PLUMAS BANCORP - Quarter Report: 2008 June (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2008

o		TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________ TO ________ 

PLUMAS BANCORP

(Exact Name of Registrant as Specified in Its Charter)

California		75-2987096
(State or Other Jurisdiction of Incorporation or		(I.R.S. Employer Identification No.)
Organization)
35 S. Lindan Avenue, Quincy, California		95971
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code (530) 283-7305

Indicated by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o		Accelerated Filer þ		Non-Accelerated Filer o		Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 4, 2008 4,810,210 shares

 

 

PART I – FINANCIAL INFORMATION

PLUMAS BANCORP

(In thousands, except share data)

		June 30,				December 31,
		2008				2007
Assets
Cash and due from banks		$	15,903			$	13,207
Federal funds sold			—				—
Cash and cash equivalents			15,903				13,207
Investment securities (fair value of $46,864 at June 30, 2008 and $55,367 at December 31, 2007)			46,935				55,292
Loans, less allowance for loan losses of $4,455 at June 30, 2008 and $4,211 at December 31, 2007 (Notes 3 and 4)			352,502				349,302
Premises and equipment, net			15,474				14,666
Intangible assets, net			908				1,037
Bank owned life insurance			9,594				9,428
Real estate and vehicles acquired through foreclosure			2,425				537
Accrued interest receivable and other assets			9,242				9,646
Total assets		$	452,983			$	453,115
Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing		$	114,625			$	111,240
Interest bearing			260,404				280,700
Total deposits			375,029				391,940
Short-term borrowings			24,500				7,500
Accrued interest payable and other liabilities			6,355				6,226
Junior subordinated deferrable interest debentures			10,310				10,310
Total liabilities			416,194				415,976
Commitments and contingencies (Note 4)			—				—
Shareholders’ equity (Notes 5, 7 and 10):
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 – 4,819,858 shares at June 30, 2008 and 4,869,130 shares at December 31, 2007			5,158				5,042
Retained earnings			31,665				32,204
Accumulated other comprehensive loss (Note 6)			(34	)			(107	)
Total shareholders’ equity			36,789				37,139
Total liabilities and shareholders’ equity		$	452,983			$	453,115

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP

(In thousands, except per share data)

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2008				2007				2008				2007
Interest Income:
Interest and fees on loans		$	5,966			$	7,105			$	12,190			$	14,010
Interest on investment securities:
Taxable			358				447				769				966
Exempt from Federal income taxes			128				132				255				266
Interest on Federal funds sold			1				5				2				8
Total interest income			6,453				7,689				13,216				15,250
Interest Expense:
Interest on deposits			1,124				1,808				2,670				3,484
Interest on short-term borrowings			61				250				95				436
Interest on junior subordinated deferrable interest debentures			138				208				329				414
Other			6				5				10				11
Total interest expense			1,329				2,271				3,104				4,345
Net interest income before provision for loan losses			5,124				5,418				10,112				10,905
Provision for Loan Losses			470				125				990				375
Net interest income after provision for loan losses			4,654				5,293				9,122				10,530
Non-Interest Income:
Service charges			969				902				1,922				1,757
Earnings on Bank owned life insurance policies			104				104				207				205
Other			317				289				587				605
Total non-interest income			1,390				1,295				2,716				2,567
Non-Interest Expenses:
Salaries and employee benefits			2,710				2,640				5,466				5,468
Occupancy and equipment			975				879				1,934				1,789
Other			1,293				1,222				2,514				2,492
Total non-interest expenses			4,978				4,741				9,914				9,749
Income before provision for income taxes			1,066				1,847				1,924				3,348
Provision for Income Taxes			369				713				651				1,266
Net income		$	697			$	1,134			$	1,273			$	2,082
Basic earnings per share (Note 5)		$	0.14			$	0.23			$	0.26			$	0.42
Diluted earnings per share (Note 5)		$	0.14			$	0.23			$	0.26			$	0.41
Cash dividends per share		$	0.16			$	0.15			$	0.16			$	0.15

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)

		For the Six Months
		Ended June 30,
		2008				2007
Cash Flows from Operating Activities:
Net income		$	1,273			$	2,082
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			990				375
Change in deferred loan origination costs/fees, net			164				197
Depreciation and amortization			1,014				1,124
Stock-based compensation expense			144				131
Amortization of investment security premiums			32				96
Accretion of investment security discounts			(32	)			(33	)
Net loss on disposal/sale of premises and equipment			7				29
Net loss (gain) on sale of vehicles owned			11				(28	)
Earnings on Bank owned life insurance policies			(166	)			(166	)
Write-down of other real estate to market value			39				—
Decrease (increase) in accrued interest receivable and other assets			178				(33	)
Decrease in accrued interest payable and other liabilities			(291	)			(589	)
Net cash provided by operating activities			3,363				3,185
Cash Flows from Investing Activities:
Proceeds from matured and called available-for-sale investment securities			7,975				15,875
Proceeds from matured and called held-to-maturity investment securities			—				26
Purchases of available-for-sale investment securities			(993	)			—
Proceeds from principal repayments from available-for-sale government-guaranteed mortgage-backed securities			1,499				1,526
Net increase in loans			(6,509	)			(3,750	)
Proceeds from sale of other vehicles			217				176
Purchase of premises and equipment			(1,526	)			(647	)
Net cash provided by investing activities			663				13,206

Continued on next page.

PLUMAS BANCORP
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
(Continued)

		For the Six Months
		Ended June 30,
		2008				2007
Cash Flows from Financing Activities:
Net increase (decrease) in demand, interest bearing and savings deposits		$	3,154			$	(23,441	)
Net (decrease) increase in time deposits			(20,065	)			21,929
Net increase (decrease) in short-term borrowings			17,000				(7,700	)
Net proceeds from exercise of stock options			21				17
Payment of cash dividends			(770	)			(750	)
Repurchase and retirement of common stock			(670	)			(1,054	)
Net cash used in financing activities			(1,330	)			(10,999	)
Increase in cash and cash equivalents			2,696				5,392
Cash and Cash Equivalents at Beginning of Year			13,207				11,293
Cash and Cash Equivalents at End of Period		$	15,903			$	16,685
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest expense		$	3,434			$	4,026
Income taxes		$	975			$	1,625
Non-Cash Investing Activities:
Real estate and vehicles acquired through foreclosure		$	2,155			$	340
Net change in unrealized loss on available-for-sale securities		$	73			$	87
Non-Cash Financing Activities:
Common stock retired in connection with the exercise of stock options		$	—			$	49
Cumulative effect of adopting EITF 06-04		$	420			$	—

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. GENERAL

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 deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits. The Bank’s primary source of revenue is interest and fee income generated from providing loans to customers who are predominately small and middle market businesses and individuals residing in the surrounding areas.

2. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated financial statements include the accounts of the Company and the accounts of its wholly-owned subsidiary, Plumas Bank. Plumas Statutory Trust I and Plumas Statutory Trust II are not consolidated into the Company’s consolidated financial statements and, accordingly, are accounted for under the equity method. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position at June 30, 2008 and December 31, 2007 and its results of operations for the three-month and six-month periods ended June 30, 2008 and 2007 and its cash flows for the six-month periods ended June 30, 2008 and 2007. Certain reclassifications have been made to prior period’s balances to conform to classifications used in 2008.

The unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. Accordingly, certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2007 Annual Report to Shareholders on Form 10-K. The results of operations for the three-month and six-month periods ended June 30, 2008 may not necessarily be indicative of future operating results. In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the periods reported. Actual results could differ significantly from those estimates.

Management has determined that because all of the commercial 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 single customer accounts for more than 10% of the revenues of the Company or the Bank.

3. LOANS

Outstanding loans are summarized below, in thousands:

		June 30,				December 31,
		2008				2007
Commercial		$	41,081			$	39,584
Agricultural			36,311				35,762
Real estate – mortgage			143,565				128,357
Real estate – construction and land development			70,949				76,478
Consumer			64,651				72,768
			356,557				352,949
Deferred loan costs, net			400				564
Allowance for loan losses			(4,455	)			(4,211	)
		$	352,502			$	349,302

4. COMMITMENTS AND CONTINGENCIES

The Company is 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 result of operations of the Company taken as a whole.

In the normal course of business, there are various outstanding commitments to extend credit, which are not reflected, in the financial statements, including loan commitments of $80,287,000 and $96,867,000 and stand-by letters of credit of $2,678,000 and $655,000 at June 30, 2008 and December 31, 2007, respectively.

Of the loan commitments outstanding at June 30, 2008, $19,195,000 are real estate construction loan commitments that are expected to fund within the next twelve months. The remaining commitments primarily relate to revolving lines of credit or other commercial loans, and many of these are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. Each loan commitment and the amount and type of collateral obtained, if any, are evaluated on an individual basis. Collateral held varies, but may include real property, bank deposits, debt or equity securities or business assets.

Stand-by letters of credit are conditional commitments written to guarantee the performance of a customer to a third party. These guarantees are primarily related to the purchases of inventory by commercial customers and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to customers and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. The deferred liability related to the Company’s stand-by letters of credit was not significant at June 30, 2008 or December 31, 2007.

5. EARNINGS PER SHARE

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted earnings per share.

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2008				2007				2008				2007
Earnings Per Share:
Basic earnings per share		$	0.14			$	0.23			$	0.26			$	0.42
Diluted earnings per share		$	0.14			$	0.23			$	0.26			$	0.41
Weighted Average Number of Shares Outstanding: (in thousands)
Basic shares			4,822				4,984				4,841				4,998
Diluted shares			4,849				5,029				4,868				5,050

Stock options not included in the computation of diluted earnings per share, due to their antidilutive effect, were 359,000 and 230,000 for the three months ended June 30, 2008 and 2007, respectively and 335,000 and 150,000 for the six months ended June 30, 2008 and 2007, respectively.

6. COMPREHENSIVE INCOME

Total comprehensive income for the three months ended June 30, 2008 and 2007 totaled $429,000 and $1,073,000, respectively. Comprehensive income is comprised of unrealized losses, net of taxes, on available-for-sale investment securities, which were $(268,000) and $(61,000) for the three months ended June 30, 2008 and 2007, respectively, together with net income.

Total comprehensive income for the six months ended June 30, 2008 and 2007 totaled $1,346,000 and $2,169,000, respectively. Comprehensive income is comprised of unrealized gains, net of taxes, on available-for-sale investment securities, which were $73,000 and $87,000 for the six months ended June 30, 2008 and 2007, respectively, together with net income.

At June 30, 2008 and December 31, 2007, accumulated other comprehensive loss, net of taxes, totaled $34,000 and $107,000, respectively, and is reflected as a component of shareholders’ equity.

7. STOCK-BASED COMPENSATION

In 2001 and 1991, the Company established Stock Option Plans for which 883,461 shares of common stock remain reserved for issuance to employees and directors and 401,459 shares are available for future grants under incentive and nonstatutory agreements as of June 30, 2008. The Company granted 90,300 and 155,700 options during the six months ended June 30, 2008 and 2007 respectively. The weighted average grant date fair value of options granted for the six months ended June 30, 2008 and 2007 was $2.54 and $4.53, respectively.

Compensation cost related to stock options recognized in operating results under SFAS No. 123R was $75,000 and $78,000 for the quarters ended June 30, 2008 and 2007, respectively. The associated future income tax benefit recognized was $6,000 for the quarters ended June 30, 2008 and 2007. Compensation cost related to stock options recognized in operating results under SFAS No. 123R was $144,000 and $131,000 in the six months ended June 30, 2008 and 2007, respectively. Compensation expense is recognized over the vesting period of the stock options on a straight-line basis. The associated future income tax benefit recognized was $12,000 for both of the six months ended June 30, 2008 and 2007.

In accordance with SFAS 123 (R) the Company has presented excess tax benefits from the exercise of stock-based compensation awards as a financing activity in the consolidated statement of cash flows.

The following table summarizes information about stock option activity for the six months ended June 30, 2008:

										Weighted
										Average
						Weighted				Remaining
						Average				Contractual
						Exercise				Term				Intrinsic Value
		Shares				Price				(in years)				(in thousands)
Options outstanding at December 31, 2007			395,772			$	13.37
Options granted			90,300				12.40
Options exercised			(3,200	)			6.59
Options cancelled			(870	)			15.59
Options outstanding at June 30, 2008			482,002			$	13.23				6.0			$	152
Options exercisable at June 30, 2008			243,411			$	11.96				5.1			$	152
Expected to vest after June 30, 2008			238,591			$	14.53				7.0			$	—

The total intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the six months ended June 30, 2008 was $18,000. During the six months ended June 30, 2008, the amount of cash received from the exercise of stock options was $21,000.

At June 30, 2008, there was $702,000 of total unrecognized compensation cost related to non-vested stock option awards which is expected to be recognized over a weighted-average period of 2.7 years. The total fair value of options vested during the six months ended June 30, 2008 was $172,000.

8. INCOME TAXES

The Company files its income taxes on a consolidated basis with its subsidiaries. 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 amounts 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 condensed consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.

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 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 condensed consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of tax expense in the condensed consolidated statements of income. There have been no significant changes to unrecognized tax benefits or accrued interest and penalties for the six months ended June 30, 2008.

9. FAIR VALUE MEASUREMENT

On January 1, 2008, the Company adopted Financial Accounting Standards Board (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 in the first six months of 2008.

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 June 30, 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 and 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 June 30, 2008 Using

Quoted Prices in

Active Markets for

Significant Other

Significant

Identical Assets

Observable Inputs

Unobservable Inputs

(in 000’s)

June 30, 2008

(Level 1)

(Level 2)

(Level 3)

Assets:

Available-for-sale securities

$

33,449

$

20,156

$

13,293

$

—

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. Changes in fair market value are recorded in other comprehensive income.

Financial assets and liabilities measured at fair value on a non-recurring basis are summarized below:

Fair Value Measurements at June 30, 2008 Using

Quoted Prices in

Active Markets for

Significant Other

Significant

Identical Assets

Observable Inputs

Unobservable Inputs

(in 000’s)

June 30, 2008

(Level 1)

(Level 2)

(Level 3)

Assets:

Impaired loans

$

1,659

$

—

$

1,659

$

—

Impaired loans, all of which are measured for impairment using the fair value of the collateral as they are collateral dependent loans, had a principal balance of $1,870,000 with a related valuation allowance of $211,000 at June 30, 2008. Declines in the collateral values of impaired loans during the first six months of 2008 were $134,000 which was reflected as additional specific allocations of the allowance for loan losses.

10. STOCK REPURCHASE

In connection with the Company’s stock repurchase plan for the year ending December 31, 2008, a total of 52,472 shares were repurchased during the six months ended June 30, 2008 at an average price of $12.77 per share. Management of the Company is authorized to repurchase an additional 191,528 shares; however, the Board of Directors may suspend, terminate or modify the repurchase plan at any time.

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Certain matters discussed in this Quarterly Report are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, among others, (1) significant increases in competitive pressures in the financial services industry; (2) changes in the interest rate environment resulting in reduced margins; (3) general economic conditions, either nationally or regionally, maybe less favorable than expected, resulting in, among other things, a deterioration in credit quality; (4) changes in regulatory environment; (5) loss of key personnel; (6) fluctuations in the real estate market; (7) changes in business conditions and inflation; (8) operational risks including data processing systems failures or fraud; and (9) changes in securities markets. Therefore, the information set forth herein should be carefully considered when evaluating the business prospects of Plumas Bancorp (the “Company”).

When the Company uses in this Quarterly Report the words “anticipate”, “estimate”, “expect”, “project”, “intend”, “commit”, “believe” and similar expressions, the Company intends to identify forward-looking statements. Such statements are not guarantees of performance and are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. The future results and stockholder values of the Company may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company’s ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

INTRODUCTION

The following discussion and analysis sets forth certain statistical information relating to the Company as of June 30, 2008 and December 31, 2007 and for the three and six month periods ended June 30, 2008 and 2007. This discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto included in Plumas Bancorp’s Annual Report filed on Form 10-K for the year ended December 31, 2007.

Plumas Bancorp trades on The NASDAQ Capital Market under the ticker symbol “PLBC”.

CASH DIVIDEND

On April 16, 2008, the Company declared a semi-annual common stock cash dividend of $0.16 per share. This represents a 7% increase in the semi-annual cash dividend per share from 15 cents paid on May 14, 2007. The dividend was paid on May 16, 2008 to its shareholders of record on April 30, 2008.

CRITICAL ACCOUNTING POLICIES

There have been no changes to the Company’s critical accounting policies from those disclosed in the Company’s 2007 Annual Report to Shareholders’ on Form 10-K.

OVERVIEW

The Company’s net income declined by $809 thousand, or 39%, to $1.27 million for the six months ended June 30, 2008 from $2.08 million for the same period in 2007. This decline in net income resulted from a decline in net interest income of $793 thousand and an increase in the provision for loan losses of $615 thousand. An increase of $165 thousand in non-interest expense was mostly offset by an increase of $149 thousand in non-interest income. Related to the reduction in pre-tax earnings the provision for income taxes declined by $615 thousand.

Total assets remained consistent at $453 million at both December 31, 2007 and June 30, 2008. Net loans increased by $3.2 million from $349.3 million at December 31, 2007 to $352.5 million at June 30, 2008. Investment securities declined by $8.4 million from $55.3 million at December 31, 2007 to $46.9 million at June 30, 2008. This decline in investment securities was offset by an increase in cash of $2.7 million, an increase in real estate and vehicles acquired through foreclosure of $1.9 million and provided funding for the $3.2 million increase in loans. Short-term borrowings increased by $17 million from $7.5 million at December 31, 2007 to $24.5 million at June 30, 2008. The increase in short-term borrowings offset a decrease in deposits of $16.9 million from $391.9 million at December 31, 2007 to $375.0 million at June 30, 2008. Total shareholders’ equity decreased slightly from $37.1 million at December 31, 2007 to $36.8 million at June 30, 2008.

The annualized return on average assets was 0.57% for the six months ended June 30, 2008 down from 0.90% for the same period in 2007. The annualized return on average equity was 6.9% for the six months ended June 30, 2008 down from 11.5% for the same period in 2007.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2008

Net interest income before provision for loan losses. Net interest income, on a nontax-equivalent basis, for the six months ended June 30, 2008 was $10.1 million, a decline of $793 thousand from the $10.9 million earned during the same period in 2007. Decreases in the yields and the average level of the Company’s loan portfolio along with a reduction in the average balance of investment securities were partially offset by declines in the average balances and rates paid on deposits and short-term borrowings and a decline in the rate paid on junior subordinated debentures.

Interest income declined by $2.0 million, or 13%, to $13.2 million for the six months ended June 30, 2008. Interest and fees on loans decreased by $1.8 million from $14.0 million for the six months ended June 30, 2007 to $12.2 million during the current six-month period. The Company’s average loan balances were $351.5 million for the six months ended June 30, 2008, down $5.5 million, or 2%, from the $357.0 million for the same period in 2007. The average rate earned on the Company’s loan balances decreased 93 basis points to 6.98% during the first six months of 2008 from 7.91% during the first six months of 2007. During this same period the average prime rate declined by 260 basis points. The decline in prime rate is reflective of the 325 basis point reduction made by the Federal Reserve Board since September 2007. At June 30, 2008 approximately 66% of the Company’s loan portfolio was variable rate of which approximately 37% is indexed to the prime interest rate.

Interest on investment securities decreased by $208 thousand, as an increase in yield of 31 basis points was offset by a decline in average investment securities of $15.5 million. The decrease in the overall investment portfolio resulted from maturities, calls and pay downs that were used to provide funding for loan growth and liquidity.

Interest expense decreased $1.2 million, or 29%, to $3.1 million for the six months ended June 30, 2008, down from $4.3 million for the same period in 2007, due to the decrease in both the rates paid on our interest bearing liabilities and in the average balances. Average interest bearing liabilities declined by $19.6 million from $314.7 million during the six months ended June 30, 2007 to $295.1 million during the current period. Average interest bearing deposits declined by $10.9 million and average short-term borrowings declined by $8.7 million over the same periods.

Interest expense on deposits declined by $814 thousand primarily related to the decline of $390 thousand in interest expense on NOW accounts and the $297 thousand decline in time deposit interest expense. In addition, interest on money market and savings accounts declined by $127 thousand. The average rate paid on the Company’s interest bearing deposits declined 50 basis points from 2.44% for the six months ended June 30, 2007 to 1.94% during the current six month period. The average balance of interest bearing deposits declined by $10.9 million from $287.8 million during the six months ended June 30, 2007 to $276.9 million during the six months ended June 30, 2008.

The decline in NOW account interest expense was primarily related to a reduction in the rate paid on our Money Fund Plu$ balances and is consistent with recent declines in market interest rates. Money Fund Plus$ is an interest bearing checking account designed to pay rates comparable to those available on a typical brokerage account. The average balance of NOW accounts declined by $4.0 million from $78.5 million during the six months ended June 30, 2007 to $74.5 million during the current six-month period.

Average time deposits totaled $118.9 million during the first six months of 2008, up $4.0 million from $114.9 million during the six months ended June 30, 2007. The average rate paid on time deposits decreased 65 basis points from 4.25% during the six months ended June 30, 2007 to 3.60% during the same period in 2008.

During 2007 the Company offered a promotional short-term time deposit product which we continued offering until February of 2008. At June 30, 2008 almost all of these promotional short-term time deposits have matured. The decline in the rate paid on time deposits includes the maturity of the promotional time deposit product, some of which have been renewed at lower rates, and a decline in rates paid on new and renewed time deposits.

Interest expense on short-term borrowings decreased by $341 thousand from $436 thousand during the 2007 period to $95 thousand for the six months ended June 30, 2008. This decline resulted from a decrease in the average balance outstanding of $8.7 million and a decline in the rate paid on these borrowings of 289 basis points. The average rate paid on the Company’s trust preferred securities (junior subordinated debentures) decreased 168 basis points to 6.42% for the six months ended June 30, 2008 from 8.10% during the same period in 2007. The rate on the trust preferred securities is tied to the LIBOR rate and will fluctuate with changes in LIBOR; however the rate resets quarterly so the effect of recent declines in LIBOR were not fully reflected in the rate paid during the six months ended June 30, 2008.

As a result of the changes noted above, the net interest margin for the six months ended June 30, 2008 decreased 14 basis points to 5.05%, down from 5.19% for the same period in 2007.

The following table presents for the six-month periods indicated the distribution of consolidated average assets, liabilities and shareholders’ equity. It also presents the amounts of interest income from interest earning assets and the resultant annualized yields expressed in both dollars and annualized yield percentages, as well as the amounts of interest expense on interest bearing liabilities and the resultant cost expressed in both dollars and annualized rate percentages. Average balances are based on daily averages. Nonaccrual loans are included in the calculation of average loans while nonaccrued interest thereon is excluded from the computation of yields earned:

		For the Six Months Ended June 30, 2008												For the Six Months Ended June 30, 2007
		Average Balance				Interest				Yield/				Average Balance				Interest				Yield/
		(in thousands)				(in thousands)				Rate				(in thousands)				(in thousands)				Rate
Interest-earning assets:
Loans (1) (2)		$	351,450			$	12,190				6.98	%		$	356,958			$	14,010				7.91	%
Investment securities (1)			50,779				1,024				4.06	%			66,310				1,232				3.75	%
Federal funds sold			164				2				2.45	%			254				8				6.35	%
Total interest-earning assets			402,393				13,216				6.60	%			423,522				15,250				7.26	%
Cash and due from banks			11,947												12,653
Other assets			31,842												32,440
Total assets		$	446,182											$	468,615
Interest-bearing liabilities:
NOW deposits		$	74,518				323				0.87	%		$	78,522				713				1.83	%
Money market deposits			36,037				137				0.76	%			42,010				198				0.95	%
Savings deposits			47,404				83				0.35	%			52,327				149				0.57	%
Time deposits			118,912				2,127				3.60	%			114,890				2,424				4.25	%
Total deposits			276,871				2,670				1.94	%			287,749				3,484				2.44	%
Short-term borrowings			7,633				95				2.50	%			16,324				436				5.39	%
Other interest-bearing liabilities			309				10				6.51	%			301				11				7.36	%
Junior subordinated debentures			10,310				329				6.42	%			10,310				414				8.10	%
Total interest-bearing liabilities			295,123				3,104				2.12	%			314,684				4,345				2.78	%
Non-interest bearing deposits			108,142												112,658
Other liabilities			5,570												4,669
Shareholders’ equity			37,347												36,604
Total liabilities & equity		$	446,182											$	468,615
Cost of funding interest-earning assets (3)											1.55	%											2.07	%
Net interest income and margin (4)						$	10,112				5.05	%						$	10,905				5.19	%

The following table sets forth changes in interest income and interest expense for the six-month periods 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 over 2007 change in net interest income
		for the six months ended June 30
		(in thousands)
		Volume (1)				Rate (2)				Mix (3)				Total
Interest-earning assets:
Loans		$	(217	)		$	(1,668	)		$	65			$	(1,820	)
Investment securities			(289	)			102				(21	)			(208	)
Federal funds sold			(3	)			(5	)			2				(6	)
Total interest income			(509	)			(1,571	)			46				(2,034	)
Interest-bearing liabilities:
NOW deposits			(36	)			(375	)			21				(390	)
Money market deposits			(28	)			(39	)			6				(61	)
Savings deposits			(14	)			(58	)			6				(66	)
Time deposits			85				(376	)			(6	)			(297	)
Short-term borrowings			(233	)			(234	)			126				(341	)
Other interest-bearing liabilities			—				(1	)			—				(1	)
Junior subordinated debentures			—				(85	)			—				(85	)
Total interest expense			(226	)			(1,168	)			153				(1,241	)
Net interest income		$	(283	)		$	(403	)		$	(107	)		$	(793	)

Provision for loan losses. In response to an increase in the level of net loan charge-offs and our evaluation of the adequacy of the allowance for loan losses in the current economic environment, particularly related to the decline in real estate values, the Company increased its loan loss provision from $375 thousand during the first six months of 2007 to $990 thousand during the current six-month period. Management assesses its loan quality monthly to maintain an adequate allowance for loan losses. Based on information currently available, management believes that the allowance for loan losses is adequate to absorb probable losses 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. The Company’s loan portfolio composition and non-performing assets are further discussed under the financial condition section below.

Non-interest income. During the six months ended June 30, 2008, total non-interest income increased $149 thousand, or 6%, to $2.7 million, up from $2.6 million for the comparable period in 2007. The largest component of this increase was a $165 thousand increase in service charges on deposit accounts resulting from a change in fee structure instituted during mid 2007. Related to the expansion of our SBA lending activities; gains on the sale of loans increased by $52 thousand to $79 thousand for the six months ended June 30, 2008. Partially offsetting these increases was a decline of $39 thousand in the gain recorded on the sale of repossessed vehicles from $28 thousand during the first half of 2007 to a loss of $11 thousand during the six months ended June 30, 2008.

The following table describes the components of non-interest income for the six-month periods ending June 30, 2008 and 2007, dollars in thousands:

		For the Six Months
		Ended June 30,								Dollar				Percentage
		2008				2007				Change				Change
Service charges on deposit accounts		$	1,922			$	1,757			$	165				9.4	%
Earnings on life insurance policies			207				206				1				0.5	%
Merchant processing income			125				127				(2	)			-1.6	%
Gain on sale of loans			79				27				52				192.6	%
Investment services income			78				85				(7	)			-8.2	%
Official check fees			63				80				(17	)			-21.3	%
Customer service fees			57				60				(3	)			-5.0	%
Federal Home Loan Bank dividends			57				56				1				1.8	%
Loan servicing fees			41				60				(19	)			-31.7	%
Safe deposit box and night depository income			34				35				(1	)			-2.9	%
Other deposit account fees			17				21				(4	)			-19.0	%
Printed check fee income			15				21				(6	)			-28.6	%
(Loss) gain on sale of vehicles			(11	)			28				(39	)			-139.3	%
Other			32				4				28				700.0	%
Total non-interest income		$	2,716			$	2,567			$	149				5.8	%

Non-interest expenses. During the six months ended June 30, 2008, total non-interest expenses increased $165 thousand, or 2%, to $9.9 million, up from $9.7 million for the comparable period in 2007. The increase in non-interest expense was primarily the result of increases in occupancy and equipment expense, loan collection expenses and FDIC insurance premiums.

Additions to salary expense totaling $253 thousand related to expansion of our SBA lending activities, growth in our Reno loan production office and increases in staffing at our Redding branch were offset by decreases in salaries in other departments and an $80 thousand decrease in bonus expense resulting in virtually identical levels of salaries and related benefits during the comparison periods.

The largest increase in non-interest expense was a $145 thousand increase in occupancy and equipment costs primarily related to an increase in software related costs and an increase in occupancy costs at our Redding branch. Occupancy costs related to our Redding branch were abnormally high during the 2008 period which included costs of both a temporary facility and our permanent branch which opened in July, 2008. Consistent with the increase in nonperforming assets during the period (See page 23) loan collection expense, which includes costs related to acquiring and maintaining real estate acquired through foreclosure, increased by $78 thousand from $87 thousand during the six months ended June 30, 2007 to $165 thousand during the current period. Other expense increased by $90 thousand related to an increase in FDIC insurance premiums. During 2007 the Company was able to use its remaining credit balance with the FDIC to offset insurance premium billings. By the end of the first quarter of 2008 the credit balance had been fully utilized. A $32 thousand increase in insurance expense is primarily related to recognizing certain postretirement insurance costs for split dollar life insurance policies.

Partially offsetting the above increases in non-interest expense was a decline of $82 thousand in professional fees and declines in business development and advertising costs totaling $100 thousand. During the 2007 period professional fess 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 savings in business development and advertising costs include reductions in our marketing budget, savings in promotional materials, and a decrease in seminar and conference costs.

The following table describes the components of non-interest expense for the six-month periods ending June 30, 2008 and 2007, dollars in thousands:

		For the Six Months
		Ended June 30,								Dollar				Percentage
		2008				2007				Change				Change
Salaries and employee benefits		$	5,466			$	5,468			$	(2	)			—	%
Occupancy and equipment			1,934				1,789				145				8.1	%
Outside service fees			348				324				24				7.4	%
Professional fees			307				389				(82	)			-21.1	%
Business development			237				286				(49	)			-17.1	%
Advertising and shareholder relations			227				278				(51	)			-18.3	%
Telephone and data communication			198				169				29				17.2	%
Director compensation			175				174				1				0.6	%
Loan and collection expenses			165				87				78				89.7	%
Armored car and courier			142				134				8				6.0	%
Deposit premium amortization			129				150				(21	)			-14.0	%
Postage			120				121				(1	)			-0.8	%
Stationery and supplies			116				152				(36	)			-23.7	%
Insurance			116				84				32				38.1	%
Other			234				144				90				62.5	%
Total non-interest expense		$	9,914			$	9,749			$	165				1.7	%

Provision for income taxes. The provision for income taxes was $651 thousand, or 33.8% of pre-tax income for the six months ended June 30, 2008. This compares to $1.3 million or 37.8% of pre-tax income during the first half of 2007. The decrease of 4.0% reflects the effect of an increase, during 2008, in the percentage of tax-exempt income as a percentage of pre-tax income.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2008

Net Income. Net income decreased by $437 thousand, or 39% from $1.1 million during the second quarter of 2007 to $697 thousand during the second three months ended June 30, 2008. This decrease in net income resulted from a $294 thousand decline in net interest income, a $345 thousand increase in the provision for loan losses, and a $237 increase in non-interest expense, partially offset by a $95 thousand increase in non-interest income and a $344 thousand decrease in the provision for income taxes.

Net interest income before provision for loan losses. Net interest income, on a nontax-equivalent basis, was $5.1 million for the three months ended June 30, 2008, a decrease of $294 thousand, or 5%, from $5.4 million for the same period in 2007. The decline in net interest income was related to decreases in the yields and the level of the average loans outstanding along with a reduction in the average balance of investment securities which were mostly offset by a decline in the average balance and rate paid on deposit accounts and short-term borrowings and a decline in the rate paid on junior subordinated debentures.

Interest and fees on loans decreased by $1.1 million from $7.1 million for the three months ended June 30, 2007 to $6.0 million during the 2008 second quarter. The Company’s average loan balances were $351.7 million for the three months ended June 30, 2008, down $8.5 million, or 2%, from the $360.2 million for the same period in 2007. The average yield earned on loans decreased by 109 basis points from 7.91% during the second quarter of 2007 to 6.82% during the 2008 quarter. This decrease in yield primarily is reflective of the declines in market interest rates. During this same period the average prime interest rate declined by 317 basis points. At June 30, 2008 approximately 37% of Plumas Bank’s loans adjust with changes in the prime interest rate.

A 28 basis points increase in yield on investment securities was offset by a decrease of $13.5 million in the average balance outstanding resulting in a decrease of $93 thousand in interest earned on investment securities.

Interest expense decreased by $942 thousand, or 41%, to $1.3 million for the three months ended June 30, 2008, down from $2.3 million for the same period in 2007. Average interest bearing deposits declined by $16.3 million from $288.3 million during the second quarter of 2007 to $272.0 million during the current quarter. Primarily as a result of the maturity of promotional time deposits, average time deposits declined by $7.6 million from $120.1 million during the second quarter of 2007 to $112.5 million during the current quarter. Other categories of deposits declined as well including a $1.7 million decline in average NOW accounts, and a $7.0 million decline in average money market and savings accounts.

During 2008, the Company benefited from a reduction in market interest rates and, in the case of time deposits, the maturity of its short-term promotional time deposit product. Plumas Bank has decreased the rate paid on its interest bearing accounts resulting in a significant decline in deposit interest expense. The average rate paid on interest bearing deposits declined by 86 basis points from 2.52% during the three months ended June 30, 2007 to 1.66% during the current three month period. Related to a decline in the rate paid on our Money Fund Plu$ accounts, the average rate paid on NOW accounts has declined by 106 basis points from 1.78% during the second quarter of 2007 to 0.72% during the current quarter. The Company has also decreased the rates paid on money market, savings deposits and new and renewed time deposits. The average rate paid on time deposits declined by 119 basis points from 4.34% during the three months ended June 30, 2007 to 3.15% during the second quarter of 2008.

The average balance of short-term borrowings decreased from $18.6 million during the second quarter of 2007 to $11.2 million during the three months ended June 30, 2008. The average rate paid on these borrowings decreased by 321 basis points to 2.19% during the quarter ended June 30, 2008, down from 5.40% during the second quarter of 2007. The average rate paid on junior subordinated debentures declined by 271 basis points from 8.09% during the three months ended June 30, 2007 to 5.38% during the current quarter.

As a result of the changes noted above, the net interest margin for the three months ended June 30, 2008 increased slightly to 5.15%. This compares to a net interest margin of 5.14% for the same period in 2007.

The following table presents for the three-month periods indicated the distribution of consolidated average assets, liabilities and shareholders’ equity. It also presents the amounts of interest income from interest earning assets and the resultant annualized yields expressed in both dollars and annualized yield percentages, as well as, the amounts of interest expense on interest bearing liabilities and the resultant cost expressed in both dollars and annualized rate percentages. Average balances are based on daily averages. Nonaccrual loans are included in the calculation of average loans while nonaccrued interest thereon is excluded from the computation of yields earned:

		For the Three Months Ended June 30, 2008												For the Three Months Ended June 30, 2007
		Average Balance				Interest				Yield/				Average Balance				Interest				Yield/
		(in thousands)				(in thousands)				Rate				(in thousands)				(in thousands)				Rate
Interest-earning assets:
Loans (1) (2)		$	351,679			$	5,966				6.82	%		$	360,240			$	7,105				7.91	%
Investment securities (1)			48,471				486				4.03	%			61,968				579				3.75	%
Federal funds sold			150				1				2.68	%			332				5				6.04	%
Total interest-earning assets			400,300				6,453				6.48	%			422,540				7,689				7.30	%
Cash and due from banks			12,179												12,709
Other assets			32,016												32,267
Total assets		$	444,495											$	467,516
Interest-bearing liabilities:
NOW deposits		$	75,759				136				0.72	%		$	77,457				343				1.78	%
Money market deposits			35,544				68				0.77	%			39,483				92				0.93	%
Savings deposits			48,130				40				0.33	%			51,180				72				0.56	%
Time deposits			112,521				880				3.15	%			120,156				1,301				4.34	%
Total deposits			271,954				1,124				1.66	%			288,276				1,808				2.52	%
Short-term borrowings			11,209				61				2.19	%			18,570				250				5.40	%
Other interest-bearing liabilities			309				6				7.81	%			302				5				6.64	%
Junior subordinated debentures			10,310				138				5.38	%			10,310				208				8.09	%
Total interest-bearing liabilities			293,782				1,329				1.82	%			317,458				2,271				2.87	%
Non-interest bearing deposits			108,094												109,072
Other liabilities			5,400												4,360
Shareholders’ equity			37,219												36,626
Total liabilities & equity		$	444,495											$	467,516
Cost of funding interest-earning assets (3)											1.33	%											2.16	%
Net interest income and margin (4)						$	5,124				5.15	%						$	5,418				5.14	%

The following table sets forth changes in interest income and interest expense for the three-month periods 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 over 2007 change in net interest income
		for the three months ended June 30
		(in thousands)
		Volume (1)				Rate (2)				Mix (3)				Total
Interest-earning assets:
Loans		$	(169	)		$	(974	)		$	4			$	(1,139	)
Investment securities			(126	)			44				(11	)			(93	)
Federal funds sold			(3	)			(3	)			2				(4	)
Total interest income			(298	)			(933	)			(5	)			(1,236	)
Interest-bearing liabilities:
NOW deposits			(8	)			(203	)			4				(207	)
Money market deposits			(9	)			(16	)			1				(24	)
Savings deposits			(4	)			(29	)			1				(32	)
Time deposits			(82	)			(358	)			19				(421	)
Short-term borrowings			(99	)			(148	)			58				(189	)
Other interest-bearing liabilities			—				1				—				1
Junior subordinated debentures			—				(70	)			—				(70	)
Total interest expense			(202	)			(823	)			83				(942	)
Net interest income		$	(96	)		$	(110	)		$	(88	)		$	(294	)

Provision for loan losses. In response to an increase in the level of net loan charge-offs and our evaluation of the adequacy of the allowance for loan losses in the current economic environment, particularly related to the decline in real estate values, we increased our provision for loan losses. The Company recorded $470 thousand in provision for loan losses for the three months ended June 30, 2008 compared to the $125 thousand for the three months ended June 30, 2007. Management assesses its loan quality monthly to maintain an adequate allowance for loan losses. 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. The Company’s loan portfolio composition and non-performing assets are further discussed under the financial condition section below.

Non-interest income. During the three months ended June 30, 2008, total non-interest income increased by $95 thousand from the same period in 2007. Service charge income increased by $67 thousand resulting from a change in fee structure instituted during mid 2007. Related to the expansion of our SBA lending activities; gains on the sale of loans totaled $61 thousand during the second quarter of 2008. There were no loan sales during the three months ended June 30, 2007. Partially offsetting these increases in non-interest income was a decline of $19 thousand in the gain recorded on the sale of repossessed vehicles from $8 thousand during 2007 to a loss of $11 thousand during the three months ended June 30, 2008.

The following table describes the components of non-interest income for the three-month periods ending June 30, 2008 and 2007, dollars in thousands:

		For the Three Months
		Ended June 30,								Dollar				Percentage
		2008				2007				Change				Change
Service charges on deposit accounts		$	969			$	902			$	67				7.4	%
Earnings on life insurance policies			104				104				—				—	%
Merchant processing income			62				67				(5	)			-7.5	%
Gain on sale of loans			61				—				61				—	%
Investment services income			43				33				10				30.3	%
Federal Home Loan Bank dividends			29				25				4				16.0	%
Customer service fees			28				30				(2	)			-6.7	%
Official check fees			25				39				(14	)			-35.9	%
Loan servicing fees			20				35				(15	)			-42.9	%
Safe deposit box and night depository income			17				17				—				—	%
Other deposit account fees			8				10				(2	)			-20.0	%
Printed check fee income			4				6				(2	)			-33.3	%
(Loss) gain on sale of vehicles			(11	)			8				(19	)			-237.5	%
Other			31				19				12				63.2	%
Total non-interest income		$	1,390			$	1,295			$	95				7.3	%

Non-interest expenses. During the three months ended June 30, 2008, total non-interest expenses increased $237 thousand, or 5%, to $5.0 million, up from $4.7 million for the comparable period in 2007. The increase in non-interest expense was primarily the result of increases in salaries, occupancy and equipment expense, loan collection expenses and FDIC insurance premiums.

Additions to salary expense totaling $147 thousand were related to expansion of our SBA lending activities, growth in our Reno loan production office and increases in staffing at our Redding branch. These costs were partially offset by an increase in the deferral of loan origination costs and a reduction in staffing in other areas.

Occupancy and equipment expense increased by $96 thousand of which $82 thousand is related to our Redding branch. Occupancy costs related to the Redding branch were abnormally high during the 2008 period which included costs of both a temporary facility and our permanent branch which opened in July, 2008. Consistent with the increase in nonperforming assets during the period (See page 23) loan collection expense increased by $56 thousand from $43 thousand during the three months ended June 30, 2007 to $99 thousand during the current period. Other expense increased by $111 thousand primarily related to an increase in FDIC insurance premiums. During 2007 the Company was able to use its remaining credit balance with the FDIC to offset insurance premium billings. By the end of the first quarter of 2008 the credit balance had been fully utilized. A $30 thousand increase in telephone and data communication expense was primarily related to credits utilized to reduce expense during the 2007 period.

Partially offsetting the above increases in non-interest expense was a decline of $38 thousand in professional fees and declines in business development and advertising costs totaling $81 thousand. During the 2007 period professional fess included consulting costs associated with technology planning and with a strategic planning initiative. Similar costs were not incurred during the 2008 period. The savings in business development and advertising costs are primarily related to a decrease in seminar and conference costs and a reduction in the marketing budget.

The following table describes the components of non-interest expense for the three-month periods ending June 30, 2008 and 2007, dollars in thousands:

		For the Three Months
		Ended June 30,								Dollar				Percentage
		2008				2007				Change				Change
Salaries and employee benefits		$	2,710			$	2,640			$	70				2.7	%
Occupancy and equipment			975				879				96				10.9	%
Outside service fees			178				168				10				6.0	%
Professional fees			144				182				(38	)			-20.9	%
Advertising and shareholder relations			123				139				(16	)			-11.5	%
Loan and collection expenses			99				43				56				130.2	%
Business development			96				161				(65	)			-40.4	%
Telephone and data communication			96				66				30				45.5	%
Director compensation			83				81				2				2.5	%
Armored car and courier			74				68				6				8.8	%
Postage			62				61				1				1.6	%
Insurance			59				47				12				25.5	%
Stationery and supplies			58				75				(17	)			-22.7	%
Deposit premium amortization			54				75				(21	)			-28.0	%
Other			167				56				111				198.2	%
Total non-interest expense		$	4,978			$	4,741			$	237				5.0	%