obligations-residential
Less than 12 Months
12 Months or More
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Obligations of states and political subdivisions 18,052,000
$ 68,338,000 $ 1,237,000 $2,043,000 $ 70,000 $ 70,381,000 $1,307,000
447,000
-
70,000 $ 88,433,000 $1,754,000
$ 86,390,000 $ 1,684,000 $2,043,000 $
- 18,052,000
447,000
December 31, 2015
Debt securities:
U.S. Government- sponsored agencies
U.S. Government agencies collateralized by
mortgage obligations-residential
Obligations of states and political subdivisions
Less than 12 Months
12 Months or More
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
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
8,000
1,037,000
$48,412,000 $ 351,000 $12,040,000 $ 325,000 $60,452,000 $ 676,000
1,000 1,197,000
160,000
7,000
F-30
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
INVESTMENT SECURITIES (Continued)
At December 31, 2016, the Company held 166 securities of which 127 were in a loss position. Of the securities in
a loss position, 123 were in a loss position for less than twelve months. Of the 127 securities 61 are U.S.
Government-sponsored agencies collateralized by residential mortgage obligations and 66 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, 2016, 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, 2016 are other than
temporarily impaired.
The amortized cost and estimated fair value of investment securities at December 31, 2016 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.
After one year through five years
After five years through ten years
After ten years
Investment securities not due at a single maturity date:
Government-sponsored mortgage-backed securities
$
Amortized
Cost
Estimated Fair
Value
898,000 $
16,052,000
10,092,000
893,000
15,978,000
9,813,000
76,207,000
103,249,000 $
74,911,000
101,595,000
$
Investment securities with amortized costs totaling $73,331,000 and $62,914,000 and estimated fair values totaling
$72,112,000 and $62,483,000 at December 31, 2016 and 2015, respectively, were pledged to secure deposits and
repurchase agreements.
F-31
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Outstanding loans are summarized below:
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land development
Equity lines of credit
Auto
Other
Deferred loan costs, net
Allowance for loan losses
Loans, net
Changes in the allowance for loan losses were as follows:
December 31,
2016
41,293,000 $
51,103,000
21,283,000
226,136,000
21,904,000
42,338,000
53,553,000
3,513,000
461,123,000
2,006,000
(6,549,000)
456,580,000 $
2015
37,084,000
39,856,000
25,474,000
192,095,000
16,188,000
38,327,000
48,365,000
3,582,000
400,971,000
1,940,000
(6,078,000)
396,833,000
$
$
Balance, beginning of year
Provision charged to operations
Losses charged to allowance
Recoveries
Balance, end of year
Year Ended December 31,
2015
5,451,000 $
1,100,000
(827,000)
354,000
6,078,000 $
2016
6,078,000 $
800,000
(979,000)
650,000
6,549,000 $
2014
5,517,000
1,100,000
(1,913,000)
747,000
5,451,000
$
$
The recorded investment in impaired loans totaled $5,442,000 and $6,461,000 at December 31, 2016 and 2015,
respectively. The Company had specific allowances for loan losses of $366,000 on impaired loans of $1,534,000 at
December 31, 2016 as compared to specific allowances for loan losses of $751,000 on impaired loans of
$2,346,000 at December 31, 2015. The balance of impaired loans in which no specific reserves were required
totaled $3,908,000 and $4,115,000 at December 31, 2016 and 2015, respectively. The average recorded investment
in impaired loans for the years ended December 31, 2016, 2015 and 2014 was $5,077,000, $6,528,000 and
$8,070,000, respectively. The Company recognized $149,000, $119,000 and $152,000 in interest income on
impaired loans during the years ended December 31, 2016, 2015 and 2014, respectively. Of these amounts
$29,000, $0 and $31,000 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-32
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, 2016 and December 31, 2015 was $4,616,000
and $4,661,000, respectively. The Company has allocated $342,000 and $311,000 of specific reserves on loans to
customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2016 and
December 31, 2015, respectively. The Company has not committed to lend additional amounts on loans classified
as troubled debt restructurings at December 31, 2016 and December 31, 2015.
There were no troubled debt restructurings during the twelve months ending December 31, 2016 and 2015.
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, 2016 and 2015.
At December 31, 2016 and 2015, nonaccrual loans totaled $2,724,000 and $4,546,000, respectively. Interest
foregone on nonaccrual loans totaled $164,000, $303,000 and $345,000 for the twelve months ended December
31, 2016, 2015 and 2014, respectively. The Company recognized $29,000, $0 and $31,000 in interest income on
nonaccrual loans during the years ended December 31, 2016, 2015 and 2014, respectively. There were no loans
past due 90 days or more and on accrual status at December 31, 2016 and 2015.
Salaries and employee benefits totaling $1,882,000, $1,337,000 and $1,441,000 have been deferred as loan
origination costs during the years ended December 31, 2016, 2015 and 2014, respectively.
F-33
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables show the loan portfolio allocated by management's internal risk ratings at the dates indicated,
in thousands:
December 31, 2016
Commercial Credit Exposure
Credit Risk Profile by Internally Assigned Grade
Commercial Agricultural
Real
Estate-
Residential
Real
Estate-
Commercial
Real
Estate-
Construction
Equity
LOC
Total
Grade:
Pass
Watch
Substandard
Doubtful
Total
December 31, 2015
Grade:
Pass
Watch
Substandard
Doubtful
Total
Grade:
$
$
40,459 $
565
269
-
41,293 $
50,790 $
280
33
-
51,103 $
21,125 $
-
158
-
21,283 $
223,854 $
400
1,882
-
226,136 $
21,201 $41,983 $399,412
1,245
3,400
-
21,904 $42,338 $404,057
-
703
-
-
355
-
Commercial Credit Exposure
Credit Risk Profile by Internally Assigned Grade
Commercial Agricultural
Real
Estate-
Residential
Real
Estate-
Commercial
Real
Estate-
Construction
Equity
LOC Total
$
$
35,508 $
883
693
-
37,084 $
39,426 $
387
43
-
39,856 $
25,220 $
149
105
-
25,474 $
185,739 $
2,442
3,914
-
192,095 $
15,048 $ 37,983 $338,924
4,108
5,992
-
16,188 $ 38,327 $349,024
247
893
-
-
344
-
Consumer Credit Exposure
Credit Risk Profile
Based on Payment Activity
December 31, 2016
Other
Auto
Total
Auto
Consumer Credit Exposure
Credit Risk Profile
Based on Payment Activity
December 31, 2015
Other
Total
Performing
Non-performing
Total
$
$
53,474 $
79
53,553 $
3,511 $
2
3,513 $
56,985 $
81
57,066 $
48,300 $
65
48,365 $
3,582 $
-
3,582 $
51,882
65
51,947
F-34
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables show the allocation of the allowance for loan losses at the dates indicated, in thousands:
Commercial Agricultural Residential Commercial Construction Equity LOC Auto Other Total
Real Estate- Real Estate- Real Estate-
Year ended 12/31/16:
Allowance for Loan Losses
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Year ended 12/31/15:
Allowance for Loan Losses
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Year ended 12/31/14:
Allowance for Loan Losses
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
December 31, 2016:
Allowance for Loan Losses
Ending balance: individually evaluated for
impairment
Ending balance: collectively evaluated for
impairment
Loans
Ending balance
Ending balance: individually evaluated for
$
$
$
$
$
$
$
$
639 $
(268)
53
231
655 $
574 $
(88)
167
(14)
639 $
785 $
(191)
89
(109)
574 $
294 $
-
-
172
466 $
225 $
(3)
6
66
294 $
164 $
-
-
61
225 $
341 $
(39)
42
(64)
280 $
2,525 $
(253)
3
465
2,740 $
379 $
(132)
8
86
341 $
638 $
(127)
13
(145)
379 $
1,701 $
-
-
824
2,525 $
1,774 $
(888)
6
809
1,701 $
874 $
(5)
389
(331)
927 $
1,227 $
(55)
-
(298)
874 $
944 $
(106)
491
(102)
1,227 $
528 $
(23)
2
68
575 $
784 $
(319)
131
219
815 $
93 $
(72)
30
40
91 $
6,078
(979)
650
800
6,549
691 $
(98)
6
(71)
528 $
581 $
(414)
124
493
784 $
73 $
(37)
43
14
93 $
5,451
(827)
354
1,100
6,078
613 $
(205)
5
278
691 $
449 $
(282)
73
341
581 $
150 $
(114)
70
(33)
73 $
5,517
(1,913)
747
1,100
5,451
2 $
-
53 $
81 $
206 $
24 $
- $
- $
366
653 $
466 $
227 $
2,659 $
721 $
551 $
815 $
91 $
6,183
$
41,293 $
51,103 $
21,283 $
226,136 $
21,904 $
42,338 $53,553 $ 3,513 $ 461,123
impairment
$
16 $
258 $
1,615 $
2,323 $
833 $
326 $
69 $
2 $
5,442
Ending balance: collectively evaluated for
impairment
$
41,277 $
50,845 $
19,668 $
223,813 $
21,071 $
42,012 $53,484 $ 3,511 $ 455,681
F-35
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following table shows the allocation of the allowance for loan losses at the date indicated, in thousands:
Commercial Agricultural Residential Commercial Construction Equity LOC Auto Other Total
Real
Estate-
Real
Estate-
Real
Estate-
December 31, 2015:
Allowance for Loan Losses
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Loans
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
$
$
$
$
$
26 $
-
54 $
371 $
269 $
31 $
- $
- $
751
613 $
294 $
287 $
2,154 $
605 $
497 $
784 $
93 $
5,327
37,084 $
39,856 $
25,474 $
192,095 $
16,188 $
38,327 $48,365 $ 3,582 $ 400,971
73 $
260 $
1,593 $
3,129 $
1,029 $
311 $
66 $
- $
6,461
37,011 $
39,596 $
23,881 $
188,966 $
15,159 $
38,016 $48,299 $ 3,582 $ 394,510
F-36
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, 2016
90 Days
and
Still
Accruing
30-89 Days
Past Due
Total Past
Due
and
Nonaccrual
Nonaccrual
Current
Total
$
Commercial
Agricultural
Real estate - residential
Real estate - commercial
Real estate – construction & land
Equity Lines of Credit
Auto
Other
Total
$
77 $
-
179
519
10
276
919
23
2,003 $
- $
-
-
-
-
-
-
-
- $
- $
-
145
1,479
703
326
69
2
2,724 $
77 $
-
324
1,998
713
602
988
25
4,727 $
41,216 $
51,103
20,959
224,138
21,191
41,736
52,565
3,488
456,396 $
41,293
51,103
21,283
226,136
21,904
42,338
53,553
3,513
461,123
December 31, 2015
90 Days
and
Still
Accruing
30-89 Days
Past Due
Total Past
Due
and
Nonaccrual
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
36,571 $
39,856
24,912
188,965
15,286
38,007
47,714
3,567
6,093 $ 394,878 $
37,084
39,856
25,474
192,095
16,188
38,327
48,365
3,582
400,971
F-37
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:
As of December 31, 2016:
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, 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
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
- $
258
1,373
1,789
198
219
69
2
16 $
-
242
534
635
107
-
-
16 $
258
1,615
2,323
833
326
69
2
5,442 $
-
258
1,385
2,227
198
219
69
2
16 $
-
242
742
635
107
-
-
16 $
258
1,627
2,969
833
326
69
2
6,100 $
$
2 $
-
53
81
206
24
-
-
2 $
-
53
81
206
24
-
-
366 $
- $
259
1,291
1,589
210
121
46
-
16 $
-
243
534
658
110
-
-
16 $
259
1,534
2,123
868
231
46
-
5,077 $
-
19
77
33
-
-
-
-
1
-
11
-
8
-
-
-
1
19
88
33
8
-
-
-
149
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
47
260
1,359
2,622
221
199
65
-
26 $
-
245
1,154
808
113
-
-
73 $
260
1,604
3,776
1,029
312
65
-
7,119 $
$
26 $
-
54
371
269
31
-
-
26 $
-
54
371
269
31
-
-
751 $
39 $
262
1,346
2,057
232
156
21
-
29 $
-
246
1,203
822
115
-
-
68 $
262
1,592
3,260
1,054
271
21
-
6,528 $
1
20
79
-
-
-
-
-
-
-
11
-
8
-
-
-
1
20
90
-
8
-
-
-
119
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 $
F-38
$
$
$
$
$
$
$
$
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:
1)
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
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
$
$
55 $
605
1,422
3,389
495
121
93
1
55
605
1,433
4,036
495
121
93
1
- $
-
- $
-
1,096
1,102
254
757
294
-
-
55 $
605
2,518
3,643
1,252
415
93
1
254
757
294
-
-
55 $
605
2,535
4,290
1,252
415
93
1
$
8,582 $
9,246 $
$
- $
-
51
65
274
174
-
-
- $
-
51
65
274
174
-
-
564 $
61 $
605
1,443
2,460
512
130
81
-
- $
-
1,112
589
778
299
-
-
61 $
605
2,555
3,049
1,290
429
81
-
8,070 $
1
51
80
-
9
-
-
-
-
-
11
-
-
-
-
-
1
51
91
-
9
-
-
-
152
F-39
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
Premises and equipment, net
December 31,
2016
2015
$
$
2,863,000 $
16,028,000
7,505,000
26,396,000
(14,628,000)
11,768,000 $
2,863,000
15,833,000
7,491,000
26,187,000
(13,953,000)
12,234,000
Depreciation and amortization included in occupancy and equipment expense totaled $1,024,000, $1,055,000 and
$1,147,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
7.
DEPOSITS
Interest-bearing deposits consisted of the following:
Interest-bearing demand deposits
Money market
Savings
Time, $250,000 or more
Other time
Interest-bearing deposits
December 31,
2016
2015
$
$
91,289,000 $
57,208,000
147,474,000
4,055,000
45,548,000
345,574,000 $
91,225,000
48,848,000
125,896,000
3,079,000
49,184,000
318,232,000
At December 31, 2016, the scheduled maturities of time deposits were as follows:
Year Ending
December 31,
2017
2018
2019
2020
2021
thereafter
$
$
38,579,000
6,788,000
2,422,000
1,476,000
338,000
-
49,603,000
Deposit overdrafts reclassified as loan balances were $252,000 and $364,000 at December 31, 2016 and 2015,
respectively.
F-40
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaling $7,547,000 and $7,671,000 at December 31, 2016, and
2015, respectively are secured by U.S. Government agency securities with a carrying amount of $15,113,000 and
$13,171,000 at December 31, 2016 and 2015, 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 2016 and 2015 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
9.
BORROWING ARRANGEMENTS
$
$
2016
2015
6,411,000 $
0.08%
9,069,000 $
0.08%
6,529,000
0.08%
8,708,000
0.08%
The Company is a member of the FHLB and can borrow up to $172,000,000 from the FHLB secured by
commercial and residential mortgage loans with carrying values totaling $270,000,000. The Company is required
to hold FHLB stock as a condition of membership. At December 31, 2016 and December 31, 2015, the Company
held $2,438,000 and $2,380,000, respectively of FHLB stock which is recorded as a component of other assets.
Based on this level of stock holdings at December 31, 2016, the Company can borrow up to $90,281,000. To
borrow the $172,000,000 in available credit the Company would need to purchase $2,195,000 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, 2016
and 2015.
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. This note was renewed on October 1, 2016 with the following
changes in terms:
1.) The maturity date was extended to October 1, 2017
2.) The maximum amount outstanding at any one time on this note and the term loan described below
cannot exceed $5 million.
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.
F-41
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9.
BORROWING ARRANGEMENTS (Continued)
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. Additional covenant modifications were
made on renewal of the Note on October 1, 2016. The Bank was in compliance with all such covenants related to
the Note and the Term Loan at December 31, 2016 and December 31, 2015. Interest expense related to the Note
and the Term Loan for the years ended December 31, 2016, 2015 and 2014 totaled $133 thousand, $155 thousand
and $111 thousand, 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 or December 31, 2016. On April 21, 2016 Plumas
Bancorp made a $2 million payment on the Term Loan. The payment was funded through a $3 million dividend
from Plumas Bank. The balance of the Term Loan was $2,375,000 and $4,875,000 at December 30, 2016 and
December 31, 2015, respectively.
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 and
2014 totaled $219,000 and $756,000, 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. In May of 2016 the Company repurchased a portion of the warrant,
representing the right to purchase 150,000 shares of the registrant’s common stock at a cost of $862,000. The
remaining warrant represents the right to purchase 150,000 shares of Plumas Bancorp common stock at an exercise
price of $5.25 per share. The warrant expires on April 15, 2021.
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”).
F-42
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10.
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
Plumas Statutory Trust I and II are business trusts formed by the Company with capital of $319,000 and $166,000,
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 4.40% (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 2.44% (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.
Interest expense recognized by the Company for the years ended December 31, 2016, 2015 and 2014 related to the
subordinated debentures was $348,000, $306,000 and $303,000, respectively.
F-43
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11.
COMMITMENTS AND CONTINGENCIES
Leases
The Company has commitments for leasing premises under the terms of noncancelable operating leases expiring
from 2017 to 2021. Future minimum lease payments are as follows:
Year Ending December 31,
2017
$
2018
2019
2020
2021
$
275,000
219,000
206,000
209,000
187,000
1,096,000
Rental expense included in occupancy and equipment expense totaled $276,000, $233,000 and $192,000 for the
years ended December 31, 2016, 2015 and 2014, 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,
2016
$
$
93,699,000 $
625,000 $
2015
82,995,000
265,000
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower.
Collateral held varies, but may include accounts receivable, crops, inventory, equipment, income-producing
commercial properties, farm land and residential properties.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer
to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in
extending loans to customers. The fair value of the liability related to these letters of credit, which represents the
fees received for issuing the guarantees, was not significant at December 31, 2016 and 2015. The Company
recognizes these fees as revenues over the term of the commitment or when the commitment is used.
F-44
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11.
COMMITMENTS AND CONTINGENCIES (Continued)
At December 31, 2016, consumer loan commitments represent approximately 11% of total commitments and are
generally unsecured. Commercial and agricultural loan commitments represent approximately 37% 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 52% of total commitments and are
generally secured by property with a loan-to-value ratio not to exceed 80%. In addition, the majority of the
Company’s commitments have variable interest rates.
Concentrations of Credit Risk
The Company grants real estate mortgage, real estate construction, commercial, agricultural and consumer loans to
customers throughout Plumas, Nevada, Placer, Lassen, Sierra, Shasta and Modoc counties 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.
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, 2016, the
maximum amount available for dividend distribution under this restriction was approximately $9,900,000. 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).
On October 20, 2016 the Company announced that its Board of Directors approved the reinstatement of a semi-
annual cash dividend. The dividend, in the amount of $0.10 per share, was paid on November 21, 2016 to
shareholders of record at the close of business day on November 7, 2016.
F-45
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12.
SHAREHOLDERS' EQUITY (Continued)
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)
Net Income:
Net income
Earnings Per Share:
Basic earnings per share
Diluted earnings per share
Weighted Average Number of Shares Outstanding:
Basic shares
Diluted shares
For the Year Ended December 31,
2015
2014
2016
$
$
$
7,474 $
5,818 $
4,738
1.54 $
1.47 $
4,864
5,098
1.21 $
1.15 $
4,817
5,058
0.99
0.95
4,793
4,977
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 63,000, 53,000 and 238,000 for the years
ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016 one stock warrant was outstanding
to purchase up to 150,000 shares of the Bancorp’s common stock at an exercise price, subject to anti-dilution
adjustments, of $5.25 per share. At December 31, 2015 and 2014 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-46
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 81,893 shares of common stock remain reserved
for issuance to employees and directors and no shares are available for future grants as of December 31, 2016.
As of December 31, 2016, all remaining shares in this plan have vested and no compensation cost remains
unrecognized.
The total fair value of options vested was $0 and $49,000 for the years ended December 31, 2016 and 2015. The
total intrinsic value of options at time of exercise was $427,000 and $240,000 for the years ended December 31,
2016 and 2015, respectively.
A summary of the activity within the 2001 Plan follows:
Options outstanding at January 1, 2014
Options forfeited
Options exercised
Options outstanding at December 31, 2014
Options forfeited
Options exercised
Options outstanding at December 31, 2015
Options forfeited
Options exercised
Options outstanding at December 31, 2016
Options exercisable at December 31, 2016
Expected to vest after December 31, 2016
Shares
365,059 $
(47,266)
(11,400)
306,393
(74,600)
(38,900)
192,893
(55,800)
(55,200)
81,893 $
81,893 $
-
Weighted
Average
Remaining
Contractual
Term in
Years
Weighted
Average
Exercise
Price
Intrinsic
Value
8.53
13.64
2.95
7.95
16.26
2.95
5.75
12.61
2.95
2.95
2.95
2.2 $ 1,314,000
2.2 $ 1,314,000
In May 2013, the Company established the 2013 Stock Option Plan for which 489,443 shares of common stock are
reserved and 298,400 shares are available for future grants as of December 31, 2016. 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. During the years ended December 31, 2016 and 2014 108,000 and 110,400 options were granted,
respectively. No options were granted during the year ended December 31, 2015.
As of December 31, 2016, there was $282,000 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 2.5 years.
F-47
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:
Options outstanding at January 1, 2014
Options granted
Options outstanding at December 31, 2014
Options cancelled
Options exercised
Options outstanding at December 31, 2015
Option granted
Options cancelled
Options exercised
Options outstanding at December 31, 2016
Options exercisable at December 31, 2016
Expected to vest after December 31, 2016
Shares
-
110,400 $
110,400
(7,200)
(800)
102,400
108,000
(9,600)
(8,000)
192,800 $
44,000 $
129,798 $
Weighted
Average
Remaining
Contractual
Term in
Years
Weighted
Average
Exercise
Price
Intrinsic
Value
6.32
6.32
8.75
7.94
6.32
7.60
6.32
7.98
6.3 $ 2,198,000
558,000
5.3 $
6.6 $ 1,430,000
Compensation cost related to stock options recognized in operating results under the two stock option plans was
$116,000, $70,000 and $81,000 for the years ended December 31, 2016, 2015 and 2014, respectively. The
associated future income tax benefit recognized was $13,000, $7,000, $6,000 for the years ended December 31,
2016, 2015 and 2014, respectively.
Cash received from option exercises for the years ended December 31, 2016, 2015 and 2014 was $200,000,
$88,000 and $34,000, respectively. The tax benefit realized for the tax deductions from option exercise totaled
$12,000, $13,000 and $13,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
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-48
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, sometimes called “Basel III”. The phase-in period for the
final rules began in 2015, with certain of the rules’ 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 new capital rules include a new minimum “common equity Tier 1” ratio of 4.5%, a Tier 1 capital
ratio of 6.0% (increased from 4.0%), a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of
4.0% (calculated as Tier 1 capital to average consolidated assets). The effective date of these requirements was
January 1, 2015. In addition, the new capital rules include a capital conservation buffer of 2.5% above each of
these levels (to be phased in over three years which beginning at 0.625% on January 1, 2016 and increasing by that
amount on each subsequent January 1, until reaching 2.5% on January 1, 2019) will be required for banking
institutions to avoid restrictions on their ability to pay dividends, repurchase stock or pay discretionary bonuses.
Including the capital conservation buffer of 2.5%, the New Capital Rules would result in the following minimum
ratios to be considered well capitalized: (i) a Tier 1 capital ratio of 8.5%, (ii) a common equity Tier 1 capital ratio
of 7.0%, and (iii) a total capital ratio of 10.5%. 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
For Capital
To be Well-Capitalized
Under Prompt
Actual
Amount Ratio Amount
Adequacy Purposes Corrective Provisions
Ratio Amount
Ratio
December 31, 2016
Common Equity Tier 1 Ratio
$60,521 12.1% $
60,521 9.2%
Tier 1 Leverage Ratio
Tier 1 Risk-Based Capital Ratio 60,521 12.1%
Total Risk-Based Capital Ratio 66,804 13.3%
22,597 4.5% $
26,353 4.0%
30,130 6.0%
40,173 8.0%
32,641
32,941
40,173
50,217
6.5%
5.0%
8.0%
10.0%
December 31, 2015
$56,300 12.7% $
Common Equity Tier 1 Ratio
Tier 1 Leverage Ratio
56,300 9.4%
Tier 1 Risk-Based Capital Ratio 56,300 12.7%
Total Risk-Based Capital Ratio 61,839 14.0%
19,908 4.5% $
23,999 4.0%
26,544 6.0%
35,392 8.0%
28,756
29,999
35,392
44,240
6.5%
5.0%
8.0%
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-49
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13.
OTHER EXPENSES
Other expenses consisted of the following:
Outside service fees
Professional fees
Telephone and data communications
Advertising and promotion
Director compensation and retirement
Business development
Deposit insurance
Armored car and courier
Loan collection expenses
Stationery and supplies
Insurance
Postage
Provision from change in OREO valuation
OREO expenses
Gain on sale of other real estate
Other operating expenses
Other non-interest expense
2016
2,105,000 $
608,000
450,000
366,000
348,000
344,000
285,000
248,000
166,000
119,000
78,000
40,000
37,000
(34,000)
(60,000)
309,000
5,409,000 $
Year Ended December 31,
2015
2,003,000 $
707,000
376,000
305,000
300,000
332,000
362,000
234,000
200,000
105,000
95,000
41,000
79,000
182,000
(198,000)
309,000
5,432,000 $
2014
2,042,000
583,000
351,000
282,000
298,000
279,000
387,000
224,000
182,000
122,000
(9,000)
45,000
240,000
362,000
(101,000)
182,000
5,469,000
$
$
14.
INCOME TAXES
The provision for income taxes for the years ended December 31, 2016, 2015 and 2014 consisted of the following:
2016
Current
Deferred
Provision for income taxes
2015
Current
Deferred
Provision for income taxes
2014
Current
Deferred
Provision for income taxes
Federal
4,156,000 $
(575,000)
3,581,000 $
State
1,263,000 $
(85,000)
1,178,000 $
Federal
State
3,625,000 $
(848,000)
2,777,000 $
631,000 $
309,000
940,000 $
Federal
State
1,863,000 $
401,000
2,264,000 $
58,000 $
764,000
822,000 $
$
$
$
$
$
$
Total
5,419,000
(660,000)
4,759,000
Total
4,256,000
(539,000)
3,717,000
Total
1,921,000
1,165,000
3,086,000
F-50
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14.
INCOME TAXES (Continued)
Deferred tax assets (liabilities) consisted of the following:
December 31,
2016
2015
Deferred tax assets:
Allowance for loan losses
Deferred compensation
OREO valuation allowance
Premises and equipment
Unrealized loss on available-for-sale investment securities
Other
Total deferred tax assets
$
1,741,000 $
1,574,000
519,000
515,000
682,000
1,070,000
6,101,000
903,000
1,774,000
556,000
619,000
30,000
721,000
4,603,000
Deferred tax liabilities:
Deferred loan costs
Other
Total deferred tax liabilities
Net deferred tax assets
(1,628,000)
(238,000)
(1,866,000)
4,235,000 $
(1,436,000)
(244,000)
(1,680,000)
2,923,000
$
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, 2016 total deferred tax assets were approximately $6,101,000 and total deferred tax liabilities
were approximately $1,866,000 for a net deferred tax asset of $4,235,000. 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, 2016 and 2015 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-51
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
2016
2015
2014
34.0%
6.9%
(1.5)%
(0.9)%
0.4%
38.9%
34.0%
6.9%
(1.3)%
(1.2)%
0.6%
39.0%
34.0%
6.9%
(0.7)%
(1.5)%
0.7%
39.4%
The Company and its subsidiary file income tax returns in the U.S. federal and applicable state jurisdictions. The
Company conducts all of its business activities in the states of Arizona, California, Nevada and Oregon. 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, 2013, and by state and local taxing authorities for years ended before December
31, 2012.
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, 2016 and 2015 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 2016:
Balance, January 1, 2016
Disbursements
Amounts repaid
Balance, December 31, 2016
Undisbursed commitments to related parties, December 31, 2016
$
$
$
3,249,000
2,498,000
(3,511,000)
2,236,000
2,442,000
F-52
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 2016
and 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 $114,000 and $111,000, respectively. No contribution
was made for the year ended December 31, 2014.
Salary Continuation and Retirement Agreements
Salary continuation and retirement agreements are in place for the Company’s president, its current executive vice
presidents, six 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 periods ranging from ten
to fifteen years, 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, 2016, 2015 and 2014 totaled $269,000, $258,000 and
$289,000, respectively. Accrued compensation payable under these plans totaled $3,889,000 and $3,973,000 at
December 31, 2016 and 2015, respectively.
In connection with some of these agreements, the Bank purchased single premium life insurance policies with cash
surrender values totaling $12,528,000 and $12,187,000 at December 31, 2016 and 2015, respectively. Income
earned on these policies, net of expenses, totaled $341,000, $342,000 and $341,000 for the years ended December
31, 2016, 2015 and 2014, respectively.
F-53
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17.
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
December 31, 2016 and 2015
ASSETS
Cash and cash equivalents
Investment in bank subsidiary
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities
Note payable
Junior subordinated deferrable interest debentures
Total liabilities
Shareholders' equity:
Common stock
Retained earnings
Accumulated other comprehensive loss
Total shareholders' equity
2016
2015
$
281,000 $
59,840,000
571,000
849,000
56,295,000
552,000
$
60,692,000 $
57,696,000
$
13,000 $
2,375,000
10,310,000
15,000
4,875,000
10,310,000
12,698,000
15,200,000
5,918,000
43,048,000
(972,000)
6,475,000
36,063,000
(42,000)
47,994,000
42,496,000
Total liabilities and shareholders' equity
$
60,692,000 $
57,696,000
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended December 31, 2016, 2015 and 2014
Income:
Dividends declared by bank subsidiary
Earnings from investment in Plumas
Statutory Trusts I and II
Total income
Expenses:
2016
2015
2014
$
3,500,000 $
4,000,000 $
2,500,000
10,000
9,000
9,000
3,510,000
4,009,000
2,509,000
Interest on note payable
Interest on subordinated debenture
Interest on junior subordinated deferrable interest debentures
Other expenses
133,000
-
348,000
235,000
155,000
219,000
306,000
206,000
111,000
756,000
303,000
211,000
Total expenses
716,000
886,000
1,381,000
Income before equity in undistributed income of subsidiary
2,794,000
3,123,000
1,128,000
Equity in undistributed income of subsidiary
4,390,000
2,353,000
3,111,000
Income before income taxes
Income tax benefit
Net income
Total comprehensive income
7,184,000
290,000
7,474,000 $
5,476,000
342,000
5,818,000 $
4,239,000
499,000
4,738,000
6,544,000 $
5,836,000 $
5,841,000
$
$
F-54
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, 2016, 2015 and 2014
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Undistributed income of subsidiary
Amortization of discount on debentures
Stock-based compensation expense
(Decrease) increase in other assets
Decrease in other liabilities
Net cash provided by operating activities
Cash flows from financing activities:
Cash dividends paid on common stock
Redemption of subordinated debt
Repurchase of common stock warrant
Increase in note payable
Payment on note payable
Proceeds from exercise of stock options
Net cash used in financing activities
2016
2015
2014
$
7,474,000 $
5,818,000 $
4,738,000
(4,390,000)
-
32,000
(31,000)
(2,000)
3,083,000
(2,353,000)
45,000
17,000
238,000
(7,000)
3,758,000
(3,111,000)
159,000
14,000
207,000
(11,000)
1,996,000
(489,000)
-
(862,000)
-
(2,500,000)
200,000
(3,651,000)
-
(7,500,000)
-
4,000,000
(125,000)
88,000
(3,537,000)
-
-
-
-
(2,000,000)
34,000
(1,966,000)
(Decrease) increase in cash and cash equivalents
(568,000)
221,000
30,000
Cash and cash equivalents at beginning of year
849,000
628,000
598,000
Cash and cash equivalents at end of year
$
281,000 $
849,000 $
628,000
F-55
[THIS PAGE INTENTIONALLY LEFT BLANK]
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, 2016. 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, 2016, 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, 2017
41
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 can be found in Plumas Bancorp’s Definitive Proxy Statement pursuant to
Regulation 14A under the Securities Exchange Act of 1934, and is by this reference incorporated herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 can be found in Plumas Bancorp’s Definitive Proxy Statement pursuant to
Regulation 14A under the Securities Exchange Act of 1934, and is by this reference incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Item 12 can be found in Plumas Bancorp’s Definitive Proxy Statement pursuant to
Regulation 14A under the Securities Exchange Act of 1934, and is by this reference incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 can be found in Plumas Bancorp’s Definitive Proxy Statement pursuant to
Regulation 14A under the Securities Exchange Act of 1934, and is by this reference incorporated herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 can be found in Plumas Bancorp’s Definitive Proxy Statement pursuant to
Regulation 14A under the Securities Exchange Act of 1934, and is by this reference incorporated herein.
42
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
PART IV
The following documents are included or incorporated by reference in this Annual Report on Form 10K:
3.1
3.2
3.3
3.4
4
10.1
10.2
10.3
10.4
10.5
10.6
10.8
10.9
10.10
10.11
10.12
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.
Amendment to Salary Continuation Agreement of Andrew J. Ryback dated April 1, 2016, is included as
Exhibit 10.1 to the Registrant’s 8-K filed on April 4, 2016, which is incorporated by this reference herein.
Salary Continuation Agreement of Richard L. Belstock dated April 1, 2016, is included as Exhibit 10.2 to the
Registrant’s 8-K filed on April 4, 2016, which is incorporated by this reference herein.
Salary Continuation Agreement of Kerry D. Wilson dated April 1, 2016, is included as Exhibit 10.3 to the
Registrant’s 8-K filed on April 4, 2016, which is incorporated by this reference herein.
Salary Continuation Agreement of BJ North dated April 1, 2016, is included as Exhibit 10.4 to the Registrant’s
8-K filed on April 4, 2016, which is incorporated by this reference herein.
10.13 *
Director Retirement Agreement of Steven M. Coldani dated December 21, 2016.
43
10.18
10.19
10.21
10.22
10.24
10.25
10.27
10.28
10.33
10.34
10.41
10.42
10.43
10.47
10.48
10.49
10.51
10.64
10.65
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.
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.
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.
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.
44
10.66
10.67
10.69
10.70
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.
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.
11
Computation of per share earnings appears in the attached 10-K under Item 8 Financial Statements Plumas
Bancorp and Subsidiary Notes to Consolidated Financial Statements as Footnote 12 – Shareholders’ Equity.
21.01
Plumas Bank – California.
21.02
Plumas Statutory Trust I – Connecticut.
21.03
Plumas Statutory Trust II – Delaware.
23.01*
Independent Registered Public Accountant’s Consent dated March 17, 2017.
31.1*
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated March 17, 2017.
31.2*
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated March 17, 2017.
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, 2017.
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, 2017.
101.INS* XBRL Instance Document.
101.SCH* XBRL Taxonomy Schema.
101.CAL* XBRL Taxonomy Calculation Linkbase.
101.DEF* XBRL Taxonomy Definition Linkbase.
101.LAB* XBRL Taxonomy Label Linkbase.
101.PRE* XBRL Taxonomy Presentation Linkbase.
*
Filed herewith
45
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.
SIGNATURES
PLUMAS BANCORP
(Registrant)
Date: March 17, 2017
/s/ ANDREW J. RYBACK
Andrew J. Ryback,
President, Chief Executive Officer and Director
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
Andrew J. Ryback,
President, Chief Executive Officer and Director
/s/ RICHARD L. BELSTOCK
Richard L. Belstock,
Executive Vice President and Chief Financial Officer
/s/ DANIEL E. WEST
Daniel E. West, Director and Chairman of the Board
Dated: March 17, 2017
Dated: March 17, 2017
Dated: March 17, 2017
/s/ TERRANCE J. REESON
Dated: March 17, 2017
Terrance J. Reeson, Director and Vice Chairman of the Board
/s/ W. E. ELLIOTT
William E. Elliott, Director
/s/ Steven M. Coldani
Steven M. Coldani, Director
/s/ GERALD W. FLETCHER
Gerald W. Fletcher, Director
/s/ JOHN FLOURNOY
John Flournoy, Director
/s/ ROBERT J. MCCLINTOCK
Robert J. McClintock, Director
Dated: March 17, 2017
Dated: March 17, 2017
Dated: March 17, 2017
Dated: March 17, 2017
Dated: March 17, 2017
46
To our Shareholders,
2016 was an excellent year for Plumas Bancorp. In fact, it was our best year ever. We made very good progress
against our strategic agenda, delivering strong financial performance while positioning the Bank for success over
the longer term. We generated record earnings, with net income increasing to $7.5 million, up over $1.7 million
from 2015. We also ended 2016 at an all-time high in terms of loan and deposit balances and our net interest
margin continued to benefit from our growing and diversified loan portfolio. We continued to improve asset
quality while at the same time focusing on ongoing proactive expense management. All of these efforts resulted
in significantly improved financial performance and a solid capital position and, because of this, we were able to
reinstate a semi-annual cash dividend to our shareholders.
In 2016 we also successfully executed on our strategic expansion plan by opening loan production offices in both
Klamath Falls, Oregon and Seattle, Washington. The Klamath Falls office has contributed substantial growth to our
Agricultural loan portfolio and the Seattle office is focused on Small Business Administration (SBA) lending
opportunities. Furthermore, our new Reno branch has exceeded our expectations in both deposit and loan
growth.
Another important investment that we made in 2016, was in the health and wellness of our valued staff. In May
2016, we implemented an employee wellness program that encourages healthier habits for our employees, which
will result in increased productivity, reduced stress and, ultimately, lower healthcare costs. The program has been
embraced by over 60% of our staff and has resulted in numerous life-style improvement success stories.
Finally, in 2016, we said goodbye to two of our bank board directors, Alvin G. Blickenstaff and Arthur C. Grohs,
who retired after 28 years of service to the Company. Their insight, knowledge and business acumen have been
instrumental in the Bank’s success. They will be greatly missed and we wish them all the best.
Moving forward we expect to benefit from an increasing rate environment because of our strong core deposit
base and exceptionally low cost of funds. We have a sound, diversified balance sheet, a solid capital base and a
tremendous team dedicated to our success and to the success of our clients and shareholders. As we move
further into 2017, our 37th year of operation, we are well positioned to meet the challenges and benefit from the
opportunities that the future holds.
We remain committed to investing strategically and building the business for the long-term. Our goal is to
continue to provide outstanding value to our shareholders while creating significant opportunities and enhanced
capabilities for our clients, colleagues and communities.
Thank you for your continued confidence in and support of Plumas Bancorp.
Andrew J. Ryback
Andrew J Ryback
Director, President & Chief Executive Officer
& Chief Executive Offi
Daniel E. West
l
Chairman of the Board
[THIS PAGE INTENTIONALLY LEFT BLANK]
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 17, 2017 at 9:30 a.m. At this annual meeting,
shareholders will be asked to (i) elect eight directors for the next year, and (ii) ratify the appointment of
Vavrinek, Trine, Day & Company, LLP as our independent auditors for the fiscal year ending
December 31, 2017.
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”
the ratification of appointment of Vavrinek, Trine, Day & Company, LLP as our independent auditors for
the fiscal year ending December 31, 2017. 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
r
proxy card.
Sincerely,
Andrew J. Ryback
President and Chief Executive Officer
The date of this proxy statement is March 31, 2017.
TABLE OF CONTENTS
Notice of Annual Meeting
General Information
Revocability of Proxies and Proxy Voting
Persons Making the Solicitation
Voting Securities
Shareholdings of Certain Beneficial Owners and Management
Section 16(a) Beneficial Ownership Compliance
Proposal No. 1—Election of Directors
Board of Directors
Director Experience and Qualifications
Board Matters
The Board of Directors and Committees
Shareholder Communication with the Board of Directors
Board Role in Risk Oversight
Leadership Structure of Board
Code of Ethics
Director Independence
Audit Committee
Audit Committee Report
Corporate Governance Committee
Executive Officers
Executive Compensation
Summary 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, 2016
Compensation of Directors
Director Compensation Table
Director Retirement Agreements
Post-Retirement Consulting Agreements
Proposal No. 2 - 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
Page
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ii
Notice of Annual Meeting of Shareholders
Plumas Bancorp
To: The Shareholders of Plumas Bancorp
Notice is hereby given of the Annual Meeting of Shareholders of Plumas Bancorp. The meeting
will be held at the Plumas Bank Credit Administration Building located at 32 Central Avenue, Quincy,
California, on Wednesday, May 17, 2017 at 9:30 a.m., for the purpose of considering and voting upon the
following matters:
1. Election of Directors. To elect eight (8) persons to serve as directors of Plumas Bancorp until their
successors are duly elected and qualified.
Steven M. Coldani
William E. Elliott
Gerald W. Fletcher
John Flournoy
Robert J. McClintock
Terrance J. Reeson
Andrew J. Ryback
Daniel E. West
2. Ratification of the Appointment of Independent Auditors. To vote on the ratification of the
appointment of Vavrinek, Trine, Day & Company, LLP as our independent auditors for the fiscal
year ending December 31, 2017.
3. Transaction of Other Business. To transact such other business as may properly come before the
meeting and any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 31, 2017 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 Board of Directors nominees for
directors and “FOR” the ratification of the appointment of Vavrinek, Trine, Day & Company, LLP
as our independent auditors for the fiscal year ending December 31, 2017, 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: March 31, 2017 Terrance J. Reeson, Vice Chairman and Secretary
iii
[THIS PAGE INTENTIONALLY LEFT BLANK]
Plumas Bancorp
Proxy Statement
Annual Meeting of Shareholders
May 17, 2017
Plumas Bancorp (the “Company”) is providing this proxy statement to its shareholders in
connection with the annual meeting of shareholders to be held at the Plumas Bank Credit Administration
Building located at 32 Central Avenue, Quincy, California, on Wednesday, May 17, 2017 at 9:30 a.m.
and at any and all adjournments or postponements thereof (the “Meeting”).
It is expected that the Company will mail this proxy statement and accompanying notice and form
of proxy to shareholders on or about April 5, 2017.
Shareholders may also view this proxy statement and the 2016 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:
(cid:120)
(cid:120)
(cid:120)
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”:
(cid:120)
(cid:120)
Proposal 1: Election to the Board of all of the 8 director nominees named in this proxy
statement;
Proposal 2: Ratification of the appointment of Vavrinek, Trine, Day & Company, LLP as
our independent auditors for the fiscal year ending December 31, 2017.
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 recommendations of the Board of Directors (the “Board”) 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:
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(cid:120)
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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.
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If no instruction is specified by the shareholder with regard to the matter on the proxy to be
acted upon, the proxy holders will vote the shares represented by the proxy “FOR” each of the
nominees for directors, and “FOR” the ratification of the appointment of Vavrinek, Trine, Day &
Company, LLP as our independent auditors for the fiscal year ending December 31, 2017. If any
other matter is presented at the Meeting, the proxy holders will vote in accordance with the
recommendations of the Board.
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, 2017 as the record date for purposes of
determining the shareholders entitled to notice of, and to vote at, the Meeting. On March 31, 2017, there
were 4,926,860 shares of the Company’s common stock issued and outstanding. Each holder of the
Company’s common stock will be entitled to one vote for each share of the Company’s common stock
held of record on the books of the Company as of the record date. In connection with the election of
directors, shares may be voted cumulatively if a shareholder present at the Meeting gives notice at the
Meeting, prior to the voting for election of directors, of his or her intention to vote cumulatively. If any
shareholder of the Company gives that notice, then all shareholders eligible to vote will be entitled to
cumulate their shares in voting for election of directors. Cumulative voting allows a shareholder to cast a
number of votes equal to the number of shares held in his or her name as of the record date, multiplied by
the number of directors to be elected. These votes may be cast for any one nominee, or may be distributed
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.
2
The eight 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 ratification of the appointment of the Company’s auditors requires the approval
of a majority of the shares represented and voting at the Meeting, with affirmative votes constituting at
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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, five 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,
2017, 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, 2017. 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
Kerry D. Wilson, EVP and CCO of Plumas Bank
Daniel E. West, Director and Chairman of the Board
Terrance J. Reeson, Director, Vice Chairman and
Secretary of the Board
Steven M. Coldani, Director
William E. Elliott, Director
Gerald W. Fletcher, Director
John Flournoy, Director
Robert J. McClintock, Director
All 11 Directors and Executive Officers as a Group
* Less than one percent
476,967 (2)
352,747 (3)
54,592 (4)
48,453 (5)
27,199 (6)
55,581 (7)
86,031 (8)
13,996 (9)
79,400 (10)
36,654 (11)
55,806 (12)
91,556 (13)
573,268
9.7
7.2
1.1
1.0
*
1.1
1.7
*
1.6
*
1.1
1.9
11.5
(1) Includes 71,700 shares subject to options held by the directors and executive officers that were exercisable within 60 days of
March 15, 2017. 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) Based solely on information provided by the beneficial owners in a Schedule 13G filed with the SEC on January 25, 2017.
Shares are owned by Cortopassi Partners, L.P. Dean A. Cortopassi is President of San Tomo, Inc., the general partner of
Cortopassi Partners, L.P. Mr. Cortopassi disclaims beneficial ownership of the shares held by Cortopassi Partners, L.P.
except to the extent of his partnership interests therein. The address of the Cortopassi Partners, L.P. is 11292 North Alpine
Road, Stockton, California 95212.
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(3) Based solely on information provided by the beneficial owners in a Schedule 13G/A filed with the SEC on January 27, 2017.
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 343,768 shares of common stock of the
Company, Siena Capital Partners Accredited, L.P. may be deemed to own 8,979 shares of common stock of the Company
and Siena Capital Management, LLC may be deemed to own 352,747 shares of common stock of the Company. The address
of the Siena entities is 100 North Riverside Plaza, Suite 1630 Chicago, Illinois 60606.
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(4) Mr. Ryback has shared voting and investment powers as to 21,900 of these shares. Includes 7,200 shares that Mr. Ryback has
the right to acquire upon the exercise of stock options within 60 days of March 15, 2017.
(5) Includes 14,100 shares that Mr. Belstock has the right to acquire upon the exercise of stock options within 60 days of March
15, 2017.
(6) Mr. Wilson has shared voting and investment powers as to 15,907 of these shares. Includes 4,800 shares that he has the right
to acquire upon the exercise of stock options within 60 days of March 15, 2017.
(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. Includes 6,400 shares that he has the right to acquire upon the exercise of stock options
within 60 days of March 15, 2017.
(8) Mr. Reeson has shared voting and investment powers as to 74,771 of these shares. Includes 6,400 shares that he has the right
to acquire upon the exercise of stock options within 60 days of March 15, 2017.
(9) Mr. Coldani has shared voting and investment powers as to 9,313 of these shares. Includes 800 shares that he has the right tot
acquire upon the exercise of stock options within 60 days of March 15, 2017.
(10) Mr. Elliott has shared voting and investment powers as to 73,000 of these shares. Includes 6,400 shares that he has the right
to acquire upon the exercise of stock options within 60 days of March 15, 2017.
(11) Mr. Fletcher has shared voting and investment powers as to 32,609 of these shares. Includes 4,000 shares that he has the
right to acquire upon the exercise of stock options within 60 days of March 15, 2017.
(12) Includes 4,000 shares that Mr. Flournoy has the right to acquire upon the exercise of stock options within 60 days of March
15, 2017.
(13) Mr. McClintock has shared voting and investment powers as to 47,858 of these shares. Includes 1,600 shares that he has the
right to acquire upon the exercise of stock options within 60 days of March 15, 2017.
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.
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Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to the Company
during and with respect to its 2016 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 2016 by Section 16(a) of the Securities Exchange Act of 1934, as amended.
4
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 2018 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 eight nominees, as appropriate, or as
many as possible under the rules of cumulative voting. The eight 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
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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. Each of the nominees is currently a
director of the Company and the Company’s subsidiary, Plumas Bank (the “Bank”).
Year First
Appointed
Other than Director Age Director
Name and Title
Principal Occupation During the Past Five Years
Daniel E. West
Chairman of the Board
63
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
72
1984
Retired.
Steven M. Coldani
63
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
76
1987
Retired.
Gerald W. Fletcher
74
1988
Forest Products Wholesaler, Susanville, CA.
John Flournoy
72
2005
Rancher and Chief Financial Officer of Likely
Land and Livestock Corporation, Likely, CA.
Robert J. McClintock
59
2008
Certified Public Accountant, co-owner of
McClintock Accountancy Corporation, Tahoe City, CA.
Andrew J. Ryback
51
2016
President and CEO Plumas Bancorp and Plumas Bank.
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Experience and Qualifications
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. 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.
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
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 chairman and
6
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.
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 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.
Mr. 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. Mr. Ryback actively serves in a variety of international, regional and local organizations. He is a
member of Rotary International and is a past president of the Quincy club. He is on the board of the
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California Community Banking Network (CCBN), an affiliate of the Independent
Community Bankers of
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7
America (ICBA) and is active with ICBA serving on their Bank Education Committee. He is also on the
Federal Reserve Bank of San Francisco’s Community Depository Institutions Advisory Council. Locally,
Mr. Ryback serves as the Treasurer on the Board of Directors of Sierra Cascade Family Opportunities,
which oversees Head Start operations in Northeastern California, and he chairs the Plumas District
Hospital Bond Oversight Committee. Additionally, Mr. Ryback serves as Commissioner and Treasurer
for the Quincy Fire Protection District and previously served as a volunteer firefighter.
All nominees will continue to serve if elected at the Meeting until the 2018 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
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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 2016, the Company’s Board of Directors met 17 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 2016
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.
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Shareholder Communication with the Board of Directors
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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
h
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.
8
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. On February 17, 2016, the Board
adopted the Company’s cash non-equity incentive plan for 2016 (the “2016 NEI”) (See “—Executive
Equity Incentive Plan.” No individual officer’s earnings under the 2016 NEI
Compensation – Non-
exceeded $42,500, with the exception of Mr. Ryback who earned an incentive of $107,358. The
Corporate Governance Committee concluded that the 2016 NEI did not encourage unnecessary or
excessive risk taking. The other significant source of compensation to executives is in the form of long-
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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,
9
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
Steven M. Coldani
John Flournoy
Audit Committee
Robert J. McClintock
Terrance J. Reeson
Gerald W. Fletcher
The Company has an Audit Committee composed of Mr. McClintock, Chairman, and
Messrs. Flournoy, 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
applicable to audit committee members. 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.
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The Audit Committee met nine times during 2016. The Audit Committee reviews all internal and
external audits including the audit by Vavrinek, Trine, Day & Company, LLP
, the Company’s
independent auditor for 2016. 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 2016 and 2015 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 2016, 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.
10
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, 2016, for filing with the SEC.
THE AUDIT COMMITTEE:
Robert J. McClintock, Chairman
Terrance J. Reeson
Corporate Governance Committee
John Flournoy
The Company has a Corporate Governance Committee, which met four times during 2016. The
Corporate Governance Committee consists of Mr. Flournoy, Chairman, and Messrs. Coldani, Reeson and
West. The Board has determined that Messrs. Flournoy, Coldani, Reeson and West are “independent”
within the meaning of the listing standards and rules of NASDAQ, including those applicable to
compensation committee members. The Corporate Governance Committee, which functions as the
Board’s nominating and compensation committees, provides assistance to the Board by identifying
qualified individuals as prospective Board members, recommends to the Board the director nominees for
election at the annual meeting of shareholders, nominates the Chairperson and Vice-Chairperson of the
Board, oversees the annual review and evaluation of the performance of the Board and its committees,
and develops and recommends corporate governance guidelines to the Board of Directors.
The Corporate Governance Committee also serves as the Board’s compensation committee and at
least annually reviews, adjusts (as appropriate), 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
appropriate) 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
f
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, in practice, 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
f
11
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. The Committee does not
discriminated against prospective nominees on the basis of race, religion, national origin, gender, sexual
y
orientation, disability or any other basis proscribed by law. All nominees to be considered for election as
directors 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:
Chairman of the Board
Plumas Bancorp
35 S. Lindan Avenue
Quincy, CA 95971
Executive Officers
The following table sets forth information concerning the executive officers of the Company and the
Bank:
Name
Andrew J. Ryback
Age
51
Position and Principal Occupation for the Past Five Years
President and Chief Executive Officer of the Company and the Bank
since November 16, 2011.
Richard L. Belstock
60
B J North
Kerry D. Wilson
66
60
Executive Vice President of the Company and the Bank since July 18,
2012. Chief Financial Officer of the Company and the Bank since
November 16, 2011.
Executive Vice President of Retail Banking, Marketing and
Commercial Lending of the Bank since July 1, 2011.
Executive Vice President and Chief Credit Officer of the Bank since
July 18, 2012. Chief Credit Administrator of the Bank since February,
2012.
Previously Senior Vice President and Assistant Loan
Administrator of the Bank.
12
Executive Compensation
The following tables sets forth information concerning the compensation earned by the Company’s
President and Chief Executive Officer and the two other most highly compensated during 2016
(collectively, the “named executive officers.”)
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)
2016
2015
$275,010
$210,000
2016
2015
2016
2015
$173,825
$170,000
$168,713
$165,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$ 51,179
$ 0
$ 107,358
$ 100,000
$ 0
$ 0
$ 7,235
$ 6,326
$440,782
$316,326
$ 34,120
$ 0
$ 42,500
$ 25,300
$ 34,120
$ 0
$ 40,500
$ 23,700
$ 0
$ 0
$ 0
$ 0
$ 1,845
$ 1,629
$ 3,565
$ 3,242
$252,290
$196,929
$246,898
$191,942
Name and Principal
Position
(a)
Andrew J. Ryback
President and CEO of
y
the Company and
Plumas Bank
Richard L. Belstock
EVP and CFO of the
Company and Plumas
Bank
Kerry D. Wilson EVP
and Chief Credit Officer
of Plumas Bank
(1)
(2)
(3)
The Company did not grant any stock awards in 2016 or 2015.
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
2 to the Company’s audited financial
statements for the fiscal year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 17, 2017. No stock options were granted in 2015.
f
The amounts in column (i) include premiums paid and accrued on life insurance policies (Mr. Ryback
Company automobile (Mr. Ryback), tax gross ups, Company-provided gasoline and cell phone allowance.
aa
), personal use of a
Non-Equity Incentive Plan
On February 17, 2016, the Board of Directors of Plumas Bancorp (the “Company”) approved the
Company’s cash non-equity incentive plan for 2016 (the “2016 NEI”). Eligible employees under the
2016 NEI include all officers of Plumas Bank (the “Bank”) who have reached, at a minimum, the level of
Assistant Vice President. Incentives are payable under the 2016 NEI once the Bank has reached 80% of
budgeted pretax, pre-bonus income. The maximum total bonus pool available for distribution is $857,000
at 120% of budgeted pretax, pre-bonus income. At budget, the bonus pool would total $595,000. Up to
13% of the pool could be allocated to Mr. Ryback, the Company’s President and Chief Executive Officer.
Executive Vice Presidents can each earn up to 5% of the bonus pool. Under the 2016 NEI, cash incentive
payments to the Company’s President and Chief Executive Officer and its Executive Vice Presidents,
were based 60% on pretax, pre-bonus income targets, 20% upon the attainment of personal performance
goals, and 20% upon various performance metrics. Goals and metrics for the Company’s President and
Chief Executive Officer included targeted increases in loans and deposits, continued improvement in asset
quality, the establishment of a companywide wellness program and targeted levels of ROE and ROA
compared to a select group of peer institutions. A bonus pool of $825,000 was accrued under the 2016
NEI based on the Bank achieving 116% of budgeted pretax, pre-bonus income. No individual officer’s
earnings under the 2016 NEI exceeded $42,500, with the exception of Mr. Ryback who earned an
incentive of $107,358 in 2016. A total of forty-five employees received bonus payments under the 2016
NEI, which were paid during the first quarter of 2017.
Under the Company’s non-equity incentive plan for 2015 (the “2015 NEI”), an allocation of 50% of
pretax income in excess of budgeted pretax income is payable to eligible employees up to a maximum of
13
$500,000 for all eligible employees, exclusive of the CEO. The CEO’s allocation was based on 10% of
pretax income in excess of budgeted pretax income up to a maximum of $100,000. For 2015 the
maximum $600,000 was earned. No individual officer’s earnings under the 2015 NEI exceeded $25,300,
with the exception of Mr. Ryback who earned an incentive of $100,000. A total of thirty-six employees
received bonus payments under the 2015 NEI, which were paid during the first quarter of 2016.
Stock Option Awards
The Board considers equity compensation in the form of stock option awards to be an important
component of its total compensation package because it helps align the interests of the Company’s
executives to those of its shareholders and provides a significant retention incentive. During 2013 the
Company’s shareholders approved the Plumas Bancorp 2013 Stock Option Plan (the “2013 Plan”), which
allows for the granting of stock option awards to employees. The 2013 Plan has a term of 10 years. Up to
500,000 shares of common stock may be issued pursuant to awards of stock options under the 2013 Plan.
The Corporate Governance Committee approves and recommends to the Board for its approval all stock
option grants. 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.
During 2016, the Company granted a total of 79,200 stock options under the 2013 Plan to officers
at the level of Senior Vice President or above, including Mr. Ryback (14,400 shares), Mr. Belstock (9,600
shares) and Mr. Wilson (9,600 shares). The options were granted on February 17, 2016, have an exercise
price of $8.75 per share, vest in four equal annual installments over a four year period and expire eight
years after the date of grant. The Company granted no stock options granted during the year ended
December 31, 2015.
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. Generally, 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
f
y
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 2005 agreement provides Mr. Ryback with salary continuation benefits of up to
$62,000 per year for 15 years after retirement at age 65. On April 1, 2016 this agreement was amended to
increase Mr. Ryback’s annual benefit from $62,000 to $80,000 per year. 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
t
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.
a
14
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.
On April 1, 2016, the Company entered into Salary Continuation Agreements with Mr. Belstock,
and Mr. Wilson. Mr. Belstock’s agreement provides him with salary continuation benefits of up to
$54,000 per year for 10 years, subject to his continuous employment through March 31, 2026. Mr.
Wilson’s agreement provides salary continuation benefits of up to $48,000 per year for 10 years, subject
to his continuous employment through March 31, 2026. If Messrs. Belstock or Wilson terminates
employment with the Company for a reason other than a change in control prior to the retirement date of
aa
March 31, 2026, he will be entitled to salary continuation benefits at a reduced amount depending on their
length of service with the Company. In the event of a change of control of the Company and Messrs.
Belstock or Wilson terminates his employment with the Company or its successor within a period of 24
months after such change in control, he is entitled to the 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.
Perquisites
The Company offers a qualified 401(k) plan in which the named executive officers participate on
the same terms as all other employees. On April 1, 2010 Company’s suspended its matching contribution
but reinstated it at a reduced rate beginning January 1, 2015. The company also offers its executives
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. Messrs. Ryback, Belstock and Wilson 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.
15
Outstanding Equity Awards at Fiscal Year-End
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b)
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c)
Name
(a)
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
(d)
Option
Exercise
Price ($)
(e)
Option
Expiration
Date
(f)
Andrew J.
Ryback
0 (1)
2,400 (2)
14,400
7,200
N/A
$8.75
$6.32
02/18/2024
04/28/2022
Richard L.
Belstock
0 (1)
4,800 (2)
4,500 (3)
9,600
4,800
0
N/A
$8.75
$6.32
$2.95
02/18/2024
04/28/2022
03/16/2019
Kerry D.
Wilson
0 (1)
4,800 (2)
9,600
4,800
N/A
$8.75
$6.32
02/18/2024
04/28/2022
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested ($)
(j)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(i)
Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
(g)
Market
value of
Shares or
Units of
Stock
That Have
Not
Vested ($)
(h)
0
0
0
$0
$0
$0
0
0
0
$0
$0
$0
(1) Options were granted 2/17/2016, have an eight year life and vest 25% per year beginning 2/17/2017
(2) Options were granted 4/28/2014, have an eight year life and vest 25% per year beginning 4/28/2015
(3) Options were granted 3/16/2011, have an eight year life and vest 25% per year beginning 3/16/2012
Compensation of Directors
The table below summarizes the compensation paid by the Company to non-employee Directors for
the fiscal year ended December 31, 2016.
Director Compensation Table
Fees
Earned
or Paid
in
Cash(1)
(b)
Stock
Awards
(c)
Option
Awards ($)
(2)
(d)
Non-Equity
Incentive Plan
Compensation
(e)
Nonqualified
Deferred
Compensation
Earnings
(f)
All Other
Compensation
(g)
$33,720
N/A
11,373
$26,700
N/A
11,373
N/A
N/A
N/A
N/A
$0
$0
Total
(h)
$45,093
$38,073
Name
(a)
Daniel E. West
(Chairman)
All other Non-Employee
Directors (3)
(1) During 2016, non-employee directors other than Chairman each received $2,225 per month for serving on the Company’s and
Plumas Bank’s Board of Directors. The Chairman received $2,810 per month.
(2) On February 17, 2016, the Company granted to each of its non-employee directors 3,200 in non-qualified stock options with an
exercise price of $8.75 per share. The options vest 25% per year beginning on February 17, 2017 and have an eight year life.
Vesting accelerates upon a change of control of the Company. As of December 31, 2016, each of Messrs. Elliott, Reeson and West
held options to purchase 9,600 shares of common stock; each of Messrs. Flournoy and Fletcher held options to purchase 7,200
shares of common stock; Messrs. Grohs and McClintock held options to purchase 4,800 shares of common stock; Mr. Coldani held
options to purchase 6,400 shares of common stock; and Mr. Blickenstaff held options to purchase 2,400 shares of common stock.
(3) Includes Alvin G. Blickenstaff, Steven M. Coldani, William E. Elliott, Gerald W. Fletcher, John Flournoy, Arthur Grohs, Robert J.
McClintock and Terrance J. Reeson. Messrs. Blickenstaff and Grohs retired from the Board on December 31, 2016.
16
Director Retirement Agreements
The Company has entered into Director Retirement (fee continuation) Agreements with its non-
employee Directors excluding Mr. Elliott. 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 Coldani, 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. Coldani, 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 amount depending on
the length of service with the Company, beginning the month following termination of service. The
agreements, with the exception of Messrs. Coldani, 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 Messrs. Coldani’s and 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 Agreements
The Company has entered into Post-Retirement Consulting Agreements with its non-employee
Directors with the exception of Messrs. Coldani, Flournoy, Elliott, and McClintock. 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
three 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 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.
17
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
At the Meeting, shareholders will be asked to ratify the appointment of Vavrinek, Trine, Day &
Company, LLP (“VTD’) as the Company’s independent auditors for the fiscal year ending December 31,
2017. VTD has 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, 2016 and 2015. We have
been advised by VTD and by the directors themselves that neither it nor any of its members or associates
has any relationship with us or our subsidiaries, other than as independent auditors.
Proposal 2 is nonbinding. If the appointment is not ratified, our Audit Committee will consider
whether to appoint another independent registered public accounting firm in its discretion. If the
appointment is ratified, our Audit Committee in its discretion may appoint a different independent
registered public accounting firm at any time if it determines that such a change would be advisable.
Representatives of VTD 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, 2017.
Fees Paid to Independent Auditors:
Aggregate fees billed by VTD 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 2016 and 2015 are as
follows:
Audit fees
Audit-related fees
Tax fees
Other fees
Total fees
2016
$106,000
15,000
16,000
-
$137,000
Percentage
Pre-
Approved
100%
100%
100%
-
100%
Percentage
Pre-
Approved
100%
100%
100%
-
100%
2015
$103,000
15,000
15,450
-
$133,450
The Audit Committee has considered the provision of non-audit services provided by VTD to be
compatible with maintaining its independence.
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 6, 2017 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.
18
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.
This proxy statement was first sent to shareholders on April 5, 2017. 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 6, 2017. 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
t
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 non-affiliated 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, 2016 annual report to
shareholders, and form of proxy as to this Meeting or all future shareholder meetings by calling us at
r
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.
19
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