Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2008
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Transaction report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission file number: 000-49883
PLUMAS BANCORP
(Exact name of Registrant as specified in its charter)
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California
(State or other jurisdiction of
incorporation or organization)
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75-2987096
(IRS
Employer Identification No.) |
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35 S. Lindan Avenue, Quincy, CA
(Address of principal executive offices)
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95971
(Zip Code) |
Registrant’s telephone number, including area code: (530) 283-7305
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class:
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Name of Each Exchange on which Registered: |
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| Common Stock, no par value
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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.
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Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
o Yes þ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
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. o
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:
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| Large Accelerated Filer o
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Accelerated Filer o
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Non-Accelerated Filer o
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Smaller Reporting Company þ |
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
As of June 30, 2008, the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant was approximately $45.6 million, based on the closing
price reported to the Registrant on that date of $10.63 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 17, 2009 was
4,776,339.
Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2009
Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to
SEC Regulation 14A are incorporated by reference in Part III, Items 10-14.
PART I
Forward-Looking Information
This Annual Report on Form 10-K includes forward-looking statements and information is subject to
the “safe harbor” provisions of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements (which involve Plumas Bancorp’s
(the “Company’s”) plans, beliefs and goals, refer to estimates or use similar terms) involve
certain risks and uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks and uncertainties include, but are not limited to, the
following factors:
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Competitive pressure in the banking industry, competition in the markets the Company
operates in and changes in the legal, accounting and regulatory environment |
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Changes in the interest rate environment and volatility of rate sensitive assets and
liabilities |
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Declines in the health of the economy, nationally or regionally, which could reduce the
demand for loans, reduce the ability of borrowers to repay loans and/or reduce the value
of real estate collateral securing most of the Company’s loans |
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Credit quality deterioration, which could cause an increase in the provision for loan
and lease losses |
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Devaluation of fixed income securities |
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Asset/liability matching risks and liquidity risks |
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Operational interruptions including data processing systems failure and fraud |
The Company undertakes no obligation to revise or publicly release the results of any revision to
these forward-looking statements. For additional information concerning risks and uncertainties
related to the Company and its operations, please refer to Item 1A of this Form 10-K entitled “Risk
Factors” and other information in this Report.
3
ITEM 1. BUSINESS
General
The Company. Plumas Bancorp (the “Company”) is a California corporation registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended, and is headquartered in
Quincy, California. The Company was incorporated in January 2002 and acquired all of the
outstanding shares of Plumas Bank (the “Bank”) in June 2002. The Company’s principal subsidiary is
the Bank, and the Company exists primarily for the purpose of holding the stock of the Bank and of
such other subsidiaries it may acquire or establish. At the present time, the Company’s only other
subsidiaries are Plumas Statutory Trust I and Plumas Statutory Trust II, which were formed in 2002
and 2005 solely to facilitate the issuance of trust preferred securities.
The Company’s principal source of income is dividends from the Bank, but the Company may explore
supplemental sources of income in the future. The cash outlays of the Company, including (but not
limited to) the payment of dividends to shareholders, if and when declared by the Board of
Directors, costs of repurchasing Company common stock, and the cost of servicing debt, will
generally be paid from dividends paid to the Company by the Bank.
At December 31, 2008, the Company had consolidated assets of $457 million, deposits of $372
million, other liabilities of $50 million and shareholders’ equity of $35 million. The Company’s
liabilities include $10.3 million in junior subordinated deferrable interest debentures issued in
conjunction with the trust preferred securities issued by Plumas Statutory Trust I (the “Trust I”)
in September 2002 and Plumas Statutory Trust II (the “Trust II”) in September 2005. Both Trust I
and Trust II are further discussed in the section titled “Trust Preferred Securities.”
References herein to the “Company,” “we,” “us” and “our” refer to Plumas Bancorp and its
consolidated subsidiary, unless the context indicates otherwise. Our operations are conducted at
35 South Lindan Avenue, Quincy, California. Our annual, quarterly and other reports, required
under the Securities Exchange Act of 1934 and filed with the Securities and Exchange Commission,
(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 also located at 35 South Lindan Avenue, Quincy, California. At
December 31, 2008 the Bank had approximately $457 million in assets, $359 million in net loans and
$372 million in deposits (including a deposit of $0.7 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 is participating in the Federal Deposit insurance Corporation (FDIC) Transaction Account
Guarantee Program. Under the program, through December 31, 2009, all noninterest-bearing
transaction accounts are fully guaranteed by the FDIC for the entire amount in the account.
Coverage under the Transaction Account Guarantee Program is in addition to and separate from the
coverage under the FDIC’s general deposit insurance rules.
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 thirteen branch network,
serves the seven contiguous counties of Plumas, Nevada, Sierra, Placer, Lassen, Modoc and Shasta.
The branches are located in the communities of Quincy, Portola, Greenville, Westwood, Truckee, Fall
River Mills, Alturas, Susanville, Chester, Tahoe City, Kings Beach, Loyalton and Redding. The Bank
maintains fifteen automated teller machines (“ATMs”) tied in with major statewide and national
networks. In addition to its
branch network, the Bank operates a commercial lending office in Reno, Nevada and a lending office
specializing in government-guaranteed lending in Auburn, California. The Bank’s primary business is
servicing the banking needs of these communities. Its marketing strategy stresses its local
ownership and commitment to serve the banking needs of individuals living and working in the Bank’s
primary service areas.
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With a predominant focus on personal service, the Bank has positioned itself as a multi-community
independent bank serving the financial needs of individuals and businesses within the Bank’s
geographic footprint. Our principal retail lending services include consumer and home equity
loans. Our principal commercial lending services include term real estate, land development and
construction loans. In addition, we provide commercial and industrial term, government-guaranteed
and agricultural loans as well as credit lines.
The Bank’s Government-guaranteed lending center, headquartered in Auburn, California with
additional personnel in Truckee, provides Small Business Administration and USDA Rural Development
loans to qualified borrowers throughout Northern California and Northern Nevada. During 2007 the
Bank was granted nationwide Preferred Lender status with the U.S. Small Business Administration and
we expect government-guaranteed lending to become an important part of our overall lending
operation. Also we maintain a significant participation loan portfolio. Participations with
commitments totaling $5.5 million and outstanding balances of $4.9 million, all of which were
acquired through our Reno, Nevada lending office, were purchased during 2008. Total participations
of $47.6 million and $43.3 million were included in the Company’s loan portfolio as of December 31,
2008 and 2007.
The Agricultural Credit Centers located in Susanville and Alturas provide a complete line of credit
services in support of the agricultural activities which are key to the continued economic
development of the communities we serve. “Ag lending” clients include a full range of individual
farming customers, small- to medium-sized business farming organizations and corporate farming
units.
As of December 31, 2008, the principal areas to which we directed our lending activities, and the
percentage of our total loan portfolio comprised by each, were as follows: (i) loans secured by
real estate — 61.7%; (ii) commercial and industrial loans — 11.6%; (iii) consumer loans (including
residential equity lines of credit) — 16.9%; and (iv) agricultural loans (including agricultural
real estate loans) — 9.8%.
In addition to the lending activities noted above, we offer a wide range of deposit products for
the retail and commercial banking markets including checking, interest-bearing checking, business
sweep, savings, time deposit and retirement accounts, as well as remote deposit, telephone banking
and internet banking with bill-pay options. Interest bearing deposits include our Money Fund Plu$
checking account. This account is intended to pay rates comparable to those available on a money
fund offered by a typical brokerage firm. As of December 31, 2008, the Bank had 33,217 deposit
accounts with balances totaling approximately $372 million, compared to 33,882 deposit accounts
with balances totaling approximately $393 million at December 31, 2007. We attract deposits
through our customer-oriented product mix, competitive pricing, convenient locations, extended
hours, remote deposit operations and drive-up banking, all provided with a high level of customer
service.
Most of our deposits are attracted from individuals, business-related sources and smaller municipal
entities. This mix of deposit customers resulted in a relatively modest average deposit balance of
approximately $11,500 at December 31, 2008. 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. There were no brokered deposits at December 31, 2008.
We also offer a variety of other products and services to complement the lending and deposit
services previously reviewed. These include cashier’s checks, traveler’s checks, bank-by-mail,
ATMs, night depository, safe deposit boxes, direct deposit, electronic funds transfers, on-line
banking, remote deposit, and other customary banking services.
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In order to provide non-deposit investment options, we have developed a strategic alliance with
Financial Network Investment Corporation (“FNIC”). Through this arrangement, certain employees of
the Bank are also licensed representatives of FNIC. These employees provide our customers
throughout our branch network with convenient access to annuities, insurance products, mutual
funds, and a full range of investment products.
During 2007 we added Remote Deposit to our product mix. Remote Deposit allows our customers to make
non-cash deposits remotely from their physical location. With this product, we have extended our
service area and can now meet the deposit needs of customers who may not be located within a
convenient distance of one of our branch offices.
Additionally, the Bank has devoted a substantial amount of time and capital to the improvement of
existing Bank services, during the last two fiscal years, including an on balance sheet sweep
product which we introduced during the first quarter of 2008. The officers and employees of the
Bank are continually engaged in marketing activities, including the evaluation and development of
new products and services, to enable the Bank to retain and improve its competitive position in its
service area.
We hold no patents or licenses (other than licenses required by appropriate bank regulatory
agencies or local governments), franchises, or concessions. Our business has a modest seasonal
component due to the heavy agricultural and tourism orientation of some of the communities we
serve. As our branches in less rural areas such as Truckee have expanded and with the opening our
Reno commercial lending office, the agriculture-related base has become less significant. We are
not dependent on a single customer or group of related customers for a material portion of our
deposits, nor are a material portion of our loans concentrated within a single industry or group of
related industries. There has been no material effect upon our capital expenditures, earnings, or
competitive position as a result of federal, state, or local environmental regulation.
Commitment to our Communities. The Board of Directors and Management believe that the Company
plays an important role in the economic well being of the communities it serves. Our Bank has a
continuing responsibility to provide a wide range of lending and deposit services to both
individuals and businesses. These services are tailored to meet the needs of the communities
served by the Company and the Bank.
We offer various loan products which promote home ownership and affordable housing, fuel job growth
and support community economic development. Types of loans offered range from personal and
commercial loans to real estate, construction, agricultural, and government-guaranteed community
infrastructure loans. Many banking decisions are made locally with the goal of maintaining
customer satisfaction through the timely delivery of high quality products and services.
Recent Developments. During the fourth quarter of 2007 the Company opened a government-guaranteed
lending office in Auburn, California. During the second quarter of 2007, we opened our Redding,
California branch in a temporary location and in July 2008 we relocated this branch to its
permanent location. During the fourth quarter of 2006 we opened a commercial lending office in
Reno, Nevada.
Capital Purchase Program — TARP — Preferred Stock and Stock Warrant. On January 30, 2009 the
Company entered into a Letter Agreement (the “Purchase Agreement”) with the United States
Department of the Treasury (“Treasury”), pursuant to which the Company issued and sold (i) 11,949
shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A
Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 237,712 shares of the Company’s
common stock, no par value (the “Common Stock”), for an aggregate purchase price of $11,949,000 in
cash.
The Series A Preferred Stock will qualify as Tier 1 capital and will pay cumulative dividends
quarterly at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The
Company may redeem the Series A Preferred Stock at its liquidation preference ($1,000 per share)
plus accrued and unpaid dividends
under the American Recovery and Reinvestment Act of 2009, subject to the Treasury’s consultation
with the Company’s appropriate federal regulator.
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The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise
price, subject to antidilution adjustments, equal to $7.54 per share of the Common Stock. Treasury
has agreed not to exercise voting power with respect to any shares of Common Stock issued upon
exercise of the Warrant.
Prior to January 30, 2012, unless the Company has redeemed the Series A Preferred Stock, or the
Treasury has transferred the Series A Preferred Stock to a third party, the consent of the Treasury
will be required for the Company to: (1) declare or pay any dividend or make any distribution on
shares of the Common Stock (other than regular quarterly cash dividends of not more than $0.04 per
share or regular semi-annual cash dividends of not more than $0.08 per share); or (2) redeem,
purchase or acquire any shares of Common Stock or other equity or capital securities, other than in
connection with benefit plans consistent with past practice and certain other circumstances
specified in the Purchase Agreement.
Trust Preferred Securities. During the third quarter of 2002, the Company formed a wholly owned
Connecticut statutory business trust, Plumas Statutory Trust I (the “Trust I”). On September 26,
2002, the Company issued to the Trust I, Floating Rate Junior Subordinated Deferrable Interest
Debentures due 2032 (the “Debentures”) in the aggregate principal amount of $6,186,000. In
exchange for these debentures the Trust I paid the Company $6,186,000. The Trust I funded its
purchase of debentures by issuing $6,000,000 in floating rate capital securities (“trust preferred
securities”), which were sold to a third party. These trust preferred securities qualify as Tier I
capital under current Federal Reserve Board guidelines. The Debentures are the only asset of the
Trust I. The interest rate and terms on both instruments are substantially the same. The rate is
based on the three-month LIBOR (London Interbank Offered Rate) plus 3.40%, not to exceed 11.9%,
adjustable quarterly. The proceeds from the sale of the Debentures were primarily used by the
Company to inject capital into the Bank.
During the third quarter of 2005, the Company formed a wholly owned Connecticut statutory business
trust, Plumas Statutory Trust II (the “Trust II”). On September 28, 2005, the Company issued to
the Trust II, Floating Rate Junior Subordinated Deferrable Interest Debentures due 2035 (the
“Debentures”) in the aggregate principal amount of $4,124,000. In exchange for these debentures
the Trust II paid the Company $4,124,000. The Trust II funded its purchase of debentures by
issuing $4,000,000 in floating rate capital securities (“trust preferred securities”), which were
sold to a third party. These trust preferred securities qualify as Tier I capital under current
Federal Reserve Board guidelines. The Debentures are the only asset of the Trust II. The interest
rate and terms on both instruments are substantially the same. The rate is based on the
three-month LIBOR (London Interbank Offered Rate) plus 1.48%, adjustable quarterly. The proceeds
from the sale of the Debentures were primarily used by the Company to inject capital into the Bank.
The Debentures and trust preferred securities accrue and pay distributions quarterly based on the
floating rate described above on the stated liquidation value of $1,000 per security. The Company
has entered into contractual agreements which, taken collectively, fully and unconditionally
guarantee payment of: (1) accrued and unpaid distributions required to be paid on the capital
securities; (2) the redemption price with respect to any capital securities called for redemption
by either Trust I or Trust II, and (3) payments due upon voluntary or involuntary dissolution,
winding up, or liquidation of either Trust I or Trust II.
The trust preferred securities are mandatorily redeemable upon maturity of the Debentures on
September 26, 2032 for Trust I and September 28, 2035 for Trust II, or upon earlier redemption as
provided in the indenture.
Neither Trust I nor Trust II are consolidated into the 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.
7
Business Concentrations. No individual or single group of related customer accounts is considered
material in relation to the Banks’ assets or deposits, or in relation to our overall business.
However, at December 31, 2008 approximately 75% 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 the Bank’s branch service area there are 34 traditional banking branch offices of
competing institutions, including 21 branches of 6 major banks. As of June 30, 2008, the Federal
Deposit Insurance Corporation estimated the Bank’s market share of insured deposits within the
communities it serves to be as follows: Chester 70%, Quincy 54%, Portola 47%, Alturas 38%,
Susanville 35%, Kings Beach 33%, Fall River Mills/Burney 20%, Truckee 18%, Tahoe City 3%, Redding
less than 1% and 100% in the communities of Greenville, Westwood and Loyalton. Redding is the
location of our most recently opened branch, which opened its doors in June 2007.
Technological innovations have also resulted in increased competition in financial services
markets. Such innovation has, for example, made it possible for non-depository institutions to
offer customers automated transfer payment services that previously were considered traditional
banking products. In addition, many customers now expect a choice of delivery systems and
channels, including telephone, mail, home computer, mobile, ATMs, full-service branches, and/or
in-store branches. The sources of competition in such products include traditional banks as well
as savings associations, credit unions, brokerage firms, money market and other mutual funds, asset
management groups, finance and insurance companies, internet-only financial intermediaries, and
mortgage banking firms.
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For many years we have countered rising competition by providing our own style of
community-oriented, personalized service. We rely on local promotional activity, personal contacts
by our officers, directors,
employees, and shareholders, automated 24-hour banking, and the individualized service that we can
provide through our flexible policies. This approach appears to be well-received by our customers
who appreciate a more personal and customer-oriented environment in which to conduct their
financial transactions. To meet the needs of customers who prefer to bank electronically, we offer
telephone banking, remote deposit, and personal computer and internet banking with bill payment
capabilities. This high tech and high touch approach allows the customers to tailor their access
to our services based on their particular preference.
Employees. At December 31, 2008, the Company and its subsidiary employed 195 persons. On a
full-time equivalent basis, we employed 177 persons. We believe our employee relations are
excellent.
Supervision and Regulation
The Company. As a bank holding company, we are subject to regulation under the Bank Holding
Company Act of 1956, as amended, (the “BHCA”), and are registered with and subject to the
supervision of the Federal Reserve Bank (the “FRB”). It is the policy of the FRB, that each bank
holding company serve as a source of financial and managerial strength to its subsidiary banks. We
are required to file reports with the FRB and provide such additional information as the FRB may
require. The FRB has the authority to examine us and our subsidiary, as well as any arrangements
between us and our subsidiary, with the cost of any such examination to be borne by us.
The BHCA requires us to obtain the prior approval of the FRB before acquisition of all or
substantially all of the assets of any bank or ownership or control of the voting shares of any
bank if, after giving effect to the acquisition, we would own or control, directly or indirectly,
more than 5% of the voting shares of that bank. Amendments to the BHCA expand the circumstances
under which a bank holding company may acquire control of all or substantially all of the assets of
a bank located outside the State of California.
We may not engage in any business other than managing or controlling banks or furnishing services
to our subsidiary, with the exception of certain activities which, in the opinion of the FRB, are
so closely related to banking or to managing or controlling banks as to be incidental to banking.
In addition, we are generally prohibited from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company unless that company is engaged in such authorized
activities and the Federal Reserve approves the acquisition.
We and our subsidiary are prohibited from engaging in certain tie-in arrangements in connection
with any extension of credit, sale or lease of property or provision of services. For example, with
certain exceptions, the bank may not condition an extension of credit on a customer obtaining other
services provided by us, the bank or any other subsidiary of ours, or on a promise by the customer
not to obtain other services from a competitor. In addition, federal law imposes certain
restrictions on transactions between the bank and its affiliates. As affiliates, the bank and we
are subject, with certain exceptions, to the provisions of federal law imposing limitations on and
requiring collateral for extensions of credit by the bank to any affiliate.
The Bank. As a California state-chartered bank that is not a member of the Federal Reserve, Plumas
Bank is subject to primary supervision, examination and regulation by the FDIC, the California
Department of Financial Institutions (the “DFI”) and is subject to applicable regulations of the
FRB. The Bank’s deposits are insured by the FDIC to applicable limits. As a consequence of the
extensive regulation of commercial banking activities in California and the United States, banks
are particularly susceptible to changes in California and federal legislation and regulations,
which may have the effect of increasing the cost of doing business, limiting permissible activities
or increasing competition.
Various other requirements and restrictions under the laws of the United States and the State of
California affect the operations of the Bank. Federal and California statutes and regulations
relate to many aspects of the Bank’s operations, including reserves against deposits, interest
rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends, branching, capital requirements and
disclosure obligations to depositors and borrowers. California law presently permits a bank to
locate a branch office in any locality in the state. Additionally, California law exempts banks
from California usury laws.
9
Capital Standards. The FRB and the FDIC have risk-based capital adequacy guidelines intended to
provide a measure of capital adequacy that reflects the degree of risk associated with a banking
organization’s operations for both transactions reported on the balance sheet as assets, and
transactions, such as letters of credit and recourse arrangements, which are reported as
off-balance-sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off-balance-sheet items are multiplied by one of several risk adjustment
percentages, which range from 0% for assets with low credit risk, such as certain U.S. government
securities, to 100% for assets with relatively higher credit risk, such as business loans.
A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital
by its total risk-adjusted assets and off-balance-sheet items. The regulators measure
risk-adjusted assets and off-balance-sheet items against both total qualifying capital (the sum of
Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists
of common stock, retained earnings, noncumulative perpetual preferred stock and minority interests
in certain subsidiaries, less most other intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for loan and lease losses and certain other instruments with some
characteristics of equity. The inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies. Since December 31, 1992, the FRB and
the FDIC have required a minimum ratio of qualifying total capital to risk-adjusted assets and
off-balance-sheet items of 8%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and
off-balance-sheet items of 4%.
In addition to the risk-based guidelines, the FRB and FDIC require banking organizations to
maintain a minimum amount of Tier 1 capital to average total assets, referred to as the leverage
ratio. For a banking organization rated in the highest of the five categories used by regulators
to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets is 3%.
It is improbable; however, that an institution with a 3% leverage ratio would receive the highest
rating by the regulators since a strong capital position is a significant part of the regulators’
ratings. For all banking organizations not rated in the highest category, the minimum leverage
ratio is at least 100 to 200 basis points above the 3% minimum. Thus, the effective minimum
leverage ratio, for all practical purposes, is at least 4% or 5%. In addition to these uniform
risk-based capital guidelines and leverage ratios that apply across the industry, the FRB and FDIC
have the discretion to set individual minimum capital requirements for specific institutions at
rates significantly above the minimum guidelines and ratios.
10
A bank that does not achieve and maintain the required capital levels may be issued a capital
directive by the FDIC to ensure the maintenance of required capital levels. As discussed above, we
are required to maintain certain levels of capital, as is the Bank. The regulatory capital
guidelines as well as the actual capitalization for the Bank and Bancorp as of December 31, 2008
follow:
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Requirement for the |
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Bank to be: |
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Adequately |
|
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Well |
|
|
Plumas |
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|
Plumas |
|
| |
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Capitalized |
|
|
Capitalized |
|
|
Bank |
|
|
Bancorp |
|
Tier 1 leverage capital ratio |
|
|
4.0 |
% |
|
|
5.0 |
% |
|
|
9.7 |
% |
|
|
9.8 |
% |
Tier 1 risk-based capital ratio |
|
|
4.0 |
% |
|
|
6.0 |
% |
|
|
10.8 |
% |
|
|
11.0 |
% |
Total risk-based capital ratio |
|
|
8.0 |
% |
|
|
10.0 |
% |
|
|
12.1 |
% |
|
|
12.2 |
% |
Prompt Corrective Action. Federal banking agencies possess broad powers to take corrective and
other supervisory action to resolve the problems of insured depository institutions, including
those institutions that fall below one or more prescribed minimum capital ratios described above.
An institution that, based upon its capital levels, is classified as well capitalized, adequately
capitalized, or undercapitalized may be treated as though it were in the next lower capital
category if the appropriate federal banking agency, after notice and opportunity for hearing,
determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository institution is subject
to more restrictions.
In addition to measures taken under the prompt corrective action provisions, commercial banking
organizations may be subject to potential enforcement actions by the federal regulators for unsafe
or unsound practices in conducting their businesses or for violations of any law, rule, regulation,
or any condition imposed in writing by the agency or any written agreement with the agency.
Enforcement actions may include the imposition of a conservator or receiver, the issuance of a
cease-and-desist order that can be judicially enforced, the termination of insurance of deposits
(in the case of a depository institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements, the issuance of
removal and prohibition orders against institution-affiliated parties and the enforcement of such
actions through injunctions or restraining orders based upon a judicial determination that the
agency would be harmed if such equitable relief was not granted. Additionally, a holding company’s
inability to serve as a source of strength to its subsidiary banking organizations could serve as
an additional basis for a regulatory action against the holding company.
Premiums for Deposit Insurance. The deposit insurance fund of the FDIC insures our customer
deposits up to prescribed limits for each depositor. The Federal Deposit Insurance Reform Act of
2005 and the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 amended the
insurance of deposits by the FDIC and collection of assessments from insured depository
institutions for deposit insurance. The FDIC approved a final rule to determine risk-based
assessment rates on November 2, 2006, with rates effective on January 1, 2007, however new rules
were proposed in 2008. An insured depository institution’s assessment rate under the final rule is
based on the new assessment rate schedule, its long-term debt issuer ratings or recent financial
ratios and supervisory ratings. The proposed rule would also look at other factors that increase
risks to the FDIC’s insurance fund. Any increase in assessments or the assessment rate could have
a material adverse effect on our business, financial condition, results of operations or cash
flows, depending on the amount of the increase. Furthermore, the FDIC is authorized to raise
insurance premiums under certain circumstances.
The FDIC is authorized to terminate a depository institution’s deposit insurance upon a finding by
the FDIC that the institution’s financial condition is unsafe or unsound or that the institution
has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order
or condition enacted or imposed by the institution’s regulatory agency. The termination of deposit
insurance for the bank would have a material adverse effect on our business, financial condition,
results of operations and/or cash flows.
11
Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank of San Francisco
(the “FHLB-SF”). Among other benefits, each Federal Home Loan Bank (“FHLB”) serves as a reserve or
central bank for its members within its assigned region. Each FHLB is financed primarily from the
sale of consolidated obligations of the FHLB system. Each FHLB makes available loans or advances
to its members in compliance with the policies and procedures established by the Board of Directors
of the individual FHLB. The FHLB-SF utilizes a single class of stock with a par value of $100 per
share, which may be issued, exchanged, redeemed and repurchased only at par value. As an FHLB
member, the Bank is required to own FHLB — SF capital stock in an amount equal to the greater of:
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• |
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a membership stock requirement with an initial cap of $25 million (100% of “membership
asset value” as defined), or |
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• |
|
an activity based stock requirement (based on percentage of outstanding advances). |
The FHLB — SF capital stock is redeemable on five years written notice, subject to certain
conditions.
At December 31, 2008 the Bank owned 19,328 shares of the FHLB-SF capital stock.
Federal Reserve System. The FRB requires all depository institutions to maintain non-interest
bearing reserves at specified levels against their transaction accounts and non-personal time
deposits. At December 31, 2008, we were in compliance with these requirements.
Impact of Monetary Policies. The earnings and growth of the Company are subject to the influence
of domestic and foreign economic conditions, including inflation, recession and unemployment. The
earnings of the Company are affected not only by general economic conditions but also by the
monetary and fiscal policies of the United States and federal agencies, particularly the FRB. The
FRB can and does implement national monetary policy, such as seeking to curb inflation and combat
recession, by its open market operations in United States Government securities and by its control
of the discount rates applicable to borrowings by banks from the FRB. The actions of the FRB in
these areas influence the growth of bank loans and leases, investments and deposits and affect the
interest rates charged on loans and leases and paid on deposits. The FRB’s policies have had a
significant effect on the operating results of commercial banks and are expected to continue to do
so in the future. The nature and timing of any future changes in monetary policies are not
predictable.
Extensions of Credit to Insiders and Transactions with Affiliates. The Federal Reserve Act and FRB
Regulation O place limitations and conditions on loans or extensions of credit to:
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• |
|
a bank’s or bank holding company’s executive officers, directors and principal
shareholders (i.e., in most cases, those persons who own, control or have power to vote
more than 10% of any class of voting securities), |
| |
• |
|
any company controlled by any such executive officer, director or shareholder, or |
| |
• |
|
any political or campaign committee controlled by such executive officer, director or
principal shareholder. |
Loans and leases extended to any of the above persons must comply with loan-to-one-borrower limits,
require prior full board approval when aggregate extensions of credit to the person exceed
specified amounts, must be made on substantially the same terms (including interest rates and
collateral) as, and follow credit-underwriting procedures that are not less stringent than, those
prevailing at the time for comparable transactions with non-insiders, and must not involve more
than the normal risk of repayment or present other unfavorable features. In addition, Regulation O
provides that the aggregate limit on extensions of credit to all insiders of a bank as a group
cannot exceed the bank’s unimpaired capital and unimpaired surplus. Regulation O also prohibits a
bank from paying an overdraft on an account of an executive officer or director, except pursuant to
a written pre-authorized interest-bearing extension of credit plan that specifies a method of
repayment or a written pre-authorized transfer of funds from another account of the officer or
director at the bank.
12
Consumer Protection Laws and Regulations. The banking regulatory agencies are focusing greater
attention on compliance with consumer protection laws and their implementing regulations.
Examination and enforcement have become more intense in nature, and insured institutions have been
advised to monitor carefully compliance with such laws and regulations. The Company is subject to
many federal and state consumer protection and privacy statutes and regulations, some of which are
discussed below.
The Community Reinvestment Act (the “CRA”) is intended to encourage insured depository
institutions, while operating safely and soundly, to help meet the credit needs of their
communities. The CRA specifically directs the federal regulatory agencies, in examining insured
depository institutions, to assess a bank’s record of helping meet the credit needs of its entire
community, including low- and moderate-income neighborhoods, consistent with safe and sound banking
practices. The CRA further requires the agencies to take a financial institution’s record of
meeting its community credit needs into account when evaluating applications for, among other
things, domestic branches, mergers or acquisitions, or holding company formations. The agencies
use the CRA assessment factors in order to provide a rating to the financial institution. The
ratings range from a high of “outstanding” to a low of “substantial noncompliance.” In its last
examination for CRA compliance, as of August 2005, the Bank was rated “satisfactory.”
The Equal Credit Opportunity Act (the “ECOA”) generally prohibits discrimination in any credit
transaction, whether for consumer or business purposes, on the basis of race, color, religion,
national origin, sex, marital status, age (except in limited circumstances), receipt of income from
public assistance programs, or good faith exercise of any rights under the Consumer Credit
Protection Act.
The Truth in Lending Act (the “TILA”) is designed to ensure that credit terms are disclosed in a
meaningful way so that consumers may compare credit terms more readily and knowledgeably. As a
result of the TILA, all creditors must use the same credit terminology to express rates and
payments, including the annual percentage rate, the finance charge, the amount financed, the total
of payments and the payment schedule, among other things.
The Fair Housing Act (the “FH Act”) regulates many practices, including making it unlawful for any
lender to discriminate in its housing-related lending activities against any person because of
race, color, religion, national origin, sex, handicap or familial status. A number of lending
practices have been found by the courts to be, or may be considered, illegal under the FH Act,
including some that are not specifically mentioned in the FH Act itself.
The Home Mortgage Disclosure Act (the “HMDA”), in response to public concern over credit shortages
in certain urban neighborhoods, requires public disclosure of information that shows whether
financial institutions are serving the housing credit needs of the neighborhoods and communities in
which they are located. The HMDA also includes a “fair lending” aspect that requires the
collection and disclosure of data about applicant and borrower characteristics as a way of
identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.
The Right to Financial Privacy Act (the “RFPA”) imposes a new requirement for financial
institutions to provide new privacy protections to consumers. Financial institutions must provide
disclosures to consumers of its privacy policy, and state the rights of consumers to direct their
financial institution not to share their nonpublic personal information with third parties.
Finally, the Real Estate Settlement Procedures Act (the “RESPA”) requires lenders to provide
noncommercial borrowers with disclosures regarding the nature and cost of real estate settlements.
Also, RESPA prohibits certain abusive practices, such as kickbacks, and places limitations on the
amount of escrow accounts.
Penalties for noncompliance or violations under the above laws may include fines, reimbursement and
other penalties. Due to heightened regulatory concern related to compliance with CRA, ECOA, TILA,
FH Act, HMDA, RFPA and RESPA generally, the Company may incur additional compliance costs or be
required to expend additional funds for investments in its local communities.
13
Recent Legislation and Other Changes. Federal and state laws affecting banking are enacted from
time to time, and similarly federal and state regulations affecting banking are also adopted from
time to time. The following include some of the recent laws and regulations affecting banking.
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was enacted to
provide stimulus to the struggling US economy. ARRA authorizes spending of $787 billion, including
about $288 billion for tax relief, $144 billion for state and local relief aid, and $111 billion
for infrastructure and science. In addition, ARRA includes additional executive compensation
restrictions for recipients of funds from the US Treasury under the Troubled Assets Relief Program
of the Emergency Economic Stimulus Act of 2008 (“EESA”). The provisions of EESA amended by the
ARRA include (i) expanding the coverage of the executive compensation limits to as many as the 25
most highly compensated employees of a TARP funds recipient and its affiliates for certain aspects
of executive compensation limits and (ii) specifically limiting incentive compensation of covered
executives to one-third of their annual compensation which is required to be paid in restricted
stock that does not vest until all of the TARP funds are no longer outstanding (note that if TARP
warrants remain outstanding and no other TARP instruments are outstanding, then such warrants would
not be considered outstanding for purposes of this incentive compensation restriction. In
addition, the board of directors of any TARP recipient is required under EESA, as amended to have a
company-wide policy regarding excessive or luxury expenditures, as identified by the Treasury,
which may include excessive expenditures on entertainment or events; office and facility
renovations; aviation or other transportation services; or other activities or events that are not
reasonable expenditures for staff development, reasonable performance incentives, or other similar
measures conducted in the normal course of the business operations of the TARP recipient.
EESA, as amended by ARRA, provides for a new incentive compensation restriction for financial
institutions receiving TARP funds. The number of executives and employees covered by this new
incentive compensation restriction depends on the amount of TARP funds received by such entity.
For community banks that have or will receive less than $25 million, the new incentive compensation
restriction applies only to the highest paid employee. This new incentive compensation restriction
prohibits a TARP recipient from paying or accruing any bonus, retention award, or incentive
compensation during the period in which any TARP obligation remains outstanding, except that such
prohibition shall not apply to the payment of long-term restricted stock by such TARP recipient,
provided that such long-term restricted stock (i) does not fully vest during the period in which
any TARP obligation remains outstanding, (ii) has a value in an amount that is not greater than 1/3
of the total amount of annual compensation of the employee receiving the stock; and (iii) is
subject to such other terms and conditions as the Secretary of the Treasury may determine is in the
public interest. In addition, this prohibition does not prohibit any bonus payment required to be
paid pursuant to a written employment contract executed on or before February 11, 2009, as such
valid employment contracts are determined by the Treasury.
EESA was amended by ARRA to also provide additional corporate governance provisions with respect to
executive compensation including the following:
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• |
|
ESTABLISHMENT OF STANDARDS — During the period in which any TARP obligation remains
outstanding, each TARP recipient shall be subject to the standards in the regulations
issued by the Treasury with respect to executive compensation limitations for TARP
recipients, and the provisions of section 162(m)(5) of the Internal Revenue Code of 1986,
as applicable (nondeductibility of executive compensation in excess of $500,000). |
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• |
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COMPLIANCE WITH STANDARDS — The Treasury is required to see that each TARP recipient
meet the required standards for executive compensation and corporate governance. |
14
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• |
|
SPECIFIC REQUIREMENTS FOR THE REQUIRED STANDARDS — |
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• |
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Limits on compensation that exclude incentives for senior executive officers of
the TARP recipient to take unnecessary and excessive risks that threaten the value
of the financial institution during the period in which any TARP obligation
remains outstanding. |
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• |
|
A clawback requirement by such TARP recipient of any bonus, retention award, or
incentive compensation paid to a senior executive officer and any of the next 20
most highly-compensated employees of the TARP recipient based on statements of
earnings, revenues, gains, or other criteria that are later found to be materially
inaccurate. |
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• |
|
A prohibition on such TARP recipient making any golden parachute payment to a
senior executive officer or any of the next 5 most highly-compensated employees of
the TARP recipient during the period in which any TARP obligation remains
outstanding. |
| |
• |
|
A prohibition on any compensation plan that would encourage manipulation of the
reported earnings of such TARP recipient to enhance the compensation of any of its
employees. |
| |
• |
|
A requirement for the establishment of an independent Compensation Committee
that meets at least twice a year to discuss and evaluate employee compensation
plans in light of an assessment of any risk posed to the TARP recipient from such
plans. For a non SEC company that is a TARP recipient that has received
$25,000,000 or less of TARP assistance, the duties of the compensation committee
may be carried out by the board of directors of such TARP recipient. |
In addition, EESA as amended by ARRA provides that for any TARP recipient, its annual meeting
materials shall include a nonbinding shareholder approval proposal of executive compensation for
shareholders to vote. The SEC is to establish regulations to implement this provision. While
nonpublic companies are required to include this proposal, it is not known what the regulations
will provide as to executive compensation disclosure requirements of such TARP recipients, and
whether they will be as extensive as the existing SEC executive compensation requirements. In
addition, shareholders are allowed to present other nonbinding proposals with respect to executive
compensation.
On February 10, 2009, the U. S. Treasury, the Federal Reserve Board, the FDIC, the Office of the
Comptroller of the Currency, and the Office of Thrift Supervision all announced a comprehensive set
of measures to restore confidence in the strength of U.S. financial institutions and restart the
critical flow of credit to households and businesses. This program is intended to restore the
flows of credit necessary to support recovery.
The core program elements include:
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A new Capital Assistance Program to help ensure that our banking institutions have
sufficient capital to withstand the challenges ahead, paired with a supervisory process to
produce a more consistent and forward-looking assessment of the risks on banks’ balance
sheets and their potential capital needs. |
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A new Public-Private Investment Fund on an initial scale of up to $500 billion, with
the potential to expand up to $1 trillion, to catalyze the removal of legacy assets from
the balance sheets of financial institutions. This fund will combine public and private
capital with government financing to help free up capital to support new lending. |
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A new Treasury and Federal Reserve initiative to dramatically expand — up to $1
trillion — the existing Term Asset-Backed Securities Lending Facility (TALF) in order to
reduce credit spreads and restart the securitized credit markets that in recent years
supported a substantial portion of lending to households, students, small businesses, and
others. |
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An extension of the FDIC’s Temporary Liquidity Guarantee Program to October 31, 2009. A
new framework of governance and oversight to help ensure that banks receiving funds are
held responsible for appropriate use of those funds through stronger conditions on lending,
dividends and executive compensation along with enhanced reporting to the public. |
15
In October 2008, the President signed the Emergency Economic Stabilization Act of 2008 (“EESA”), in
response to the global financial crisis of 2008 authorizing the United States Secretary of the
Treasury with authority to spend up to $700 billion to purchase distressed assets, especially
mortgage-backed securities, under the Troubled Assets Relief Program (“TARP”) and make capital
injections into banks under the Capital Purchase Program. EESA gives the government the
unprecedented authority to buy troubled assets on balance sheets of financial institutions under
the Troubled Assets Relief Program and increases the limit on insured deposits from $100,000 to
$250,000 through December 31, 2009. Some of the other provisions of EESA are as follows:
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accelerated from 2011 to 2008 the date that the Federal Reserve Bank could pay interest
on deposits of banks held with the Federal Reserve to meet reserve requirements; |
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• |
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to the extent that the U. S. Treasury purchases mortgage securities as part of TARP,
the Treasury shall implement a plan to minimize foreclosures including using guarantees
and credit enhancements to support reasonable loan modifications, and to the extent loans
are owned by the government to consent to the reasonable modification of such loans; |
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• |
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limits executive compensation for executives for TARP participating financial
institutions including a maximum corporate tax deduction limit of $500,000 for each of the
top five highest paid executives of such institution, requiring clawbacks of incentive
compensation that were paid based on inaccurate or false information, limiting golden
parachutes for involuntary and certain voluntary terminations to 2.99x their average
annual salary and bonus for the last five years, and prohibiting the payment of incentive
compensation that encourages management to take unnecessary and excessive risks with
respect to the institution; |
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• |
|
extends the mortgage debt forgiveness provision of the Mortgage Forgiveness Debt Relief
Act of 2007 by three years (2012) to ease the income tax burden on those involved with
certain foreclosures; and |
| |
• |
|
qualified financial institutions may count losses on FNMA and FHLMC preferred stock
against ordinary income, rather than capital gain income. |
The Temporary Liquidity Guarantee Program was implemented by the FDIC on October 14, 2008 to
mitigate the lack of liquidity in the financial markets. The Temporary Liquidity Guarantee Program
has two primary components: the Debt Guarantee Program, by which the FDIC will guarantee the
payment of certain newly-issued senior unsecured debt, and the Transaction Account Guarantee
Program, by which the FDIC will guarantee certain noninterest-bearing and low interest-bearing
transaction accounts. The Debt Guarantee Program provides for an FDIC guarantee as to the payment
of all senior unsecured debt (with a term of more than 30 days) issued by a qualified participating
entity (insured depository institutions, bank and financial holding companies, and certain savings
and loan holding companies) up to a limit of 125 percent of all senior unsecured debt outstanding
on September 30, 2008, and maturing by June 30, 2009. The FDIC guarantee is until June 30, 2012,
and the fee for such guarantee depends on the term with a maximum of 100 basis points for terms in
excess of 365 days. The Transaction Account Guarantee Program is the second part of the FDIC’s
Temporary Liquidity Guarantee Program. The FDIC provides for a temporary full guarantee held at a
participating FDIC-insured depository institution of noninterest-bearing and low interest-bearing
transaction accounts above the existing deposit insurance limit at the additional cost of 10 basis
points per annum. This coverage became effective on October 14, 2008, and would continue through
December 31, 2009.
On July 30, 2008, the Housing and Economic Recovery Act was was signed the President. It
authorizes the Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed
rate mortgages for subprime borrowers if lenders write-down principal loan balances to 90 percent
of current appraisal value. It is also intended to restore confidence in Fannie Mae and Freddie
Mac by strengthening regulations and injecting capital into them. States will be authorized to
refinance subprime loans using mortgage revenue bonds. It also establishes the Federal Housing
Finance Agency out of the Federal Housing Finance Board and Office of Federal Housing Enterprise
Oversight.
16
In 2008, the Federal Reserve Board, the FDIC, the Office of the Comptroller of the Currency, and
the Office of Thrift Supervision amended their regulatory capital rules to permit banks, bank
holding companies, and savings associations (as to any of these a “financial institution”) to
reduce the amount of goodwill that a banking organization must deduct from tier 1 capital by the
amount of any deferred tax liability associated with that goodwill. However, a financial
institution that reduces the amount of goodwill deducted from tier 1 capital by the amount of the
deferred tax liability is not permitted to net this deferred tax liability against deferred tax
assets when determining regulatory capital limitations on deferred tax assets. For these financial
institutions, the amount of goodwill deducted from tier 1 capital will reflect each institution’s
maximum exposure to loss in the event that the entire amount of goodwill is impaired or
derecognized, an event which triggers the concurrent derecognition of the related deferred tax
liability for financial reporting purposes.
On October 7, 2008 the FDIC adopted a restoration plan that would increase the rates banks pay for
deposit insurance, and proposed rules for adjusting the system that determines what deposit
insurance premium rate a bank pays the FDIC. Currently, banks pay anywhere from five basis points
to 43 basis points for deposit insurance. Under the proposal rule, the assessment rate schedule
would be raised uniformly by 7 basis points (annualized) beginning on January 1, 2009. Beginning
with the second quarter of 2009, changes would be made to the deposit insurance assessment system
to make the increase in assessments fairer by requiring riskier institutions to pay a larger share.
Together, the proposed changes would improve the way the system differentiates risk among insured
institutions and help ensure that the reserve ratio returns to at least 1.15 percent by the end of
2013. The proposed changes to the assessment system include assessing higher rates to institutions
with a significant reliance on secured liabilities, which generally raises the FDIC’s loss in the
event of failure without providing additional assessment revenue. The proposal also would assess
higher rates for institutions with a significant reliance on brokered deposits but, for
well-managed and well-capitalized institutions, only when accompanied by rapid asset growth.
Brokered deposits combined with rapid asset growth have played a role in a number of costly
failures, including some recent ones. The proposal also would provide incentives in the form of a
reduction in assessment rates for institutions to hold long-term unsecured debt and, for smaller
institutions, high levels of Tier 1 capital. The FDIC also voted to maintain the Designated
Reserve Ratio at 1.25 percent as a signal of its long term target for the fund.
The Federal Reserve Board in October 2008 approved final amendments to Regulation C that revise the
rules for reporting price information on higher-priced mortgage loans. The changes are intended to
improve the accuracy and usefulness of data reported under the Home Mortgage Disclosure Act.
Regulation C currently requires lenders to collect and report the spread between the annual
percentage rate (APR) on a mortgage loan and the yield on a Treasury security of comparable
maturity if the spread is greater than 3.0 percentage points for a first lien loan or greater than
5.0 percentage points for a subordinate lien loan. This difference is known as a rate spread.
Under the final rule, a lender will report the spread between the loan’s APR and a survey-based
estimate of APRs currently offered on prime mortgages of a comparable type (“average prime offer
rate”) if the spread is equal to or greater than 1.5 percentage points for a first lien loan or
equal to or greater than 3.5 percentage points for a subordinate-lien loan. The Board will publish
average prime offer rates based on the Primary Mortgage Market Survey® currently published by
Freddie Mac. In setting the rate spread reporting threshold, the Board sought to cover subprime
mortgages and generally avoid covering prime mortgages. The changes to Regulation C conform the
threshold for rate spread reporting to the definition of higher-priced mortgage loans adopted by
the Board under Regulation Z (Truth in Lending) in July of 2008.
The Federal Reserve Board in July 2008 approved a final rule for home mortgage loans to better
protect consumers and facilitate responsible lending. The rule prohibits unfair, abusive or
deceptive home mortgage lending practices and restricts certain other mortgage practices. The
final rule also establishes advertising standards and requires certain mortgage disclosures to be
given to consumers earlier in the transaction. The final rule, which amends Regulation Z (Truth in
Lending) and was adopted under the Home Ownership and Equity Protection Act (HOEPA), largely
follows a proposal released by the Board in
December 2007, with enhancements that address ensuing public comments, consumer testing, and
further analysis.
17
The final rule adds four key protections for a newly defined category of “higher-priced mortgage
loans” secured by a consumer’s principal dwelling. For loans in this category, these protections
will:
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• |
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Prohibit a lender from making a loan without regard to borrowers’ ability to repay the
loan from income and assets other than the home’s value. A lender complies, in part, by
assessing repayment ability based on the highest scheduled payment in the first seven
years of the loan. To show that a lender violated this prohibition, a borrower does not
need to demonstrate that it is part of a “pattern or practice.” |
| |
• |
|
Require creditors to verify the income and assets they rely upon to determine repayment
ability. |
| |
• |
|
Ban any prepayment penalty if the payment can change in the initial four years. For
other higher-priced loans, a prepayment penalty period cannot last for more than two
years. |
| |
• |
|
Require creditors to establish escrow accounts for property taxes and homeowner’s
insurance for all first-lien mortgage loans. |
In addition to the rules governing higher-priced loans, the rules adopt the following protections
for loans secured by a consumer’s principal dwelling, regardless of whether the loan is
higher-priced:
| |
• |
|
Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to
misstate a home’s value. |
| |
• |
|
Companies that service mortgage loans are prohibited from engaging in certain
practices, such as pyramiding late fees. In addition, servicers are required to credit
consumers’ loan payments as of the date of receipt and provide a payoff statement within a
reasonable time of request. |
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• |
|
Creditors must provide a good faith estimate of the loan costs, including a schedule of
payments, within three days after a consumer applies for any mortgage loan secured by a
consumer’s principal dwelling, such as a home improvement loan or a loan to refinance an
existing loan. Currently, early cost estimates are only required for home-purchase loans.
Consumers cannot be charged any fee until after they receive the early disclosures,
except a reasonable fee for obtaining the consumer’s credit history. |
For all mortgages, the rule also sets additional advertising standards. Advertising rules now
require additional information about rates, monthly payments, and other loan features. The final
rule bans seven deceptive or misleading advertising practices, including representing that a rate
or payment is “fixed” when it can change. The rule’s definition of “higher-priced mortgage loans”
will capture virtually all loans in the subprime market, but generally exclude loans in the prime
market. To provide an index, the Federal Reserve Board will publish the “average prime offer
rate,” based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a
first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above
this index, or 3.5 percentage points if it is a subordinate-lien mortgage. The new rules take
effect on October 1, 2009. The single exception is the escrow requirement, which will be phased in
during 2010 to allow lenders to establish new systems as needed.
In May 2008, the Federal Reserve Board proposed rules to prohibit unfair practices regarding credit
cards and overdraft services that would, among other provisions, protect consumers from unexpected
increases in the rate charged on pre-existing credit card balances. The rules, proposed for
public comment under the Federal Trade Commission Act (FTC Act), also would forbid banks from
imposing interest charges using the “two-cycle” billing method, would require that consumers
receive a reasonable amount of time to make their credit card payments, and would prohibit the use
of payment allocation methods that unfairly maximize interest charges. They also include
protections for consumers that use overdraft services offered by their bank. The proposed changes
to the Board’s Regulation AA (Unfair or Deceptive Acts or Practices) would be complemented by
separate proposals that the Board is issuing under the Truth in Lending Act (Regulation Z) and the
Truth in Savings Act (Regulation DD).
18
The provisions addressing credit card practices are part of the Board’s ongoing effort to enhance
protections for consumers who use credit cards, and follow the Board’s 2007 proposal to improve the
credit card disclosures under the Truth in Lending Act. The FTC Act proposal includes five key
protections for consumers that use credit cards:
| |
• |
|
Banks would be prohibited from increasing the rate on a pre-existing credit card
balance (except under limited circumstances) and must allow the consumer to pay off that
balance over a reasonable period of time. |
| |
• |
|
Banks would be prohibited from applying payments in excess of the minimum in a manner
that maximizes interest charges. |
| |
• |
|
Banks would be required to give consumers the full benefit of discounted promotional
rates on credit cards by applying payments in excess of the minimum to any higher-rate
balances first, and by providing a grace period for purchases where the consumer is
otherwise eligible. |
| |
• |
|
Banks would be prohibited from imposing interest charges using the “two-cycle” method,
which computes interest on balances on days in billing cycles preceding the most recent
billing cycle. |
| |
• |
|
Banks would be required to provide consumers a reasonable amount of time to make
payments. |
The proposal would also address subprime credit cards by limiting the fees that reduce the
available credit. In addition, banks that make firm offers of credit advertising multiple rates or
credit limits would be required to disclose in the solicitation the factors that determine whether
a consumer will qualify for the lowest rate and highest credit limit. The Board’s proposal under
the FTC Act also addresses acts or practices in connection with a bank’s payment of overdrafts on a
deposit account, whether the overdraft is created by check, a withdrawal at an automated teller
machine, a debit card purchase, or other transactions. The proposal requires institutions to
provide consumers with notice and an opportunity to opt out of the payment of overdrafts, before
any overdraft fees or charges may be imposed on consumers’ accounts.
In December 2007, the FDIC issued a proposed rule to improve the process for determining uninsured
depositors at larger institutions in the event of a failure. The measure is intended to allow the
FDIC to make funds promptly available to insured deposit customers in the unlikely event that a
large financial institution is closed. The proposal is broken into two parts. One section relates
to so-called covered institutions, those that have at least $2 billion in domestic deposits, have
more than 250,000 deposit accounts, or have total assets of more than $20 billion, regardless of
the number of deposits or accounts. A covered institution would be required to adopt mechanisms
that, in the event of a failure, would place provisional holds on large deposit accounts in a
percentage specified by the FDIC; provide the FDIC with deposit account data in a standard format;
and allow automatic removal of provisional holds once the FDIC makes an insurance determination.
The second part applies to all FDIC-insured institutions, regardless of size, and governs the
specific time and circumstance under which account balances will be determined in the event of a
failure. The FDIC is proposing to use the end-of-day ledger balance as normally calculated by the
institution. By using the end-of-day ledger, the FDIC will be able to apply a single standard
across all failed banks in order to treat every transaction equally. This is also the same deposit
balance used for Call Report and assessment purposes. There would be no requirements placed on
open institutions as a result of this provision. The FDIC places a high priority on providing
access to insured deposits promptly and, in the past, has usually been able to allow most
depositors access to their deposits on the next business day. If adopted, the proposed rule would
better enable the FDIC to continue this practice, especially for the larger, more complex
institutions it insures.
The Federal Reserve Board in November 2007 approved final rules to implement the Basel II framework
for large bank capital requirements. The new risk-based capital requirements apply to large,
internationally active banking organizations in the United States. The new capital adequacy
requirements were designed to align regulatory capital requirements with actual risks and are
expected to strengthen banking organizations’ risk-management practices. Basel II would replace
the current U.S. rules implementing the Basel Capital Accord of 1988 (Basel I) and be mandatory for
large, internationally active banking organizations (so-called “core” banking organizations with at
least $250 billion in total assets or at least $10 billion in foreign exposure) and optional for
others. Under Basel II, core banking organizations would be required to enhance the measurement
and management of their risks, including credit risk and
operational risk. Core banking organizations will be required to have rigorous processes for
assessing their overall capital adequacy in relation to their total risk profile and to publicly
disclose information about their risk profile and capital adequacy.
19
The new U.S. Basel II rule is technically consistent in most respects with international approaches
and includes a number of prudential safeguards as originally proposed in September 2006. These
safeguards include a requirement that banking organizations satisfactorily complete a four-quarter
parallel run period before operating under the Basel II framework, a requirement that an
institution satisfactorily complete a series of transitional periods before operating under Basel
II without floors, and a commitment by the agencies to conduct ongoing analysis of the framework to
ensure Basel II is working as intended. Basel II in the United States will be implemented with
retention of the leverage ratio and prompt corrective action requirements, which will continue to
bolster capital and complement risk-based measures. Following a successful parallel run period, a
banking organization would have to progress through three transitional periods (each lasting at
least one year), during which there would be floors on potential declines in risk-based capital
requirements. Those transitional floors would limit maximum cumulative reductions of a banking
organization’s risk-based capital requirements to 5 percent during the first transitional floor
period, 10 percent during the second transitional floor period, and 15 percent during the third
transitional floor period. A banking organization would need approval from its primary federal
regulator to move into each of the transitional floor periods, and at the end of the third
transitional floor period to move to full Basel II.
In September 2007, the SEC and Federal Reserve Board adopted final rules to implement the bank
“broker” provisions of the Gramm-Leach-Bliley Act. The rules define the scope of securities
activities that banks may conduct without registering with the SEC as a securities broker and
implement the most important “broker” exceptions for banks adopted by the GLB Act. Specifically,
the rules implement the statutory exceptions that allow a bank, subject to certain conditions, to
continue to conduct securities transactions for its customers as part of the bank’s trust and
fiduciary, custodial and deposit “sweep” functions, and to refer customers to a securities
broker-dealer pursuant to a networking arrangement with the broker-dealer. The rules are designed
to accommodate the business practices of banks and to protect investors. The effective date for
compliance is the first day of the bank’s fiscal year commencing after September 30, 2008.
The federal financial regulatory agencies in December 2006 issued a new interagency policy
statement on the allowance for loan and lease losses (ALLL) along with supplemental frequently
asked questions. The policy statement revises and replaces a 1993 policy statement on the ALLL.
The agencies issued the revised policy statement in view of today’s uncertain economic environment
and the presence of concentrations in untested loan products in the loan portfolios of insured
depository institutions. The policy statement has also been revised to conform with generally
accepted accounting principles (GAAP) and post-1993 supervisory guidance. The 1993 policy
statement described the responsibilities of the boards of directors, management, and banking
examiners regarding the ALLL; factors to be considered in the estimation of the ALLL; and the
objectives and elements of an effective loan review system, including a sound credit grading
system. The policy statement reiterates that each institution has a responsibility for developing,
maintaining and documenting a comprehensive, systematic, and consistently applied process
appropriate to its size and the nature, scope, and risk of its lending activities for determining
the amounts of the ALLL and the provision for loan and lease losses and states that each
institution should ensure controls are in place to consistently determine the ALLL in accordance
with GAAP, the institution’s stated policies and procedures, management’s best judgment and
relevant supervisory guidance.
The policy statement also restates that insured depository institutions must maintain an ALLL at a
level that is appropriate to cover estimated credit losses on individually evaluated loans
determined to be impaired as well as estimated credit losses inherent in the remainder of the loan
and lease portfolio, and that estimates of credit losses should reflect consideration of all
significant factors that affect the collectibility of the portfolio as of the evaluation date. The
policy statement states that prudent, conservative, but not excessive, loan loss allowances that
represent management’s best estimate from within an acceptable range of estimated losses are
appropriate.
20
The Office of the Comptroller of the Currency, the Federal Reserve System, and the FDIC in December
2006 issued final guidance on sound risk management practices for concentrations in commercial real
estate lending. The agencies observed that the commercial real estate is an area in which some
banks are becoming increasingly concentrated, especially with small- to medium- sized banks that
face strong competition in their other business lines. The agencies support banks serving a vital
role in their communities by supplying credit for business and real estate development. However,
the agencies are concerned that rising commercial real estate loan concentrations may expose
institutions to unanticipated earnings and capital volatility in the event of adverse changes in
commercial real estate markets. The guidance provides supervisory criteria, including numerical
indicators to assist in identifying institutions with potentially significant commercial real
estate loan concentrations that may warrant greater supervisory scrutiny, but such criteria are not
limits on commercial real estate lending.
California Assembly Bill 1301 was signed by the Governor on July 16, 2008 and became law on January
1, 2009. Among other things, the bill eliminated unnecessary applications that consume time and
resources of bank licensees and which in many cases are now perfunctory. All of current Article 5
— “Locations of Head Office” of Chapter 3, and all of Chapter 4 — “Branch Offices, Other Places of
Business and Automated Teller Machines” were repealed. A new Chapter 4 — “Bank Offices” was added.
The new Chapter 4 requires notice to the California Department of Financial Institutions (“DFI”)
the establishment of offices, rather than the current application process. Many of the current
branch applications are perfunctory in nature and/or provide for a waiver of application. Banks,
on an exception basis, may be subject to more stringent requirements as deemed necessary. As an
example, new banks, banks undergoing a change in ownership and banks in less than satisfactory
condition may be required to obtain prior approval from the DFI before establishing offices if such
activity is deemed to create an issue of safety and soundness. The bill eliminated unnecessary
provisions in the Banking Law that are either outdated or have become undue restrictions to bank
licensees. Chapter 6 — “Powers and Miscellaneous Provisions” was repealed. A new Chapter 6 —
“Restrictions and Prohibited Practices” was added. This chapter brings together restrictions in
bank activities as formerly found in Chapter 18 — “Prohibited Practices and Penalties.” However,
in bringing the restrictions into the new chapter, various provisions were updated to remove the
need for prior approval by the DFI Commissioner. The bill renumbered current Banking Law sections
to align like sections. Chapter 4.5 — “Authorizations for Banks” was added. The purpose of the
chapter is to provide exceptions to certain activities that would otherwise be prohibited by other
laws outside of the Financial Code. The bill added Article 1.5 — “Loan and Investment Limitations”
to Chapter 10 — “Commercial Banks.” This article is new in concept and acknowledges that
investment decisions are business decisions — so long as there is a diversification of the
investments to spread any risk. The risk is diversified in this article by placing a limitation on
the loans and investments that can be made to any one entity. This section is a trade-off for
elimination of applications to the DFI for approval of investments in securities, which were
repealed.
Other changes AB 1301 made to the Banking Law:
| |
• |
|
Authorized a bank or trust acting in any capacity under a court or
private trust to arrange for the deposit of securities in a securities depository
or federal reserve bank, and provided how they may be held by the securities
depository; |
| |
• |
|
Reduced from 5% to 1% the amount of eligible assets to be maintained
at an approved depository by an office of a foreign (other nation) bank for the
protection of the interests of creditors of the bank’s business in this state or
for the protection of the public interest; |
| |
• |
|
Enabled the DFI to issue an order against a bank licensee parent or
subsidiary; |
| |
• |
|
Provided that the examinations may be conducted in alternate
examination periods if the DFI concludes that an examination of the state bank by
the appropriate federal regulator carries out the purpose of this section, but the
DFI may not accept two consecutive examination reports made by federal regulators; |
| |
• |
|
Provided that the DFI may examine subsidiaries of every California
state bank, state trust company, and foreign (other nation) bank to the extent and
whenever and as often as the DFI shall deem advisable; |
21
| |
• |
|
Enabled the DFI issue an order or a final order to now include any
bank holding company or subsidiary of the bank, trust company, or foreign banking
corporation that is violating or failing to comply with any applicable law, or is
conducting activities in an unsafe or injurious manner; |
| |
• |
|
Enabled the DFI to take action against a person who has engaged in or
participated in any unsafe or unsound act with regard to a bank, including a
former employee who has left the bank. |
In 2007 California, a new Section 691.1 was added to the Financial Code that exempts a bank from
obtaining a securities permit for the following transactions:
| |
• |
|
any offer (but not a sale) not involving a public offering by a bank organized
under the laws of this state of its securities. |
| |
• |
|
the execution and delivery of any agreement for the sale of the securities
pursuant to the offer if no part of the consideration for the securities is paid
to or received by the bank and none of the securities are issued until the sale of
the securities is authorized by the commissioner or exempted from authorization. |
| |
• |
|
any stock split by a bank organized under the laws of this state that is
effected pursuant to an amendment to its articles, an agreement of merger, or a
certificate of ownership that has been approved by the commissioner, unless this
exemption is withheld by order of the commissioner. |
| |
• |
|
any offer or sale of securities by a bank organized under the laws of this
state that is either (1) to a person actually approved by the commissioner
pursuant to Section 702 of the Financial Code to acquire control of the bank if
all of the material terms and conditions of the offer and sale of securities are
disclosed in the application for approval specified in Section 702 and the offer
and sale of securities is in accordance with the terms and subject to the
conditions of the approval to acquire control or (2) in a transaction exempted
from the approval requirement of Section 701 by a regulation or an order of the
commissioner, unless this exemption is withheld by order of the commissioner. |
In California, effective January 1, 2007, a new law Financial Code Section 854.1 recognizes the
ability of mortgage brokers to obtain the benefit of non interest-bearing accounts on trust funds
deposited in a “commercial bank.” The provision applies to real estate brokers who collect
payments or provide services in connection with a loan secured by a lien on real property and
permits a mortgage broker to earn interest on an interest-bearing account at a financial
institution. Interest on funds received by a real estate broker who collects payments or provides
services for an “institutional investor” in connection with a loan secured by commercial real
property may inure to the broker, if agreed to in writing by the broker and the institutional
investor. For purposes of this law, commercial real property means real estate improved with other
than a one-to-four family residence.
A 2007 California law makes it easier for California banks to accept deposits from local government
agencies. Under the old law, local agency deposits over $100,000 had to be secured by collateral.
Pursuant to the enactment of Assembly Bill 2011, banks would be able to acquire surplus public
deposits exceeding $100,000 without pledging collateral if they participate in a deposit placement
service where excess amounts are placed in certificates of deposit at other institutions within a
network. Such a network (of which currently there is only one available in the market) permits the
entire amount of a customer’s deposit to be FDIC-insured, and the bank taking the original deposit
retains the benefit of the full amount of the deposit for lending or other purposes. AB 2011
clarifies that a local agency may deposit up to 30% of its surplus funds in certificates of deposit
at a bank, savings association, savings bank, or credit union that participates in such a
deposit-sharing network. Since the entire amount of the deposits would be FDIC-insured, a bank
would not be required to pledge collateral. The bill permits agencies to make these deposits until
January 1, 2012.
22
It is impossible to predict what effect the enactment of certain of the above-mentioned legislation
will have on the Company. Moreover, it is likely that other bills affecting the business of bank
holding companies and banks may be introduced in the future by the United States Congress or
California legislature.
Recent Accounting Pronouncements
Business Combinations
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), Business Combinations (“SFAS No. 141R”). SFAS No. 141(R), among other things, establishes
principles and requirements for how the acquirer in a business combination (i) recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquired business, (ii) recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase, and (iii) determines what
information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The Bank is required to adopt SFAS No. 141(R) for
all business combinations for which the acquisition date is on or after January 1, 2009. Earlier
adoption is prohibited. This standard will change the Bank’s accounting treatment for business
combinations on a prospective basis.
The Hierarchy of Generally Accepted Accounting Principles
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162). This standard identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP. It establishes that the GAAP
hierarchy should be directed to entities because it is the entity (not the auditor) that is
responsible for selecting accounting principles for financial statements that are presented in
conformity with GAAP. SFAS 162 became effective on November 15, 2008. The implementation of SFAS
No. 162 did not have any effect on the Company’s consolidated financial statements.
Employers’ Disclosures about Postretirement Benefit Plan Assets
In December 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 132(R)-1, Employers’
Disclosures about Postretirement Benefit Plan Assets (FSP 132(R)-1). This standard provides
guidance on an employer’s disclosures about plan assets of a defined benefit pension or other
postretirement plan. The objectives of the disclosures about plan assets in an employer’s defined
benefit pension or other postretirement plan are to provide users of financial statements with an
understanding of how investment allocation decisions are made, including the factors that are
pertinent to an understanding of investment policies and strategies, the major categories of plan
assets, the inputs and valuation techniques used to measure the fair value of plan assets, the
effect of fair value measurements using significant unobservable inputs (Level 3) on changes in
plan assets for the period, and significant concentrations of risk within plan assets. The
disclosures about plan assets required by the FSP are effective for fiscal years ending after
December 15, 2009. Early adoption is permitted. The adoption of FSP 132(R)-1 is not expected to
have a material impact on the Company’s financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
As a smaller reporting company we are not required to provide the information required by this
item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
No comments have been submitted to the registrant by the staff of the Securities Exchange
Commission.
23
ITEM 2. PROPERTIES
Of the Company’s thirteen depository branches, ten are owned and three are leased. The Company
also leases two lending offices, and owns four administrative facilities.
| |
|
|
|
|
| Owned Properties |
35 South Lindan Avenue
Quincy, California (1)
|
|
32 Central Avenue
Quincy, California (1)
|
|
80 W. Main St.
Quincy, California (1) |
|
|
|
|
|
424 N. Mill Creek
Quincy, California (1)
|
|
336 West Main Street
Quincy, California
|
|
120 North Pine Street
Portola, California |
|
|
|
|
|
43163 Highway 299E
Fall River Mills, California
|
|
121 Crescent Street
Greenville, California
|
|
315 Birch Street
Westwood, California (2) |
|
|
|
|
|
255 Main Street
Chester, California
|
|
510 North Main Street
Alturas, California
|
|
3000 Riverside Drive
Susanville, California |
|
|
|
|
|
8475 North Lake Boulevard
Kings Beach, California
|
|
11638 Donner Pass Road
Truckee, California |
|
|
|
|
|
|
|
Leased Properties
|
243 North Lake Boulevard
Tahoe City, California
|
|
604 Main Street
Loyalton, California
|
|
2175 Civic Center Drive
Redding, California |
|
|
|
|
|
1895 Plumas St., Suite 3
Reno, Nevada (3)
|
|
470 Nevada St., Suite 108
Auburn, California (3) |
|
|
| |
|
|
| (1) |
|
Non-branch administrative or credit administrative offices. |
| |
| (2) |
|
The Westwood branch is a mortgaged property with an outstanding balance of $43,000 at December 31, 2008. |
| |
| (3) |
|
Commercial lending offices. |
Total rental expenses under all leases, including premises, totaled $347,000, $209,000 and
$221,000, in 2008, 2007 and 2006 respectively. The expiration dates of the leases vary, with the
first such lease expiring during 2009 and the last such lease expiring during 2018. Future minimum
lease payments in thousands of dollars are as follows:
| |
|
|
|
|
| Year Ending December 31, |
|
|
|
|
2009 |
|
$ |
319,000 |
|
2010 |
|
|
283,000 |
|
2011 |
|
|
262,000 |
|
2012 |
|
|
262,000 |
|
2013 |
|
|
194,000 |
|
Thereafter |
|
|
728,000 |
|
|
|
|
|
|
|
$ |
2,048,000 |
|
|
|
|
|
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.
24
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company and/or its subsidiary are a party to claims and legal proceedings
arising in the ordinary course of business. In the opinion of the Company’s management, the amount
of ultimate liability with respect to such proceedings will not have a material adverse effect on
the financial condition or results of operations of the Company taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to vote of the security holders during the fourth quarter of the period
covered by this report.
25
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, 2008, there were 4,775,339 shares of the Company’s stock outstanding held by
approximately 1,800 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 |
|
Dividends |
|
|
High |
|
|
Low |
|
4th Quarter 2008 |
|
$ |
0.08 |
|
|
$ |
11.00 |
|
|
$ |
3.80 |
|
3rd Quarter 2008 |
|
|
— |
|
|
$ |
11.97 |
|
|
$ |
8.97 |
|
2nd Quarter 2008 |
|
$ |
0.16 |
|
|
$ |
14.93 |
|
|
$ |
10.34 |
|
1st Quarter 2008 |
|
|
— |
|
|
$ |
14.41 |
|
|
$ |
9.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4th Quarter 2007 |
|
$ |
0.15 |
|
|
$ |
14.48 |
|
|
$ |
11.50 |
|
3rd Quarter 2007 |
|
|
— |
|
|
$ |
13.82 |
|
|
$ |
11.50 |
|
2nd Quarter 2007 |
|
$ |
0.15 |
|
|
$ |
16.49 |
|
|
$ |
12.38 |
|
1st Quarter 2007 |
|
|
— |
|
|
$ |
17.01 |
|
|
$ |
14.50 |
|
Dividends paid to shareholders by the Company are subject to restrictions set forth in California
General Corporation Law, which provides that a corporation may make a distribution to its
shareholders if retained earnings immediately prior to the dividend payout are at least equal to
the amount of the proposed distribution. As a bank holding company without significant assets
other than its equity position in the Bank, the Company’s ability to pay dividends to its
shareholders depends primarily upon dividends it receives from the Bank. Such dividends paid by
the Bank to the Company are subject to certain limitations. See “Item 1 Business — Supervision and
Regulation — Capital Standards”.
On January 30, 2009, under the Capital Purchase Program, the Company entered into a Letter
Agreement (the “Purchase Agreement”) with the United States Department of the Treasury
(“Treasury”), pursuant to which the Company issued and sold (i) 11,949 shares of the Company’s
Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Shares”) and (ii) a
ten-year warrant to purchase up to 237,712 shares of the Company’s common stock, no par value at
an exercise price, subject to anti-dilution adjustments, of $7.54 per share, for an aggregate
purchase price of $11,949,000 in cash. The Series A Preferred Stock and the Warrant were issued in
a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended. As described in the following paragraph the Purchase Agreement contains
provisions that restrict the payment of dividends on Plumas Bancorp common stock and restrict the
Company’s ability to repurchase Plumas Bancorp common stock.
Under the Purchase Agreement, prior to January 30, 2012, unless the Company has redeemed the
Preferred Shares, or the Treasury has transferred the Preferred Shares to a third party, the
consent of the Treasury will be required for the Company to: (1) declare or pay any dividend or
make any distribution on shares of the Common Stock (other than regular quarterly cash dividends of
not more than $0.04 per share or regular semi-annual cash dividends of not more than $0.08 per
share); or (2) redeem, purchase or acquire any shares of Common Stock or other equity or capital
securities, other than in connection with benefit plans consistent with past practice and certain
other circumstances specified in the Purchase Agreement.
It is the policy of the Company to periodically distribute excess retained earnings to the
shareholders through the payment of cash dividends. Such dividends help promote shareholder value
and capital adequacy by enhancing the marketability of the Company’s stock. All authority to
provide a return to the shareholders in the form of a cash or stock dividend or split rests with
the Board of Directors (the “Board). The Board will periodically, but on no regular schedule,
review the appropriateness of a cash dividend payment. The Board by resolution shall set the
amount, the record date and the payment date of any
dividend after considering numerous factors, including the Company’s regulatory capital
requirements, earnings, financial condition and the need for capital for expanded growth and
general economic conditions. No assurance can be given that cash or stock dividends will be paid
in the future.
26
On January 22, 2007 the Company announced that the Board authorized a common stock repurchase plan
for the year ending December 31, 2007. The plan authorized the repurchase of up to 250,000 shares,
or approximately 5%, of the Company’s shares outstanding as of January 22, 2007. A total of 168,737
common shares, at an average cost, including commission, of $14.22 per share, were repurchased
under this plan during 2007.
On December 20, 2007 the Company announced that for 2008 the Board authorized a common stock
repurchase plan for up to 244,000 shares, or 5% of the Company’s shares outstanding on December 20,
2007. During the year ended December 31, 2008 the Company repurchased 106,267 shares at an average
cost, including commission, of $11.45 per share. This plan terminated on December 31, 2008 and,
related to its Purchase Agreement with the Treasury described above, the Company is temporarily
restricted from making additional share repurchases without approval from the Treasury.
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, 2008.
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Number of securities remaining |
|
| |
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|
|
available for future issuance |
|
| |
|
Number of securities to |
|
|
Weighted-average |
|
|
under equity compensation |
|
| |
|
be issued upon exercise |
|
|
exercise price of |
|
|
plans (excluding securities |
|
| |
|
of outstanding options |
|
|
outstanding options |
|
|
reflected in column (a)) |
|
| Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation
plans approved by
security holders |
|
|
466,956 |
|
|
$ |
13.38 |
|
|
|
407,229 |
|
Equity compensation
plans not approved by
security holders |
|
None |
|
|
Not Applicable |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
466,956 |
|
|
$ |
13.38 |
|
|
|
407,229 |
|
|
|
|
|
|
|
|
|
|
|
For additional information related to the above plans see Note 11 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. The following table sets forth purchases of Plumas Bancorp
common stock by the Company during the fourth quarter of 2008.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
of Shares |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Part of |
|
|
Maximum |
|
| |
|
Total |
|
|
|
|
|
|
Publicly |
|
|
Number of Shares |
|
| |
|
Number of |
|
|
Average |
|
|
Announced |
|
|
That May Yet Be |
|
| |
|
Shares |
|
|
Price Paid |
|
|
Plans or |
|
|
Purchased Under the |
|
| Period |
|
Purchased |
|
|
per Share (1) |
|
|
Programs |
|
|
Plans or Programs (2) |
|
October 1, 2008 to October 31, 2008 |
|
|
22,556 |
|
|
$ |
10.33 |
|
|
|
22,556 |
|
|
|
142,827 |
|
November 1, 2008 to November 30, 2008 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
142,827 |
|
December 1, 2008 to December 31, 2008 |
|
|
5,094 |
|
|
$ |
7.55 |
|
|
|
5,094 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
27,650 |
|
|
$ |
9.82 |
|
|
|
27,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Includes commissions. |
| |
| (2) |
|
On December 20, 2007 the Company announced that for 2008 the Board
authorized a common stock repurchase plan for up to 244,000 shares, or
5% of the Company’s shares outstanding on December 20, 2007. This plan
terminated on December 31, 2008. |
27
ITEM 6. SELECTED FINANCIAL DATA
The following table presents a summary of selected financial data and should be read in conjunction
with the Company’s consolidated financial statements and notes
thereto included under Item 8 — Financial Statements and Supplementary Data.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At or for the year ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(dollars in thousands except per share information) |
|
Statement of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
25,440 |
|
|
$ |
30,284 |
|
|
$ |
29,483 |
|
|
$ |
25,497 |
|
|
$ |
20,110 |
|
Interest expense |
|
|
5,364 |
|
|
|
8,536 |
|
|
|
6,954 |
|
|
|
4,793 |
|
|
|
2,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
20,076 |
|
|
|
21,748 |
|
|
|
22,529 |
|
|
|
20,704 |
|
|
|
17,196 |
|
Provision for loan losses |
|
|
4,600 |
|
|
|
800 |
|
|
|
1,000 |
|
|
|
1,100 |
|
|
|
750 |
|
Noninterest income |
|
|
5,091 |
|
|
|
5,448 |
|
|
|
5,159 |
|
|
|
5,073 |
|
|
|
5,099 |
|
Noninterest expense |
|
|
20,475 |
|
|
|
19,671 |
|
|
|
18,290 |
|
|
|
17,549 |
|
|
|
15,898 |
|
Provision (benefit) for income taxes |
|
|
(212 |
) |
|
|
2,502 |
|
|
|
3,196 |
|
|
|
2,600 |
|
|
|
2,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
304 |
|
|
$ |
4,223 |
|
|
$ |
5,202 |
|
|
$ |
4,528 |
|
|
$ |
3,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet (end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
457,175 |
|
|
$ |
453,115 |
|
|
$ |
473,239 |
|
|
$ |
472,803 |
|
|
$ |
417,346 |
|
Total loans |
|
$ |
366,017 |
|
|
$ |
352,949 |
|
|
$ |
354,712 |
|
|
$ |
321,646 |
|
|
$ |
266,913 |
|
Allowance for loan losses |
|
$ |
7,224 |
|
|
$ |
4,211 |
|
|
$ |
3,917 |
|
|
$ |
3,256 |
|
|
$ |
2,722 |
|
Total deposits |
|
$ |
371,493 |
|
|
$ |
391,940 |
|
|
$ |
402,176 |
|
|
$ |
426,560 |
|
|
$ |
378,567 |
|
Total shareholders’ equity |
|
$ |
35,437 |
|
|
$ |
37,139 |
|
|
$ |
35,852 |
|
|
$ |
31,137 |
|
|
$ |
27,891 |
|
Balance sheet (period average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
447,720 |
|
|
$ |
464,974 |
|
|
$ |
468,988 |
|
|
$ |
452,225 |
|
|
$ |
409,335 |
|
Total loans |
|
$ |
355,416 |
|
|
$ |
353,384 |
|
|
$ |
335,226 |
|
|
$ |
302,596 |
|
|
$ |
233,759 |
|
Total deposits |
|
$ |
382,279 |
|
|
$ |
403,772 |
|
|
$ |
415,700 |
|
|
$ |
403,818 |
|
|
$ |
373,267 |
|
Total shareholders’ equity |
|
$ |
37,343 |
|
|
$ |
37,041 |
|
|
$ |
33,682 |
|
|
$ |
29,548 |
|
|
$ |
26,829 |
|
Capital ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio |
|
|
9.8 |
% |
|
|
10.0 |
% |
|
|
9.5 |
% |
|
|
8.5 |
% |
|
|
7.6 |
% |
Tier 1 risk-based capital |
|
|
11.0 |
% |
|
|
11.6 |
% |
|
|
10.9 |
% |
|
|
10.3 |
% |
|
|
10.1 |
% |
Total risk-based capital |
|
|
12.2 |
% |
|
|
12.7 |
% |
|
|
11.8 |
% |
|
|
11.1 |
% |
|
|
10.9 |
% |
Asset quality ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans/total loans |
|
|
7.31 |
% |
|
|
0.75 |
% |
|
|
0.29 |
% |
|
|
0.52 |
% |
|
|
0.45 |
% |
Nonperforming assets/total assets |
|
|
6.78 |
% |
|
|
0.70 |
% |
|
|
0.22 |
% |
|
|
0.36 |
% |
|
|
0.30 |
% |
Allowance for loan losses/total loans |
|
|
1.97 |
% |
|
|
1.19 |
% |
|
|
1.10 |
% |
|
|
1.01 |
% |
|
|
1.02 |
% |
Net loan charge-offs |
|
$ |
1,587 |
|
|
$ |
506 |
|
|
$ |
339 |
|
|
$ |
566 |
|
|
$ |
552 |
|
Performance ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.07 |
% |
|
|
0.91 |
% |
|
|
1.11 |
% |
|
|
1.00 |
% |
|
|
0.89 |
% |
Return on average equity |
|
|
0.8 |
% |
|
|
11.4 |
% |
|
|
15.4 |
% |
|
|
15.2 |
% |
|
|
13.5 |
% |
Net interest margin |
|
|
4.99 |
% |
|
|
5.18 |
% |
|
|
5.32 |
% |
|
|
5.06 |
% |
|
|
4.77 |
% |
Loans to Deposits |
|
|
98.5 |
% |
|
|
90.1 |
% |
|
|
88.2 |
% |
|
|
75.4 |
% |
|
|
70.5 |
% |
Efficiency ratio |
|
|
81.4 |
% |
|
|
72.3 |
% |
|
|
66.1 |
% |
|
|
68.1 |
% |
|
|
71.3 |
% |
Per share information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings |
|
$ |
0.06 |
|
|
$ |
0.85 |
|
|
$ |
1.04 |
|
|
$ |
0.92 |
|
|
$ |
0.75 |
|
Diluted earnings |
|
$ |
0.06 |
|
|
$ |
0.84 |
|
|
$ |
1.02 |
|
|
$ |
0.89 |
|
|
$ |
0.73 |
|
Cash dividends |
|
$ |
0.24 |
|
|
$ |
0.30 |
|
|
$ |
0.26 |
|
|
$ |
0.22 |
|
|
$ |
0.19 |
|
Dividend payout ratio |
|
|
400 |
% |
|
|
35.3 |
% |
|
|
25.0 |
% |
|
|
23.9 |
% |
|
|
25.1 |
% |
Book value |
|
$ |
7.42 |
|
|
$ |
7.63 |
|
|
$ |
7.14 |
|
|
$ |
6.26 |
|
|
$ |
5.69 |
|
Common shares outstanding at period end |
|
|
4,775,339 |
|
|
|
4,869,130 |
|
|
|
5,023,205 |
|
|
|
4,976,654 |
|
|
|
4,901,197 |
|
28
|
|
| 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 and consumer
loans and, to a lesser extent, interest on investment securities, fees received in connection with
servicing deposit and loan customers and fees from the sale or referral of loans. Our major
operating expenses are the interest we pay on deposits and borrowings and general operating
expenses. We rely on locally-generated deposits to provide us with funds for making loans.
We are subject to competition from other financial institutions and our operating results, like
those of other financial institutions operating in California, are significantly influenced by
economic conditions in California, including the strength of the real estate market. In addition,
both the fiscal and regulatory policies of the federal and state government and regulatory
authorities that govern financial institutions and market interest rates also impact the Bank’s
financial condition, results of operations and cash flows.
One of our strategic objectives is to expand our banking service activities to adjacent
communities. In October, 2006 we opened a new Bank owned branch in Truckee, California. This
replaced a much smaller leased facility. During the fourth quarter of 2006 we opened a commercial
real estate loan office in Reno, Nevada. During the second quarter of 2007 we opened a branch in
Redding, California and during the fourth quarter of 2007 we opened a government guaranteed lending
office in Auburn, California.
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 represents our best estimate of losses
inherent in the existing loan portfolio. The allowance for loan losses is increased by the
provision for loan losses charged to expense and reduced by loans charged off, net of recoveries.
We evaluate our allowance for loan losses quarterly. We believe that the allowance for loan losses
is a “critical accounting estimate” because it is based upon management’s assessment of various
factors affecting the collectibility of the loans, including current economic conditions, past
credit experience, delinquency status, the value of the underlying collateral, if any, and a
continuing review of the portfolio of loans.
We determine the appropriate level of the allowance for loan losses, primarily on an analysis of
the various components of the loan portfolio, including all significant credits on an individual
basis. We segment the loan portfolio into as many components as practical. Each component has
similar characteristics, such as risk classification, past due status, type of loan or lease,
industry or collateral.
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.
Available for Sale Securities. Available-for-sale securities are required to be carried at fair
value. We believe this is a “critical accounting estimate” in that the fair value of a security is
based on quoted market prices or if quoted market prices are not available, fair values are
extrapolated from the quoted prices of
similar instruments. Adjustments to the available-for-sale securities fair value impact the
consolidated financial statements by increasing or decreasing assets and shareholders’ equity.
29
Investment securities are evaluated for impairment on at least a quarterly basis and more
frequently when economic or market conditions warrant such an evaluation to determine whether a
decline in their value is other than temporary. We utilize criteria such as the magnitude and
duration of the decline and our 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. Once a decline in value is determined to be other than temporary, the value of the
security is reduced and a corresponding charge to earnings is recognized.
Income Taxes. The Company files its income taxes on a consolidated basis with its subsidiary. The
allocation of income tax expense (benefit) represents each entity’s proportionate share of the
consolidated provision for income taxes.
Deferred income taxes reflect the estimated future tax effects of temporary differences between the
reported amount of assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. We use an estimate of future earnings to support our
position that the benefit of our deferred tax assets will be realized. A valuation allowance is
recognized if, based on the weight of available evidence, management believes it is more likely
than not that some portion or all of the deferred tax assets will not be realized. If future income
should prove non-existent or less than the amount of the deferred tax assets within the tax years
to which they may be applied, the asset may not be realized and our net income will be reduced.
The provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48) have been applied to all tax positions of the Company since
January 1, 2007. Under FIN 48 only tax positions that met the more-likely-than-not recognition
threshold as of January 1, 2007 were recognized or continue to be recognized. 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.
Impairment of Core Deposit Intangible. The core deposit intangible represents the excess of the
premiums paid over the fair value of the assets and liabilities acquired in the branch
acquisitions. The core deposit intangible is required to be amortized over its expected useful life
and required to be evaluated for impairment at least annually and whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If the fair
value of the asset is determined to be less than the carrying amount, the core deposit intangible
will be written down through a charge to operations.
Stock-Based Compensation. Compensation cost is recognized for all stock based awards that vest
subsequent to January 1, 2006 based on the grant-date fair value of the awards. We believe this is
a “critical accounting estimate” since the grant-date fair value is estimated using the
Black-Scholes-Merton option-pricing formula, which involves making estimates of the assumptions
used, including the expected term of the option, expected volatility over the option term, expected
dividend yield over the option term and risk-free interest rate. In addition, when determining the
compensation expense to amortize over the vesting period, management makes estimates about the
expected forfeiture rate of options.
30
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, 2008 and 2007 and for each of the three years in the period ended
December 31, 2008. 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
Our Company has been affected by an economic downturn unprecedented in recent memory. Despite this
we were able to remain profitable. The Company’s net income decreased $3.9 million, or 92.8%, to
$304 thousand for the year ended December 31, 2008 from $4.2 million for the same period in 2007.
Net income was $5.2 million for the year ended December 31, 2006. The primary driver of this
decrease in net income was the increase in the loan loss provision of $3.8 million during 2008.
Other factors contributing to the decrease in earnings during 2008 were: (i) a decrease in net
interest income of $1.7 million, primarily related to a decline in market rates during the period;
(ii) a $357 thousand decline in non-interest income related to a $415 thousand impairment loss on a
$500 thousand corporate debt security issued by Lehman Brothers Holdings Inc., which filed for
Chapter 11 bankruptcy on September 15, 2008 and; (iii) an increase of $804 thousand in non-interest
expense. The increase in non-interest expense included a provision for losses on other real estate
holdings totaling $618 thousand. Partially offsetting these reductions in income in 2008 was a
decrease of $2.7 million in the provision for income taxes.
Total assets at December 31, 2008 increased $4.1 million, or 0.9% to $457 million. This increase
included increases of $5.6 million in cash and due from banks, $9.8 million in net loans, $3.7
million in real estate and vehicles acquired through foreclosure and $1.9 million in other assets,
partially offset by a decline of $16.9 million in investment securities. Net loans totaled $359.1
million at December 31, 2008, up 2.8% from $349.3 million at December 31, 2007. At December 31,
2008 investment securities totaled $38.4 million compared to $55.3 million at December 31, 2007.
Deposits declined by $20.4 million, or 5.2%, to $371.5 million at December 31, 2008 from $391.9
million at December 31, 2007. The decline in deposits primarily relates to the maturity of higher
rate time certificates of deposit. Time deposits declined by $30.1 million from $128.4 million
during the year ended December 31, 2007 to $98.3 million at December 31, 2008. This decrease was
mitigated by the increase in lower cost other interest-bearing deposits of $8.1 million and in
non-interest bearing deposits of $1.6 million.
In order to fund the growth in loans while deposits were declining and to take advantage of
favorable interest rates, short-term borrowings increased by $26.5 million from $7.5 million at
December 31, 2007 to $34 million at December 31, 2008.
The return on average assets was 0.07% for 2008, down from 0.91% for 2007. The return on average
equity was 0.8% for 2008, down from 11.4% for 2007.
31
Results of Operations
Net Interest Income
The following table presents, for the years indicated, the distribution of consolidated average
assets, liabilities and shareholders’ equity. Average balances are based on average daily balances.
It also presents the amounts of interest income from interest-earning assets and the resultant
yields expressed in both dollars and yield percentages, as well as the amounts of interest expense
on interest-bearing liabilities and the resultant cost expressed in both dollars and rate
percentages. Nonaccrual loans are included in the calculation of average loans while nonaccrued
interest thereon is excluded from the computation of yields earned:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
|
|
|
|
Interest |
|
|
Rates |
|
|
|
|
|
|
Interest |
|
|
Rates |
|
|
|
|
|
|
Interest |
|
|
Rates |
|
| |
|
Average |
|
|
income/ |
|
|
earned/ |
|
|
Average |
|
|
income/ |
|
|
earned/ |
|
|
Average |
|
|
income/ |
|
|
earned/ |
|
| |
|
balance |
|
|
expense |
|
|
paid |
|
|
balance |
|
|
expense |
|
|
paid |
|
|
balance |
|
|
expense |
|
|
paid |
|
| |
|
(dollars in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
$ |
118 |
|
|
$ |
3 |
|
|
|
2.54 |
% |
|
$ |
3,517 |
|
|
$ |
171 |
|
|
|
4.86 |
% |
|
$ |
3,616 |
|
|
$ |
164 |
|
|
|
4.54 |
% |
Investment securities (1) |
|
|
46,658 |
|
|
|
1,887 |
|
|
|
4.04 |
|
|
|
62,690 |
|
|
|
2,404 |
|
|
|
3.83 |
|
|
|
84,794 |
|
|
|
3,047 |
|
|
|
3.59 |
|
Total loans (2)(3) |
|
|
355,416 |
|
|
|
23,550 |
|
|
|
6.63 |
|
|
|
353,384 |
|
|
|
27,709 |
|
|
|
7.84 |
|
|
|
335,226 |
|
|
|
26,272 |
|
|
|
7.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
402,192 |
|
|
|
25,440 |
|
|
|
6.33 |
% |
|
|
419,591 |
|
|
|
30,284 |
|
|
|
7.22 |
% |
|
|
423,636 |
|
|
|
29,483 |
|
|
|
6.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
12,174 |
|
|
|
|
|
|
|
|
|
|
|
12,850 |
|
|
|
|
|
|
|
|
|
|
|
13,547 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
33,354 |
|
|
|
|
|
|
|
|
|
|
|
32,533 |
|
|
|
|
|
|
|
|
|
|
|
31,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
447,720 |
|
|
|
|
|
|
|
|
|
|
$ |
464,974 |
|
|
|
|
|
|
|
|
|
|
$ |
468,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits |
|
$ |
73,338 |
|
|
|
548 |
|
|
|
0.75 |
% |
|
$ |
77,254 |
|
|
|
1,335 |
|
|
|
1.73 |
% |
|
$ |
80,685 |
|
|
|
1,489 |
|
|
|
1.85 |
% |
Money market deposits |
|
|
37,626 |
|
|
|
312 |
|
|
|
0.83 |
|
|
|
39,431 |
|
|
|
327 |
|
|
|
0.83 |
|
|
|
56,496 |
|
|
|
661 |
|
|
|
1.17 |
|
Savings deposits |
|
|
48,573 |
|
|
|
161 |
|
|
|
0.33 |
|
|
|
50,448 |
|
|
|
245 |
|
|
|
0.49 |
|
|
|
59,802 |
|
|
|
423 |
|
|
|
0.71 |
|
Time deposits |
|
|
110,743 |
|
|
|
3,501 |
|
|
|
3.16 |
|
|
|
121,808 |
|
|
|
5,304 |
|
|
|
4.35 |
|
|
|
93,515 |
|
|
|
3,314 |
|
|
|
3.54 |
|
Short-term borrowings |
|
|
11,857 |
|
|
|
202 |
|
|
|
1.70 |
|
|
|
8,735 |
|
|
|
467 |
|
|
|
5.35 |
|
|
|
4,446 |
|
|
|
237 |
|
|
|
5.33 |
|
Junior subordinated debentures |
|
|
10,310 |
|
|
|
623 |
|
|
|
6.04 |
|
|
|
10,310 |
|
|
|
835 |
|
|
|
8.10 |
|
|
|
10,310 |
|
|
|
810 |
|
|
|
7.86 |
|
Other |
|
|
309 |
|
|
|
17 |
|
|
|
5.50 |
|
|
|
303 |
|
|
|
23 |
|
|
|
7.59 |
|
|
|
285 |
|
|
|
20 |
|
|
|
7.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
292,756 |
|
|
|
5,364 |
|
|
|
1.83 |
% |
|
|
308,289 |
|
|
|
8,536 |
|
|
|
2.77 |
% |
|
|
305,539 |
|
|
|
6,954 |
|
|
|
2.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing demand deposits |
|
|
111,999 |
|
|
|
|
|
|
|
|
|
|
|
114,831 |
|
|
|
|
|
|
|
|
|
|
|
125,202 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
5,622 |
|
|
|
|
|
|
|
|
|
|
|
4,813 |
|
|
|
|
|
|
|
|
|
|
|
4,565 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
37,343 |
|
|
|
|
|
|
|
|
|
|
|
37,041 |
|
|
|
|
|
|
|
|
|
|
|
33,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity |
|
$ |
447,720 |
|
|
|
|
|
|
|
|
|
|
$ |
464,974 |
|
|
|
|
|
|
|
|
|
|
$ |
468,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
20,076 |
|
|
|
|
|
|
|
|
|
|
$ |
21,748 |
|
|
|
|
|
|
|
|
|
|
$ |
22,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (4) |
|
|
|
|
|
|
|
|
|
|
4.50 |
% |
|
|
|
|
|
|
|
|
|
|
4.45 |
% |
|
|
|
|
|
|
|
|
|
|
4.68 |
% |
Net interest margin (5) |
|
|
|
|
|
|
|
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
5.18 |
% |
|
|
|
|
|
|
|
|
|
|
5.32 |
% |
| |
|
|
| (1) |
|
Interest income is reflected on an actual basis and is not computed on a tax-equivalent
basis. |
| |
| (2) |
|
Average nonaccrual loan balances of $5.2 million for 2008, $1.7 million for 2007 and $1.2
million for 2006 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 $288,000, $360,000 and $407,000 for 2008, 2007 and 2006, 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. |
32
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:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 compared to 2007 |
|
|
2007 compared to 2006 |
|
| |
|
Increase (decrease) due to change in: |
|
|
Increase (decrease) due to change in: |
|
| |
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
| |
|
Volume(1) |
|
|
Rate(2) |
|
|
Mix(3) |
|
|
Total |
|
|
Volume(1) |
|
|
Rate(2) |
|
|
Mix(3) |
|
|
Total |
|
| |
|
(dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
$ |
(165 |
) |
|
$ |
(82 |
) |
|
$ |
79 |
|
|
$ |
(168 |
) |
|
$ |
(4 |
) |
|
$ |
12 |
|
|
$ |
(1 |
) |
|
$ |
7 |
|
Investment securities |
|
|
(615 |
) |
|
|
131 |
|
|
|
(33 |
) |
|
|
(517 |
) |
|
|
(794 |
) |
|
|
205 |
|
|
|
(54 |
) |
|
|
(643 |
) |
Loans |
|
|
159 |
|
|
|
(4,294 |
) |
|
|
(24 |
) |
|
|
(4,159 |
) |
|
|
1,423 |
|
|
|
13 |
|
|
|
1 |
|
|
|
1,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(621 |
) |
|
|
(4,245 |
) |
|
|
22 |
|
|
|
(4,844 |
) |
|
|
625 |
|
|
|
230 |
|
|
|
(54 |
) |
|
|
801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
deposits |
|
|
(68 |
) |
|
|
(758 |
) |
|
|
39 |
|
|
|
(787 |
) |
|
|
(63 |
) |
|
|
(95 |
) |
|
|
4 |
|
|
|
(154 |
) |
Money market deposits |
|
|
(15 |
) |
|
|
— |
|
|
|
— |
|
|
|
(15 |
) |
|
|
(200 |
) |
|
|
(192 |
) |
|
|
58 |
|
|
|
(334 |
) |
Savings deposits |
|
|
(9 |
) |
|
|
(78 |
) |
|
|
3 |
|
|
|
(84 |
) |
|
|
(66 |
) |
|
|
(133 |
) |
|
|
21 |
|
|
|
(178 |
) |
Time deposits |
|
|
(482 |
) |
|
|
(1,453 |
) |
|
|
132 |
|
|
|
(1,803 |
) |
|
|
1,003 |
|
|
|
758 |
|
|
|
229 |
|
|
|
1,990 |
|
Short-term borrowings |
|
|
167 |
|
|
|
(318 |
) |
|
|
(114 |
) |
|
|
(265 |
) |
|
|
228 |
|
|
|
1 |
|
|
|
1 |
|
|
|
230 |
|
Junior subordinated
debentures |
|
|
— |
|
|
|
(212 |
) |
|
|
— |
|
|
|
(212 |
) |
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
25 |
|
Other borrowings |
|
|
— |
|
|
|
(6 |
) |
|
|
— |
|
|
|
(6 |
) |
|
|
1 |
|
|
|
2 |
|
|
|
— |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(407 |
) |
|
|
(2,825 |
) |
|
|
60 |
|
|
|
(3,172 |
) |
|
|
903 |
|
|
|
366 |
|
|
|
313 |
|
|
|
1,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
(214 |
) |
|
$ |
(1,420 |
) |
|
$ |
(38 |
) |
|
$ |
(1,672 |
) |
|
$ |
(278 |
) |
|
$ |
(136 |
) |
|
$ |
(367 |
) |
|
$ |
(781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (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. |
2008 compared to 2007. Net interest income is the difference between interest income and interest
expense. Net interest income, on a nontax-equivalent basis, was $20.1 million for the year ended
December 31, 2008, a decline of $1.7 million, or 7.7%, from $21.8 million for 2007. The decline in
interest income and expense is primarily related to market interest rate changes during the
comparison periods reflective of the 400 basis point decline in Federal fund rates during 2008. In
addition, the Company’s cost of funds has benefited from the maturity of higher rate time deposits
during 2008.
Overall changes in net interest income are primarily a result of the decrease in loan interest
income, primarily due to the decline in yields earned, and the decrease in interest on investments
securities, primarily due to the decrease in average investment securities outstanding, offset by
the decreases in interest expense on deposits, short-term borrowings and junior subordinated
debentures primarily due to the decline in the average rates paid.
Interest income decreased $4.8 million, or 16.0%, to $25.4 million for the year ended December 31,
2008. Interest and fees on loans decreased by $4.2 million from $27.7 million for the year ended
December 31, 2007 to $23.5 million for 2008. The average loan balances were $355.4 million for
2008, up $2.0 million from the $353.4 million for 2007. The average yields on loans were 6.63% for
2008 down from the 7.84% for 2007. In addition to the decline in yield related to a decline in
market interest rates, the loan yields for 2008 reflects the impact of an increase in forgone
interest on nonaccrual loans from $161 thousand during 2007 to $576 thousand during 2008.
Interest on investment securities decreased by $517 thousand, as a slight increase in yield of 21
basis points was offset by a decline in the average balance of investment securities of $16.0
million. The increase in rate during 2008 primarily relates to scheduled repayments of lower rate
securities. Interest on Federal funds sold declined by $168 thousand related both to a decline in
the average balance outstanding and a decline in the average rate earned.
33
As a result of the declining rate environment interest expense decreased $3.2 million to $5.3
million for the year ended December 31, 2008, from $8.5 million for 2007. The decrease in interest
expense was primarily attributed to rate decreases on time deposits and interest bearing demand
deposits and, to a lesser extent, rate decreases on savings deposits, short-term borrowings and
junior subordinated debentures. During 2007, rather than increasing the rates paid on our lower
cost interest bearing transaction, money market and savings accounts to attract deposits and
thereby increasing the rate paid on the entire balance of these accounts, the Company chose to
increase its level of time deposits by offering certain short-term promotional certificates of
deposit which paid a higher rate than our standard time deposits. During 2008 we allowed these
higher rate promotional time deposits to mature and increased our level of short-term borrowings
which offered favorable interest rates in comparison to rates we would have had to pay to attract
additional time deposits.
For the year ended December 31, 2008 compared to 2007, the Company’s average rate paid on time
deposits decreased 119 basis points to 3.16% from 4.35%. This decrease includes a decline in market
rates in the Company’s service area and the effect of our discontinuing the promotional certificate
of deposit program.
Interest expense on interest-bearing demand accounts declined by $787 thousand primarily related to
a decline in the average rate paid on these accounts from 1.73% in 2007to 0.75% in 2008. Interest
expense on money market accounts declined by $15 thousand related to a decline in the average
balance. The rate paid on these accounts was 0.83% during both periods as a decline in market
interest rates was offset by the introduction of a new corporate sweep product which offers a
tiered rate structure that rewards customers with a higher rate for maintaining larger balances.
Interest on short-term borrowings decreased by $265 thousand as a decline in the rate paid on these
borrowings was partially offset by an increase in average balance. Interest expense paid on junior
subordinated debentures, which fluctuates with changes in the 3-month London Interbank Offered Rate
(LIBOR) rate, decreased by $212 thousand during 2008 as a result of a decrease in the LIBOR rate.
Net interest margin is net interest income expressed as a percentage of average interest-earning
assets. As a result of the changes noted above, the net interest margin for 2008 decreased 19
basis points to 4.99%, from 5.18% for 2007.
2007 compared to 2006. Net interest income, on a nontax-equivalent basis, was $21.7 million for
the year ended December 31, 2007, a decline of $0.8 million, or 3.5%, from $22.5 million for 2006.
An increase in loan interest income related to an increase in average loans outstanding was offset
by a decrease in average investment securities outstanding and an increase in both the rates paid
on and average balances of time deposits. The increase in interest expense on time deposits was
somewhat offset by decrease in the average balance outstanding and the rate paid on other interest
bearing deposits. Interest expense on short-term borrowings increased as a result of an increase
in the average balance outstanding.
Interest income increased $0.8 million, or 2.7%, to $30.3 million for the year ended December 31,
2007. Interest and fees on loans increased by $1.4 million from $26.3 million for the year ended
December 31, 2006 to $27.7 million for 2007. The average loan balances were $353.4 million for
2007, up $18.2 million, or 5%, from the $335.2 million for 2006. The average yields on loans were
7.84% for 2007 and 2006.
Interest on investment securities decreased by $643 thousand, as an increase in yield of 24 basis
points was offset by a decline in average investment securities of $22.1 million.
Interest expense increased $1.6 million to $8.5 million for the year ended December 31, 2007, up
from $6.9 million for 2006. The increase in interest expense was primarily attributed to rate and
volume increases on time deposits and in the level of short-term borrowings. During 2007, the
Company experienced increases in the average balance of its time deposits but declines in
non-interest bearing demand deposit accounts, interest-bearing demand deposits, savings and money
market accounts. We have experienced significant competition for deposits from both banking and
non-banking sources. Rather than increasing the rates paid on our lower yielding interest bearing
transaction, money market and savings accounts to attract deposits
and thereby increasing the rate paid on the entire balance of these accounts, during 2007 the
Company chose to increase its level of short-term time deposits and to a lesser extent to increase
average short-term borrowings. In 2007, this resulted in an increase in both the volume and rate
components of time deposit interest expense and the volume variance of short-term borrowings.
34
For the year ended December 31, 2007 compared to 2006, the Company’s average rate paid on time
deposits increased 81 basis points to 4.35% from 3.54%. This increase includes an increase in
market rates in the Company’s service area and the effect of a promotional certificate of deposit
program introduced during the fourth quarter of 2006. The average rate paid on promotional
certificate of deposits for the year ended December 31, 2007 was 5.10% and the average balance was
$45.1 million. This product provided a higher rate of return for our more interest rate sensitive
customers, whose deposits we may have otherwise lost to competition, while providing a highly
competitive rate to attract new deposits.
Interest expense on interest-bearing demand, money market and savings accounts declined by $666
thousand related to both a decline in the average rate paid on these accounts and a decline in the
average balance. Interest on short-term borrowings increased primarily as a result of an increase
in average borrowings. Interest expense paid on junior subordinated debentures, which fluctuates
with changes in the 3-month LIBOR rate, increased by $25 thousand during 2007 as a result of an
increase in the LIBOR rate.
As a result of the changes noted above, the net interest margin for 2007 decreased 14 basis points
to 5.18%, from 5.32% for 2006.
Provision for Loan Losses
The allowance for loan losses is maintained at a level that management believes will be adequate to
absorb inherent losses on existing loans based on an evaluation of the collectibility of the loans
and prior loan loss experience. The evaluations take into consideration such factors as changes in
the nature and volume of the portfolio, overall portfolio quality, review of specific problem
loans, and current economic conditions that may affect the borrower’s ability to repay their loan.
The allowance for loan losses is based on estimates, and ultimate losses may vary from the current
estimates. These estimates are reviewed periodically and, as adjustments become necessary, they
are reported in earnings in the periods in which they become known.
The Company recorded $4.6 million in provision for loan losses for 2008, $0.8 million for 2007 and
$1.0 million for 2006. The Company has experienced a higher level of net loan charge-offs and
nonperforming loans in 2008 compared to 2007 related to the significant economic slow down
affecting California and Nevada. In response, the Company has increased its level of allowance for
loan losses to total loans from 1.19% at December 31, 2007 to 1.97% at December 31, 2008 and has
increased its allowance for loan losses from $4.2 million to $7.2 million for the same periods.
Net charge-offs as a percentage of average loans increased to 0.45% for 2008 from 0.14% for 2007
and 0.10% for 2006. Nonperforming loans increased from $2.6 million at December 31, 2007 to $26.7
million at December 31, 2008. The increase in nonperforming loans is centered in four separate loan
relationships which are secured by commercial real estate. Nonperforming loans totaling $26.4
million are considered impaired and we have provided specific reserves of $3.1 million for these
loans resulting in a net carrying value of $23.3 million which is also equal to the fair value of
the underlying loan collateral less estimated costs to sell. Based on information currently
available, management believes that the allowance for loan losses is adequate to absorb potential
risks in the portfolio. However, no assurance can be given that the Company may not sustain
charge-offs which are in excess of the allowance in any given period. See the section “Analysis of
Asset Quality and Allowance for Loan Losses” for further discussion of loan quality trends and the
provision for loan losses.
35
Non-Interest Income
The following table sets forth the components of non-interest income for the years ended December
31, 2008, 2007 and 2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
|
|
Change during Year |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2008 |
|
|
2007 |
|
| |
|
(dollars in thousands) |
|
Service charges on deposit
accounts |
|
$ |
3,951 |
|
|
$ |
3,806 |
|
|
$ |
3,676 |
|
|
$ |
145 |
|
|
$ |
130 |
|
Earnings on bank owned life
insurance policies |
|
|
421 |
|
|
|
415 |
|
|
|
393 |
|
|
|
6 |
|
|
|
22 |
|
Merchant processing |
|
|
286 |
|
|
|
282 |
|
|
|
318 |
|
|
|
4 |
|
|
|
(36 |
) |
Investment services |
|
|
125 |
|
|
|
162 |
|
|
|
104 |
|
|
|
(37 |
) |
|
|
58 |
|
Customer service fees |
|
|
114 |
|
|
|
119 |
|
|
|
113 |
|
|
|
(5 |
) |
|
|
6 |
|
Gain on sale of loans, net |
|
|
111 |
|
|
|
47 |
|
|
|
42 |
|
|
|
64 |
|
|
|
5 |
|
Federal Home Loan Bank
dividends |
|
|
105 |
|
|
|
109 |
|
|
|
104 |
|
|
|
(4 |
) |
|
|
5 |
|
Loan servicing fees |
|
|
96 |
|
|
|
140 |
|
|
|
14 |
|
|
|
(44 |
) |
|
|
126 |
|
Official check fees |
|
|
93 |
|
|
|
157 |
|
|
|
170 |
|
|
|
(64 |
) |
|
|
(13 |
) |
Safe deposit box and night
depository income |
|
|
67 |
|
|
|
67 |
|
|
|
69 |
|
|
|
— |
|
|
|
(2 |
) |
Impairment loss on investment
security |
|
|
(415 |
) |
|
|
— |
|
|
|
— |
|
|
|
(415 |
) |
|
|
— |
|
Other income |
|
|
137 |
|
|
|
144 |
|
|
|
156 |
|
|
|
(7 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
$ |
5,091 |
|
|
$ |
5,448 |
|
|
$ |
5,159 |
|
|
$ |
(357 |
) |
|
$ |
289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared to 2007. During 2008, total non-interest income decreased by $357 thousand or 7%, to
$5.1 million, down from $5.4 million from the comparable period in 2007. This decrease was
primarily related to a write down on a security issued by Lehman Brothers Holdings Inc., which
filed for Chapter 11 bankruptcy on September 15, 2008. Due to the significant decline in the price
of this security following the bankruptcy filing the Company recorded an other than temporary
impairment write down of $415 thousand. Partially offsetting this decrease were increases in
service charges and gains on loan sales.
Service charge income increased by $145 thousand primarily related to an increase in monthly
service charges on non-interest bearing transaction accounts. Gains on the sale of loans, which
increased by $64 thousand, relate to the sale of SBA government guaranteed loans and reflects an
increase in staffing levels in our government guaranteed lending operations. Partially offsetting
these items were decreases in official check fees, loan servicing fees and investment services
income.
Official checks fees declined by $64 thousand. Official checks fees represent fees paid by a third
party processor for the processing of our cashier and expense checks. These fees are indexed to
the federal funds rate and the decrease in income from this item is primarily related to the
decline in the federal funds rate during 2008. Additionally, during 2008 the processor changed the
fee structure further reducing fees that we earn under this relationship. We expect continued
declines in official checks fees during 2009. Smaller decreases were experienced in loan servicing
income which declined by $44 thousand and investment services revenue which declined $37 thousand.
2007 compared to 2006. During 2007, total non-interest income increased by $289 thousand or 6%, to
$5.4 million, up from $5.1 million from the comparable period in 2006. This increase was primarily
related to an increase in service charges on deposit accounts of $130 thousand and an increase in
loan servicing fees of $126 thousand. The increase in service charges on deposits accounts relates
to an increase in the fees charged for these services and an increase of $98 thousand in ATM
income. The increase in ATM income was partially offset by an increase of $53 thousand in ATM
expense, which is included in non-interest expense under the category outside service fees. Loan serving income was lower in the 2006
period mostly related to an increase in the amortization of servicing assets and I/O strips
receivable.
36
Investment services income increased by $58 thousand from 2006 primarily related to an increase in
staff dedicated to this product, with the increase in income offset by an increase in salary
dollars supporting this product. A decline in merchant processing income of $36 thousand resulted
from a reduction of merchant accounts. During the fourth quarter of 2007 the Company changed its
merchant processor to better service our merchant customers.
Non-Interest Expense
The following table sets forth the components of other non-interest expense for the years ended
December 31, 2008, 2007 and 2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
|
|
Change during Year |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2008 |
|
|
2007 |
|
| |
|
(dollars in thousands) |
|
Salaries and employee benefits |
|
$ |
10,884 |
|
|
$ |
11,200 |
|
|
$ |
10,043 |
|
|
$ |
(316 |
) |
|
$ |
1,157 |
|
Occupancy and equipment |
|
|
3,838 |
|
|
|
3,552 |
|
|
|
3,323 |
|
|
|
286 |
|
|
|
229 |
|
Outside service fees |
|
|
735 |
|
|
|
671 |
|
|
|
591 |
|
|
|
64 |
|
|
|
80 |
|
Professional fees |
|
|
688 |
|
|
|
738 |
|
|
|
780 |
|
|
|
(50 |
) |
|
|
(42 |
) |
Provision for OREO losses |
|
|
618 |
|
|
|
— |
|
|
|
— |
|
|
|
618 |
|
|
|
— |
|
Business development |
|
|
467 |
|
|
|
530 |
|
|
|
555 |
|
|
|
(63 |
) |
|
|
(25 |
) |
Advertising and promotion |
|
|
448 |
|
|
|
520 |
|
|
|
552 |
|
|
|
(72 |
) |
|
|
(32 |
) |
Telephone and data
communications |
|
|
400 |
|
|
|
362 |
|
|
|
374 |
|
|
|
38 |
|
|
|
(12 |
) |
Loan expenses |
|
|
380 |
|
|
|
192 |
|
|
|
139 |
|
|
|
188 |
|
|
|
53 |
|
Director compensation and
retirement |
|
|
323 |
|
|
|
349 |
|
|
|
370 |
|
|
|
(26 |
) |
|
|
(21 |
) |
Armored car and courier |
|
|
289 |
|
|
|
279 |
|
|
|
270 |
|
|
|
10 |
|
|
|
9 |
|
FDIC insurance |
|
|
258 |
|
|
|
48 |
|
|
|
53 |
|
|
|
210 |
|
|
|
(5 |
) |
Stationery and supplies |
|
|
236 |
|
|
|
278 |
|
|
|
282 |
|
|
|
(42 |
) |
|
|
(4 |
) |
Insurance |
|
|
235 |
|
|
|
177 |
|
|
|
173 |
|
|
|
58 |
|
|
|
4 |
|
Core deposit intangible
amortization |
|
|
216 |
|
|
|
301 |
|
|
|
301 |
|
|
|
(85 |
) |
|
|
— |
|
Postage |
|
|
208 |
|
|
|
242 |
|
|
|
249 |
|
|
|
(34 |
) |
|
|
(7 |
) |
Other operating expense |
|
|
252 |
|
|
|
232 |
|
|
|
235 |
|
|
|
20 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
$ |
20,475 |
|
|
$ |
19,671 |
|
|
$ |
18,290 |
|
|
$ |
804 |
|
|
$ |
1,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared to 2007. During 2008, total non-interest expense increased $804 thousand, or 4%, to
$20.5 million, up from $19.7 million for the comparable period in 2007. The increase in
non-interest expense was primarily the result of increases in occupancy and equipment costs, loan
expenses, FDIC insurance costs and the provision for OREO losses. These items were partially
offset by declines in salaries and employee benefits, reductions in professional fees, business
development and advertising costs, and a reduction in core deposit intangible amortization.
The largest single factor resulting in the increase in non-interest expense was a $618 thousand
provision for losses on OREO. We have experienced a decline in the fair value of our foreclosed
real estate holdings and to reflect this decline we established a valuation allowance for these
properties through the recording of a $618 thousand provision for losses on OREO properties.
37
The increase in occupancy and equipment costs primarily relates to costs associated with our
Redding, California branch. We initially opened this branch in a small temporary facility and in
July 2008 we relocated to our much larger permanent leased facility which is located in Redding’s
commercial district, across the street from City Hall. Consistent with the increase in
nonperforming loans and assets during the period (See “Analysis of Asset Quality and Allowance for
Loan Losses”) loan expenses which include legal costs associated with loan collection efforts as
well as costs related to acquiring and maintaining real estate acquired through foreclosure
increased by $188 thousand from $192 thousand during 2007 to $380 thousand for the year ended
December 31, 2008. FDIC insurance expense increased by $210 thousand. During 2007 the Company was
able to use its remaining credit balance with the FDIC to offset insurance premium billings;
however by the end of the first quarter of 2008 the credit balance had been fully utilized.
Salaries and employee benefit expenses decreased $316 thousand, or 3%, from the year ended December
31, 2007. The largest components of this decrease were a $330 thousand decline in salary
continuation plan expense and a $224 thousand decline in bonus expense. These items were partially
offset by an increase in salary expense of $315 thousand.
The Company provides retirement benefits to its executive officers in the form of salary
continuation plans and split dollar life insurance agreements. The purpose of these agreements is
to provide a special incentive to the experienced executive officer to continue employment with the
Company on a long-term basis. These costs were abnormally high during 2007 as they included a
one-time expense of $194 thousand reflecting the announced early retirement of our Chief
Information/Technology officer.
The decline in bonus expense is consistent with a decline in net income during the period as a
significant portion of our bonus plans are tied to or directly influenced by the level of net
income including return on average equity, return on average assets and earnings per share. The
decline in net income during the period resulted in an absence of bonuses earned from this portion
of our bonus plans. Bonus expense recorded for 2008 was related to factors not directly related to
net income such as loan production and deposit growth.
Salaries costs increased by $315 thousand which included annual merit increases as well as
expansion of our government guaranteed lending activities and an increase in staffing levels at our
Redding, California branch.
We have focused our attention on cost control initiatives and have been successful in several
areas. We reduced professional fees by $50 thousand and reduced business development and
advertising costs by $135 thousand. During the 2007 period professional fees included consulting
costs associated with an outside evaluation of our core banking software requirements, other
technology planning costs and costs associated with a strategic planning initiative. Similar costs
were not incurred during the 2008 period. The decrease in business development and advertising
costs resulted from reductions in our marketing budget, promotional materials, and a decrease in
seminar and conference costs.
Core deposit intangible amortization declined by $85 thousand as a portion of this asset is now
fully amortized. The remaining asset is scheduled to amortize at the rate of $173 thousand per year
until October, 2013.
2007 compared to 2006. During 2007, total non-interest expense increased $1,381 thousand, or 8%,
to $19.7 million, up from $18.3 million for the comparable period in 2006. The increase in
non-interest expense was primarily the result of increases in salaries and employee benefits,
occupancy and equipment costs and outside service fees.
Salaries and employee benefits increased $1,157 thousand, or 12%, over the year ended December 31,
2006. Salaries costs increased by $685 thousand which included annual merit increases as well as
additional officer level employees primarily related to the Company’s Reno, Nevada commercial real
estate loan office and its recently opened Redding, California branch. The increase in salaries
was mostly offset by a decrease in bonus expense.
38
During the fourth quarter of 2006 we opened our newly constructed branch in Truckee, California.
This replaced a much smaller leased facility. Also in the fourth quarter of 2006 we opened a
commercial real estate loan office in Reno, Nevada. During the second quarter of 2007 we opened a
new Bank branch in Redding, California in a temporary location. The increase in salary expense
included an increase of $468 thousand related to the recently opened Reno loan office and Redding
branch. In addition salary expense increased by $73 thousand at our Truckee branch.
Another significant component of the increase in salaries and employee benefits was a $575 thousand
reduction in the deferral of loan origination costs. The largest component of this decrease was
related to a reduction in the origination volume of consumer loans including auto loans. From 2004
through most of 2006 the Company had been aggressive in seeking out dealer auto loans. Beginning
in late 2006 and continuing into 2007 we began to deemphasize our auto lending activities. In April
2007 the head of the Company’s auto lending department resigned and shortly thereafter the Company
discontinued new dealer-lending activity.
The Company provides retirement benefits to its executive officers in the form of salary
continuation plans and split dollar life insurance agreements. Costs included in salary and benefit
expense related to these plans increased by $263 thousand during 2007 which primarily relates to
costs required to reflect the announced early retirement of our Chief Information/Technology
officer.
Stock-based compensation expense, included in salary and employee benefits, increased by $107
thousand from $126 thousand during 2006 to $233 thousand during 2007. This increase was related to
option grants during 2007.
The Company determines the fair value of the stock 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.
These increases in salary and employee benefit expense were partially offset by a decrease in bonus
expense of $496 thousand primarily due to the decrease in net income during 2007. A large portion
of the Company’s bonus plan is based on the level of net income and items directly influenced by
the level of net income including return on average equity, return on average assets and earnings
per share.
Occupancy and equipment costs increased by $229 thousand, or 7% from $3,323 thousand for the year
ended December 31, 2006 to $3,552 thousand for 2007. This increase includes an increase in
operating expenses of $118 thousand related to the new Truckee branch, a $44 thousand increase in
costs at our new Reno lending office and $56 thousand related to the new Redding branch.
Outside services increased by $80 thousand primarily related to increases in ATM processing costs
of $53 thousand which were offset by an increase in ATM income.
Provision for income taxes. The Company recorded an income tax benefit of $212 thousand as tax
exempt income such as earnings on Bank owned life insurance and municipal loan and investment
income exceeded pretax income. For 2007 the provision for income taxes was $2.5 million, or 37.2%
of pre-tax income for 2007. This compares to $3.2 million or 38.1% of pre-tax income during 2006.
The decrease in provision as a percentage of pre-tax income for 2007 as compared to 2006 relates to
an increase in tax exempt income as a percentage of pretax income during 2007 as compared to 2006.
This includes increases in earnings on Bank owned life insurance policies, a $63 thousand death
benefit on Bank owned life insurance during the fourth quarter of 2007 and increases in municipal
loan interest.
39
Financial Condition
Loan Portfolio. The Company continues to manage the mix of its loan portfolio consistent with its
identity as a community bank serving the financing needs of all sectors of the area it serves.
Although the Company offers a broad array of financing options, it continues to concentrate its
focus on small to medium sized commercial businesses. These commercial loans offer diversification
as to industries and types of businesses, thus limiting material exposure in any industry
concentrations. The Company offers both fixed and floating rate loans and obtains collateral in
the form of real property, business assets and deposit accounts, but looks to business and personal
cash flows as its primary source of repayment.
The Company’s largest lending categories are real estate mortgage loans, consumer and real estate
construction loans. These categories accounted for approximately 41.5%, 16.9% and 20.2%,
respectively of the Company’s total loan portfolio at December 31, 2008, and approximately 36.4%,
20.6% and 21.7%, respectively of the Company’s total loan portfolio at December 31, 2007. In
addition, the Company’s real estate related loans, including real estate mortgage loans, real
estate construction loans, consumer equity lines of credit, and agricultural loans secured by real
estate comprised 75% and 70% of the total loan portfolio at December 31, 2008 and 2007. Moreover,
the business activities of the Company currently are focused in the California counties of Plumas,
Nevada, Placer, Lassen, Modoc, Shasta, and Sierra and beginning in the fourth quarter of 2006 in
Washoe County in Northern Nevada. Consequently, the results of operations and financial condition
of the Company are dependent upon the general trends in these 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.
The rates of interest charged on variable rate loans are set at specific increments in relation to
the Company’s lending rate or other indexes such as the published prime interest rate or U.S.
Treasury rates and vary with changes in these indexes. At December 31, 2008 and 2007, approximately
67% and 63%, respectively, of the Company’s loan portfolio was compromised of variable rate loans.
While real estate mortgage, commercial and consumer lending remain the foundation of the Company’s
historical loan mix, some changes in the mix have occurred due to the changing economic environment
and the resulting change in demand for certain loan types. In addition, the Company remains
committed to the agricultural industry in Northeastern California and will continue to pursue high
quality agricultural loans. Agricultural loans include both commercial and commercial real estate
loans. The Company’s agricultural loan balances totaled $36 million at both December 31, 2008 and
2007.
The following table sets forth the amounts of loans outstanding by category as of the dates
indicated.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(dollars in thousands) |
|
Real estate — mortgage |
|
$ |
151,943 |
|
|
$ |
128,357 |
|
|
$ |
116,329 |
|
|
$ |
110,686 |
|
|
$ |
102,125 |
|
Real estate — construction |
|
|
73,820 |
|
|
|
76,478 |
|
|
|
75,930 |
|
|
|
56,370 |
|
|
|
31,964 |
|
Commercial |
|
|
42,528 |
|
|
|
39,584 |
|
|
|
36,182 |
|
|
|
42,252 |
|
|
|
42,689 |
|
Consumer |
|
|
61,706 |
|
|
|
72,768 |
|
|
|
90,694 |
|
|
|
81,320 |
|
|
|
59,068 |
|
Agriculture |
|
|
36,020 |
|
|
|
35,762 |
|
|
|
35,577 |
|
|
|
31,018 |
|
|
|
31,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
366,017 |
|
|
|
352,949 |
|
|
|
354,712 |
|
|
|
321,646 |
|
|
|
266,913 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred (costs) fees |
|
|
(279 |
) |
|
|
(564 |
) |
|
|
(1,182 |
) |
|
|
(766 |
) |
|
|
260 |
|
Allowance for loan losses |
|
|
7,224 |
|
|
|
4,211 |
|
|
|
3,917 |
|
|
|
3,256 |
|
|
|
2,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
359,072 |
|
|
$ |
349,302 |
|
|
$ |
351,977 |
|
|
$ |
319,156 |
|
|
$ |
263,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
The following table sets forth the maturity of gross loan categories as of December 31, 2008. Also
provided with respect to such loans are the amounts due after one year, classified according to
sensitivity to changes in interest rates:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Within |
|
|
After One |
|
|
After |
|
|
|
|
| |
|
One Year |
|
|
Through Five Years |
|
|
Five Years |
|
|
Total |
|
| |
|
(dollars in thousands) |
|
Real estate — mortgage |
|
$ |
22,552 |
|
|
$ |
31,695 |
|
|
$ |
97,696 |
|
|
$ |
151,943 |
|
Real estate — construction |
|
|
43,487 |
|
|
|
17,119 |
|
|
|
13,214 |
|
|
|
73,820 |
|
Commercial |
|
|
11,179 |
|
|
|
16,854 |
|
|
|
14,495 |
|
|
|
42,528 |
|
Consumer |
|
|
11,627 |
|
|
|
24,519 |
|
|
|
25,560 |
|
|
|
61,706 |
|
Agriculture |
|
|
16,556 |
|
|
|
13,030 |
|
|
|
6,434 |
|
|
|
36,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
105,401 |
|
|
$ |
103,217 |
|
|
$ |
157,399 |
|
|
$ |
366,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans maturing after one year with: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rates |
|
|
|
|
|
$ |
42,091 |
|
|
$ |
60,973 |
|
|
$ |
103,064 |
|
Variable interest rates |
|
|
|
|
|
|
61,126 |
|
|
|
96,426 |
|
|
|
157,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
103,217 |
|
|
$ |
157,399 |
|
|
$ |
260,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Board of Directors, through the loan committee, reviews the asset quality of new and
criticized loans on a monthly basis and reports the findings to the full Board of Directors. In
management’s opinion, this loan review system facilitates the early identification of potential
criticized loans.
Net charge-offs during the year ended December 31, 2008 totaled $1,587 thousand, or 0.45% of
average loans, compared to $506 thousand, or 0.14% of average loans for 2007 and $339 thousand, or
0.10% of average loans for 2006. The allowance for loan losses stood at 1.97% of total loans as of
December 31, 2008, versus 1.19% of total loans as of December 31, 2007.
The allowance for loan losses is established through charges to earnings in the form of the
provision for loan losses. Loan losses are charged to and recoveries are credited to the allowance
for loan losses. The allowance for loan losses is maintained at a level deemed appropriate by
management to provide for known and inherent risks in loans. The adequacy of the allowance for
loan losses is based upon management’s continuing assessment of various factors affecting the
collectibility of loans; including current economic conditions, maturity of the portfolio, size of
the portfolio, industry concentrations, borrower credit history, collateral, the existing allowance
for loan losses, independent credit reviews, current charges and recoveries to the allowance for
loan losses and the overall quality of the portfolio as determined by management, regulatory
agencies, and independent credit review consultants retained by the Company. There is no precise
method of predicting specific losses or amounts which may ultimately be charged off on particular
segments of the loan portfolio. The collectibility of a loan is subjective to some degree, but
must relate to the borrower’s financial condition, cash flow, quality of the borrower’s management
expertise, collateral and guarantees, and state of the local economy.
The federal financial regulatory agencies in December 2006 issued a new interagency policy
statement on the allowance for loan and lease losses along with supplemental frequently asked
questions. When determining the adequacy of the allowance for loan losses, the Company follows
these guidelines. The policy statement revises and replaces a 1993 policy statement on the
allowance for loan and lease losses. The agencies issued the revised policy statement in view of
today’s uncertain economic environment and the presence of concentrations in untested loan products
in the loan portfolios of insured depository institutions. The policy statement has also been
revised to conform with accounting principles generally accepted in the United States of America
(“GAAP”) and post-1993 supervisory guidance. The policy statement reiterates that each
institution has a responsibility for developing, maintaining and documenting a
comprehensive, systematic, and consistently applied process appropriate to its size and the nature,
scope, and risk of its lending activities for determining the amounts of the allowance for loan and
lease losses and the provision for loan and lease losses and states that each institution should
ensure controls are in place to consistently determine the allowance for loan and lease losses in
accordance with GAAP, the institution’s stated policies and procedures, management’s best judgment
and relevant supervisory guidance.
41
The policy statement also restates that insured depository institutions must maintain an allowance
for loan and lease losses at a level that is appropriate to cover estimated credit losses on
individually evaluated loans determined to be impaired as well as estimated credit losses inherent
in the remainder of the loan and lease portfolio, and that estimates of credit losses should
reflect consideration of all significant factors that affect the collectibility of the portfolio as
of the evaluation date. The policy statement states that prudent, conservative, but not excessive,
loan loss allowances that represent management’s best estimate from within an acceptable range of
estimated losses are appropriate. In addition, the Company incorporates the Securities and
Exchange Commission Staff Accounting Bulletin No. 102, which represents the SEC staff’s view
related to methodologies and supporting documentation for the Allowance for Loan and Lease Losses
that should be observed by all public companies in complying with the federal securities laws and
the Commission’s interpretations.
The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of
several key elements, which include but are not limited to:
| |
• |
|
specific allocation for problem graded loans (“classified loans”), |
| |
• |
|
general or formula allocation, |
| |
• |
|
and discretionary allocation based on loan portfolio segmentation. |
The Company’s methodology incorporates the following accounting pronouncements in determining the
adequacy of the allowance for loan losses:
| |
• |
|
Statement of Financial Accounting Standards (“SFAS”) No. 5 — “Accounting for
Contingencies”, |
| |
• |
|
SFAS No. 114 — “Accounting by Creditors for Impairment of a Loan” and |
| |
• |
|
SFAS 118 — “Accounting by Creditors for Impairment of a Loan — Income Recognition and
Disclosures.” |
Specific allocations are established based on management’s periodic evaluation of loss exposure
inherent in classified, impaired, and other loans in which management believes that the collection
of principal and interest under the original terms of the loan agreement are in question. For
purposes of this analysis, classified loans are grouped by internal risk classifications which are
“special mention”, “substandard”, “doubtful”, and “loss”. Special mention loans are currently
performing but are potentially weak, as the borrower has begun to exhibit deteriorating trends,
which if not corrected, could jeopardize repayment of the loan and result in further downgrade.
Substandard loans have well-defined weaknesses which, if not corrected, could jeopardize the full
satisfaction of the debt. A loan classified as “doubtful” has critical weaknesses that make full
collection of the obligation improbable. Classified loans, as defined by the Company, include
loans categorized as substandard and doubtful. Loans classified as loss are immediately charged
off.
Formula allocations are calculated by applying loss factors to outstanding loans with similar
characteristics. Loss factors are based on the Company’s historical loss experience as adjusted
for changes in the business cycle and on the internal risk grade of those loans and may be adjusted
for significant factors that, in management’s judgment, affect the collectibility of the portfolio
as of the evaluation date. The formula allocation analysis incorporates loan losses over the past
seven years adjusted for changes in the business cycle. Loss factors are adjusted to recognize and
quantify the estimated loss exposure resulting from changes in market conditions and trends in the
Company’s loan portfolio.
The discretionary allocation is based upon management’s evaluation of various loan segment
conditions that are not directly measured in the determination of the formula and specific
allowances. The conditions may include, but are not limited to, general economic and business conditions affecting the key
lending areas of the Company, credit quality trends, collateral values, loan volumes and
concentrations, and other business conditions.
42
The following table provides certain information for the years indicated with respect to the
Company’s allowance for loan losses as well as charge-off and recovery activity.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(dollars in thousands) |
|
Balance at beginning of period |
|
$ |
4,211 |
|
|
$ |
3,917 |
|
|
$ |
3,256 |
|
|
$ |
2,722 |
|
|
$ |
2,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and agricultural |
|
|
477 |
|
|
|
83 |
|
|
|
126 |
|
|
|
297 |
|
|
|
103 |
|
Real estate mortgage |
|
|
95 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate construction |
|
|
522 |
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer |
|
|
689 |
|
|
|
657 |
|
|
|
519 |
|
|
|
442 |
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
1,783 |
|
|
|
786 |
|
|
|
645 |
|
|
|
739 |
|
|
|
703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and agricultural |
|
|
11 |
|
|
|
53 |
|
|
|
46 |
|
|
|
21 |
|
|
|
15 |
|
Real estate mortgage |
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer |
|
|
171 |
|
|
|
227 |
|
|
|
260 |
|
|
|
152 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
196 |
|
|
|
280 |
|
|
|
306 |
|
|
|
173 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
1,587 |
|
|
|
506 |
|
|
|
339 |
|
|
|
566 |
|
|
|
552 |
|
Provision for loan losses |
|
|
4,600 |
|
|
|
800 |
|
|
|
1,000 |
|
|
|
1,100 |
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
7,224 |
|
|
$ |
4,211 |
|
|
$ |
3,917 |
|
|
$ |
3,256 |
|
|
$ |
2,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs during the period
to average loans |
|
|
0.45 |
% |
|
|
0.14 |
% |
|
|
0.10 |
% |
|
|
0.19 |
% |
|
|
0.24 |
% |
Allowance for loan losses to total loans |
|
|
1.97 |
% |
|
|
1.19 |
% |
|
|
1.10 |
% |
|
|
1.01 |
% |
|
|
1.02 |
% |
The Company places loans 90 days or more past due on nonaccrual status unless the loan is well
secured and in the process of collection. A loan is considered to be in the process of collection
if, based on a probable specific event, it is expected that the loan will be repaid or brought
current. Generally, this collection period would not exceed 90 days. When a loan is placed on
nonaccrual status the Company’s general policy is to reverse and charge against current income
previously accrued but unpaid interest. Interest income on such loans is subsequently recognized
only to the extent that cash is received and future collection of principal is deemed by management
to be probable. Where the collectibility of the principal 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.
43
The following table sets forth the amount of the Company’s nonperforming assets as of the dates
indicated. None of the Company’s loans were troubled debt restructurings.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
$ |
26,444 |
|
|
$ |
2,618 |
|
|
$ |
972 |
|
|
$ |
1,661 |
|
|
$ |
1,171 |
|
Loans past due 90 days or
more and still accruing |
|
|
297 |
|
|
|
14 |
|
|
|
41 |
|
|
|
— |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
26,741 |
|
|
|
2,632 |
|
|
|
1,013 |
|
|
|
1,661 |
|
|
|
1,207 |
|
Other real estate owned |
|
|
4,148 |
|
|
|
402 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other vehicles owned |
|
|
129 |
|
|
|
135 |
|
|
|
47 |
|
|
|
40 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
31,018 |
|
|
$ |
3,169 |
|
|
$ |
1,060 |
|
|
$ |
1,701 |
|
|
$ |
1,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income forgone on
nonaccrual loans |
|
$ |
576 |
|
|
$ |
161 |
|
|
$ |
53 |
|
|
$ |
39 |
|
|
$ |
25 |
|
Interest income recorded on a
cash basis on nonaccrual loans |
|
$ |
74 |
|
|
$ |
118 |
|
|
$ |
116 |
|
|
$ |
16 |
|
|
$ |
63 |
|
Nonperforming loans to total
Loans |
|
|
7.31 |
% |
|
|
0.75 |
% |
|
|
0.29 |
% |
|
|
0.52 |
% |
|
|
0.45 |
% |
Nonperforming assets to total
Assets |
|
|
6.78 |
% |
|
|
0.70 |
% |
|
|
0.22 |
% |
|
|
0.36 |
% |
|
|
0.30 |
% |
Allowance for loan losses to nonperforming
Loans |
|
|
27 |
% |
|
|
160 |
% |
|
|
387 |
% |
|
|
196 |
% |
|
|
226 |
% |
Nonperforming loans at December 31, 2008 were $26.7 million, an increase of $24.1 million from the
$2.6 million balance at December 31, 2007. Nonperforming loans at December 31, 2008 consistent of
fifty-seven loans, four of which have individual principal balances in excess of $2 million.
These four loans, all of which are impaired and are secured primarily by commercial real estate,
have a total principal balance at December 31, 2008 of $18.3 million, specific reserves of $2.4
million and a fair value of $15.9 million.
At December 31, 2008 and 2007, the Company’s recorded investment in loans for which impairment has
been recognized totaled $26.4 million and $2.6 million, respectively. The specific allowance for
loan losses related to impaired loans was $3.1 million and $143 thousand at December 31, 2008 and
2007, respectively. The average recorded investment in impaired loans was $5.2 million, $1.7
million and $1.2 million for the years ended December 31, 2008, 2007 and 2006, respectively. In
most cases, the Company uses the cash basis method of income recognition for impaired loans. For
the years ended December 31, 2008, 2007 and 2006, the Company recognized $74 thousand, $118
thousand and $116 thousand, respectively, of income on such loans. Interest foregone on impaired
loans totaled $576,000, $161,000 and $53,000 for the years ended December 31, 2008, 2007 and 2006,
respectively.
It is the policy of management to make additions to the allowance for loan losses so that it
remains adequate to absorb the inherent risk of loss in the portfolio. Management believes that
the allowance at December 31, 2008 is adequate. However, the determination of the amount of the
allowance is judgmental and subject to economic conditions which cannot be predicted with
certainty. Accordingly, the Company cannot predict whether charge-offs of loans in excess of the
allowance may occur in future periods.
Investment Portfolio and Federal Funds Sold. Total investment securities decreased $16.9 million,
or 31%, to $38.4 million as of December 31, 2008, down from $55.3 million at December 31, 2007.
There were no Federal funds sold at December 31, 2008 or 2007. During 2008 the Company utilized the
proceeds from the maturities and calls of investment securities to provide a funding source for
lending as deposits also declined.
The composition of the portfolio as of the end of 2008 was fairly consistent with the composition
of the portfolio as of the end of 2007. The investment portfolio balances in U.S. Treasuries, U.S.
Government agencies, corporate debt securities and municipal obligations comprised 4%, 59%, 4% and 33%,
respectively, at December 31, 2008 versus 6%, 62%, 7% and 25%, respectively, at December 31, 2007.
44
The increase in municipal obligations as a percentage of the investment portfolio is primarily due
to the decrease in shorter maturity investment securities such as corporate debt securities and
U.S. agency securities. As these securities matured the proceeds where used primarily to fund loan
growth. During 2008 the Company purchased $3.0 million of U.S. Government agency securities. This
was offset by declines in investment securities related to maturities and principal repayments on
all securities of $20.2 million. Additionally, the Company recorded an impairment charge totaling
$415 thousand on a security issued by Lehman Brothers Holdings Inc.
The Company’s investments in mortgage-backed securities of U.S. Government agencies provide
interest income as well as cash flows for liquidity and reinvestment opportunities as these
securities pay down. At December 31, 2008, total balances in these mortgage-backed securities were
$12.4 million down from $14.7 million at December 31, 2007. Although these pass-through securities
typically have final maturities of between ten and fifteen years, the pass-through nature of
principal payments from the prepayment or refinance of loans underlying these securities is
expected to significantly reduce their average life.
Obligations of states and political subdivisions (municipal securities) provide attractive tax
equivalent yields for the Company. Since the majority of the interest earnings on these securities
are not taxable for Federal purposes the investment in municipal securities results in a reduction
in the effective tax rate of the Company.
The Company classifies its investment securities as available-for-sale or held-to-maturity. The
Company’s intent is to hold all securities classified as held-to-maturity until maturity and
management believes that it has the ability to do so. Securities classified as available-for-sale
may be sold to implement the Company’s asset/liability management strategies and in response to
changes in interest rates, prepayment rates and similar factors.
The following tables summarize the values of the Company’s investment securities held on the dates
indicated:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(dollars in thousands) |
|
| Available-for-sale (fair value) |
|
|
|
U.S. Treasuries |
|
$ |
1,508 |
|
|
$ |
3,481 |
|
|
$ |
5,344 |
|
U.S. Government agencies |
|
|
10,392 |
|
|
|
19,662 |
|
|
|
30,063 |
|
Corporate debt securities |
|
|
1,550 |
|
|
|
3,923 |
|
|
|
7,868 |
|
U.S. Government agency mortgage-backed
Securities |
|
|
12,357 |
|
|
|
14,738 |
|
|
|
17,440 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
25,807 |
|
|
$ |
41,804 |
|
|
$ |
60,715 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(dollars in thousands) |
|
| Held-to-maturity (amortized cost) |
|
|
|
Municipal obligations |
|
$ |
12,567 |
|
|
$ |
13,488 |
|
|
$ |
14,080 |
|
|
|
|
|
|
|
|
|
|
|
45
The following table summarizes the maturities of the Company’s securities at their carrying value
and their weighted average tax equivalent yields at December 31, 2008.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
After One Through |
|
|
After Five Through |
|
|
|
|
|
|
|
| |
|
One Year or Less |
|
|
Five Years |
|
|
Ten Years |
|
|
After Ten Years |
|
|
Total |
|
| (dollars in thousands) |
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
| Available-for-sale (Fair Value) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries |
|
$ |
1,508 |
|
|
|
3.13 |
% |
|
$ |
— |
|
|
|
— |
% |
|
$ |
— |
|
|
|
— |
% |
|
$ |
— |
|
|
|
— |
% |
|
$ |
1,508 |
|
|
|
3.13 |
% |
U.S. Government agencies |
|
|
— |
|
|
|
— |
% |
|
|
10,392 |
|
|
|
4.69 |
% |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
|
|
10,392 |
|
|
|
4.69 |
% |
Corporate debt securities |
|
|
1,550 |
|
|
|
3.68 |
% |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
|
|
1,550 |
|
|
|
3.68 |
% |
U.S. Government agency
mortgage-backed securities |
|
|
— |
|
|
|
— |
% |
|
|
6,053 |
|
|
|
3.73 |
% |
|
|
6,304 |
|
|
|
4.66 |
% |
|
|
— |
|
|
|
— |
% |
|
|
12,357 |
|
|
|
4.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,058 |
|
|
|
3.41 |
% |
|
$ |
16,445 |
|
|
|
4.33 |
% |
|
$ |
6,304 |
|
|
|
4.66 |
% |
|
$ |
— |
|
|
|
— |
% |
|
$ |
25,807 |
|
|
|
4.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
(Amortized Cost)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations |
|
$ |
— |
|
|
|
— |
% |
|
$ |
1,977 |
|
|
|
5.17 |
% |
|
$ |
10,300 |
|
|
|
5.78 |
% |
|
$ |
290 |
|
|
|
6.25 |
% |
|
$ |
12,567 |
|
|
|
5.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Deposits. Total deposits were $371.5 million as of December 31, 2008, a decrease of $20.4 million,
or 5%, from the December 31, 2007 balance of $391.9 million. The decrease in deposits resulted from
the maturity of higher rate promotional time deposits. We discontinued this product early in 2008
allowing these higher rate deposits to mature and increased our level of short-term borrowings
which offered favorable interest rates in comparison to rates we would have had to pay to attract
additional time deposits. As a result, time deposits declined by $30.1 million from $128.4 million
at December 31, 2007 to $98.3 million at December 31, 2008. As of December 31, 2008, primarily due
to the change in mix of deposits, non-interest bearing demand deposits and interest checking
deposits increased to 49.9% of total deposits versus 47.5% at December 31, 2007. Money market and
savings deposits increased to 23.6% of total deposits as of December 31, 2008 compared to 19.8% as
of December 31, 2007. Time deposits decreased to 26.5% of total deposits as of December 31, 2008
compared to 32.7% at December 31, 2007.
From December 31, 2007 to December 31, 2008 money market accounts increased by $7.1 million. This
increase includes $9.0 million related to an on balance sheet corporate sweep product which we
introduced during the first quarter of 2008.
Deposits represent the Bank’s primary source of funds. Deposits are primarily core deposits in that
they are demand, savings and time deposits generated from local businesses and individuals. These
sources are considered to be relatively stable, long-term relationships thereby enhancing steady
growth of the deposit base without major fluctuations in overall deposit balances. The Company
experiences, to a small degree, some seasonality with the slower growth period between November
through April, and the higher growth period from May through October. In order to assist in
meeting any funding demands, the Company maintains unsecured borrowing arrangements with several
correspondent banks in addition to a secured borrowing arrangement with the Federal Home Loan Bank
for longer more permanent funding needs. The Company did not hold brokered deposits during the
years ended December 31, 2008, 2007 or 2006.
The following chart sets forth the distribution of the Company’s average daily deposits for the
periods indicated.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
| |
|
Balance |
|
|
Rate % |
|
|
Balance |
|
|
Rate % |
|
|
Balance |
|
|
Rate % |
|
| |
|
(dollars in thousands) |
|
Non-interest-bearing deposits |
|
$ |
111,999 |
|
|
|
|
|
|
$ |
114,831 |
|
|
|
|
|
|
$ |
125,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits |
|
|
73,338 |
|
|
|
0.75 |
% |
|
|
77,254 |
|
|
|
1.73 |
% |
|
|
80,685 |
|
|
|
1.85 |
% |
Money market accounts |
|
|
37,626 |
|
|
|
0.83 |
% |
|
|
39,431 |
|
|
|
0.83 |
% |
|
|
56,496 |
|
|
|
1.17 |
% |
Savings |
|
|
48,573 |
|
|
|
0.33 |
% |
|
|
50,448 |
|
|
|
0.49 |
% |
|
|
59,802 |
|
|
|
0.71 |
% |
Time deposits |
|
|
110,743 |
|
|
|
3.16 |
% |
|
|
121,808 |
|
|
|
4.35 |
% |
|
|
93,515 |
|
|
|
3.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
|
270,280 |
|
|
|
1.67 |
% |
|
|
288,941 |
|
|
|
2.50 |
% |
|
|
290,498 |
|
|
|
2.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
382,279 |
|
|
|
1.18 |
% |
|
$ |
403,772 |
|
|
|
1.79 |
% |
|
$ |
415,700 |
|
|
|
1.42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s time deposits of $100,000 or more had the following schedule of maturities at
December 31, 2008:
| |
|
|
|
|
| (dollars in thousands) |
|
Amount |
|
Remaining Maturity: |
|
|
|
|
Three months or less |
|
$ |
17,085 |
|
Over three months to six months |
|
|
8,095 |
|
Over six months to 12 months |
|
|
6,761 |
|
Over 12 months |
|
|
4,238 |
|
|
|
|
|
Total |
|
$ |
36,179 |
|
|
|
|
|
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.
47
Short-term borrowing arrangements. The Company has unsecured short-term borrowing arrangements
with two of its correspondent banks in the amounts of $10,000,000 and $5,000,000. The Company can
also borrow up to $88,827,000 from the Federal Home Loan Bank (“FHLB”) secured by commercial and
residential mortgage loans with carrying values totaling $202,341,000. These FHLB advances are
normally made for one day periods but can be for longer periods. Short-term borrowings at December
31, 2008 and 2007 consisted of $34,000,000 and $7,500,000, respectively, in one day FHLB advances.
The weighted average rate on these borrowings at December 31, 2008 and 2007 were 0.05% and 3.30%,
respectively.
The average balance in short-term borrowings during the years ended December 31, 2008 and 2007 were
$11.9 million and $8.7 million, respectively. The average rate paid on these borrowings was 1.70%
during 2008 and 5.35% during 2007. The maximum amount of short-term borrowings outstanding at any
month-end during 2008 and 2007 was $34 million and $22.9 million, respectively.
The Bank is eligible to issue certain debt that is backed by the full faith and credit of the
United States, up to a limit of $8.3 million, under the Federal Deposit Insurance Corporation’s
Temporary Liquidity Guarantee Program. Any senior unsecured debt with a stated maturity of more
than thirty days issued by the Bank up to its debt guarantee limit falls under this program. The
Bank will be charged an annualized assessment from the FDIC, ranging from 50 to 100 basis points,
based on the term and amount of the debt outstanding under the program. At December 31, 2008, the
Bank had no borrowings under this debt guarantee program.
Capital Resources
Shareholders’ equity as of December 31, 2008 decreased $1.7 million, or 5%, to $35.4 million down
from $37.1 million as of December 31, 2007. This decrease was the result of the repurchase of $1.2
million of Plumas Bancorp stock under the Company’s stock buyback plan, cash dividends of $1.2
million and a $420 thousand cumulative-effect adjustment related to the Company’s split dollar life
insurance policies upon adoption of EITF 06-04. These reductions in shareholders’ equity were
partially offset by earnings during 2008 of $304 thousand, $292 thousand in stock-based
compensation expense, the net funds received from key employees and directors exercising their
stock options totaling $68 thousand and an increase in unrealized gains on available-for-sale
investment securities of $424 thousand.
On January 30, 2009 the Company entered into a Letter Agreement (the “Purchase Agreement”) with the
United States Department of the Treasury (“Treasury”), pursuant to which the Company issued and
sold (i) 11,949 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A
(the “Series A Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 237,712 shares of
the Company’s common stock, no par value (the “Common Stock”), for an aggregate purchase price of
$11,949,000 in cash.
The Series A Preferred Stock will qualify as Tier 1 capital and will pay cumulative dividends
quarterly at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The
Company may redeem the Series A Preferred Stock at its liquidation preference ($1,000 per share)
plus accrued and unpaid dividends under the American Recovery and Reinvestment Act of 2009, subject
to the Treasury’s consultation with the Company’s appropriate federal regulator.
The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise
price, subject to antidilution adjustments, equal to $7.54 per share of the Common Stock. Treasury
has agreed not to exercise voting power with respect to any shares of Common Stock issued upon
exercise of the Warrant.
48
Prior to January 30, 2012, unless the Company has redeemed the Preferred Shares, or the Treasury
has transferred the Preferred Shares to a third party, the consent of the Treasury will be required
for the Company to: (1) declare or pay any dividend or make any distribution on shares of the
Common Stock (other than regular quarterly cash dividends of not more than $0.04 per share or
regular semi-annual cash dividends of not more than $0.08 per share); or (2) redeem, purchase or
acquire any shares of Common Stock or other equity or capital securities, other than in connection
with benefit plans consistent with past practice and certain other circumstances specified in the
Purchase Agreement.
On December 20, 2007 the Company announced that for 2008 the Board authorized a common stock
repurchase plan for up to 244,000 shares, or 5% of the Company’s shares outstanding on December 20,
2007. During the year ended December 31, 2008 the Company repurchased 106,267 shares at an average
cost, including commission, of $11.45 per share. This plan terminated on December 31, 2008. Related
to its Purchase Agreement with the Treasury described above the Company is temporarily restricted
from making additional share repurchases without approval from the Treasury.
On May 16, 2008, the Company paid a semi-annual common stock cash dividend of $0.16 per share.
Given the current economic uncertainty and to more closely align the dividend payout ratio with
recent historical earnings levels the Company lowered its semi-annual dividend rate to $0.08 per
share. On October 24, 2008 the Company declared a semi-annual common stock cash dividend of $0.08
per share which was paid on November 21, 2008, resulting in a total cash dividend of $0.24 per
share for 2008. During 2007 cash dividends of $0.30 per share were paid.
Capital Standards. The small decrease in the Company’s capital ratios during 2008 is attributed to
the decrease in shareholders’ equity described above. During 2009 the Company’s capital ratios will
benefit from the $11.9 million in Series A Preferred Stock sold to the Treasury. This Series A
Preferred Stock qualifies as Tier 1 capital.
The Company uses a variety of measures to evaluate its capital adequacy, with risk-based capital
ratios calculated separately for the Company and the Bank. Management reviews these capital
measurements on a monthly basis and takes appropriate action to ensure that they are within
established internal and external guidelines. The Company’s current capital position exceeds
minimum thresholds established by industry regulators, and by current regulatory definitions the
Bank is well capitalized, the highest rating of the categories defined under Federal Deposit
Insurance Corporation Improvement Act (FDICIA) of 1991. The FDIC has promulgated risk-based
capital guidelines for all state non-member banks such as the Bank. These guidelines establish a
risk-adjusted ratio relating capital to different categories of assets and off-balance sheet
exposures. There are two categories of capital under the guidelines: Tier 1 capital includes
common stockholders’ equity, and qualifying trust-preferred securities (including notes payable to
unconsolidated special purpose entities that issue trust-preferred securities), less goodwill and
certain other deductions, notably the unrealized net gains or losses (after tax adjustments) on
available for sale investment securities carried at fair market value; Tier 2 capital can include
qualifying subordinated debt and the allowance for loan and lease losses, subject to certain
limitations. The Series A Preferred Stock qualifies as Tier 1 capital for the Company.
As noted previously, the Company’s junior subordinated debentures represent borrowings from its
unconsolidated subsidiaries that have issued an aggregate $10 million in trust-preferred
securities. These trust-preferred securities currently qualify for inclusion as Tier 1 capital for
regulatory purposes as they do not exceed 25% of total Tier 1 capital, but are classified as
long-term debt in accordance with GAAP. On March 1, 2005, the Federal Reserve Board adopted a
final rule that allows the continued inclusion of trust-preferred securities (and/or related
subordinated debentures) in the Tier I capital of bank holding companies. However, under the final
rule, after a five-year transition period goodwill must be deducted from Tier I capital prior to
calculating the 25% limitation. Generally, the amount of junior subordinated debentures in excess
of the 25% Tier 1 limitation is included in Tier 2 capital.
49
The following tables present the capital ratios for the Company and the Bank compared to the
standards for bank holding companies and the regulatory minimum requirements for depository
institutions as of December 31, 2008 and 2007 (amounts in thousands except percentage amounts).
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
| |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
Tier 1 Leverage Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
$ |
43,885 |
|
|
|
9.8 |
% |
|
$ |
46,209 |
|
|
|
10.0 |
% |
Minimum regulatory requirement |
|
|
17,907 |
|
|
|
4.0 |
% |
|
|
18,439 |
|
|
|
4.0 |
% |
Plumas Bank |
|
|
43,372 |
|
|
|
9.7 |
% |
|
|
45,415 |
|
|
|
9.9 |
% |
Minimum requirement for
“Well-Capitalized” institution
under the prompt corrective
action plan |
|
|
22,365 |
|
|
|
5.0 |
% |
|
|
23,024 |
|
|
|
5.0 |
% |
Minimum regulatory requirement |
|
|
17,892 |
|
|
|
4.0 |
% |
|
|
18,419 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
|
43,885 |
|
|
|
11.0 |
% |
|
|
46,209 |
|
|
|
11.6 |
% |
Minimum regulatory requirement |
|
|
16,021 |
|
|
|
4.0 |
% |
|
|
15,881 |
|
|
|
4.0 |
% |
Plumas Bank |
|
|
43,372 |
|
|
|
10.8 |
% |
|
|
45,415 |
|
|
|
11.5 |
% |
Minimum requirement for
“Well-Capitalized” institution
under the prompt corrective
action plan |
|
|
23,996 |
|
|
|
6.0 |
% |
|
|
23,790 |
|
|
|
6.0 |
% |
Minimum regulatory requirement |
|
|
15,997 |
|
|
|
4.0 |
% |
|
|
15,860 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
|
48,919 |
|
|
|
12.2 |
% |
|
|
50,475 |
|
|
|
12.7 |
% |
Minimum regulatory requirement |
|
|
32,042 |
|
|
|
8.0 |
% |
|
|
31,763 |
|
|
|
8.0 |
% |
Plumas Bank |
|
|
48,399 |
|
|
|
12.1 |
% |
|
|
49,681 |
|
|
|
12.5 |
% |
Minimum requirement for
“Well-Capitalized” institution
under the prompt corrective
action plan |
|
|
39,994 |
|
|
|
10.0 |
% |
|
|
39,651 |
|
|
|
10.0 |
% |
Minimum regulatory requirement |
|
|
31,995 |
|
|
|
8.0 |
% |
|
|
31,720 |
|
|
|
8.0 |
% |
The current and projected capital positions of the Company and the Bank and the impact of capital
plans and long-term strategies are reviewed regularly by management. The Company policy is to
maintain the Bank’s ratios above the prescribed well-capitalized leverage, Tier 1 risk-based and
total risk-based capital ratios of 5%, 6% and 10%, respectively, at all times.
Off-Balance Sheet Arrangements
Loan Commitments. In the normal course of business, there are various commitments outstanding to
extend credits that are not reflected in the financial statements. Commitments to extend credit
and letters of credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Annual review of commercial credit lines, letters of credit
and ongoing monitoring of outstanding balances reduces the risk of loss associated with these
commitments. As of December 31, 2008, the Company had $78.8 million in unfunded loan commitments
and $534 thousand in letters of credit. This compares to $96.9 million in unfunded commitments and
$655 thousand in letters of credit at December 31, 2007. Of the $78.8 million in unfunded loan
commitments, $43.9 million and $34.9 million represented commitments to commercial and consumer
customers, respectively. Of the total unfunded commitments at December 31, 2008, $40.4 million
were secured by real estate, of which $16.2 million was secured by commercial real estate and $24.2
million was secured by residential real estate in the form of equity lines of credit. The
commercial loan commitments not secured by real estate primarily represent business lines of
credit, while the consumer loan commitments not secured by real estate primarily represent
revolving credit card lines. Since, some of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Operating Leases. The Company leases three depository branches as well as two lending offices and
two non branch automated teller machine locations.
Total rental expenses under all operating leases, including premises, totaled $347 thousand, $209
thousand and $221 thousand, in 2008, 2007 and 2006 respectively. The expiration dates of the
leases vary, with the first such lease expiring during 2009 and the last such lease expiring during
2018.
50
Liquidity
The Company manages its liquidity to provide the ability to generate funds to support asset growth,
meet deposit withdrawals (both anticipated and unanticipated), fund customers’ borrowing needs,
satisfy maturity of short-term borrowings and maintain reserve requirements. The Company’s
liquidity needs are managed using assets or liabilities, or both. On the asset side, in addition to
Federal Funds sold, the Company maintains an investment portfolio containing U.S. Government and
agency securities that are classified as available-for-sale. On the liability side, liquidity
needs are managed by changing competitive offering rates on deposit products and the use of
established lines of credit from other financial institutions and the Federal Home Loan Bank.
The Company has unsecured short-term borrowing agreements with two of its correspondent banks in
the amounts of $10 million and $5 million. In addition, the Company can borrow up to $88.8 million
from the Federal Home Loan Bank secured by commercial and residential mortgage loans. Short-term
borrowings at December 31, 2008 and 2007 consisted of $34,000,000 and $7,500,000, respectively, in
Federal Home Loan Bank advances which are normally purchased for one day periods.
Customer deposits are the Company’s primary source of funds. Total deposits were $371.5 million as
of December 31, 2008, a decrease of $20.4 million, or 5%, from the December 31, 2007 balance of
$391.9 million. Deposits are held in various forms with varying maturities. The Company does not
have any brokered deposits. The Company’s securities portfolio, Federal funds sold, Federal Home
Loan Bank advances, and cash and due from banks serve as the primary sources of liquidity,
providing adequate funding for loans during periods of high loan demand. During periods of
decreased lending, funds obtained from the maturing or sale of investments, loan payments, and new
deposits are invested in short-term earning assets, such as Federal funds sold and investment
securities, to serve as a source of funding for future loan growth. Management believes that the
Company’s available sources of funds, including short-term borrowings, will provide adequate
liquidity for its operations in the foreseeable future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company we are not required to provide the information required by this
item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Plumas Bancorp and subsidiary, and report of the
independent registered public accounting firm are included in the Annual Report of Plumas Bancorp
to its shareholders for the years ended December 31, 2008, 2007 and 2006.
| |
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| |
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Page |
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F-1 |
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|
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F-2 |
|
|
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|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
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|
|
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F-7 |
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F-10 |
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|
|
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Directors
Plumas Bancorp and Subsidiary
We have audited the accompanying consolidated balance sheet of Plumas Bancorp and subsidiary
(the “Company”) as of December 31, 2008 and 2007 and the related consolidated statements of income,
changes in shareholders’ equity and cash flows for each of the years in the three-year period ended
December 31, 2008. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Plumas Bancorp and subsidiary as of
December 31, 2008 and 2007 and the consolidated results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of America.
/s/ PERRY-SMITH LLP
Sacramento, California
March 10, 2009
F - 1
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 2008 and 2007
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
18,791,000 |
|
|
$ |
13,207,000 |
|
Federal funds sold |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
18,791,000 |
|
|
|
13,207,000 |
|
|
|
|
|
|
|
|
|
|
Investment securities (Note 4) |
|
|
38,374,000 |
|
|
|
55,292,000 |
|
Loans, less allowance for loan losses of $7,224,000
in 2008 and $4,211,000 in 2007 (Notes 5, 8, 10 and 14) |
|
|
359,072,000 |
|
|
|
349,302,000 |
|
Premises and equipment, net (Note 6) |
|
|
15,764,000 |
|
|
|
14,666,000 |
|
Intangible assets, net (Note 17) |
|
|
821,000 |
|
|
|
1,037,000 |
|
Bank owned life insurance (Note 15) |
|
|
9,766,000 |
|
|
|
9,428,000 |
|
Real estate and vehicles acquired through foreclosure |
|
|
4,277,000 |
|
|
|
537,000 |
|
Accrued interest receivable and other assets (Note 13) |
|
|
10,310,000 |
|
|
|
9,646,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
457,175,000 |
|
|
$ |
453,115,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Non-interest bearing |
|
$ |
112,783,000 |
|
|
$ |
111,240,000 |
|
Interest bearing (Note 7) |
|
|
258,710,000 |
|
|
|
280,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
371,493,000 |
|
|
|
391,940,000 |
|
|
|
|
|
|
|
|
|
|
Short-term borrowings (Note 8) |
|
|
34,000,000 |
|
|
|
7,500,000 |
|
Accrued interest payable and other liabilities (Note 15) |
|
|
5,935,000 |
|
|
|
6,226,000 |
|
Junior subordinated deferrable interest debentures
(Note 9) |
|
|
10,310,000 |
|
|
|
10,310,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
421,738,000 |
|
|
|
415,976,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity (Note 11): |
|
|
|
|
|
|
|
|
Serial preferred stock — no par value; 10,000,000
shares authorized; none issued |
|
|
— |
|
|
|
— |
|
Common stock — no par value; 22,500,000 shares
authorized; issued and outstanding — 4,775,339
shares in 2008 and 4,869,130 shares in 2007 |
|
|
5,302,000 |
|
|
|
5,042,000 |
|
Retained earnings |
|
|
29,818,000 |
|
|
|
32,204,000 |
|
Accumulated other comprehensive income (loss)
(Notes 4 and 16) |
|
|
317,000 |
|
|
|
(107,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
35,437,000 |
|
|
|
37,139,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
457,175,000 |
|
|
$ |
453,115,000 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
F - 2
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31, 2008, 2007 and 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
23,550,000 |
|
|
$ |
27,709,000 |
|
|
$ |
26,272,000 |
|
Interest on investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
1,398,000 |
|
|
|
1,900,000 |
|
|
|
2,516,000 |
|
Exempt from Federal income taxes |
|
|
489,000 |
|
|
|
504,000 |
|
|
|
531,000 |
|
Interest on Federal funds sold |
|
|
3,000 |
|
|
|
171,000 |
|
|
|
164,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
25,440,000 |
|
|
|
30,284,000 |
|
|
|
29,483,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
4,522,000 |
|
|
|
7,211,000 |
|
|
|
5,887,000 |
|
Interest on short-term borrowings
(Note 8) |
|
|
219,000 |
|
|
|
490,000 |
|
|
|
257,000 |
|
Interest on junior subordinated
deferrable interest debentures
(Note 9) |
|
|
623,000 |
|
|
|
835,000 |
|
|
|
810,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
5,364,000 |
|
|
|
8,536,000 |
|
|
|
6,954,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before
provision for loan losses |
|
|
20,076,000 |
|
|
|
21,748,000 |
|
|
|
22,529,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses (Note 5) |
|
|
4,600,000 |
|
|
|
800,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses |
|
|
15,476,000 |
|
|
|
20,948,000 |
|
|
|
21,529,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges |
|
|
3,951,000 |
|
|
|
3,806,000 |
|
|
|
3,676,000 |
|
Gain on sale of loans |
|
|
111,000 |
|
|
|
47,000 |
|
|
|
42,000 |
|
Impairment loss on investment
security (Note 4) |
|
|
(415,000 |
) |
|
|
— |
|
|
|
— |
|
Earnings on Bank owned life
insurance policies (Note 15) |
|
|
421,000 |
|
|
|
415,000 |
|
|
|
393,000 |
|
Other |
|
|
1,023,000 |
|
|
|
1,180,000 |
|
|
|
1,048,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
5,091,000 |
|
|
|
5,448,000 |
|
|
|
5,159,000 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F - 3
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Continued)
For the Years Ended December 31, 2008, 2007 and 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
(Notes 5 and 15) |
|
$ |
10,884,000 |
|
|
$ |
11,200,000 |
|
|
$ |
10,043,000 |
|
Occupancy and equipment
(Notes 6 and 10) |
|
|
3,838,000 |
|
|
|
3,552,000 |
|
|
|
3,323,000 |
|
Other (Note 12) |
|
|
5,753,000 |
|
|
|
4,919,000 |
|
|
|
4,924,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
20,475,000 |
|
|
|
19,671,000 |
|
|
|
18,290,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
|
|
92,000 |
|
|
|
6,725,000 |
|
|
|
8,398,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
(Note 13) |
|
|
(212,000 |
) |
|
|
2,502,000 |
|
|
|
3,196,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
304,000 |
|
|
$ |
4,223,000 |
|
|
$ |
5,202,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (Note 11) |
|
$ |
0.06 |
|
|
$ |
0.85 |
|
|
$ |
1.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share (Note 11) |
|
$ |
0.06 |
|
|
$ |
0.84 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share (Note 11) |
|
$ |
0.24 |
|
|
$ |
0.30 |
|
|
$ |
0.26 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
F - 4
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2008, 2007 and 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
Total |
|
|
Total |
|
| |
|
Common Stock |
|
|
Retained |
|
|
(Loss) Income |
|
|
Shareholders’ |
|
|
Comprehensive |
|
| |
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
(Net of Taxes) |
|
|
Equity |
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2006 |
|
|
4,976,654 |
|
|
$ |
4,412,000 |
|
|
$ |
27,816,000 |
|
|
$ |
(1,091,000 |
) |
|
$ |
31,137,000 |
|
|
|
|
|
Comprehensive income (Note 16): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
5,202,000 |
|
|
|
|
|
|
|
5,202,000 |
|
|
$ |
5,202,000 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized losses
on available-for-sale investment
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
399,000 |
|
|
|
399,000 |
|
|
|
399,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,601,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends — $0.26 per share |
|
|
|
|
|
|
|
|
|
|
(1,302,000 |
) |
|
|
|
|
|
|
(1,302,000 |
) |
|
|
|
|
Retirement of common stock in connection
with the exercise of stock options
(Note 11) |
|
|
(21,255 |
) |
|
|
(417,000 |
) |
|
|
|
|
|
|
|
|
|
|
(417,000 |
) |
|
|
|
|
Stock options exercised and related
tax benefit (Note 11) |
|
|
67,806 |
|
|
|
659,000 |
|
|
|
|
|
|
|
|
|
|
|
659,000 |
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
174,000 |
|
|
|
|
|
|
|
|
|
|
|
174,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
5,023,205 |
|
|
|
4,828,000 |
|
|
|
31,716,000 |
|
|
|
(692,000 |
) |
|
|
35,852,000 |
|
|
|
|
|
Comprehensive income (Note 16): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
4,223,000 |
|
|
|
|
|
|
|
4,223,000 |
|
|
$ |
4,223,000 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized losses
on available-for-sale investment
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
585,000 |
|
|
|
585,000 |
|
|
|
585,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,808,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends — $0.30 per share |
|
|
|
|
|
|
|
|
|
|
(1,491,000 |
) |
|
|
|
|
|
|
(1,491,000 |
) |
|
|
|
|
Retirement of common stock in connection
with the exercise of stock options
(Note 11) |
|
|
(4,630 |
) |
|
|
(70,000 |
) |
|
|
|
|
|
|
|
|
|
|
(70,000 |
) |
|
|
|
|
Stock options exercised and related
tax benefit (Note 11) |
|
|
19,292 |
|
|
|
152,000 |
|
|
|
|
|
|
|
|
|
|
|
152,000 |
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
288,000 |
|
|
|
|
|
|
|
|
|
|
|
288,000 |
|
|
|
|
|
Repurchase and retirement of
common stock (Note 11) |
|
|
(168,737 |
) |
|
|
(156,000 |
) |
|
|
(2,244,000 |
) |
|
|
|
|
|
|
(2,400,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
4,869,130 |
|
|
|
5,042,000 |
|
|
|
32,204,000 |
|
|
|
(107,000 |
) |
|
|
37,139,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F - 5
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Continued)
For the Years Ended December 31, 2008, 2007 and 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
Total |
|
|
Total |
|
| |
|
Common Stock |
|
|
Retained |
|
|
(Loss) Income |
|
|
Shareholders’ |
|
|
Comprehensive |
|
| |
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
(Net of Taxes) |
|
|
Equity |
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
4,869,130 |
|
|
$ |
5,042,000 |
|
|
$ |
32,204,000 |
|
|
$ |
(107,000 |
) |
|
$ |
37,139,000 |
|
|
|
|
|
Cumulative effect of change in accounting principle,
adoption of EITF 06-4 (Note 15) |
|
|
|
|
|
|
|
|
|
|
(420,000 |
) |
|
|
|
|
|
|
(420,000 |
) |
|
|
|
|
| |
Comprehensive income (Note 16): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
304,000 |
|
|
|
|
|
|
|
304,000 |
|
|
$ |
304,000 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized (losses)/gains
on available-for-sale investment
securities (Note 4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424,000 |
|
|
|
424,000 |
|
|
|
424,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
728,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends — $0.24 per share |
|
|
|
|
|
|
|
|
|
|
(1,153,000 |
) |
|
|
|
|
|
|
(1,153,000 |
) |
|
|
|
|
Stock options exercised and related
tax benefit (Note 11) |
|
|
12,476 |
|
|
|
68,000 |
|
|
|
|
|
|
|
|
|
|
|
68,000 |
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
292,000 |
|
|
|
|
|
|
|
|
|
|
|
292,000 |
|
|
|
|
|
Repurchase and retirement of
common stock (note 11) |
|
|
(106,267 |
) |
|
|
(100,000 |
) |
|
|
(1,117,000 |
) |
|
|
|
|
|
|
(1,217,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
4,775,339 |
|
|
$ |
5,302,000 |
|
|
$ |
29,818,000 |
|
|
$ |
317,000 |
|
|
$ |
35,437,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure of reclassification amount, net of taxes (Note 16): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain arising during the year |
|
$ |
668,000 |
|
|
$ |
585,000 |
|
|
$ |
399,000 |
|
Reclassification adjustment for impairment loss included in net income |
|
|
(244,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gain arising during the year |
|
$ |
424,000 |
|
|
$ |
585,000 |
|
|
$ |
399,000 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
F - 6
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2008, 2007 and 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
304,000 |
|
|
$ |
4,223,000 |
|
|
$ |
5,202,000 |
|
Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
4,600,000 |
|
|
|
800,000 |
|
|
|
1,000,000 |
|
Change in deferred loan origination
costs/fees, net |
|
|
285,000 |
|
|
|
618,000 |
|
|
|
(416,000 |
) |
Stock-based compensation expense |
|
|
292,000 |
|
|
|
288,000 |
|
|
|
174,000 |
|
Excess tax benefits from stock-based
compensation |
|
|
|
|
|
|
(9,000 |
) |
|
|
(61,000 |
) |
Depreciation and amortization |
|
|
1,984,000 |
|
|
|
2,197,000 |
|
|
|
2,171,000 |
|
Amortization of investment security
premiums |
|
|
56,000 |
|
|
|
149,000 |
|
|
|
387,000 |
|
Accretion of investment security discounts |
|
|
(55,000 |
) |
|
|
(63,000 |
) |
|
|
(89,000 |
) |
Impairment loss on investment security |
|
|
415,000 |
|
|
|
|
|
|
|
|
|
Provision for losses on other real estate |
|
|
618,000 |
|
|
|
|
|
|
|
|
|
Net loss on sale of premises and equipment |
|
|
13,000 |
|
|
|
39,000 |
|
|
|
|
|
Net loss (gain) on sale of other vehicles owned |
|
|
18,000 |
|
|
|
(17,000 |
) |
|
|
(23,000 |
) |
Gain on life insurance death benefit |
|
|
|
|
|
|
(63,000 |
) |
|
|
|
|
Earnings on bank owned life insurance
policies |
|
|
(421,000 |
) |
|
|
(415,000 |
) |
|
|
(393,000 |
) |
Expenses on bank owned life insurance
policies |
|
|
83,000 |
|
|
|
80,000 |
|
|
|
74,000 |
|
Decrease (increase) in accrued interest
receivable and other assets |
|
|
297,000 |
|
|
|
(426,000 |
) |
|
|
(41,000 |
) |
(Decrease) increase in accrued interest
payable and other liabilities |
|
|
(711,000 |
) |
|
|
1,325,000 |
|
|
|
166,000 |
|
Provision for deferred income taxes |
|
|
(1,459,000 |
) |
|
|
(787,000 |
) |
|
|
(456,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities |
|
|
6,319,000 |
|
|
|
7,939,000 |
|
|
|
7,695,000 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F - 7
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2008, 2007 and 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from matured and called available-
for-sale investment securities |
|
$ |
16,475,000 |
|
|
$ |
27,876,000 |
|
|
$ |
19,931,000 |
|
Proceeds from matured and called held-to-maturity investment securities |
|
|
920,000 |
|
|
|
585,000 |
|
|
|
|
|
Purchases of available-for-sale investment
securities |
|
|
(2,990,000 |
) |
|
|
(11,009,000 |
) |
|
|
|
|
Purchases of held-to-maturity investment
securities |
|
|
|
|
|
|
|
|
|
|
(155,000 |
) |
Proceeds from principal repayments from
available-for-sale government-guaranteed
mortgage-backed securities |
|
|
2,819,000 |
|
|
|
2,961,000 |
|
|
|
3,521,000 |
|
Proceeds from principal repayments from
held-to-maturity government-guaranteed
mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
134,000 |
|
Net (increase) decrease in loans |
|
|
(19,520,000 |
) |
|
|
355,000 |
|
|
|
(33,831,000 |
) |
Proceeds from sale of vehicles |
|
|
376,000 |
|
|
|
429,000 |
|
|
|
211,000 |
|
Proceeds from the sale of premises and
equipment |
|
|
|
|
|
|
20,000 |
|
|
|
8,000 |
|
Purchases of premises and equipment |
|
|
(2,566,000 |
) |
|
|
(1,116,000 |
) |
|
|
(5,173,000 |
) |
Proceeds from bank owned life insurance |
|
|
|
|
|
|
419,000 |
|
|
|
|
|
Purchase of bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
(200,000 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities |
|
|
(4,486,000 |
) |
|
|
20,520,000 |
|
|
|
(15,554,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in demand,
interest-bearing and savings deposits |
|
|
9,658,000 |
|
|
|
(37,881,000 |
) |
|
|
(26,025,000 |
) |
Net (decrease) increase in time deposits |
|
|
(30,105,000 |
) |
|
|
27,645,000 |
|
|
|
1,641,000 |
|
Net increase (decrease) in short-term
borrowings |
|
|
26,500,000 |
|
|
|
(12,500,000 |
) |
|
|
20,000,000 |
|
Proceeds from exercise of stock options |
|
|
68,000 |
|
|
|
73,000 |
|
|
|
181,000 |
|
Excess tax benefits from stock-based
compensation |
|
|
|
|
|
|
9,000 |
|
|
|
61,000 |
|
Repurchase and retirement of common stock |
|
|
(1,217,000 |
) |
|
|
(2,400,000 |
) |
|
|
|
|
Payment of cash dividends |
|
|
(1,153,000 |
) |
|
|
(1,491,000 |
) |
|
|
(1,302,000 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
|
3,751,000 |
|
|
|
(26,545,000 |
) |
|
|
(5,444,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
|
5,584,000 |
|
|
|
1,914,000 |
|
|
|
(13,303,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
13,207,000 |
|
|
|
11,293,000 |
|
|
|
24,596,000 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
18,791,000 |
|
|
$ |
13,207,000 |
|
|
$ |
11,293,000 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F - 8
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2008, 2007 and 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
5,804,000 |
|
|
$ |
8,184,000 |
|
|
$ |
6,882,000 |
|
Income taxes |
|
$ |
1,385,000 |
|
|
$ |
3,495,000 |
|
|
$ |
3,370,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired through foreclosure |
|
$ |
4,364,000 |
|
|
$ |
402,000 |
|
|
|
|
|
Vehicles acquired through repossession |
|
$ |
388,000 |
|
|
$ |
500,000 |
|
|
$ |
196,000 |
|
Reclassification of loans to other assets |
|
$ |
113,000 |
|
|
|
|
|
|
$ |
230,000 |
|
Net change in unrealized gain/loss on
available-for-sale investment securities |
|
$ |
424,000 |
|
|
$ |
585,000 |
|
|
$ |
399,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock retired in connection
with the exercise of stock options |
|
|
|
|
|
$ |
70,000 |
|
|
$ |
417,000 |
|
Tax benefit from stock options exercised |
|
|
|
|
|
$ |
9,000 |
|
|
$ |
61,000 |
|
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 thirteen branches in California, including branches in Alturas, Chester,
Fall River Mills, Greenville, Kings Beach, Loyalton, Portola, Quincy, Redding, Susanville,
Tahoe City, Truckee and Westwood. In addition to its branch network, the Bank operates a
commercial lending office in Reno, Nevada and a lending office specializing in
government-guaranteed lending in Auburn, California. The Bank’s primary source of revenue is
generated from providing loans to customers who are predominately small and middle market
businesses and individuals residing in the surrounding areas.
The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to
applicable legal limits. The Bank is participating in the Federal Deposit insurance
Corporation (FDIC) Transaction Account Guarantee Program. Under the program, through
December 31, 2009, all noninterest-bearing transaction accounts are fully guaranteed by the
FDIC for the entire amount in the account. Coverage under the Transaction Account Guarantee
Program is in addition to and separate from the coverage under the FDIC’s general deposit
insurance rules.
| 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 $260,000 and Trust II of $146,000 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 2008.
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
The preparation of consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
For the purpose of the statement of cash flows, cash and due from banks and Federal funds
sold are considered to be cash equivalents. Generally, Federal funds are sold for one day
periods. Cash held with other federally insured institutions in excess of FDIC limits as of
December 31, 2008 was $1,226,000.
Investment Securities
Investments are classified into one of the following categories:
| |
• |
|
Available-for-sale securities reported at fair value, with unrealized gains and
losses excluded from earnings and reported, net of taxes, as accumulated other
comprehensive income (loss) within shareholders’ equity. |
| |
• |
|
Held-to-maturity securities, which management has the positive intent and ability to
hold, reported at amortized cost, adjusted for the accretion of discounts and
amortization of premiums. |
Management determines the appropriate classification of its investments at the time of
purchase and may only change the classification in certain limited circumstances. All
transfers between categories are accounted for at fair value. As of December 31, 2008 and
2007 the Company did not have any investment securities classified as trading and there were
no transfers between categories during 2008 or 2007.
F - 11
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Investment Securities (Continued)
Gains or losses on the sale of securities are computed on the specific identification
method. Interest earned on investment securities is reported in interest income, net of
applicable adjustments for accretion of discounts and amortization of premiums.
Investment securities are evaluated for impairment on at least a quarterly basis and more
frequently when economic or market conditions warrant such an evaluation to determine
whether a decline in their value is other than temporary. Management utilizes criteria such
as the magnitude and duration of the decline and the intent and ability of the Company to
retain its investment in the securities for a period of time sufficient to allow for an
anticipated recovery in fair value, in addition to the reasons underlying the decline, to
determine whether the loss in value is other than temporary. The term “other than
temporary” is not intended to indicate that the decline is permanent, but indicates that the
prospects for a near-term recovery of value is not necessarily favorable, or that there is a
lack of evidence to support a realizable value equal to or greater than the carrying value
of the investment. Once a decline in value is determined to be other than temporary, the
value of the security is reduced and a corresponding charge to earnings is recognized.
Investment in Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank System, the Bank is required to maintain an
investment in the capital stock of the Federal Home Loan Bank. The investment is carried at
cost. At December 31, 2008 and 2007, Federal Home Loan Bank stock totaled $1,933,000 and
$2,045,000, respectively. On the consolidated balance sheet, Federal Home Loan Bank stock
is included in accrued interest receivable and other assets.
Loans Held for Sale, Loan Sales and Servicing
The Company accounts for the transfer and servicing of financial assets based on the
financial and servicing assets it controls and liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities when
extinguished.
Servicing rights acquired through 1) a purchase or 2) the origination of loans which are
sold or securitized with servicing rights retained are recognized as separate assets or
liabilities. Servicing assets or liabilities are recorded at the difference between the
contractual servicing fees and adequate compensation for performing the servicing, and are
subsequently amortized in proportion to and over the period of the related net servicing
income or expense. Servicing assets are periodically evaluated for impairment. Fair values
are estimated using discounted cash flows based on current market interest rates. For
purposes of measuring impairment, servicing assets are stratified based on note rate and
term. The amount of impairment recognized, if any is the amount by which the servicing
assets for a stratum exceed their fair value.
F - 12
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Loans Held for Sale, Loan Sales and Servicing (Continued)
Government Guaranteed Loans
Included in the portfolio are loans which are 75% to 90% guaranteed by the Small Business
Administration (SBA), US Department of Agriculture Rural Business Cooperative Service (RBS)
and Farm Services Agency (FSA). The guaranteed portion of these loans may be sold to a
third party, with the Bank retaining the unguaranteed portion. The Company can receive a
premium in excess of the adjusted carrying value of the loan at the time of sale. The
Company may be required to refund a portion of the sales premium if the borrower defaults or
prepays within ninety days of the settlement date. At December 31, 2008, the premiums and
guaranteed portion of these sold loans subject to these recourse provisions was not
significant. During 2008, 2007 and 2006 the Company was not required to refund any
significant amounts of sales premiums related to the loans sold.
The Company’s investment in the loan is allocated between the retained portion of the loan,
the servicing asset, the interest-only (IO) strip, and the sold portion of the loan based on
their relative fair values on the date the loan is sold. The gain on the sold portion of
the loan is recognized as income at the time of sale. The carrying value of the retained
portion of the loan is discounted based on the estimated value of a comparable
non-guaranteed loan. The servicing asset is recognized and amortized over the estimated
life of the related loan (see Note 5). Assets (accounted for as interest-only (IO) strips)
are recorded at the fair value of the difference between note rates and rates paid to
purchasers (the interest spread) and contractual servicing fees, if applicable. IO strips
are carried at fair value with gains or losses recorded as a component of shareholders’
equity, similar to available-for-sale investment securities. Significant future prepayments
of these loans will result in the recognition of additional amortization of related
servicing assets and an adjustment to the carrying value of related IO strips.
Mortgage Loans
The Company did not sell any mortgage loans in 2008, 2007 and 2006 and did not have any
loans held for sale at December 31, 2008 or 2007. The Company serviced loans previously sold
to the Federal National Mortgage Association (FNMA) totaling $3,993,000 and $5,073,000 as of
December 31, 2008 and 2007, respectively.
Loans
Loans are stated at principal balances outstanding, except for loans, if any, that are
transferred from loans held for sale which are carried at the lower of principal balance or
market value at the date of transfer, adjusted for accretion of discounts. Interest is
accrued daily based upon outstanding loan balances. However, when, in the opinion of
management, loans are considered to be impaired and the future collectibility of interest
and principal is in serious doubt, loans are placed on nonaccrual status and the accrual of
interest income is suspended. Any interest accrued but unpaid is charged against income.
Payments received are applied to reduce principal to the extent necessary to ensure
collection. Subsequent payments on these loans, or payments received on nonaccrual loans
for which the ultimate collectibility of principal is not in doubt, are applied first to
earned but unpaid interest and then to principal.
F - 13
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Loans (Continued)
An impaired loan is measured based on the present value of expected future cash flows
discounted at the loan’s effective interest rate or, as a practical matter, at the loan’s
observable market price or the fair value of collateral if the loan is collateral dependent.
A loan is considered impaired when, based on current information and events, it is probable
that the Bank will be unable to collect all amounts due (including both principal and
interest) in accordance with the contractual terms of the loan agreement.
Loan origination fees, commitment fees, direct loan origination costs and purchased premiums
and discounts on loans are deferred and recognized as an adjustment of yield, to be
amortized to interest income over the contractual term of the loan. The unamortized balance
of deferred fees and costs is reported as a component of net loans.
The Company may acquire loans through a business combination or a purchase for which
differences may exist between the contractual cash flows and the cash flows expected to be
collected due, at least in part, to credit quality. When the Company acquires such loans,
the yield that may be accreted (accretable yield) is limited to the excess of the Company’s
estimate of undiscounted cash flows expected to be collected over the Company’s initial
investment in the loan. The excess of contractual cash flows over cash flows expected to be
collected may not be recognized as an adjustment to yield, loss, or a valuation allowance.
Subsequent increases in cash flows expected to be collected generally should be recognized
prospectively through adjustment of the loan’s yield over its remaining life. Decreases in
cash flows expected to be collected should be 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, 2008 and 2007, there were no
such loans being accounted for under this policy.
Allowance for Loan Losses
The allowance for loan losses is maintained to provide for losses related to impaired loans
and other losses that can be expected to occur in the normal course of business. The
determination of the allowance is based on estimates made by management, to include
consideration of the character of the loan portfolio, specifically identified problem loans,
potential losses inherent in the portfolio taken as a whole and economic conditions in the
Company’s service area.
Classified loans and loans determined to be impaired are evaluated by management for
specific risk of loss. In addition, reserve factors are assigned to currently performing
loans based on management’s assessment of the following for each identified loan type: (1)
inherent credit risk, (2) historical losses and, (3) where the Company has not experienced
losses, the loss experience of peer banks. These estimates are particularly susceptible to
changes in the economic environment and market conditions.
F - 14
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Allowance for Loan Losses (Continued)
The Bank’s Loan Committee reviews the adequacy of the allowance for loan losses at least
quarterly, to include consideration of the relative risks in the portfolio and current
economic conditions. The allowance is adjusted based on that review if, in management’s
judgment, changes are warranted.
The allowance is established through a provision for loan losses which is charged to
expense. Additions to the allowance are expected to maintain the adequacy of the total
allowance after credit losses and loan growth. The allowance for loan losses at
December 31, 2008 and 2007, respectively, reflects management’s estimate of probable losses
in the portfolio, actual losses may vary from their estimates. In addition, the FDIC and
California Department of Financial Institutions, as an integral part of their examination
process, review the allowance for loan and lease losses. These agencies may require
additions to the allowance for loan and lease losses based on their judgment about
information available at the time of their examination.
Allowance for Losses Related to Undisbursed Commitments
The Company maintains a separate allowance for losses related to undisbursed loan
commitments. Management estimates the amount of probable losses by applying a loss reserve
factor to a portion of undisbursed lines of credit. The allowance totaled $55,000 at
December 31, 2008 and 2007, and is included in accrued interest payable and other
liabilities in the consolidated balance sheet.
Other Real Estate
The Company’s investment in other real estate holdings, all of which were related to real
estate acquired in full or partial settlement of loan obligations, was $4,148,000 net of a
valuation allowance of $618,000 at December 31, 2008 and $402,000 with no valuation
allowance at December 31, 2007. There were no sales of other real estate in 2008 or 2007.
When property is acquired, any excess of the Bank’s recorded investment in the loan balance
and accrued interest income over the estimated fair market value of the property less costs
to sell is charged against the allowance for loan losses. A valuation allowance for losses
on other real estate is maintained to provide for temporary declines in value. The allowance
is established through a provision for losses on other real estate which is included in
other expenses. Subsequent gains or losses on sales or write-downs resulting from permanent
impairment are recorded in other income or expenses as incurred.
Intangible Assets
Intangible assets consist of core deposit intangibles related to branch acquisitions and are
amortized using the straight-line method over ten years. The Company evaluates the
recoverability and remaining useful life annually to determine whether events or
circumstances warrant a revision to the intangible asset or the remaining period of
amortization.
F - 15
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Premises and Equipment
Premises and equipment are carried at cost. Depreciation is determined using the
straight-line method over the estimated useful lives of the related assets. The useful
lives of premises are estimated to be twenty to thirty years. The useful lives of
furniture, fixtures and equipment are estimated to be two to ten years. Leasehold
improvements are amortized over the life of the asset or the life of the related lease,
whichever is shorter. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts, and any resulting
gain or loss is recognized in income for the period. The cost of maintenance and repairs is
charged to expense as incurred. The Company evaluates premises and equipment for financial
impairment as events or changes in circumstances indicate that the carrying amount of such
assets may not be fully recoverable.
Income Taxes
The Company files its income taxes on a consolidated basis with its subsidiary. The
allocation of income tax expense (benefit) represents each entity’s proportionate share of
the consolidated provision for income taxes.
Deferred tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. On the consolidated balance sheet, net deferred tax assets
are included in accrued interest receivable and other assets.
Accounting for Uncertainty in Income Taxes
Since January 1, 2007, the Company has accounted for uncertainty in income taxes under
Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (“FIN 48”). Under the provisions of FIN 48 only tax positions
that met the more-likely-than-not recognition threshold on January 1, 2007 were recognized
or continue to be recognized upon adoption. The Company previously recognized income tax
positions based on management’s estimate of whether it was reasonably possible that a
liability had been incurred for unrecognized income tax benefits by applying FASB Statement
No. 5, Accounting for Contingencies.
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.
F - 16
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Accounting
for Uncertainty in Income Taxes (Continued)
Interest expense and penalties associated with unrecognized tax benefits, if any, are
classified as income tax expense in the consolidated statement of income.
Earnings Per Share
Basic earnings per share (EPS), which excludes dilution, is computed by dividing income
available to common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock, such as stock options, result in the issuance of
common stock which shares in the earnings of the Company. The treasury stock method has
been applied to determine the dilutive effect of stock options in computing diluted EPS.
Stock-Based Compensation
At December 31, 2008, the Company had two shareholder approved stock-based compensation
plans, the Plumas Bank 2001 and 1991 Stock Option Plans (the “Plans”) which are described
more fully in Note 11.
Compensation expense, net of related tax benefits, recorded in 2008, 2007 and 2006 totaled
$269,000, $262,000 and $154,000 or $0.06, $0.05 and $0.03 per diluted share, respectively.
Compensation expense is recognized over the vesting period on a straight line accounting
basis.
The Company determines the fair value of the options previously granted on the date of grant
using a Black-Scholes-Merton option pricing model that uses assumptions based on expected
option life, expected stock volatility and the risk-free interest rate. The expected
volatility assumptions used by the Company are based on the historical volatility of the
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 - 17
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Stock-Based Compensation (Continued)
The fair value of each option is estimated on the date of grant using the following
assumptions.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Expected life of stock options |
|
5.2 years |
|
|
6.6 years |
|
|
5.0 years |
|
Interest rate—stock options |
|
|
2.98 |
% |
|
|
4.71 |
% |
|
|
4.67 |
% |
Volatility—stock options |
|
|
25.3 |
% |
|
|
26.8 |
% |
|
|
21.4 |
% |
Dividend yields |
|
|
2.61 |
% |
|
|
1.72 |
% |
|
|
1.40 |
% |
Weighted-average fair value
of options granted during the
year |
|
$ |
2.54 |
|
|
$ |
4.53 |
|
|
$ |
4.56 |
|
Impact of New Financial Accounting Standards
Business Combinations
In December 2007, the (FASB) issued Statement of Financial Accounting Standards No. 141
(revised 2007), Business Combinations (“SFAS No. 141R”). SFAS No. 141(R), among other
things, establishes principles and requirements for how the acquirer in a business
combination (i) recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquired business,
(ii) recognizes and measures the goodwill acquired in the business combination or a gain
from a bargain purchase, and (iii) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the business
combination. The Bank is required to adopt SFAS No. 141(R) for all business combinations
for which the acquisition date is on or after January 1, 2009. Earlier adoption is
prohibited. This standard will change the Bank’s accounting treatment for business
combinations on a prospective basis.
The Hierarchy of Generally Accepted Accounting Principles
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162). This standard identifies the sources of accounting principles and
the framework for selecting the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with GAAP. It
establishes that the GAAP hierarchy should be directed to entities because it is the entity
(not the auditor) that is responsible for selecting accounting principles for financial
statements that are presented in conformity with GAAP. SFAS 162 became effective on November
15, 2008. The implementation of SFAS No. 162 did not have any effect on the Company’s
consolidated financial statements.
F - 18
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Impact of New Financial Accounting Standards (Continued)
Employers’ Disclosures about Postretirement Benefit Plan Assets
In December 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 132(R)-1, Employers’
Disclosures about Postretirement Benefit Plan Assets (FSP 132(R)-1). This standard provides
guidance on an employer’s disclosures about plan assets of a defined benefit pension or
other postretirement plan. The objectives of the disclosures about plan assets in an
employer’s defined benefit pension or other postretirement plan are to provide users of
financial statements with an understanding of how investment allocation decisions are made,
including the factors that are pertinent to an understanding of investment policies and
strategies, the major categories of plan assets, the inputs and valuation techniques used to
measure the fair value of plan assets, the effect of fair value measurements using
significant unobservable inputs (Level 3) on changes in plan assets for the period, and
significant concentrations of risk within plan assets. The disclosures about plan assets
required by the FSP are effective for fiscal years ending after December 15, 2009. Early
adoption is permitted. The adoption of FSP 132(R)-1 is not expected to have a material
impact on the Company’s financial position, results of operations or cash flows.
F - 19
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 3. |
|
FAIR VALUE MEASUREMENTS |
Fair Value of Financial Instruments
The estimated fair values of the Company’s financial instruments are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
| |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
| |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
18,791,000 |
|
|
$ |
18,791,000 |
|
|
$ |
13,207,000 |
|
|
$ |
13,207,000 |
|
Investment securities |
|
|
38,374,000 |
|
|
|
38,606,000 |
|
|
|
55,292,000 |
|
|
|
55,367,000 |
|
Loans |
|
|
359,072,000 |
|
|
|
363,811,000 |
|
|
|
349,302,000 |
|
|
|
348,672,000 |
|
Cash surrender value of life
insurance policies |
|
|
9,766,000 |
|
|
|
9,766,000 |
|
|
|
9,428,000 |
|
|
|
9,428,000 |
|
Accrued interest receivable |
|
|
2,063,000 |
|
|
|
2,063,000 |
|
|
|
2,619,000 |
|
|
|
2,619,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
371,493,000 |
|
|
$ |
371,761,000 |
|
|
$ |
391,940,000 |
|
|
$ |
391,975,000 |
|
Short-term borrowings |
|
|
34,000,000 |
|
|
|
34,000,000 |
|
|
|
7,500,000 |
|
|
|
7,500,000 |
|
Junior subordinated deferrable
interest debentures |
|
|
10,310,000 |
|
|
|
2,420,000 |
|
|
|
10,310,000 |
|
|
|
9,314,000 |
|
Accrued interest payable |
|
|
487,000 |
|
|
|
487,000 |
|
|
|
927,000 |
|
|
|
927,000 |
|
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.
Because no market exists for a significant portion of the Company’s financial instruments,
fair value estimates are based on judgments regarding current economic conditions, risk
characteristics of various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could significantly
affect the fair values presented.
The following methods and assumptions were used by management to estimate the fair value of
its financial instruments at December 31, 2008 and 2007:
Cash and cash equivalents: For cash and cash equivalents, the carrying amount is
estimated to be fair value.
Investment securities: For investment securities, fair values are based on quoted
market prices, where available. If quoted market prices are not available, fair values are
estimated using quoted market prices for similar securities and indications of value
provided by brokers.
F - 20
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 3. |
|
FAIR VALUE
MEASUREMENTS (Continued) |
Loans: For variable-rate loans that reprice frequently with no significant change
in credit risk, fair values are based on carrying values. Fair values of loans held for
sale, if any, are estimated using quoted market prices for similar loans. The fair values
for other loans are estimated using discounted cash flow analyses, using interest rates
currently being offered at each reporting date for loans with similar terms to borrowers of
comparable creditworthiness. The fair value of loans is adjusted for the allowance for loan
losses. The carrying amount of accrued interest receivable approximates its fair value.
Bank owned life insurance: The fair values of bank owned life insurance policies
are based on current cash surrender values at each reporting date provided by the insurers.
Deposits: The fair values for demand deposits are, by definition, equal to the
amount payable on demand at the reporting date represented by their carrying amount. Fair
values for fixed-rate certificates of deposit are estimated using a discounted cash flow
analysis using interest rates offered at each reporting date by the Bank for certificates
with similar remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.
Short-term
borrowings: The carrying amount of the short-term borrowings
approximates its fair value.
Junior subordinated deferrable interest debentures: The fair value of junior
subordinated deferrable interest debentures was determined based on the current market value
for like kind instruments of a similar maturity and structure.
Commitments to extend credit and letters of credit: The fair value of commitments
are estimated using the fees currently charged to enter into similar agreements.
Commitments to extend credit are primarily for variable rate loans and letters of credit.
For these commitments, there is no significant difference between the committed amounts and
their fair values and therefore, is not included in the table above.
On January 1, 2008, the Company adopted FASB Statement No. 157 (SFAS 157), Fair Value
Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value
under GAAP and expands disclosures about fair value measurements. There was no cumulative
effect adjustment to beginning retained earnings recorded upon adoption and no impact on the
financial statements during 2008.
On October 10, 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. The FSP clarifies the
application of FASB Statement No. 157, Fair Value Measurements, in a market that is not
active and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not active. The FSP
is effective immediately, and therefore the Company is subject to the provision of the FSP
effective immediately. The impact of adoption was not material to the Company’s financial
condition or results of operations.
F - 21
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, 2008, and indicates
the fair value hierarchy of the valuation techniques utilized by the Company to determine
such fair value based on the hierarchy:
Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions
about the assumptions that market participants would use in pricing an asset or liability.
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.
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Fair Value Measurements at December 31, 2008 Using |
|
| |
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
| |
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
| |
|
December 31, 2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities |
|
$ |
25,807,000 |
|
|
$ |
13,450,000 |
|
|
$ |
12,357,000 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of securities available for sale equals quoted market price, if available.
If quoted market prices are not available, fair value is determined using quoted market
prices for similar securities. There were no changes in the valuation techniques used during
2008. Changes in fair market value are recorded in other comprehensive income.
F - 22
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 3. |
|
FAIR VALUE
MEASUREMENTS (Continued) |
Financial assets and liabilities measured at fair value on a non-recurring basis are
summarized below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Fair Value Measurements at December 31, 2008 Using |
|
| |
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
| |
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
| |
|
December 31, 2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
23,312,000 |
|
|
$ |
— |
|
|
$ |
23,312,000 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, all of which are measured for impairment using the fair value of the
collateral as they are virtually all collateral dependent loans, had a principal balance of
$26,444,000 with a related valuation allowance of $3,132,000 at December 31, 2008. There
were no changes in the valuation techniques used during 2008. Declines in the collateral
values of impaired loans during 2008 were $2,805,000 which was reflected as additional
specific allocations of the allowance for loan losses.
The amortized cost and estimated fair value of investment securities at December 31, 2008
and 2007 consisted of the following:
Available-for-Sale
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
| |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
| |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
1,498,000 |
|
|
$ |
10,000 |
|
|
|
|
|
|
$ |
1,508,000 |
|
U.S. Government agencies |
|
|
10,001,000 |
|
|
|
391,000 |
|
|
|
|
|
|
|
10,392,000 |
|
U.S. Government agencies
collateralized by mortgage
obligations |
|
|
12,183,000 |
|
|
|
189,000 |
|
|
$ |
(15,000 |
) |
|
|
12,357,000 |
|
Corporate debt securities |
|
|
1,585,000 |
|
|
|
1,000 |
|
|
|
(36,000 |
) |
|
|
1,550,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25,267,000 |
|
|
$ |
591,000 |
|
|
$ |
(51,000 |
) |
|
$ |
25,807,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on available-for-sale investment securities totaling $540,000 were
recorded, net of $223,000 in tax expense, as accumulated other comprehensive income within
shareholders’ equity at December 31, 2008. There were no sales of available-for-sale
investment securities during the year ended December 31, 2008.
F - 23
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 4. |
|
INVESTMENT SECURITIES (Continued) |
Available-for-Sale: (Continued)
During 2008 the Bank’s investment securities included a $500,000 corporate debt security
issued by Lehman Brothers Holdings Inc., which filed for Chapter 11 bankruptcy on September
15, 2008. Due to the significant decline in the price of this security following the
bankruptcy filing, the Bank recorded an other than temporary impairment write down of
$415,000.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2007 |
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
| |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
| |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities |
|
$ |
3,489,000 |
|
|
|
|
|
|
$ |
(8,000 |
) |
|
$ |
3,481,000 |
|
U.S. Government agencies |
|
|
19,522,000 |
|
|
$ |
191,000 |
|
|
|
(51,000 |
) |
|
|
19,662,000 |
|
U.S. Government agencies
collateralized by mortgage
obligations |
|
|
15,001,000 |
|
|
|
12,000 |
|
|
|
(275,000 |
) |
|
|
14,738,000 |
|
Corporate debt securities |
|
|
3,975,000 |
|
|
|
|
|
|
|
(52,000 |
) |
|
|
3,923,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
41,987,000 |
|
|
$ |
203,000 |
|
|
$ |
(386,000 |
) |
|
$ |
41,804,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on available-for-sale investment securities totaling $183,000 were
recorded, net of $76,000 in tax benefits, as accumulated other comprehensive loss within
shareholders’ equity at December 31, 2007. There were no sales of available-for-sale
investment securities during the years ended December 31, 2007 or 2006.
Held-to-Maturity
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
| |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
| |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and
political subdivisions |
|
$ |
12,567,000 |
|
|
$ |
278,000 |
|
|
$ |
(46,000 |
) |
|
$ |
12,799,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2007 |
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
| |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
| |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and
political subdivisions |
|
$ |
13,488,000 |
|
|
$ |
95,000 |
|
|
$ |
(20,000 |
) |
|
$ |
13,563,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales or transfers of held-to-maturity investment securities during the years
ended December 31, 2008, 2007 and 2006.
F - 24
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 4. |
|
INVESTMENT SECURITIES (Continued) |
Investment securities with unrealized losses at December 31, 2008 are summarized and
classified according to the duration of the loss period as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
| |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
| |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states
and political subdivisions |
|
$ |
1,366,000 |
|
|
$ |
39,000 |
|
|
$ |
809,000 |
|
|
$ |
7,000 |
|
|
$ |
2,175,000 |
|
|
$ |
46,000 |
|
U.S. Government
agencies collateralized by mortgage
obligations |
|
|
|
|
|
|
|
|
|
|
3,419,000 |
|
|
|
15,000 |
|
|
|
3,419,000 |
|
|
|
15,000 |
|
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
1,050,000 |
|
|
|
36,000 |
|
|
|
1,050,000 |
|
|
|
36,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,366,000 |
|
|
$ |
39,000 |
|
|
$ |
5,278,000 |
|
|
$ |
58,000 |
|
|
$ |
6,644,000 |
|
|
$ |
97,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with unrealized losses at December 31, 2007 are summarized and
classified according to the duration of the loss period as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
| |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
| |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
$ |
3,481,000 |
|
|
$ |
8,000 |
|
|
$ |
3,481,000 |
|
|
$ |
8,000 |
|
U.S. Government
agencies |
|
$ |
1,001,000 |
|
|
$ |
5,000 |
|
|
|
8,469,000 |
|
|
|
46,000 |
|
|
|
9,470,000 |
|
|
|
51,000 |
|
Obligations of states
and political subdivisions |
|
|
421,000 |
|
|
|
1,000 |
|
|
|
3,873,000 |
|
|
|
19,000 |
|
|
|
4,294,000 |
|
|
|
20,000 |
|
U.S. Government
agencies collateralized by mortgage
obligations |
|
|
|
|
|
|
|
|
|
|
12,640,000 |
|
|
|
275,000 |
|
|
|
12,640,000 |
|
|
|
275,000 |
|
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
3,923,000 |
|
|
|
52,000 |
|
|
|
3,923,000 |
|
|
|
52,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,422,000 |
|
|
$ |
6,000 |
|
|
$ |
32,386,000 |
|
|
$ |
400,000 |
|
|
$ |
33,808,000 |
|
|
$ |
406,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 25
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 4. |
|
INVESTMENT SECURITIES (Continued) |
At December 31, 2008, the Company held 89 securities of which 18 were in a loss position. Of
the securities in a loss position, 6 were in a loss position for less than twelve months and
12 were in a loss position and had been in loss position for twelve months or more. Of the
18 securities 9 are obligations of states and political subdivisions, 6 are U.S. government
agencies collateralized by mortgage obligations and 3 are corporate debt securities. The
unrealized losses relate principally to the continued dislocation of the securities market.
All but one of the securities has continued to pay as scheduled despite their impairment due
to current market conditions. 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.
Management has the ability and intent to hold securities classified as held to maturity
until they mature, at which time the Company expects to receive full value for the
securities. Furthermore, as of December 31, 2008, management also has the ability and intent
to hold the securities classified as available for sale and currently impaired for a period
of time sufficient for a recovery of cost. 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, 2008 are other than temporarily impaired.
The amortized cost and estimated fair value of investment securities at December 31, 2008 by
contractual maturity are shown below. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to call or prepay
obligations with or without call or prepayment penalties.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Available-for-Sale |
|
|
Held-to-Maturity |
|
| |
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Estimated |
|
| |
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
| |
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year |
|
$ |
3,083,000 |
|
|
$ |
3,058,000 |
|
|
|
|
|
|
|
|
|
After one year through
five years |
|
|
10,001,000 |
|
|
|
10,392,000 |
|
|
$ |
1,977,000 |
|
|
$ |
2,017,000 |
|
After five years through
ten years |
|
|
|
|
|
|
|
|
|
|
10,300,000 |
|
|
|
10,504,000 |
|
After ten years through
fifteen years |
|
|
|
|
|
|
|
|
|
|
290,000 |
|
|
|
278,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,084,000 |
|
|
|
13,450,000 |
|
|
|
12,567,000 |
|
|
|
12,799,000 |
|
Investment securities
not due at a single
maturity date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-guaranteed mortgage-backed securities |
|
|
12,183,000 |
|
|
|
12,357,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25,267,000 |
|
|
$ |
25,807,000 |
|
|
$ |
12,567,000 |
|
|
$ |
12,799,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with amortized costs totaling $36,249,000 and $36,499,000 and
estimated fair values totaling $37,056,000 and $36,706,000 at December 31, 2008 and 2007,
respectively, were pledged to secure deposits, including public deposits and treasury, tax
and loan accounts.
F - 26
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 5. |
|
LOANS AND THE ALLOWANCE FOR LOAN LOSSES |
Outstanding loans are summarized below:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
42,528,000 |
|
|
$ |
39,584,000 |
|
Agricultural |
|
|
36,020,000 |
|
|
|
35,762,000 |
|
Real estate — mortgage |
|
|
151,943,000 |
|
|
|
128,357,000 |
|
Real estate — construction and land
development |
|
|
73,820,000 |
|
|
|
76,478,000 |
|
Installment |
|
|
61,706,000 |
|
|
|
72,768,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
366,017,000 |
|
|
|
352,949,000 |
|
|
|
|
|
|
|
|
|
|
Deferred loan costs, net |
|
|
279,000 |
|
|
|
564,000 |
|
Allowance for loan losses |
|
|
(7,224,000 |
) |
|
|
(4,211,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
359,072,000 |
|
|
$ |
349,302,000 |
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
4,211,000 |
|
|
$ |
3,917,000 |
|
|
$ |
3,256,000 |
|
Provision charged to operations |
|
|
4,600,000 |
|
|
|
800,000 |
|
|
|
1,000,000 |
|
Losses charged to allowance |
|
|
(1,783,000 |
) |
|
|
(786,000 |
) |
|
|
(645,000 |
) |
Recoveries |
|
|
196,000 |
|
|
|
280,000 |
|
|
|
306,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
7,224,000 |
|
|
$ |
4,211,000 |
|
|
$ |
3,917,000 |
|
|
|
|
|
|
|
|
|
|
|
The recorded investment in loans that were considered to be impaired totaled $26,444,000 and
$2,618,000 at December 31, 2008 and 2007, respectively. The related allowance for loan
losses for impaired loans was $3,132,000 and $143,000 at December 31, 2008 and 2007,
respectively. The average recorded investment in impaired loans for the years ended
December 31, 2008, 2007 and 2006 was $5,243,000, $1,736,000 and $1,201,000, respectively.
The Company recognized $74,000, $118,000 and $116,000 in interest income on a cash basis for
impaired loans during the years ended December 31, 2008, 2007 and 2006, respectively.
F - 27
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 5. |
|
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued) |
At December 31, 2008 and 2007, nonaccrual loans totaled $26,444,000 and $2,618,000,
respectively. Interest foregone on nonaccrual loans totaled $576,000, $161,000 and $53,000
for the years ended December 31, 2008, 2007 and 2006, respectively. Loans past due 90 days
or more and on accrual status were $297,000 and $14,000 at December 31, 2008 and 2007,
respectively.
Salaries and employee benefits totaling $868,000, $753,000 and $1,328,000 have been deferred
as loan origination costs during the years ended December 31, 2008, 2007 and 2006,
respectively.
Servicing Assets and Interest-Only Strips Receivable
The Company serviced government guaranteed loans for others totaling $8,920,000, $5,300,000
and 4,622,000 as of December 31, 2008, 2007 and 2006, respectively.
A summary of the related servicing assets and interest-only strips receivable are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
Servicing Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of year |
|
$ |
76,000 |
|
|
$ |
69,000 |
|
|
$ |
97,000 |
|
Increase from loan sales |
|
|
62,000 |
|
|
|
24,000 |
|
|
|
15,000 |
|
Amortization charged to income |
|
|
(30,000 |
) |
|
|
(17,000 |
) |
|
|
(43,000 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
108,000 |
|
|
$ |
76,000 |
|
|
$ |
69,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
Interest-Only Strips Receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of year |
|
$ |
247,000 |
|
|
$ |
238,000 |
|
|
$ |
326,000 |
|
Increase from loan sales |
|
|
46,000 |
|
|
|
68,000 |
|
|
|
67,000 |
|
Amortization charged to income |
|
|
(80,000 |
) |
|
|
(59,000 |
) |
|
|
(155,000 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
213,000 |
|
|
$ |
247,000 |
|
|
$ |
238,000 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, 2007, and 2006, the Company had interest-only strips of $213,000,
$247,000, and $238,000, respectively, which approximates fair value. There were no
significant gains or losses recognized on the interest-only strips for the years ended
December 31, 2008, 2007 and 2006.
F - 28
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 6. |
|
PREMISES AND EQUIPMENT |
Premises and equipment consisted of the following:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
2,397,000 |
|
|
$ |
2,397,000 |
|
Premises |
|
|
14,220,000 |
|
|
|
12,621,000 |
|
Furniture, equipment and leasehold improvements |
|
|
9,912,000 |
|
|
|
8,723,000 |
|
Construction in progress |
|
|
|
|
|
|
309,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,529,000 |
|
|
|
24,050,000 |
|
Less accumulated depreciation
and amortization |
|
|
(10,765,000 |
) |
|
|
(9,384,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,764,000 |
|
|
$ |
14,666,000 |
|
|
|
|
|
|
|
|
Depreciation and amortization included in occupancy and equipment expense totaled
$1,769,000, $1,897,000 and $1,870,000 for the years ended December 31, 2008, 2007 and 2006,
respectively.
7. DEPOSITS
Interest-bearing deposits consisted of the following:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
72,589,000 |
|
|
$ |
74,811,000 |
|
Money market |
|
|
39,225,000 |
|
|
|
32,149,000 |
|
Savings |
|
|
48,604,000 |
|
|
|
45,343,000 |
|
Time, $100,000 or more |
|
|
36,179,000 |
|
|
|
51,588,000 |
|
Other time |
|
|
62,113,000 |
|
|
|
76,809,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
258,710,000 |
|
|
$ |
280,700,000 |
|
|
|
|
|
|
|
|
F - 29
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At December 31, 2008, the scheduled maturities of time deposits were as follows:
| |
|
|
|
|
| Year Ending December 31, |
|
|
|
|
| |
2009 |
|
$ |
86,350,000 |
|
2010 |
|
|
8,257,000 |
|
2011 |
|
|
2,064,000 |
|
2012 |
|
|
1,283,000 |
|
2013 |
|
|
306,000 |
|
Thereafter |
|
|
32,000 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
98,292,000 |
|
|
|
|
|
At December 31, 2008, the contractual maturities of time deposits with a denomination of
$100,000 and over were as follows: $17,085,000 in 3 months or less, $8,095,000 over 3 months
through 6 months, $6,761,000 over 6 months through 12 months, and $4,238,000 over 12 months.
Deposit overdrafts reclassified as loan balances were $484,000 and $822,000 at December 31,
2008 and 2007, respectively.
| 8. |
|
SHORT-TERM BORROWING ARRANGEMENTS |
The Company has unsecured short-term borrowing arrangements with two of its correspondent
banks in the amounts of $10,000,000 and $5,000,000. The Company can also borrow up to
$88,827,000 from the Federal Home Loan Bank (“FHLB”) secured by commercial and residential
mortgage loans with carrying values totaling $202,341,000. These FHLB advances are normally
made for one day periods but can be for longer periods. Short-term borrowings at December
31, 2008 and 2007 consisted of $34,000,000 and $7,500,000, respectively, in one day FHLB
advances. The weighted average rate on these borrowings at December 31, 2008 and 2007 were
0.05% and 3.30%, respectively.
The Bank is eligible to issue certain debt that is backed by the full faith and credit of
the United States, up to a limit of $8.3 million, under the Federal Deposit Insurance
Corporation’s Temporary Liquidity Guarantee Program. Any senior unsecured debt with a
stated maturity of more than thirty days issued by the Bank up to its debt guarantee limit
falls under this program. The Bank will be charged an annualized assessment from the FDIC,
ranging from 50 to 100 basis points, based on the term and amount of the debt outstanding
under the program. At December 31, 2008, the Bank had no borrowings under this debt
guarantee program.
F - 30
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 9. |
|
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES |
Plumas Statutory Trust I and II are Connecticut business trusts formed by the Company with
capital of $247,000 and $140,000, respectively, for the sole purpose of issuing trust
preferred securities fully and unconditionally guaranteed by the Company. Under applicable
regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1
capital is limited to twenty-five percent of the Company’s Tier 1 capital, as defined, on a
pro forma basis. At December 31, 2008, all of the trust preferred securities that have been
issued qualify as Tier 1 capital.
During 2002, Plumas Statutory Trust I issued 6,000 Floating Rate Capital Trust Pass-Through
Securities (“Trust Preferred Securities”), with a liquidation value of $1,000 per security,
for gross proceeds of $6,000,000. During 2005, Plumas Statutory Trust II issued 4,000 Trust
Preferred Securities with a liquidation value of $1,000 per security, for gross proceeds of
$4,000,000. The entire proceeds were invested by Trust I in the amount of $6,186,000 and
Trust II in the amount of $4,124,000 in Floating Rate Junior Subordinated Deferrable
Interest Debentures (the “Subordinated Debentures”) issued by the Company, with identical
maturity, repricing and payment terms as the Trust Preferred Securities. The Subordinated
Debentures represent the sole assets of Trusts I and II.
Trust I’s Subordinated Debentures mature on September 26, 2032, bear a current interest rate
of 4.87% (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 3.48% (based on 3-month LIBOR plus 1.48%), with repricing and payments due
quarterly. The Subordinated Debentures are redeemable by the Company, subject to receipt by
the Company of prior approval from the Federal Reserve Board of Governors, on any quarterly
anniversary date on or after the 5-year anniversary date of the issuance. The redemption
price is par plus accrued and unpaid interest, except in the case of redemption under a
special event which is defined in the debenture. The Trust Preferred Securities are subject
to mandatory redemption to the extent of any early redemption of the Subordinated Debentures
and upon maturity of the Subordinated Debentures on September 26, 2032 for Trust I and
September 28, 2035 for Trust II.
Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on
the liquidation amount of $1,000 per security. The interest rate of the Trust Preferred
Securities issued by Trust I adjust on each quarterly anniversary date to equal the 3-month
LIBOR plus 3.40% provided, however, that prior to September 26, 2007, such annual rate does
not exceed 11.90%. The Trust Preferred Securities issued by Trust II adjust on each
quarterly anniversary date to equal the 3-month LIBOR plus 1.48%. Both 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, 2008, 2007 and
2006 related to the subordinated debentures was $623,000, $835,000 and
$810,000, respectively. The amount of deferred costs at December 31, 2008 and 2007 was
$143,000 and $149,000, respectively. The amortization of the deferred costs was $6,000 for
each of the years ended December 31, 2008, 2007 and 2006.
F - 31
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 10. |
|
COMMITMENTS AND CONTINGENCIES |
Leases
The Company has commitments for leasing premises under the terms of noncancelable operating
leases expiring from 2009 to 2018. Future minimum lease payments are as follows:
| |
|
|
|
|
| Year Ending
December 31, |
|
|
|
|
| |
2009 |
|
$ |
319,000 |
|
2010 |
|
|
283,000 |
|
2011 |
|
|
262,000 |
|
2012 |
|
|
262,000 |
|
2013 |
|
|
194,000 |
|
Thereafter |
|
|
728,000 |
|
|
|
|
|
|
|
$ |
2,048,000 |
|
|
|
|
|
Rental expense included in occupancy and equipment expense totaled $347,000, $209,000 and
$221,000 for the years ended December 31, 2008, 2007 and 2006, 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:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
$ |
78,787,000 |
|
|
$ |
96,867,000 |
|
Letters of credit |
|
$ |
534,000 |
|
|
$ |
655,000 |
|
F - 32
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 10. |
|
COMMITMENTS AND CONTINGENCIES (Continued) |
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since some
of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company evaluates each
customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on management’s credit
evaluation of the borrower. Collateral held varies, but may include accounts receivable,
crops, inventory, equipment, income-producing commercial properties, farm land and
residential properties.
Letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to customers. The fair
value of the liability related to these letters of credit, which represents the fees
received for issuing the guarantees, was not significant at December 31, 2008 and 2007. The
Company recognizes these fees as revenues over the term of the commitment or when the
commitment is used.
At December 31, 2008, consumer loan commitments represent approximately 14% of total
commitments and are generally unsecured. Commercial and agricultural loan commitments
represent approximately 35% 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 51% 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
collectibility of these loans. However, personal and business income represent the primary
source of repayment for a majority of these loans.
Contingencies
The Company is subject to legal proceedings and claims which arise in the ordinary course of
business. In the opinion of management, the amount of ultimate liability with respect to
such actions will not materially affect the financial position or results of operations of
the Company.
F - 33
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Dividend Restrictions
The Company’s ability to pay cash dividends is dependent on dividends paid to it by the Bank
and limited by California corporation law. Under California law, the holders of common
stock of the Company are entitled to receive dividends when and as declared by the Board of
Directors, out of funds legally available, subject to certain restrictions. The California
general corporation law prohibits the Company from paying dividends on its common stock
unless: (i) its retained earnings, immediately prior to the dividend payment, equals or
exceeds the amount of the dividend or (ii) immediately after giving effect to the dividend,
the sum of the Company’s assets (exclusive of goodwill and deferred charges) would be at
least equal to 125% of its liabilities (not including deferred taxes, deferred income and
other deferred liabilities) and the current assets of the Company would be at least equal to
its current liabilities, or, if the average of its earnings before taxes on income and
before interest expense for the two preceding fiscal years was less than the average of its
interest expense for the two preceding fiscal years, at least equal to 125% of its current
liabilities.
Dividends from the Bank to the Company are restricted under California law to the lesser of
the Bank’s retained earnings or the Bank’s net income for the latest three fiscal years,
less dividends previously declared during that period, or, with the approval of the
Department of Financial Institutions, to the greater of the retained earnings of the Bank,
the net income of the Bank for its last fiscal year, or the net income of the Bank for its
current fiscal year. As of December 31, 2008, the maximum amount available for dividend
distribution under this restriction was approximately $5,168,000. 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 9).
Dividends on common stock in 2009 will be also be limited without the prior approval by the
Treasury due to the Company’s participation in the Capital Purchase Program — see Note 19.
F - 34
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 11. |
|
SHAREHOLDERS’ EQUITY (Continued) |
Earnings Per Share
A reconciliation of the numerators and denominators of the basic and diluted earnings per
share computations is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
|
Average |
|
|
|
|
| |
|
|
|
|
|
Number of |
|
|
|
|
| |
|
Net |
|
|
Shares |
|
|
Per Share |
|
| For the Year Ended |
|
Income |
|
|
Outstanding |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
304,000 |
|
|
|
4,817,411 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Effect of dilutive stock options |
|
|
|
|
|
|
18,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
304,000 |
|
|
|
4,835,433 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
4,223,000 |
|
|
|
4,963,192 |
|
|
$ |
0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options |
|
|
|
|
|
|
41,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
4,223,000 |
|
|
|
5,005,149 |
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
5,202,000 |
|
|
|
5,001,389 |
|
|
$ |
1.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options |
|
|
|
|
|
|
83,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
5,202,000 |
|
|
|
5,084,921 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock issuable under stock options for which the exercise prices were
greater than the average market prices were not included in the computation of diluted
earnings per share due to their antidilutive effect. Stock options not included in the
computation of diluted earnings per share were 394,000, 215,000 and 12,500 for the years
ended December 31, 2008, 2007 and 2006, respectively.
F - 35
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 11. |
|
SHAREHOLDERS’ EQUITY (Continued) |
Stock Options
In 2001 and 1991, the Company established Stock Option Plans for which 874,185 shares of
common stock remain reserved for issuance to employees and directors and 407,229 shares are
available for future grants under incentive and nonstatutory agreements as of December 31,
2008. The Plans require that the option price may not be less than the fair market value of
the stock at the date the option is granted, and that the stock must be paid in full at the
time the option is exercised. Payment in full for the option price must be made in cash or
with Company common stock previously acquired by the optionee and held by the optionee for a
period of at least six months. The Plans do not provide for the settlement of awards in cash
and new shares are issued upon option exercise. The options expire on dates determined by
the Board of Directors, but not later than ten years from the date of grant. Upon grant,
options vest ratably over a three to five year period. A summary of the combined activity
within the Plans follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
| |
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
|
| |
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
|
|
| |
|
Shares |
|
|
Price |
|
|
Term |
|
|
Intrinsic Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at January 1, 2006 |
|
|
355,976 |
|
|
$ |
10.90 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
7,500 |
|
|
|
17.52 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(67,806 |
) |
|
|
8.41 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(4,756 |
) |
|
|
12.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2006 |
|
|
290,914 |
|
|
$ |
11.62 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
155,700 |
|
|
|
16.37 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(19,292 |
) |
|
|
7.47 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(31,550 |
) |
|
|
15.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2007 |
|
|
395,772 |
|
|
$ |
13.37 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
90,300 |
|
|
|
12.40 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(12,476 |
) |
|
|
5.38 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(6,640 |
) |
|
|
14.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2008 |
|
|
466,956 |
|
|
$ |
13.38 |
|
|
|
5.6 |
|
|
$ |
38,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2008 |
|
|
255,883 |
|
|
$ |
12.37 |
|
|
|
4.8 |
|
|
$ |
38,000 |
|
Expected to vest after December 31, 2008 |
|
|
211,073 |
|
|
$ |
14.60 |
|
|
|
6.6 |
|
|
$ |
— |
|
F - 36
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 11. |
|
SHAREHOLDERS’ EQUITY (Continued) |
Stock Options (Continued)
As of December 31, 2008, there was $553,000 of total unrecognized compensation cost related
to non-vested share-based compensation arrangements granted under the 2001 Plan. That cost
is expected to be recognized over a weighted average period of 2.3 years.
The
total fair value of options vested was $238,000 for the year ended December 31, 2008. The
total intrinsic value of options at time of exercise was $56,000, $132,000 and $616,000 for
the years ended December 31, 2008, 2007, and 2006, respectively.
Cash received from option exercise for the years ended December 31, 2008, 2007, and 2006,
was $68,000, $73,000 and $181,000, respectively. There was no tax benefit realized for the
tax deduction from options exercise in 2008. The tax benefit realized for the tax
deductions from option exercise totaled $9,000 and $61,000, respectively, for the years
ended December 31, 2007, and 2006.
Regulatory Capital
The Company and the Bank are subject to certain regulatory capital requirements administered
by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance
Corporation (FDIC). Failure to meet these minimum capital requirements can initiate certain
mandatory and possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Company’s consolidated financial statements.
Under capital adequacy guidelines, the Company and the Bank must meet specific capital
guidelines that involved quantitative measures of their assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. These
quantitative measures are established by regulation 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. The most recent notification from the FDIC categorized the Bank as well
capitalized under these guidelines. There are no conditions or events since that
notification that management believes have changed the Bank’s category.
Management believes that the Company and the Bank met all their capital adequacy
requirements as of December 31, 2008 and 2007.
F - 37
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 11. |
|
SHAREHOLDERS’ EQUITY (Continued) |
Regulatory Capital (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
Leverage Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
$ |
43,885,000 |
|
|
|
9.8 |
% |
|
$ |
46,209,000 |
|
|
|
10.0 |
% |
Minimum regulatory requirement |
|
$ |
17,907,000 |
|
|
|
4.0 |
% |
|
$ |
18,439,000 |
|
|
|
4.0 |
% |
| |
Plumas Bank |
|
$ |
43,372,000 |
|
|
|
9.7 |
% |
|
$ |
45,415,000 |
|
|
|
9.9 |
% |
Minimum requirement for “Well-Capitalized” institution under the
prompt corrective action plan |
|
$ |
22,365,000 |
|
|
|
5.0 |
% |
|
$ |
23,024,000 |
|
|
|
5.0 |
% |
Minimum regulatory requirement |
|
$ |
17,892,000 |
|
|
|
4.0 |
% |
|
$ |
18,419,000 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
$ |
43,885,000 |
|
|
|
11.0 |
% |
|
$ |
46,209,000 |
|
|
|
11.6 |
% |
Minimum regulatory requirement |
|
$ |
16,021,000 |
|
|
|
4.0 |
% |
|
$ |
15,881,000 |
|
|
|
4.0 |
% |
| |
Plumas Bank |
|
$ |
43,372,000 |
|
|
|
10.8 |
% |
|
$ |
45,415,000 |
|
|
|
11.5 |
% |
Minimum requirement for “Well-Capitalized” institution under the
prompt corrective action plan |
|
$ |
23,996,000 |
|
|
|
6.0 |
% |
|
$ |
23,790,000 |
|
|
|
6.0 |
% |
Minimum regulatory requirement |
|
$ |
15,997,000 |
|
|
|
4.0 |
% |
|
$ |
15,860,000 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
$ |
48,919,000 |
|
|
|
12.2 |
% |
|
$ |
50,475,000 |
|
|
|
12.7 |
% |
Minimum regulatory requirement |
|
$ |
32,042,000 |
|
|
|
8.0 |
% |
|
$ |
31,763,000 |
|
|
|
8.0 |
% |
| |
Plumas Bank |
|
$ |
48,399,000 |
|
|
|
12.1 |
% |
|
$ |
49,681,000 |
|
|
|
12.5 |
% |
Minimum requirement for “Well-Capitalized” institution under the
prompt corrective action plan |
|
$ |
39,994,000 |
|
|
|
10.0 |
% |
|
$ |
39,651,000 |
|
|
|
10.0 |
% |
Minimum regulatory requirement |
|
$ |
31,995,000 |
|
|
|
8.0 |
% |
|
$ |
31,720,000 |
|
|
|
8.0 |
% |
Share Repurchase Plan
On January 22, 2007 the Board of Directors approved a stock repurchase plan authorizing the
purchase of up to 250,000 shares of the Company’s common stock, or approximately 5% of the
outstanding shares as of that date. The repurchase plan was authorized through December 31,
2007. During 2007 the Company repurchased 168,737 shares at an average price of $14.22 for a
total cost of $2,400,000.
F - 38
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 11. |
|
SHAREHOLDERS’ EQUITY (Continued) |
Share Repurchase Plan (Continued)
On December 20, 2007 the Company announced that for 2008 the Board of Directors authorized a
common stock repurchase plan for up to 244,000 shares, or 5% of the Company’s shares
outstanding on December 20, 2007. The repurchase plan was authorized through December 31,
2008. During 2008 the Company repurchased 106,267 shares at an average price of $11.45 for a
total cost of $1,217,000.
Other expenses consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside service fees |
|
$ |
735,000 |
|
|
$ |
671,000 |
|
|
$ |
591,000 |
|
Professional fees |
|
|
688,000 |
|
|
|
738,000 |
|
|
|
780,000 |
|
Provision for losses on other real estate |
|
|
618,000 |
|
|
|
|
|
|
|
|
|
Business development |
|
|
467,000 |
|
|
|
530,000 |
|
|
|
555,000 |
|
Advertising and promotion |
|
|
448,000 |
|
|
|
520,000 |
|
|
|
552,000 |
|
Telephone and data communications |
|
|
400,000 |
|
|
|
362,000 |
|
|
|
374,000 |
|
Loan expenses |
|
|
380,000 |
|
|
|
192,000 |
|
|
|
139,000 |
|
Director compensation and retirement |
|
|
323,000 |
|
|
|
349,000 |
|
|
|
370,000 |
|
Armored car and courier |
|
|
289,000 |
|
|
|
279,000 |
|
|
|
270,000 |
|
FDIC Insurance |
|
|
258,000 |
|
|
|
48,000 |
|
|
|
53,000 |
|
Stationery and supplies |
|
|
236,000 |
|
|
|
278,000 |
|
|
|
282,000 |
|
Insurance |
|
|
235,000 |
|
|
|
177,000 |
|
|
|
173,000 |
|
Core deposit intangible amortization |
|
|
216,000 |
|
|
|
301,000 |
|
|
|
301,000 |
|
Postage |
|
|
208,000 |
|
|
|
242,000 |
|
|
|
249,000 |
|
Other operating expenses |
|
|
252,000 |
|
|
|
232,000 |
|
|
|
235,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,753,000 |
|
|
$ |
4,919,000 |
|
|
$ |
4,924,000 |
|
|
|
|
|
|
|
|
|
|
|
13. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2008, 2007 and
2006 consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Federal |
|
|
State |
|
|
Total |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
788,000 |
|
|
$ |
459,000 |
|
|
$ |
1,247,000 |
|
Deferred |
|
|
(1,002,000 |
) |
|
|
(457,000 |
) |
|
|
(1,459,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit) provision for income
taxes |
|
$ |
(214,000 |
) |
|
$ |
2,000 |
|
|
$ |
(212,000 |
) |
|
|
|
|
|
|
|
|
|
|
F - 39
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 13. |
|
INCOME TAXES (Continued) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Federal |
|
|
State |
|
|
Total |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
2,374,000 |
|
|
$ |
915,000 |
|
|
$ |
3,289,000 |
|
Deferred |
|
|
(587,000 |
) |
|
|
(200,000 |
) |
|
|
(787,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
1,787,000 |
|
|
$ |
715,000 |
|
|
$ |
2,502,000 |
|
|
|
|
|
|
|
|
|
|
|
| |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
2,736,000 |
|
|
$ |
916,000 |
|
|
$ |
3,652,000 |
|
Deferred |
|
|
(434,000 |
) |
|
|
(22,000 |
) |
|
|
(456,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
2,302,000 |
|
|
$ |
894,000 |
|
|
$ |
3,196,000 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities) consisted of the following:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
2,871,000 |
|
|
$ |
1,586,000 |
|
Future benefit for state income tax deduction |
|
|
|
|
|
|
160,000 |
|
Deferred compensation |
|
|
1,713,000 |
|
|
|
1,668,000 |
|
Core deposit premium |
|
|
302,000 |
|
|
|
297,000 |
|
Unrealized loss on available-for-sale
investment securities |
|
|
|
|
|
|
76,000 |
|
Other |
|
|
369,000 |
|
|
|
70,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
5,255,000 |
|
|
|
3,857,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
| |
Prepaid costs |
|
$ |
(117,000 |
) |
|
$ |
(139,000 |
) |
Deferred loan costs |
|
|
(944,000 |
) |
|
|
(1,085,000 |
) |
Premises and equipment |
|
|
(351,000 |
) |
|
|
(353,000 |
) |
Future liability for state income tax deduction |
|
|
(152,000 |
) |
|
|
|
|
Unrealized gain on available-for-sale
investment securities |
|
|
(223,000 |
) |
|
|
|
|
Other |
|
|
(189,000 |
) |
|
|
(161,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(1,976,000 |
) |
|
|
(1,738,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
3,279,000 |
|
|
$ |
2,119,000 |
|
|
|
|
|
|
|
|
The Company believes that it is more likely than not that it will realize the above deferred
tax assets in future periods; therefore, no valuation allowance has been provided against
its deferred tax assets.
F - 40
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 13. |
|
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:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax, at statutory rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
State franchise tax, net of Federal tax effect |
|
|
1.7 |
% |
|
|
7.0 |
% |
|
|
7.0 |
% |
Interest on obligations of states and political
subdivisions |
|
|
(256.3 |
)% |
|
|
(3.2 |
)% |
|
|
(2.3 |
)% |
Net increase
in cash surrender value of bank owned life insurance |
|
|
(125.1 |
)% |
|
|
(1.7 |
)% |
|
|
(1.3 |
)% |
Other |
|
|
114.7 |
% |
|
|
1.1 |
% |
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
(231.0 |
)% |
|
|
37.2 |
% |
|
|
38.1 |
% |
|
|
|
|
|
|
|
|
|
|
The Company and its subsidiary file income tax returns in the U.S. federal and California
jurisdictions. The Company conducts all of its business activities in the States of
California and Nevada. There are currently no pending U.S. federal, state, and local income
tax or non-U.S. income tax examinations by tax authorities.
With few exceptions, the Company is no longer subject to tax examinations by U.S. Federal
taxing authorities for years ended before December 31, 2005, and by state and local taxing
authorities for years ended before December 31, 2004.
The unrecognized tax benefits and changes therein and the interest and penalties accrued by
the Company as of December 31, 2008 were not significant.
| 14. |
|
RELATED PARTY TRANSACTIONS |
During the normal course of business, the Company enters into transactions with related
parties, including executive officers and directors. These transactions include borrowings
with substantially the same terms, including rates and collateral, as loans to unrelated
parties. The following is a summary of the aggregate activity involving related party
borrowers during 2008:
| |
|
|
|
|
Balance, January 1, 2008 |
|
$ |
750,000 |
|
|
|
|
|
|
Disbursements |
|
|
828,000 |
|
Amounts repaid |
|
|
(194,000 |
) |
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
$ |
1,384,000 |
|
|
|
|
|
|
|
|
|
|
Undisbursed commitments to related
parties, December 31, 2008 |
|
$ |
671,000 |
|
|
|
|
|
F - 41
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 15. |
|
EMPLOYEE BENEFIT PLANS |
Profit Sharing Plan
The Plumas Bank Profit Sharing Plan commenced April 1, 1988 and is available to employees
meeting certain service requirements. Under the Plan, employees are able to defer a
selected percentage of their annual compensation. Included under the Plan’s investment
options is the option to invest in Company stock. The Company’s contribution consists of
the following:
| |
• |
|
A contribution which matches the participant’s contribution, up to a maximum
of 3% of the employee’s compensation. |
| |
| |
• |
|
An additional discretionary contribution. |
During the years ended December 31, 2008, 2007 and 2006, the Company’s contribution totaled
$206,000, $205,000 and $195,000, respectively.
Salary Continuation and Retirement Agreements
Salary continuation and retirement agreements are in place for five key executives and
members of the Board of Directors. Under these agreements, the directors and executives
will receive monthly payments for twelve to fifteen years, respectively, after retirement.
These benefits are substantially equivalent to those available under split-dollar life
insurance policies purchased by the Bank on the lives of the directors and executives. In
addition, the estimated present value of these future benefits is accrued over the period
from the effective dates of the agreements until the participants’ expected retirement dates
based on a discount rate of 6.00%. The expense recognized under these plans for the years
ended December 31, 2008, 2007 and 2006 totaled $238,000, $580,000 and $331,000,
respectively. Accrued compensation payable under the salary continuation plan totaled
$3,357,000 and $3,265,000 at December 31, 2008 and 2007, respectively. On January 1, 2008
the Company adopted EITF 06-4, Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsed Split-Dollar Life Insurance Arrangements and recorded a
liability of $420,000 for the future benefits or premiums to be provided to the participants
with a corresponding reduction as a cumulative-effect adjustment to retained earnings.
In connection with these agreements, the Bank purchased single premium life insurance
policies with cash surrender values totaling $9,766,000 and $9,428,000 at December 31, 2008
and 2007, respectively. Income earned on these policies, net of expenses, totaled $338,000,
$335,000 and $319,000 for the years ended December 31, 2008, 2007 and 2006, respectively.
Additionally, in December 2007 the Company recorded a gain of $63,000 related to death
benefits on a former director. Income earned on these policies is not subject to Federal
and State income tax.
F - 42
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Comprehensive income is reported in addition to net income for all periods presented.
Comprehensive income is a more inclusive financial reporting methodology that includes
disclosure of other comprehensive income (loss) that historically has not been recognized in
the calculation of net income. The unrealized gains and losses on the Company’s
available-for-sale investment securities are included in other comprehensive income (loss).
Total comprehensive income and the components of accumulated other comprehensive income
(loss) are presented in the consolidated statement of changes in shareholders’ equity.
At December 31, 2008, 2007 and 2006, the Company held securities classified as
available-for-sale which had unrealized gains as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Before |
|
|
Tax
Benefit |
|
|
After |
|
| |
|
Tax |
|
|
(Expense) |
|
|
Tax |
|
For the Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Unrealized holding gains |
|
$ |
1,138,000 |
|
|
$ |
(470,000 |
) |
|
$ |
668,000 |
|
Reclassification adjustment for
impairment loss included in
net income |
|
|
(415,000 |
) |
|
|
171,000 |
|
|
|
(244,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
$ |
723,000 |
|
|
$ |
(299,000 |
) |
|
$ |
424,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains |
|
$ |
996,000 |
|
|
$ |
(411,000 |
) |
|
$ |
585,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains |
|
$ |
679,000 |
|
|
$ |
(280,000 |
) |
|
$ |
399,000 |
|
|
|
|
|
|
|
|
|
|
|
F - 43
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
During 2003, the Company acquired certain assets and liabilities of five branches from
another bank. Upon acquisition, premises and equipment were valued at fair value and a core
deposit premium was recorded as an intangible asset. This core deposit premium is amortized
using the straight-line method over ten years. In addition, included in the gross carrying
amount of intangible assets during 2007 and earlier years was $1,274,000 related to a
previous acquisition which was fully amortized in 2008 and is no longer included in the
carrying amount or accumulated amortization. Annually, the intangible asset is analyzed for
impairment.
At December 31, 2008, 2007 and 2006, no impairment of the intangible asset has been
recognized in the consolidated financial statements. Amortization expense totaled $216,000,
$301,000 and $301,000 for the years ended December 31, 2008, 2007 and 2006, respectively.
The gross carrying amount of intangible assets and accumulated amortization was:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
| |
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
| |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Core Deposit Intangibles |
|
$ |
1,709,000 |
|
|
$ |
888,000 |
|
|
$ |
2,983,000 |
|
|
$ |
1,946,000 |
|
The estimated remaining intangible amortization is as follows:
| |
|
|
|
|
| Year Ending December 31, |
|
|
|
|
2009 |
|
$ |
173,000 |
|
2010 |
|
|
173,000 |
|
2011 |
|
|
173,000 |
|
2012 |
|
|
173,000 |
|
2013 |
|
|
129,000 |
|
|
|
|
|
|
|
$ |
821,000 |
|
|
|
|
|
F - 44
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 18. |
|
PARENT ONLY CONDENSED FINANCIAL STATEMENTS |
CONDENSED BALANCE SHEET
December 31, 2008 and 2007
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
| |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
662,000 |
|
|
$ |
698,000 |
|
Investment in bank subsidiary |
|
|
44,672,000 |
|
|
|
46,345,000 |
|
Other assets |
|
|
576,000 |
|
|
|
541,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
45,910,000 |
|
|
$ |
47,584,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
163,000 |
|
|
$ |
135,000 |
|
Junior subordinated deferrable interest debentures |
|
|
10,310,000 |
|
|
|
10,310,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
10,473,000 |
|
|
|
10,445,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Common stock |
|
|
5,302,000 |
|
|
|
5,042,000 |
|
Retained earnings |
|
|
29,818,000 |
|
|
|
32,204,000 |
|
Accumulated other comprehensive income (loss) |
|
|
317,000 |
|
|
|
(107,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
35,437,000 |
|
|
|
37,139,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
45,910,000 |
|
|
$ |
47,584,000 |
|
|
|
|
|
|
|
|
CONDENSED STATEMENT OF INCOME
For the Years Ended December 31, 2008, 2007 and 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared by bank subsidiary |
|
$ |
3,000,000 |
|
|
$ |
4,300,000 |
|
|
|
|
|
Earnings from investment in Plumas
Statutory Trusts I and II |
|
|
19,000 |
|
|
|
18,000 |
|
|
$ |
24,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
3,019,000 |
|
|
|
4,318,000 |
|
|
|
24,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on junior subordinated
deferrable interest debentures |
|
|
623,000 |
|
|
|
835,000 |
|
|
|
810,000 |
|
Other expenses |
|
|
730,000 |
|
|
|
765,000 |
|
|
|
793,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,353,000 |
|
|
|
1,600,000 |
|
|
|
1,603,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in
undistributed income of subsidiary |
|
|
1,666,000 |
|
|
|
2,718,000 |
|
|
|
(1,579,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed (loss) income of
subsidiary |
|
|
(1,911,000 |
) |
|
|
896,000 |
|
|
|
6,183,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(245,000 |
) |
|
|
3,614,000 |
|
|
|
4,604,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
549,000 |
|
|
|
609,000 |
|
|
|
598,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
304,000 |
|
|
$ |
4,223,000 |
|
|
$ |
5,202,000 |
|
|
|
|
|
|
|
|
|
|
|
F - 45
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 18. |
|
PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued) |
CONDENSED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2008, 2007 and 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
304,000 |
|
|
$ |
4,223,000 |
|
|
$ |
5,202,000 |
|
Adjustments to reconcile net income to
net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed loss (income) of
subsidiary |
|
|
1,911,000 |
|
|
|
(896,000 |
) |
|
|
(6,183,000 |
) |
Excess tax benefits from stock-based
compensation |
|
|
|
|
|
|
(9,000 |
) |
|
|
(61,000 |
) |
Stock-based compensation expense |
|
|
58,000 |
|
|
|
164,000 |
|
|
|
174,000 |
|
(Increase) decrease in other assets |
|
|
(35,000 |
) |
|
|
118,000 |
|
|
|
307,000 |
|
Increase in other liabilities |
|
|
28,000 |
|
|
|
50,000 |
|
|
|
69,000 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
|
2,266,000 |
|
|
|
3,650,000 |
|
|
|
(492,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of cash dividends |
|
|
(1,153,000 |
) |
|
|
(1,491,000 |
) |
|
|
(1,302,000 |
) |
Proceeds from the exercise of stock
options |
|
|
68,000 |
|
|
|
73,000 |
|
|
|
181,000 |
|
Excess tax benefits from stock-based
compensation |
|
|
|
|
|
|
9,000 |
|
|
|
61,000 |
|
Repurchase and retirement of common stock |
|
|
(1,217,000 |
) |
|
|
(2,400,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities |
|
|
(2,302,000 |
) |
|
|
(3,809,000 |
) |
|
|
(1,060,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash
equivalents |
|
|
(36,000 |
) |
|
|
(159,000 |
) |
|
|
(1,552,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning
of year |
|
|
698,000 |
|
|
|
857,000 |
|
|
|
2,409,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
662,000 |
|
|
$ |
698,000 |
|
|
$ |
857,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain/loss on
investment securities available-for-sale |
|
$ |
424,000 |
|
|
$ |
585,000 |
|
|
$ |
399,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock retired in connection
with the exercise of stock options |
|
|
|
|
|
$ |
70,000 |
|
|
$ |
417,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from stock options exercised |
|
|
|
|
|
$ |
9,000 |
|
|
$ |
61,000 |
|
F - 46
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On January 30, 2009 the Company entered into a Letter Agreement (the “Purchase Agreement”)
with the United States Department of the Treasury (“Treasury”), pursuant to which the
Company issued and sold (i) 11,949 shares of the Company’s Fixed Rate Cumulative Perpetual
Preferred Stock, Series A (the “Series A Preferred Stock”) and (ii) a warrant (the
“Warrant”) to purchase 237,712 shares of the Company’s common stock, no par value (the
“Common Stock”), for an aggregate purchase price of $11,949,000 in cash.
The Series A Preferred Stock will qualify as Tier 1 capital and will pay cumulative
dividends quarterly at a rate of 5% per annum for the first five years, and 9% per annum
thereafter. The Company may redeem the Series A Preferred Stock at its liquidation
preference ($1,000 per share) plus accrued and unpaid dividends under the American Recovery
and Reinvestment Act of 2009, subject to the Treasury’s consultation with the Company’s
appropriate federal regulator.
The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an
exercise price, subject to antidilution adjustments, equal to $7.54 per share of the Common
Stock. Treasury has agreed not to exercise voting power with respect to any shares of Common
Stock issued upon exercise of the Warrant.
The Series A Preferred Stock and the Warrant were issued in a private placement exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. The
Treasury can request the Company to register the Series A Preferred Stock, the Warrant and
the shares of Common Stock underlying the Warrant (the “Warrant Shares”). Neither the
Series A Preferred Stock nor the Warrant will be subject to any contractual restrictions on
transfer, except that Treasury may only transfer or exercise an aggregate of one-half of the
Warrant Shares prior to the earlier of the redemption of 100% of the shares of Series A
Preferred Stock or December 31, 2009.
In the Purchase Agreement, the Company agreed that, until such time as Treasury ceases to
own any debt or equity securities of the Company acquired pursuant to the Purchase
Agreement, the Company will take all necessary action to ensure that its benefit plans with
respect to its senior executive officers comply with Section 111(b) of the Emergency
Economic Stabilization Act of 2008 (the “EESA”) as implemented by any guidance or regulation
under the EESA that has been issued and is in effect as of the date of issuance of the
Series A Preferred Stock and the Warrant, and has agreed to not adopt any benefit plans with
respect to, or which covers, its senior executive officers that do not comply with the EESA,
and the applicable executives have consented to the foregoing. Furthermore, the Purchase
Agreement allows Treasury to unilaterally amend the terms of the agreement.
F - 47
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 19. |
|
SUBSEQUENT EVENT (Continued) |
With respect to dividends on the Company’s common stock, Treasury’s consent shall be
required for any increase in common dividends per share until the third anniversary of the
date of its investment unless prior to such third anniversary the Series A Preferred Stock
is redeemed in whole or the Treasury has transferred all of the Senior Preferred Series A
Preferred Stock to third parties. Furthermore, with respect to dividends on certain other
series of preferred stock, restrictions from Treasury may apply. The Company does not have
any outstanding preferred stock other than the Series A Preferred Stock discussed above.
The Company allocated the proceeds received on January 30, 2009 between the Series A
Preferred Stock and the Warrant based on the estimated relative fair value of each. The
fair value of the Warrant was estimated based on a Black-Scholes-Merton model and totaled
$320,000. The discount recorded on the Series A Preferred Stock was based on a discount
rate of 12% and will be amortized by the level-yield method over 5 years.
F - 48
|
|
|
| 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,
2008. In conducting its assessment, management used the criteria issued by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework.
Based on this assessment, management concluded that, as of December 31, 2008, 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/ D. N. BIDDLE
Mr. Douglas N. Biddle
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
/s/ ANDREW RYBACK
Mr. Andrew J. Ryback
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
Dated March 18, 2009 |
|
|
52
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Items 10 can be found in Plumas Bancorp’s Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Items 11 can be found in Plumas Bancorp’s Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
|
|
|
| ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by Items 12 can be found in Plumas Bancorp’s Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
53
|
|
|
| ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by Items 13 can be found in Plumas Bancorp’s Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Items 14 can be found in Plumas Bancorp’s Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following documents are included or incorporated by reference in this Annual Report on
Form 10K.
| 3.1 |
|
Articles of Incorporation as amended of Registrant included as exhibit 3.1 to the
Registrant’s Form S-4, File
No. 333-84534, which is incorporated by reference
herein. |
| |
| 3.2 |
|
Bylaws of Registrant as amended on January 21, 2009. |
| |
| 3.3 |
|
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. |
| |
| 3.4 |
|
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. |
| |
| 4 |
|
Specimen form of certificate for Plumas Bancorp included as exhibit 4 to the
Registrant’s Form S-4, File No. 333-84534, which is incorporated by reference
herein. |
| |
| 4.1 |
|
Certificate of Determination of Fixed Rate Cumulative Perpetual Preferred Stock,
Series A, is included as exhibit 4.1 to Registrant’s 8-K filed on January 30, 2009,
which is incorporated by this reference herein. |
| |
| 10.1 |
|
Executive Salary Continuation Agreement of Andrew J. Ryback dated December 17, 2008. |
| |
| 10.2 |
|
Split Dollar Agreement of Andrew J. Ryback dated August 23, 2005, is included as
Exhibit 10.2 to the Registrant’s 8-K filed on October 17, 2005, which is
incorporated by this reference herein. |
| |
| 10.5 |
|
Employment Agreement of Douglas N. Biddle dated February 18, 2009 is included as
Exhibit 10.05 to the Registrant’s
8-K filed on February 19, 2009, which is
incorporated by this reference herein. |
| |
| 10.6 |
|
Executive Salary Continuation Agreement as amended of Douglas N. Biddle dated
June 2, 1994, is included as Exhibit 10.6 to the Registrant’s 10-QSB for June 30,
2002, which is incorporated by this reference herein. |
54
| 10.7 |
|
Split Dollar Agreements of Douglas N. Biddle dated January 24, 2002, is included as Exhibit 10.7 to
the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
| 10.8 |
|
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. |
| |
| 10.11 |
|
First Amendment to Executive Salary Continuation Agreement of Robert T. Herr dated
September 15, 2004, is included as Exhibit 10.11 to the Registrant’s 8-K filed on September 17,
2004, which is incorporated by this reference herein. |
| |
| 10.18 |
|
Amended and Restated Director Retirement Agreement of Daniel E. West dated May 10, 2000, is
included as Exhibit 10.18 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein. |
| |
| 10.19 |
|
Consulting Agreement of Daniel E. West dated May 10, 2000, is included as Exhibit 10.19 to the
Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
| 10.20 |
|
Split Dollar Agreements of Robert T. Herr dated September 15, 2004, is included as Exhibit 10.20 to
the Registrant’s 8-K filed on September 17, 2004, which is incorporated by this reference herein. |
| |
| 10.21 |
|
Amended and Restated Director Retirement Agreement of Alvin G. Blickenstaff dated April 19, 2000,
is included as Exhibit 10.21 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein. |
| |
| 10.22 |
|
Consulting Agreement of Alvin G. Blickenstaff dated May 8, 2000, is included as Exhibit 10.22 to
the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
| 10.24 |
|
Amended and Restated Director Retirement Agreement of Gerald W. Fletcher dated May 10, 2000, is
included as Exhibit 10.24 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein. |
| |
| 10.25 |
|
Consulting Agreement of Gerald W. Fletcher dated May 10, 2000, is included as Exhibit 10.25 to the
Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
| 10.27 |
|
Amended and Restated Director Retirement Agreement of Arthur C. Grohs dated May 9, 2000, is
included as Exhibit 10.27 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein. |
| |
| 10.28 |
|
Consulting Agreement of Arthur C. Grohs dated May 9, 2000, is included as Exhibit 10.28 to the
Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
| 10.33 |
|
Amended and Restated Director Retirement Agreement of Terrance J. Reeson dated April 19, 2000, is
included as Exhibit 10.33 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein. |
| |
| 10.34 |
|
Consulting Agreement of Terrance J. Reeson dated May 10, 2000, is included as Exhibit 10.34 to the
Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
| 10.35 |
|
Letter Agreement, dated January 30, 2009 by and between Plumas Bancorp, Inc. and the United States
Department of the Treasury and Securities Purchase Agreement — Standard Terms attached thereto, is
included as exhibit 10.1 to Registrant’s 8-K filed on January 30, 2009, which is incorporated by
this reference herein. |
| |
| 10.36 |
|
Form of Senior Executive Officer letter agreement, is included as exhibit 10.2 to Registrant’s 8-K
filed on January 30, 2009, which is incorporated by this reference herein. |
55
| 10.40 |
|
2001 Stock Option Plan as amended is included as exhibit 99.1 of the Form S-8 filed July 23,
2002, File No. 333-96957, which is incorporated by this reference herein. |
| |
| 10.41 |
|
Form of Indemnification Agreement, is included as Exhibit 10.41 to the Registrant’s 10-QSB for
June 30, 2002, which is incorporated by this reference herein. |
| |
| 10.43 |
|
Plumas Bank 401(k) Profit Sharing Plan as amended is included as exhibit 99.1 of the Form S-8
filed February 14, 2003, File No. 333-103229, which is incorporated by this reference herein. |
| |
| 10.44 |
|
Executive Salary Continuation Agreement of Robert T. Herr dated June 4, 2002, is included as
Exhibit 10.44 to the Registrant’s 10-Q for March 31, 2003, which is incorporated by this
reference herein. |
| |
| 10.46 |
|
1991 Stock Option Plan as amended is included as Exhibit 10.46 to the Registrant’s 10-Q for
September 30, 2004, which is incorporated by this reference herein. |
| |
| 10.47 |
|
Specimen form of Incentive Stock Option Agreement under the 1991 Stock Option Plan is included
as Exhibit 10.47 to the Registrant’s 10-Q for September 30, 2004, which is incorporated by
this reference herein. |
| |
| 10.48 |
|
Specimen form of Non-Qualified Stock Option Agreement under the 1991 Stock Option Plan is
included as Exhibit 10.48 to the Registrant’s 10-Q for September 30, 2004, which is
incorporated by this reference herein. |
| |
| 10.49 |
|
Amended and Restated Plumas Bancorp Stock Option Plan is included as Exhibit 10.49 to the
Registrant’s 10-Q for September 30, 2006, which is incorporated by this reference herein. |
| |
| 10.50 |
|
Executive Salary Continuation Agreement of Rose Dembosz. |
| |
| 10.51 |
|
First Amendment to Split Dollar Agreement of Andrew J. Ryback. |
| |
| 10.52 |
|
Executive Salary Continuation Agreement of Douglas N. Biddle dated December 17, 2008. |
| |
| 10.53 |
|
Second Amendment to Executive Salary Continuation Agreement of Douglas N. Biddle dated June 2,
1994 and Amended February 16, 2000. |
| |
| 10.54 |
|
First Amendment to Addendum A of Split Dollar Agreements of Douglas N. Biddle dated
January 24, 2002. |
| |
| 10.55 |
|
First Amendment to Addendum B of Split Dollar Agreements of Douglas N. Biddle dated
January 24, 2002. |
| |
| 10.56 |
|
Second Amendment to Executive Salary Continuation Agreement of Robert T. Herr dated
June 4, 2002 and Amended September 15, 2004 |
| |
| 10.57 |
|
First Amendment to Split Dollar Agreements of Robert T. Herr dated September 15, 2004. |
| |
| 10.58 |
|
Executive Salary Continuation Agreement of Robert T. Herr dated December 17, 2008. |
| |
| 10.64 |
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Alvin Blickenstaff adopted on September 19, 2007, is included as Exhibit 10.64 to the
Registrant’s 8-K filed on September 25, 2007, which is incorporated by this reference herein. |
56
| 10.65 |
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Arthur C. Grohs adopted on September 19, 2007, is included as Exhibit 10.65 to the
Registrant’s 8-K filed on September 25, 2007, which is incorporated by this reference herein. |
| |
| 10.67 |
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Terrance J. Reeson adopted on September 19, 2007, is included as Exhibit 10.67 to the
Registrant’s 8-K filed on September 25, 2007, which is incorporated by this reference herein.. |
| |
| 10.69 |
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Daniel E. West adopted on September 19, 2007, is included as Exhibit 10.69 to the Registrant’s
8-K filed on September 25, 2007, which is incorporated by this reference herein. |
| |
| 10.70 |
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Gerald W. Fletcher adopted on October 9, 2007, is included as Exhibit 10.70 to the
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 11 — Shareholders’ Equity. |
| |
| 21.01 |
|
Plumas Bank — California. |
| |
| 21.02 |
|
Plumas Statutory Trust I — Connecticut. |
| |
| 21.03 |
|
Plumas Statutory Trust II — Connecticut. |
| |
| 23 |
|
Independent Auditor’s Consent letter dated March 18, 2009. |
| |
| 31.1 |
|
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated March 18, 2009. |
| |
| 31.2 |
|
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated March 18, 2009. |
| |
| 32.1 |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated March 18, 2009. |
| |
| 32.2 |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated March 18, 2009. |
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| |
|
|
|
|
PLUMAS BANCORP
(Registrant)
Date: March 18, 2009
|
|
| |
/s/ D. N. BIDDLE
|
|
| |
Douglas N. Biddle |
|
| |
President/Chief Executive Officer |
|
| |
|
|
| |
/s/ ANDREW RYBACK
|
|
| |
Andrew J. Ryback |
|
| |
Executive Vice President/Chief Financial Officer |
|
58
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated.
| |
|
|
/s/ DANIEL E. WEST
Daniel E. West, Director and Chairman of the Board
|
|
Dated: March 18, 2009 |
|
|
|
/s/ TERRANCE J. REESON
Terrance J. Reeson, Director and Vice Chairman of
the Board
|
|
Dated: March 18, 2009 |
|
|
|
/s/ D. N. BIDDLE
Douglas N. Biddle, Director
|
|
Dated: March 18, 2009 |
|
|
|
/s/ ALVIN G. BLICKENSTAFF
Alvin G. Blickenstaff, Director
|
|
Dated: March 18, 2009 |
|
|
|
/s/ W. E. ELLIOTT
William E. Elliott, Director
|
|
Dated: March 18, 2009 |
|
|
|
/s/ GERALD W. FLETCHER
Gerald W. Fletcher, Director
|
|
Dated: March 18, 2009 |
|
|
|
/s/ JOHN FLOURNOY
John Flournoy, Director
|
|
Dated: March 18, 2009 |
|
|
|
/s/ ARTHUR C. GROHS
Arthur C. Grohs, Director
|
|
Dated: March 18, 2009 |
|
|
|
/s/ ROBERT J. MCCLINTOCK
Robert J. McClintock, Director
|
|
Dated:
March 18, 2009 |
59
EXHIBIT INDEX
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
3.1 |
|
|
Articles of Incorporation as amended of Registrant included as exhibit 3.1 to the
Registrant’s Form S-4, File No. 333-84534, which is incorporated by reference
herein. |
| |
|
|
|
|
| |
3.2 |
|
|
Bylaws of Registrant as amended on January 21, 2009. |
| |
|
|
|
|
| |
3.3 |
|
|
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. |
| |
|
|
|
|
| |
3.4 |
|
|
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. |
| |
|
|
|
|
| |
4 |
|
|
Specimen form of certificate for Plumas Bancorp included as exhibit 4 to the
Registrant’s Form S-4, File No. 333-84534, which is incorporated by reference
herein. |
| |
|
|
|
|
| |
4.1 |
|
|
Certificate of Determination of Fixed Rate Cumulative Perpetual Preferred Stock,
Series A, is included as exhibit 4.1 to Registrant’s 8-K filed on January 30, 2009,
which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.1 |
|
|
Executive Salary Continuation Agreement of Andrew J. Ryback dated December 17, 2008. |
| |
|
|
|
|
| |
10.2 |
|
|
Split Dollar Agreement of Andrew J. Ryback dated August 23, 2005, is included as
Exhibit 10.2 to the Registrant’s 8-K filed on October 17, 2005, which is
incorporated by this reference herein. |
| |
|
|
|
|
| |
10.5 |
|
|
Employment Agreement of Douglas N. Biddle dated February 18, 2009 is included as
Exhibit 10.05 to the Registrant’s 8-K filed on February 19, 2009, which is
incorporated by this reference herein. |
| |
|
|
|
|
| |
10.6 |
|
|
Executive Salary Continuation Agreement as amended of Douglas N. Biddle dated
June 2, 1994, is included as Exhibit 10.6 to the Registrant’s 10-QSB for June 30,
2002, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.7 |
|
|
Split Dollar Agreements of Douglas N. Biddle dated January 24, 2002, is included as Exhibit 10.7 to
the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.8 |
|
|
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. |
| |
|
|
|
|
| |
10.11 |
|
|
First Amendment to Executive Salary Continuation Agreement of Robert T. Herr dated
September 15, 2004, is included as Exhibit 10.11 to the Registrant’s 8-K filed on September 17,
2004, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.18 |
|
|
Amended and Restated Director Retirement Agreement of Daniel E. West dated May 10, 2000, is
included as Exhibit 10.18 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein. |
| |
|
|
|
|
| |
10.19 |
|
|
Consulting Agreement of Daniel E. West dated May 10, 2000, is included as Exhibit 10.19 to the
Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
10.20 |
|
|
Split Dollar Agreements of Robert T. Herr dated September 15, 2004, is included as Exhibit 10.20 to
the Registrant’s 8-K filed on September 17, 2004, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.21 |
|
|
Amended and Restated Director Retirement Agreement of Alvin G. Blickenstaff dated April 19, 2000,
is included as Exhibit 10.21 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein. |
| |
|
|
|
|
| |
10.22 |
|
|
Consulting Agreement of Alvin G. Blickenstaff dated May 8, 2000, is included as Exhibit 10.22 to
the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.24 |
|
|
Amended and Restated Director Retirement Agreement of Gerald W. Fletcher dated May 10, 2000, is
included as Exhibit 10.24 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein. |
| |
|
|
|
|
| |
10.25 |
|
|
Consulting Agreement of Gerald W. Fletcher dated May 10, 2000, is included as Exhibit 10.25 to the
Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.27 |
|
|
Amended and Restated Director Retirement Agreement of Arthur C. Grohs dated May 9, 2000, is
included as Exhibit 10.27 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein. |
| |
|
|
|
|
| |
10.28 |
|
|
Consulting Agreement of Arthur C. Grohs dated May 9, 2000, is included as Exhibit 10.28 to the
Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.33 |
|
|
Amended and Restated Director Retirement Agreement of Terrance J. Reeson dated April 19, 2000, is
included as Exhibit 10.33 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein. |
| |
|
|
|
|
| |
10.34 |
|
|
Consulting Agreement of Terrance J. Reeson dated May 10, 2000, is included as Exhibit 10.34 to the
Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.35 |
|
|
Letter Agreement, dated January 30, 2009 by and between Plumas Bancorp, Inc. and the United States
Department of the Treasury and Securities Purchase Agreement — Standard Terms attached thereto, is
included as exhibit 10.1 to Registrant’s 8-K filed on January 30, 2009, which is incorporated by
this reference herein. |
| |
|
|
|
|
| |
10.36 |
|
|
Form of Senior Executive Officer letter agreement, is included as exhibit 10.2 to Registrant’s 8-K
filed on January 30, 2009, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.40 |
|
|
2001 Stock Option Plan as amended is included as exhibit 99.1 of the Form S-8 filed July 23,
2002, File No. 333-96957, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.41 |
|
|
Form of Indemnification Agreement, is included as Exhibit 10.41 to the Registrant’s 10-QSB for
June 30, 2002, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.43 |
|
|
Plumas Bank 401(k) Profit Sharing Plan as amended is included as exhibit 99.1 of the Form S-8
filed February 14, 2003, File No. 333-103229, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.44 |
|
|
Executive Salary Continuation Agreement of Robert T. Herr dated June 4, 2002, is included as
Exhibit 10.44 to the Registrant’s 10-Q for March 31, 2003, which is incorporated by this
reference herein. |
| |
|
|
|
|
| |
10.46 |
|
|
1991 Stock Option Plan as amended is included as Exhibit 10.46 to the Registrant’s 10-Q for
September 30, 2004, which is incorporated by this reference herein. |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
10.47 |
|
|
Specimen form of Incentive Stock Option Agreement under the 1991 Stock Option Plan is included
as Exhibit 10.47 to the Registrant’s 10-Q for September 30, 2004, which is incorporated by
this reference herein. |
| |
|
|
|
|
| |
10.48 |
|
|
Specimen form of Non-Qualified Stock Option Agreement under the 1991 Stock Option Plan is
included as Exhibit 10.48 to the Registrant’s 10-Q for September 30, 2004, which is
incorporated by this reference herein. |
| |
|
|
|
|
| |
10.49 |
|
|
Amended and Restated Plumas Bancorp Stock Option Plan is included as Exhibit 10.49 to the
Registrant’s 10-Q for September 30, 2006, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.50 |
|
|
Executive Salary Continuation Agreement of Rose Dembosz. |
| |
|
|
|
|
| |
10.51 |
|
|
First Amendment to Split Dollar Agreement of Andrew J. Ryback. |
| |
|
|
|
|
| |
10.52 |
|
|
Executive Salary Continuation Agreement of Douglas N. Biddle dated December 17, 2008. |
| |
|
|
|
|
| |
10.53 |
|
|
Second Amendment to Executive Salary Continuation Agreement of Douglas N. Biddle dated June 2,
1994 and Amended February 16, 2000. |
| |
|
|
|
|
| |
10.54 |
|
|
First Amendment to Addendum A of Split Dollar Agreements of Douglas N. Biddle dated
January 24, 2002. |
| |
|
|
|
|
| |
10.55 |
|
|
First Amendment to Addendum B of Split Dollar Agreements of Douglas N. Biddle dated
January 24, 2002. |
| |
|
|
|
|
| |
10.56 |
|
|
Second Amendment to Executive Salary Continuation Agreement of Robert T. Herr dated
June 4, 2002 and Amended September 15, 2004 |
| |
|
|
|
|
| |
10.57 |
|
|
First Amendment to Split Dollar Agreements of Robert T. Herr dated September 15, 2004. |
| |
|
|
|
|
| |
10.58 |
|
|
Executive Salary Continuation Agreement of Robert T. Herr dated December 17, 2008. |
| |
|
|
|
|
| |
10.64 |
|
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Alvin Blickenstaff adopted on September 19, 2007, is included as Exhibit 10.64 to the
Registrant’s 8-K filed on September 25, 2007, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.65 |
|
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Arthur C. Grohs adopted on September 19, 2007, is included as Exhibit 10.65 to the
Registrant’s 8-K filed on September 25, 2007, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.67 |
|
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Terrance J. Reeson adopted on September 19, 2007, is included as Exhibit 10.67 to the
Registrant’s 8-K filed on September 25, 2007, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.69 |
|
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Daniel E. West adopted on September 19, 2007, is included as Exhibit 10.69 to the Registrant’s
8-K filed on September 25, 2007, which is incorporated by this reference herein. |
| |
|
|
|
|
| |
10.70 |
|
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Gerald W. Fletcher adopted on October 9, 2007, is included as Exhibit 10.70 to the
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 11 — Shareholders’ Equity. |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
21.01 |
|
|
Plumas Bank — California. |
| |
|
|
|
|
| |
21.02 |
|
|
Plumas Statutory Trust I — Connecticut. |
| |
|
|
|
|
| |
21.03 |
|
|
Plumas Statutory Trust II — Connecticut. |
| |
|
|
|
|
| |
23 |
|
|
Independent Auditor’s Consent letter dated March 18, 2009. |
| |
|
|
|
|
| |
31.1 |
|
|
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated March 18, 2009. |
| |
|
|
|
|
| |
31.2 |
|
|
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated March 18, 2009. |
| |
|
|
|
|
| |
32.1 |
|
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated March 18, 2009. |
| |
|
|
|
|
| |
32.2 |
|
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated March 18, 2009. |