PLUMAS BANCORP - Annual Report: 2009 (Form 10-K)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| þ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2009
or
| o | Transaction report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission file number: 000-49883
PLUMAS BANCORP
(Exact name of Registrant as specified in its charter)
| California | 75-2987096 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
| 35 S. Lindan Avenue, Quincy, CA | 95971 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (530) 283-7305
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class: | Name of Each Exchange on which Registered: | |
| Common Stock, no par value | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
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
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such files).
Yes o No o
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:
| Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o (Do not check if a smaller reporting company) |
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, 2009, the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant was approximately $21.7 million, based on the closing
price reported to the Registrant on that date of $4.99 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, 2010 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.
Items 10-14.
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PART I
Forward-Looking Information
This Annual Report on Form 10-K includes forward-looking statements and information is subject to
the “safe harbor” provisions of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements (which involve Plumas Bancorp’s
(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:
| • | Competitive pressure in the banking industry, competition in the markets the Company
operates in and changes in the legal, accounting and regulatory environment |
||
| • | Changes in the interest rate environment and volatility of rate sensitive assets and
liabilities |
||
| • | Declines in the health of the economy, nationally or regionally, which could reduce the
demand for loans, reduce the ability of borrowers to repay loans and/or reduce the value
of real estate collateral securing most of the Company’s loans |
||
| • | Credit quality deterioration, which could cause an increase in the provision for loan
and lease losses |
||
| • | Devaluation of fixed income securities |
||
| • | Asset/liability matching risks and liquidity risks |
||
| • | Loss of key personnel |
||
| • | Operational interruptions including data processing systems failure and fraud |
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.
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| ITEM 1. | BUSINESS |
General
The Company. Plumas Bancorp (the “Company”) is a California corporation registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended, and is headquartered in
Quincy, California. The Company was incorporated in January 2002 and acquired all of the
outstanding shares of Plumas Bank (the “Bank”) in June 2002. The Company’s principal subsidiary is
the Bank, and the Company exists primarily for the purpose of holding the stock of the Bank and of
such other subsidiaries it may acquire or establish. At the present time, the Company’s only other
subsidiaries are Plumas Statutory Trust I and Plumas Statutory Trust II, which were formed in 2002
and 2005 solely to facilitate the issuance of trust preferred securities.
The Company’s principal source of income is dividends from the Bank, but the Company may explore
supplemental sources of income in the future. The cash outlays of the Company, including (but not
limited to) the payment of dividends to shareholders, if and when declared by the Board of
Directors, costs of repurchasing Company common stock, the cost of servicing debt and preferred
stock dividends, will generally be paid from dividends paid to the Company by the Bank.
At
December 31, 2009, the Company had consolidated assets of $528 million, deposits of $433
million, other liabilities of $57 million and shareholders’
equity of $38 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.”
Shareholders’ equity includes $11.6 million in preferred stock issued pursuant to the U.S.
government’s Capital Purchase Program which is discussed in the section titled “Capital Purchase
Program — TARP — Preferred Stock and Stock Warrant.”
References herein to the “Company,” “we,” “us” and “our” refer to Plumas Bancorp and its
consolidated subsidiary, unless the context indicates otherwise. Our operations are conducted at
35 South Lindan Avenue, Quincy, California. Our annual, quarterly and other reports, required
under the Securities Exchange Act of 1934 and filed with the Securities and Exchange Commission,
(the “SEC”) are posted and are available at no cost on the Company’s website, www.plumasbank.com,
as soon as reasonably practicable after the Company files such documents with the SEC. These
reports are also available through the SEC’s website at www.sec.gov.
The Bank. The Bank is a California state-chartered bank that was incorporated in July 1980 and
opened for business in December 1980. The Bank is not a member of the Federal Reserve System. The
Bank’s Administrative Office is located at 35 South Lindan Avenue, Quincy, California. At December
31, 2009 the Bank had approximately $528 million in assets, $323 million in net loans and $437
million in deposits (including deposits of $3.7 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 June 30, 2010, 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 eleven 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, Truckee, Fall River Mills,
Alturas, Susanville, Chester, Tahoe City, Kings Beach and Redding. The Bank maintains fifteen
automated teller machines
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(“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.
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. During 2009 we sold $10.8 million in SBA government-guaranteed loans and generated a
gain on sale of $593 thousand.
The Agricultural Credit Centers located in Susanville and Alturas provide a complete line of credit
services in support of the agricultural activities which are key to the continued economic
development of the communities we serve. “Ag lending” clients include a full range of individual
farming customers, small- to medium-sized business farming organizations and corporate farming
units.
As of December 31, 2009, the principal areas to which we directed our lending activities, and the
percentage of our total loan portfolio comprised by each, were as follows: (i) loans secured by
real estate — 60.0%; (ii) commercial and industrial loans — 11.1%; (iii) consumer loans
(including residential equity lines of credit) — 16.4%; and (iv) agricultural loans (including
agricultural real estate loans) — 12.5%.
In addition to the lending activities noted above, we offer a wide range of deposit products for
the retail and commercial banking markets including checking, interest-bearing checking, business
sweep, public funds sweep, savings, time deposit and retirement accounts, as well as remote
deposit, telephone and mobile banking and internet banking with bill-pay options. Interest bearing
deposits include high yield sweep accounts designed for our commercial customers and for public
entities such as municipalities. In addition we offer a Money Fund Plu$ checking account for our
consumer customers. These accounts pay rates comparable to those available on a money fund offered
by a typical brokerage firm. As of December 31, 2009, the Bank had 31,173 deposit accounts with
balances totaling approximately $437 million, compared to 33,217 deposit accounts with balances
totaling approximately $372 million at December 31, 2008. 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 $13,900 at December 31, 2009. 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. At December 31, 2009 we had $5 million in CDARS reciprocal time
deposits which for regulatory purposes are classified as brokered deposits.
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, mobile banking 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 business
sweep product which we introduced during the first quarter of 2008. During 2009 we replaced our
on-line banking service with a new state of the art product that greatly expands the features
available to our customers. In addition we utilized this platform to add mobile banking services
during the first quarter of 2010. 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
Auburn and Reno commercial lending offices, 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. On February 26, 2010 we closed our Loyalton and Westwood branches. Deposits
and loans at these branches totaled $18 million and $5 million, respectively at December 31, 2009.
These represent approximately 4% of total deposits and 2% of total loans at December 31, 2009. We
expect most of the deposits and loans that were housed at these branches to be retained within the
Bank. Westwood deposits will be transferred to our Chester branch and Loyalton deposits will be
serviced from our Portola branch. Loans will continue to be serviced out of our central loan
administration office located in Quincy. 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.
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.
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The Series A Preferred Stock qualifies as Tier 1 capital and pays 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 was immediately exercisable 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.
Eight million of the twelve million in proceeds from the sale of the Series A Preferred Stock was
injected into Plumas Bank providing addition capital for the bank to support growth in loans and
investment securities and strengthen its capital ratios. The remainder provides funds for holding
company activities and general corporate purposes.
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.
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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.
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, 2009 approximately 77% 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, 2009, the Federal
Deposit Insurance Corporation estimated the Bank’s market share of insured deposits within the
communities it serves to be as follows: Chester 67%, Quincy 59%, Portola 47%, Alturas 42%,
Susanville 35%, Kings Beach 31%, Fall River Mills/Burney 19%, Truckee 16%, Tahoe City 4%, 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. During the first
quarter of 2010 we closed our Westwood and Loyalton branches. The deposits at Westwood where
transferred to our Chester office and Loyalton’s deposits were transferred to our Portola branch.
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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.
For many years we have countered rising competition by providing our own style of
community-oriented, personalized service. We rely on local promotional activity, personal contacts
by our officers, directors, employees, and shareholders, automated 24-hour banking, and the
individualized service that we can provide through our flexible policies. This approach appears to
be well-received by our customers who appreciate a more personal and customer-oriented environment
in which to conduct their financial transactions. To meet the needs of customers who prefer to
bank electronically, we offer telephone banking, mobile banking, remote deposit, and personal
computer and internet banking with bill payment capabilities. This high tech and high touch
approach allows the customers to tailor their access to our services based on their particular
preference.
Employees. At December 31, 2009, the Company and its subsidiary employed 179 persons. On a
full-time equivalent basis, we employed 163 persons. We believe our employee relations are
excellent.
Code of Ethics
The Board of Directors has adopted a code of business conduct and ethics for
directors, officers (including Plumas Bancorp’s principal executive officer and principal financial
officer) and financial personnel, known as the Corporate Governance Code of Ethics. This Code of
Ethics Policy is available on Plumas Bancorp’s website at www.plumasbank.com. Shareholders may
request a free copy of the Code of Ethics Policy from Plumas Bancorp, Ms. Elizabeth Kuipers,
Investor Relations, 35 S. Lindan Avenue, Quincy, California 95971.
Supervision and Regulation
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.
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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.
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.
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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, 2009
follow:
| Requirement for the | ||||||||||||||||
| Bank to be: | ||||||||||||||||
| Adequately | Well | Plumas | Plumas | |||||||||||||
| Capitalized | Capitalized | Bank | Bancorp | |||||||||||||
Tier 1 leverage capital ratio |
4.0 | % | 5.0 | % | 7.4 | % | 7.9 | % | ||||||||
Tier 1 risk-based capital ratio |
4.0 | % | 6.0 | % | 9.8 | % | 10.4 | % | ||||||||
Total risk-based capital ratio |
8.0 | % | 10.0 | % | 11.0 | % | 11.6 | % | ||||||||
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 in 2006 and amended the rule in
February 2009 that sets an insured depository institution’s assessment rate on different factors
that pose a risk of loss to the Deposit Insurance Fund, including the institution’s recent
financial ratios and supervisory ratings, and level of reliance on a significant amount of secured
liabilities or significant amount of brokered deposits (except that the factor of brokered deposits
will not be considered for well capitalized institutions that are not accompanied by rapid growth).
The FDIC also in February 2009 set the assessment base rates to range between $0.12 to $0.16 per
$100 of insured deposits on an annual basis. In May 2009, the FDIC imposed a special assessment of
5 basis points on each insured depository institution’s assets less its Tier 1 capital payable on
September 30, 2009 with a ceiling of 10 basis points of an institution’s domestic deposits. In
November 2009, the FDIC approved a final rule to require all insured depository
institutions including the
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Bank to prepay three years of FDIC assessments in the fourth quarter of 2009, except in the event
such prepayment is waived by the FDIC. The amount of this prepaid assessment was $3.6 million
which the Bank paid on December 30, 2009. While the prepaid assessments are not charged to income
for 2009 but rather ratably over three years beginning in 2010, the quarterly amount paid reduced
the cash and liquidity of the Bank at year end 2009. Due to the significant losses at failed banks
and expected losses for banks that will fail, it is likely that FDIC insurance fund assessments on
the Bank will continue to increase and such assessments may materially adversely affect the
profitability of the Bank.
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 or
frequency of the assessment. 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.
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:
| • | a membership stock requirement with an initial cap of $25 million (100% of
“membership asset value” as defined), or |
||
| • | 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, 2009 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, 2009, 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.
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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:
| • | 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.
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.
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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.
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.
In May 2009 the Helping Families Save Their Homes Act of 2009 was enacted to help consumers avoid
mortgage foreclosures on their homes through certain loss mitigation actions including special
forbearance, loan modification, pre-foreclosure sale, deed in lieu of foreclosure, support for
borrower housing counseling, subordinate lien resolution, and borrower relocation. The new law
permits the Secretary of Housing and Urban Development (HUD), for mortgages either in default or
facing imminent default, to: (1) authorize the modification of such mortgages; and (2) establish a
program for payment of a partial claim to a mortgagee who agrees to apply the claim amount to
payment of a mortgage on a 1- to 4-family residence. In implementing the law, the Secretary of HUD
is authorized to (1) provide compensation to the mortgagee for lost income on monthly mortgage
payments due to interest rate reduction; (2) reimburse the mortgagee from a guaranty fund in
connection with activities that the mortgagee is required to undertake concerning repayment by the
mortgagor of the amount owed to HUD; (3) make payments to the mortgagee on behalf of the borrower,
under terms defined by HUD; and (4) make mortgage modification with terms extended up to 40 years
from the modification date. The new law also authorizes the Secretary of HUD to: (1) reassign the
mortgage to the mortgagee; (2) act as a Government National Mortgage Association (GNMA, or Ginnie
Mae) issuer, or contract with an entity for such purpose, in order to pool the mortgage into a
Ginnie Mae security; or (3) resell the mortgage in accordance with any program established for
purchase by the federal government of insured mortgages. The new law also amends the Foreclosure
Prevention Act of 2008, with respect to emergency assistance for the redevelopment of abandoned and
foreclosed homes (neighborhood stabilization), to authorize each state that has received certain
minimum allocations and has fulfilled certain requirements, to distribute any remaining amounts to
areas with homeowners at risk of foreclosure or in foreclosure without regard to the percentage of
home foreclosures in such areas.
Also in May 2009, the Credit Card Act of 2009 was enacted to help consumers and ban certain
practices of credit card issuers. The new law allows interest rate hikes on existing balances only
under limited conditions, such as when a promotional rate ends, there is a variable rate or if the
cardholder makes a late
payment. Interest rates on new transactions can increase only after the first year. Significant
changes in terms on accounts cannot occur without 45 days’ advance notice of the change. The new
law bans raising interest rates on customers based on their payment records with other unrelated
credit issuers (such as utility companies and other creditors) for existing credit card balances,
though card issuers would still be
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allowed to use universal default on future credit card balances
if they give at least 45 days’ advance notice of the change. The new law allows consumers to opt
out of certain significant changes in terms on their accounts. Opting out means cardholders agree
to close their accounts and pay off the balance under the old terms. They have at least five years
to pay the balance. Credit card issuers will be banned from issuing credit cards to anyone under
21, unless they have adult co-signers on the accounts or can show proof they have enough income to
repay the card debt. Credit card companies must stay at least 1,000 feet from college campuses if
they are offering free pizza or other gifts to entice students to apply for credit cards.
The new requires card issuers to give card account holders “a reasonable amount of time” to make
payments on monthly bills. That means payments would be due at least 21 days after they are mailed
or delivered. Credit card issuers would no longer be able to set early morning or other arbitrary
deadlines for payments. When consumers have accounts that carry different interest rates for
different types of purchases payments in excess of the minimum amount due must go to balances with
higher interest rates first. Consumers must “opt in” to over-limit fees. Those who opt out would
have their transactions rejected if they exceed their credit limits, thus avoiding over-limit fees.
Fees charged for going over the limit must be reasonable. Finance charges on outstanding credit
card balances would be computed based on purchases made in the current cycle rather than going back
to the previous billing cycle to calculate interest charges. Fees on credit cards cannot exceed 25
percent of the available credit limit in the first year of the card. Credit card issuers must
disclose to cardholders the consequences of making only minimum payments each month, namely how
long it would take to pay off the entire balance if users only made the minimum monthly payment.
Issuers must also provide information on how much users must pay each month if they want to pay off
their balances in 36 months, including the amount of interest.
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.
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EESA was amended by ARRA to also provide additional corporate governance provisions with respect to
executive compensation including the following:
| • | 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). |
||
| • | COMPLIANCE WITH STANDARDS — The Treasury is required to see that each TARP recipient
meet the required standards for executive compensation and corporate governance. |
||
| • | SPECIFIC REQUIREMENTS FOR THE REQUIRED STANDARDS — |
| • | 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. |
||
| • | 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. |
||
| • | 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.
ARRA also provides $730 million to the SBA and makes changes to the agency’s lending and investment
programs so that they can reach more small businesses that need help. The funding includes:
| • | $375 million for temporarily eliminating fees on SBA-backed loans and raising SBA’s
guarantee percentage on some loans to 90 percent. |
||
| • | $255 million for a new loan program to help small businesses meet existing debt
payments |
||
| • | $30 million for expanding SBA’s Microloan program, enough to finance up to $50 million
in new lending and $24 million in technical assistance grants to microlenders. |
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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:
| • | 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. |
||
| • | 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. |
||
| • | 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. |
||
| • | 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. |
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:
| • | 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; |
||
| • | 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; |
||
| • | 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; |
||
| • | 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. |
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On February 10, 2009, the Treasury Secretary announced a new comprehensive financial stability
legislation (the “Financial Stability Plan”), which earmarked the second $350 billion of unused
funds originally authorized under the EESA. The major elements of the Financial Stability Plan
included: (i) a capital assistance program that has invested in convertible preferred stock of
certain qualifying institutions, (ii) a consumer and business lending initiative to fund new
consumer loans, small business loans and commercial mortgage asset-backed securities issuances,
(iii) a public/private investment fund intended to leverage public and private capital with public
financing to purchase up to $500 billion to $1 trillion of legacy “toxic assets” from financial
institutions, and (iv) assistance for homeowners by providing up to $75 billion to reduce mortgage
payments and interest rates and establishing loan modification guidelines for government and
private programs.
On October 22, 2009, the Federal Reserve Board issued a comprehensive proposal on incentive
compensation policies intended to ensure that the incentive compensation policies of banking
organizations do not undermine the safety and soundness of such organizations by encouraging
excessive risk-taking. The proposal, which covers all employees that have the ability to
materially affect the risk profile of an organization, either individually or as part of a group,
is based upon the key principles that a banking organization’s incentive compensation arrangements
should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability
to effectively identify and manage risks, (ii) be compatible with effective internal controls and
risk management, and (iii) be supported by strong corporate governance, including active and
effective oversight by the organization’s board of directors. The proposal also contemplates a
detailed review by the Federal Reserve Board of the incentive compensation policies and practices
of a number of “large, complex banking organizations.” Any deficiencies in compensation practices
that are identified may be incorporated into the organization’s supervisory ratings, which can
affect its ability to make acquisitions or perform other actions. In addition, the proposal
provides that enforcement actions may be taken against a banking organization if its incentive
compensation arrangements or related risk-management control or governance processes pose a risk to
the organization’s safety and soundness and the organization is not taking prompt and effective
measures to correct the deficiencies. Similarly, on January 12, 2010, the FDIC announced that it
would seek public comment through advance notice of rule making on whether banks with compensation
plans that encourage risky behavior should be charged at higher deposit assessment rates than such
banks would otherwise be charged.
On September 3, 2009, the U.S. Treasury issued a policy statement entitled “Principles for
Reforming the U.S. and International Regulatory Capital Framework for Banking Firms.” The
statement was developed in consultation with the U.S. bank regulatory agencies and sets forth eight
“core principles” intended to shape a new international capital accord. Six of the core
principles relate directly to bank capital requirements. The statement contemplates changes to the
existing regulatory capital regime that would involve substantial revisions to, if not replacement
of, major parts of the Basel I and Basel II and affect all regulated banking organizations and
other systemically important institutions. The statement calls for higher and stronger capital
requirements for bank and non-bank financial firms that are deemed to pose a risk to financial
stability due to their combination of size, leverage, interconnectedness and liquidity risk. The
statement suggested that changes to the regulatory capital framework be phased in over a period of
several years with a recommended schedule providing for a comprehensive international agreement by
December 31, 2010, with the implementation of reforms by December 31, 2012, although it does remain
possible that U.S. bank regulatory agencies could officially adopt, or informally implement, new
capital standards at an earlier date. Following the issuance of the statement, on December 17,
2009, the Basel committee issued a set of proposals (the “Capital Proposals”) that would
significantly revise the definitions of Tier 1 capital and Tier 2 capital, with the most
significant changes being to Tier 1 capital. Most notably, the Capital Proposals would disqualify
certain structured capital instruments, such as trust preferred securities, from Tier 1 capital
status. The Capital Proposals would also re-emphasize that common equity is the predominant
component of Tier 1 capital by adding a minimum common equity to risk-weighted assets ratio and
requiring that goodwill, general intangibles and certain other items that currently must be
deducted from Tier 1 capital instead be deducted from common equity as a component of Tier 1
capital. The Capital Proposals also leave open the possibility that the Basel committee will
recommend changes to the minimum Tier 1 capital and total capital ratios of 4.0% and 8.0%,
respectively. Concurrently with the
release of the Capital Proposals, the Basel committee also released a set of proposals related to
liquidity risk exposure (the “Liquidity Proposals”). The Liquidity Proposals have three key
elements, including the implementation of (i) a “liquidity coverage ratio” designed to ensure that
a bank maintains an adequate
18
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level of unencumbered, high-quality assets sufficient to meet the
bank’s liquidity needs over a 30-day time horizon under an acute liquidity stress scenario, (ii) a
“net stable funding ratio” designed to promote more medium and long-term funding of the assets and
activities of banks over a one-year time horizon, and (iii) a set of monitoring tools that the
Basel committee indicates should be considered as the minimum types of information that banks
should report to supervisors and that supervisors should use in monitoring the liquidity risk
profiles of supervised entities.
In June 2009, the Administration proposed a wide range of regulatory reforms that, if enacted, may
have significant effects on the financial services industry in the United States. Significant
aspects of the Administration’s proposals included, among other things, proposals (i) that any
financial firm whose combination of size, leverage and interconnectedness could pose a threat to
financial stability be subject to certain enhanced regulatory requirements, (ii) that federal bank
regulators require loan originators or sponsors to retain part of the credit risk of securitized
exposures, (iii) that there be increased regulation of broker-dealers and investment advisers, (iv)
for the creation of a federal consumer financial protection agency that would, among other things,
be charged with applying consistent regulations to similar products (such as imposing certain
notice and consent requirements on consumer overdraft lines of credit), (v) that there be
comprehensive regulation of OTC derivatives, (vi) that the controls on the ability of banking
institutions to engage in transactions with affiliates be tightened, and (vii) that financial
holding companies be required to be “well-capitalized” and “well-managed” on a consolidated basis.
The Congress, state lawmaking bodies and federal and state regulatory agencies continue to consider
a number of wide-ranging and comprehensive proposals for altering the structure, regulation and
competitive relationships of the nation’s financial institutions, including rules and regulations
related to the broad range of reform proposals set forth by the Obama administration described
above. Along with amendments to the Administration’s proposal there are separate comprehensive
financial reform bills intended to address in part or whole or vary in part or in whole from the
proposals set forth by the Administration were introduced in both houses of Congress in the second
half of 2009 and in 2010 and remain under review by both the U.S. House of Representatives and the
U.S. Senate.
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 will continue through
June 30, 2010.
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.
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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.
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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| • | 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. |
||
| • | 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 California, the enactment of AB329 in 2009, the Reverse Mortgage Elder Protection Act of 2009
prohibits a lender or any other person who participates in the origination of the mortgage from
participation in, being associated with, or employing any party that participates in or is
associated with any other financial or insurance activity or referring a prospective borrower to
anyone for the purchase of other financial or insurance products; and imposes certain disclosure
requirements on the lender.
The enactment of AB1160 in 2009, requires a supervised financial institution in California that
negotiates primarily in any of a number of specified languages in the course of entering into a
contract or agreement for a loan or extension of credit secured by residential real property, to
deliver, prior to the execution of the contract or agreement, and no later than 3 business days
after receiving the written application, a specified form in that language summarizing the terms of
the contract or agreement; provides for administrative penalties for violations; and requires the
California Department of Corporations and the Department of Financial Institutions to create a form
for providing translations and make it available in Spanish, Chinese, Tagalog, Vietnamese and
Korean. The statute becomes operative on July 1, 2010, or 90 days after issuance of the form,
whichever occurs later.
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The enactment of AB 1291 in 2009 makes changes to the California Unclaimed Property Law including
(among other things): allowing electronic notification to customers who have consented to
electronic notice; requiring that notices contain certain information and allow the holder to
provide electronic means to enable the owner to contact the holder in lieu of returning the
prescribed form to declare the owner’s intent; authorizing the holder to give additional notices;
and requiring, beginning January 1, 2011, a banking or financial organization to provide a written
notice regarding escheat at the time a new account or safe deposit box is opened.
The enactment of SB306 makes specified changes to clarify existing law related to filing a notice
of default on residential real property in California, including (among other things): clarifying
that the provisions apply to mortgages and deeds of trust recorded from January 1, 2003 through
December 31, 2007, secured by owner-occupied 3 4 residential real property containing no more than
4 dwelling units; revising the declaration to be filed with the notice of default; specifying how
the loan servicers have to maximize net present value under their pooling and servicing agreements
applies to certain investors; specifying how and when the notice to residents of property subject
to foreclosure is to be mailed; and extending the time during which the notice of sale must be
recorded from 14 to 20 days. The bill also makes certain changes related to short-pay agreements
and short-pay demand statements.
On February 20, 2009, Governor Schwarzenegger signed ABX2 7 and SBX2 7, which established the
California Foreclosure Prevention Act. The California Foreclosure Prevention Act modifies the
foreclosure process to provide additional time for borrowers to work out loan modifications while
providing an exemption for mortgage loan servicers that have implemented a comprehensive loan
modification program. Civil Code Section 2923.52 requires an additional 90 day period beyond the
period already provided before a Notice of Sale can be given in order to allow all parties to
pursue a loan modification to prevent foreclosure of loans meeting certain criteria identified in
that section.
A mortgage loan servicer who has implemented a comprehensive loan modification program may file an
application for exemption from the provisions of Civil Code Section 2923.52. Approval of this
application provides the mortgage loan servicer an exemption from the additional 90-day period
before filing the Notice of Sale when foreclosing on real property covered by the new law.
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.
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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; |
||
| • | 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. |
Recent Accounting Pronouncements
See Note 2 — “Summary of Significant Accounting Policies — Adoption of New Financial Accounting
Standards” of the Company’s Consolidated Financial Statements in Item 8 — Financial Statements and
Supplementary Data of this Annual Report on Form 10K for information related to recent accounting
pronouncements.
| ITEM 1A. | RISK FACTORS |
As a smaller reporting company we are not required to provide the information required by this
item.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
No comments have been submitted to the registrant by the staff of the Securities Exchange
Commission.
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| 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 |
32 Central Avenue | 80 W. Main St. | ||
Quincy, California (1) |
Quincy, California (1) | Quincy, California (1) | ||
424 N. Mill Creek |
336 West Main Street | 120 North Pine Street | ||
Quincy, California (1) |
Quincy, California | Portola, California | ||
43163 Highway 299E |
121 Crescent Street | 315 Birch Street | ||
Fall River Mills, California |
Greenville, California | Westwood, California (2) | ||
255 Main Street |
510 North Main Street | 3000 Riverside Drive | ||
Chester, California |
Alturas, California | Susanville, California | ||
8475 North Lake Boulevard |
11638 Donner Pass Road | |||
Kings Beach, California |
Truckee, California |
Leased
Properties
243 North Lake Boulevard |
604 Main Street | 2175 Civic Center Drive | ||
Tahoe City, California |
Loyalton, California (2) | Redding, California | ||
1005 Terminal Way, Ste. 246 |
470 Nevada St., Suite 108 | |||
Reno, Nevada (3) |
Auburn, California (3) |
| (1) | Non-branch administrative or credit administrative offices. |
|
| (2) | Traditional banking services were discounted at these branches on February 26, 2010. ATMs
remain to service our customers. |
|
| (3) | Commercial lending offices. |
Total rental expenses under all leases, including premises, totaled $317,000, $347,000 and
$209,000, in 2009, 2008 and 2007 respectively. The expiration dates of the leases vary, with the
first such lease expiring during 2010 and the last such lease expiring during 2018. Future minimum
lease payments in thousands of dollars are as follows:
| Year Ending December 31, | ||||
2010 |
$ | 265,000 | ||
2011 |
234,000 | |||
2012 |
234,000 | |||
2013 |
258,000 | |||
2014 |
143,000 | |||
Thereafter |
465,000 | |||
| $ | 1,499,000 | |||
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.
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| 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. | (REMOVED AND RESERVED) |
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PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER 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, 2009, there were 4,776,339 shares of the Company’s stock outstanding held by
approximately 1,850 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.
| Common | ||||||||||||
| Quarter | Dividends | High | Low | |||||||||
4th Quarter 2009 |
— | $ | 4.80 | $ | 2.88 | |||||||
3rd Quarter 2009 |
— | $ | 4.99 | $ | 3.80 | |||||||
2nd Quarter 2009 |
— | $ | 5.96 | $ | 3.80 | |||||||
1st Quarter 2009 |
— | $ | 7.81 | $ | 3.80 | |||||||
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 | |||||||
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 Note 11 “Shareholders’ Equity —
Dividend Restrictions” of the Company’s Consolidated Financial Statements in Item 8 — Financial
Statements and Supplementary Data of this Annual Report on Form 10K.
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
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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 common dividends were paid in 2009 and none are anticipated to be
paid in 2010. Additionally, no assurance can be given that cash or stock dividends will be paid in
the future.
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, 2009.
| Number of securities | ||||||||||||
| remaining available | ||||||||||||
| Number of | for future | |||||||||||
| securities to be | issuance under equity | |||||||||||
| issued upon | Weighted-average | compensation plans | ||||||||||
| exercise of | exercise price of | (excluding securities | ||||||||||
| outstanding options | outstanding options | reflected in column (a)) | ||||||||||
| Plan Category | (a) | (b) | (c) | |||||||||
Equity compensation
plans approved by
security holders |
403,966 | $ | 13.56 | 469,219 | ||||||||
Equity compensation
plans not approved
by security holders |
None | Not Applicable | None | |||||||||
Total |
403,966 | $ | 13.56 | 469,219 | ||||||||
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. There were no purchases of Plumas Bancorp common stock by
the Company during 2009.
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| 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, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (dollars in thousands except per share information) | ||||||||||||||||||||
Statement of Income |
||||||||||||||||||||
Interest income |
$ | 22,836 | $ | 25,440 | $ | 30,284 | $ | 29,483 | $ | 25,497 | ||||||||||
Interest expense |
3,655 | 5,364 | 8,536 | 6,954 | 4,793 | |||||||||||||||
Net interest income |
19,181 | 20,076 | 21,748 | 22,529 | 20,704 | |||||||||||||||
Provision for loan losses |
14,500 | 4,600 | 800 | 1,000 | 1,100 | |||||||||||||||
Noninterest income |
5,752 | 5,091 | 5,448 | 5,159 | 5,073 | |||||||||||||||
Noninterest expense |
26,354 | 20,475 | 19,671 | 18,290 | 17,549 | |||||||||||||||
(Benefit from) provision for income taxes |
(6,775 | ) | (212 | ) | 2,502 | 3,196 | 2,600 | |||||||||||||
Net (loss) income |
$ | (9,146 | ) | $ | 304 | $ | 4,223 | $ | 5,202 | $ | 4,528 | |||||||||
Balance sheet (end of period) |
||||||||||||||||||||
Total assets |
$ | 528,117 | $ | 457,175 | $ | 453,115 | $ | 473,239 | $ | 472,803 | ||||||||||
Total loans |
$ | 332,678 | $ | 366,017 | $ | 352,949 | $ | 354,712 | $ | 321,646 | ||||||||||
Allowance for loan losses |
$ | 9,568 | $ | 7,224 | $ | 4,211 | $ | 3,917 | $ | 3,256 | ||||||||||
Total deposits |
$ | 433,255 | $ | 371,493 | $ | 391,940 | $ | 402,176 | $ | 426,560 | ||||||||||
Total shareholders’ equity |
$ | 38,231 | $ | 35,437 | $ | 37,139 | $ | 35,852 | $ | 31,137 | ||||||||||
Balance sheet (period average) |
||||||||||||||||||||
Total assets |
$ | 490,000 | $ | 447,720 | $ | 464,974 | $ | 468,988 | $ | 452,225 | ||||||||||
Total loans |
$ | 354,482 | $ | 355,416 | $ | 353,384 | $ | 335,226 | $ | 302,596 | ||||||||||
Total deposits |
$ | 403,896 | $ | 382,279 | $ | 403,772 | $ | 415,700 | $ | 403,818 | ||||||||||
Total shareholders’ equity |
$ | 43,839 | $ | 37,343 | $ | 37,041 | $ | 33,682 | $ | 29,548 | ||||||||||
Capital ratios |
||||||||||||||||||||
Leverage ratio |
7.9 | % | 9.8 | % | 10.0 | % | 9.5 | % | 8.5 | % | ||||||||||
Tier 1 risk-based capital |
10.4 | % | 11.0 | % | 11.6 | % | 10.9 | % | 10.3 | % | ||||||||||
Total risk-based capital |
11.6 | % | 12.2 | % | 12.7 | % | 11.8 | % | 11.1 | % | ||||||||||
Asset quality ratios |
||||||||||||||||||||
Nonperforming loans/total loans |
4.30 | % | 7.31 | % | 0.75 | % | 0.29 | % | 0.52 | % | ||||||||||
Nonperforming assets/total assets |
4.84 | % | 6.78 | % | 0.70 | % | 0.22 | % | 0.36 | % | ||||||||||
Allowance for loan losses/total loans |
2.88 | % | 1.97 | % | 1.19 | % | 1.10 | % | 1.01 | % | ||||||||||
Net loan charge-offs |
$ | 12,156 | $ | 1,587 | $ | 506 | $ | 339 | $ | 566 | ||||||||||
Performance ratios |
||||||||||||||||||||
(Loss) return on average assets |
(1.87 | )% | 0.07 | % | 0.91 | % | 1.11 | % | 1.00 | % | ||||||||||
(Loss) return on average common equity |
(29.5 | )% | 0.8 | % | 11.4 | % | 15.4 | % | 15.2 | % | ||||||||||
(Loss) return on average equity |
(20.9 | )% | 0.8 | % | 11.4 | % | 15.4 | % | 15.2 | % | ||||||||||
Net interest margin |
4.52 | % | 4.99 | % | 5.18 | % | 5.32 | % | 5.06 | % | ||||||||||
Loans to Deposits |
76.8 | % | 98.5 | % | 90.1 | % | 88.2 | % | 75.4 | % | ||||||||||
Efficiency ratio |
105.7 | % | 81.4 | % | 72.3 | % | 66.1 | % | 68.1 | % | ||||||||||
Per share information |
||||||||||||||||||||
Basic earnings (loss) |
$ | (2.05 | ) | $ | 0.06 | $ | 0.85 | $ | 1.04 | $ | 0.92 | |||||||||
Diluted earnings (loss) |
$ | (2.05 | ) | $ | 0.06 | $ | 0.84 | $ | 1.02 | $ | 0.89 | |||||||||
Common cash dividends |
$ | 0.00 | $ | 0.24 | $ | 0.30 | $ | 0.26 | $ | 0.22 | ||||||||||
Dividend payout ratio |
— | % | 400 | % | 35.3 | % | 25.0 | % | 23.9 | % | ||||||||||
Book value per common share |
$ | 5.58 | $ | 7.42 | $ | 7.63 | $ | 7.14 | $ | 6.26 | ||||||||||
Common shares outstanding at period end |
4,776,339 | 4,775,339 | 4,869,130 | 5,023,205 | 4,976,654 | |||||||||||||||
28
Table of Contents
| 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 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.
Other Real Estate Owned. Other real estate owned (OREO) represents properties acquired
through foreclosure or physical possession. Write-downs to fair value at the time of transfer to
OREO is charged to allowance for loan losses. Subsequent to foreclosure, we periodically evaluate
the value of OREO held for sale and record a valuation allowance for any subsequent declines in
fair value less selling costs.
29
Table of Contents
Subsequent declines in value are charged to operations. Fair value
is based on our assessment of information available to us at the end of a reporting period and
depends upon a number of factors, including our historical experience, economic conditions, and
issues specific to individual properties. Our evaluation of these factors involves subjective
estimates and judgments that may change.
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.
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.
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.
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, 2009 and 2008 and for each of the three years in the period ended
December 31, 2009. 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. Primarily
related to significant declines in real estate values our provision for loan losses increased by
$9.9 million and we experienced a $4.2 million increase in the provision for OREO losses. These
items along with an $895 thousand decrease in net interest income, an $867 thousand increase in
FDIC insurance premiums and
a $0.8 million increase in other items of non-interest expense were partially offset by a $0.7
million increase in non-interest income. The result was a pretax loss
of $15.9 million for the
year ended December 31, 2009. This compares to pretax income of $92 thousand in 2008 and $6.7
million in 2007. We recorded a benefit for income taxes of $6.8 million in 2009 and $212 thousand
in 2008. Income tax expense was $2.5 million in 2007. The Company recorded a net
loss of $9.1 million for the year ended December 31, 2009
down $9.4 million from net income of $304
thousand for the year ended December 31, 2008. Net income was $4.2 million for the year ended
December 31, 2007.
30
Table of Contents
Net
income (loss) allocable to common shareholders declined from net
income of $304 thousand during the year ended December 31, 2008 to a
net loss of $9.8 million during 2009. Included in the 2009 loss was
the net loss described above of $9.1 million and an additional $628
thousand which represents dividends paid and accrued and the discount
amortized on preferred stock.
Most of the increase in the provision for loan losses can be attributed to declines in collateral
value and increases in net charges-offs related to our real estate construction and land
development loan portfolio. During 2009 we have significantly reduced our exposure to these loans
as demonstrated by a decline in loan balances in this portfolio of $35.7 million from $73.8 million
at December 31, 2008 to $38.1 million at December 31, 2009.
Total
assets at December 31, 2009 increased $70.9 million, or
15.5% to $528 million. Increases
include $40.7 million in cash and due from banks,
$49.6 million in investment securities, $7.0
million in real estate and vehicles acquired through foreclosure and
$9.3 million in other assets,
partially offset by a decline of $35.7 million in net loans. The increase in investment securities
relates to the purchase of securities issued by U.S. government agencies, while the increase in
cash includes $18.8 million in interest earning balances held at the Federal Reserve Bank of San
Francisco (FRB). Net loans totaled $323.4 million at
December 31, 2009, down 9.9% from $359.1
million at December 31, 2008. At December 31, 2009 investment securities totaled $88.0 million
compared to $38.4 million at December 31, 2008.
Related to increases of $33.5 million in interest-bearing demand accounts, $24.4 million in time
deposits, and $5.0 million in money market accounts, slightly offset by declines of $0.8 million in
non-interest bearing demand deposits and $0.3 million in savings accounts, deposits increased by
$61.8 million, or 16.6%, to $433.3 million at December 31, 2009 from $371.5 million at December 31,
2008. The Company has been successful in increasing its interest-bearing demand accounts as a
result of a new interest bearing transaction account designed for local public agencies, which we
have successfully marketed to several of the municipalities in our service area. Time deposits
benefited from a new a promotional time deposit product we began offering in June, 2009. This
product had an 18 month term and a 2% rate.
Total borrowings increased from $34 million at December 31, 2008 to $40 million at December 31,
2009. The Company chose to borrow $10 million in a two year term FHLB advance and $10 million in a
three year term FHLB advance to take advantage of favorable interest rates. Other borrowings at
December 31, 2009 were $20 million in a six month FHLB advance which matured on January 19, 2010.
Borrowings at December 31, 2008 consisted of $34 million in overnight FHLB advances.
Shareholders’
equity as of December 31, 2009 increased by $2.8 million to
$38.2 million up from
$35.4 million as of December 31, 2008. This increase is related to the issuance of $11.9 million
in Preferred Stock, Series A to the United States Department of Treasury (Treasury) under the
Capital Purchase Program, partially offset by our 2009 net loss.
The
return (loss) on average assets was (1.87) % for 2009, down from 0.07% for 2008. The return
(loss) on average common equity was (29.5) % for 2009, down from 0.8% for 2008.
31
Table of Contents
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, | ||||||||||||||||||||||||||||||||||||
| 2009 | 2008 | 2007 | ||||||||||||||||||||||||||||||||||
| 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 |
||||||||||||||||||||||||||||||||||||
Interest bearing deposits |
$ | 6,298 | $ | 15 | 0.24 | % | $ | — | $ | — | — | % | $ | — | $ | — | — | % | ||||||||||||||||||
Federal funds sold |
12 | — | — | 118 | 3 | 2.54 | 3,517 | 171 | 4.86 | |||||||||||||||||||||||||||
Investment securities(1) |
64,047 | 2,163 | 3.38 | 46,658 | 1,887 | 4.04 | 62,690 | 2,404 | 3.83 | |||||||||||||||||||||||||||
Total loans (2)(3) |
354,482 | 20,658 | 5.83 | 355,416 | 23,550 | 6.63 | 353,384 | 27,709 | 7.84 | |||||||||||||||||||||||||||
Total earning assets |
424,839 | 22,836 | 5.38 | % | 402,192 | 25,440 | 6.33 | % | 419,591 | 30,284 | 7.22 | % | ||||||||||||||||||||||||
Cash and due from banks |
27,372 | 12,174 | 12,850 | |||||||||||||||||||||||||||||||||
Other assets |
37,789 | 33,354 | 32,533 | |||||||||||||||||||||||||||||||||
Total assets |
$ | 490,000 | $ | 447,720 | $ | 464,974 | ||||||||||||||||||||||||||||||
Liabilities and shareholders’
equity |
||||||||||||||||||||||||||||||||||||
Interest bearing demand deposits |
$ | 98,394 | 671 | 0.68 | % | $ | 73,338 | 548 | 0.75 | % | $ | 77,254 | 1,335 | 1.73 | % | |||||||||||||||||||||
Money market deposits |
41,844 | 346 | 0.83 | 37,626 | 312 | 0.83 | 39,431 | 327 | 0.83 | |||||||||||||||||||||||||||
Savings deposits |
50,286 | 90 | 0.18 | 48,573 | 161 | 0.33 | 50,448 | 245 | 0.49 | |||||||||||||||||||||||||||
Time deposits |
105,313 | 2,062 | 1.96 | 110,743 | 3,501 | 3.16 | 121,808 | 5,304 | 4.35 | |||||||||||||||||||||||||||
Short-term borrowings |
24,292 | 80 | 0.33 | 11,857 | 202 | 1.70 | 8,735 | 467 | 5.35 | |||||||||||||||||||||||||||
Long-term borrowings |
1,589 | 27 | 1.70 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Junior subordinated debentures |
10,310 | 371 | 3.60 | 10,310 | 623 | 6.04 | 10,310 | 835 | 8.10 | |||||||||||||||||||||||||||
Other |
212 | 8 | 3.77 | 309 | 17 | 5.50 | 303 | 23 | 7.59 | |||||||||||||||||||||||||||
Total interest bearing liabilities |
332,240 | 3,655 | 1.10 | % | 292,756 | 5,364 | 1.83 | % | 308,289 | 8,536 | 2.77 | % | ||||||||||||||||||||||||
Noninterest bearing demand deposits |
108,059 | 111,999 | 114,831 | |||||||||||||||||||||||||||||||||
Other liabilities |
5,862 | 5,622 | 4,813 | |||||||||||||||||||||||||||||||||
Shareholders’ equity |
43,839 | 37,343 | 37,041 | |||||||||||||||||||||||||||||||||
Total liabilities and
shareholders’ equity |
$ | 490,000 | $ | 447,720 | $ | 464,974 | ||||||||||||||||||||||||||||||
Net interest income |
$ | 19,181 | $ | 20,076 | $ | 21,748 | ||||||||||||||||||||||||||||||
Net interest spread (4) |
4.28 | % | 4.50 | % | 4.45 | % | ||||||||||||||||||||||||||||||
Net interest margin (5) |
4.52 | % | 4.99 | % | 5.18 | % | ||||||||||||||||||||||||||||||
| (1) | Interest income is reflected on an actual basis and is not computed on a tax-equivalent
basis. |
|
| (2) | Average nonaccrual loan balances of $25.1million for 2009, $5.2 million for 2008 and $1.7
million for 2007 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 $214,000, $288,000 and $360,000 for 2009, 2008 and 2007, 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
Table of Contents
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:
| 2009 compared to 2008 | 2008 compared to 2007 | |||||||||||||||||||||||||||||||
| 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: |
||||||||||||||||||||||||||||||||
Interest bearing deposits |
$ | — | $ | — | $ | 15 | $ | 15 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Federal funds sold |
(3 | ) | (3 | ) | 3 | (3 | ) | (165 | ) | (82 | ) | 79 | (168 | ) | ||||||||||||||||||
Investment securities |
703 | (311 | ) | (116 | ) | 276 | (615 | ) | 131 | (33 | ) | (517 | ) | |||||||||||||||||||
Loans |
(62 | ) | (2,838 | ) | 8 | (2,892 | ) | 159 | (4,294 | ) | (24 | ) | (4,159 | ) | ||||||||||||||||||
Total interest income |
638 | (3,152 | ) | (90 | ) | (2,604 | ) | (621 | ) | (4,245 | ) | 22 | (4,844 | ) | ||||||||||||||||||
Interest-bearing
liabilities: |
||||||||||||||||||||||||||||||||
Interest bearing demand
deposits |
187 | (48 | ) | (16 | ) | 123 | (68 | ) | (758 | ) | 39 | (787 | ) | |||||||||||||||||||
Money market deposits |
35 | — | (1 | ) | 34 | (15 | ) | — | — | (15 | ) | |||||||||||||||||||||
Savings deposits |
6 | (74 | ) | (3 | ) | (71 | ) | (9 | ) | (78 | ) | 3 | (84 | ) | ||||||||||||||||||
Time deposits |
(172 | ) | (1,333 | ) | 66 | (1,439 | ) | (482 | ) | (1,453 | ) | 132 | (1,803 | ) | ||||||||||||||||||
Short-term borrowings |
212 | (163 | ) | (171 | ) | (122 | ) | 167 | (318 | ) | (114 | ) | (265 | ) | ||||||||||||||||||
Long-term borrowings |
— | — | 27 | 27 | — | — | — | — | ||||||||||||||||||||||||
Junior subordinated debentures |
— | (252 | ) | — | (252 | ) | — | (212 | ) | — | (212 | ) | ||||||||||||||||||||
Other borrowings |
(5 | ) | (5 | ) | 1 | (9 | ) | — | (6 | ) | — | (6 | ) | |||||||||||||||||||
Total interest expense |
263 | (1,875 | ) | (97 | ) | (1,709 | ) | (407 | ) | (2,825 | ) | 60 | (3,172 | ) | ||||||||||||||||||
Net interest income |
$ | 375 | $ | (1,277 | ) | $ | 7 | $ | (895 | ) | $ | (214 | ) | $ | (1,420 | ) | $ | (38 | ) | $ | (1,672 | ) | ||||||||||
| (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. |
2009 compared to 2008. Net interest income is the difference between interest income and
interest expense. Net interest income, on a nontax-equivalent basis, was $19.2 million for the year
ended December 31, 2009, a decline of $895 thousand, or 4.5%, from $20.1 million for 2008. The
decline in interest income and expense includes the affect of a decline in market interest rates
during the comparison periods as illustrated by the decline in the average prime interest rate from
5.09% during 2008 to 3.25% for 2009. Additionally, interest earned on the Company’s loan portfolio
declined related to an increase in average nonaccrual loans from $5.2 million during the 2008
period to $25.1 million during the year ended December 31, 2009.
Overall changes in net interest income are primarily a result of a decrease in loan interest
income, largely due to the decline in yields earned, partially offset by an increase in interest on
investments securities, related to an increase in average investment securities outstanding and
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 $2.6 million, or 10.2%, to $22.8 million for the year ended December 31,
2009. Interest and fees on loans decreased by $2.9 million from $23.6 million for the year ended
December 31, 2008 to $20.7 million for 2009. The average loan balances were $354.5 million for
2009, down $0.9 million from the $355.4 million for 2008. The average yields on loans were 5.83%
for 2009 down from the 6.63% for 2008. In addition to the decline in yield related to a decline in
market interest rates, loan yields for 2009 reflect an increase in the balance of average
nonaccrual loans.
Interest on investment securities increased by $276 thousand, as a decrease in yield of 66 basis
points was offset by an increase in average investment securities of $17.4 million. The decrease in
rate for 2009 relates to the purchase of securities during the twelve months ended December 31,
2009 and the maturity of higher rate securities.
33
Table of Contents
As a result of the declining rate environment interest expense decreased $1.7 million to $3.7
million for the year ended December 31, 2009, from $5.4 million for 2008. The decrease in interest
expense was primarily attributed to rate decreases on time deposits and, to a lesser extent, rate
decreases on interest-bearing transaction accounts, savings and money market deposits, short-term
borrowings and junior subordinated debentures. The decrease in expense related to declining rates
was slightly offset by increases in the average balances of interest bearing demand deposits and
short-term borrowings.
For the year ended December 31, 2009 compared to 2008, the Company’s average rate paid on time
deposits decreased 120 basis points to 1.96% from 3.16%. This decrease primarily relates to a
decline in market rates in the Company’s service area. During the same period the average balances
of time deposits declined by $5.4 million to $105.3 million. Interest expense on time deposits
declined by $1.4 million from $3.5 million during 2008 to $2.1 million during the twelve months
ended December 31, 2009.
Interest expense on interest-bearing demand accounts increased by $123 thousand related to an
increase in the average balance of these deposits from $73.3 million during 2008 to $98.4 million
during 2009 partially offset by a decrease in the average rate paid on these accounts from 0.75%
during 2008 to 0.68% during the twelve months ended December 31, 2009. The increase in
interest-bearing demand accounts primary relates to a new interest bearing transaction account
designed for local public agencies, which we have successfully marketed to several of the
municipalities in our service area. Interest expense on money market accounts increased by $34
thousand related to an increase 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 savings deposits declined by $71 thousand
related to a decline in rate paid from 0.33% during 2008 to 0.18% during 2009.
Interest on short-term borrowings decreased by $122 thousand as a decline in the rate paid on these
borrowings of 137 basis points was partially offset by an increase of $12.4 million 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 $252 thousand during 2009 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 2009 decreased 47
basis points to 4.52%, from 4.99% for 2008.
2008 compared to 2007. 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.
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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.
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 2007 to 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.
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.
Provision for Loan Losses
The allowance for loan losses is maintained at a level that management believes will be appropriate
to absorb inherent losses on existing loans based on an evaluation of the 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.
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. Net charge-offs totaled
$12.2 million during 2009, however $10 million of this amount was related to construction and land
development loans. The construction and land development portfolio component has been identified
by Management as a higher-risk loan category. The quality of the construction and land development
category is highly dependent on property values both in terms of the likelihood of repayment once
the property is transacted by the current owner as well as the level of collateral the Company has
securing the loan in the event of default. Loans in
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this category are characterized by the speculative nature of commercial and residential development
properties and can include property in various stages of development from raw land to finished
lots. Management relies heavily on recent loss experience in determining risk in the category
which it believes provides a more accurate gauge of actual risk given the negative trends in the
current economic cycle. Real estate loans may be more adversely affected by conditions in the real
estate markets or in the general economy. The Company has significantly reduced its exposure to
these loans as demonstrated by a decline in loan balances in this portfolio of $35.7 million from
$73.8 million at December 31, 2008 to $38.1 million at December 31, 2009.
The provision for loan losses increased from $800 thousand during 2007 to $4.6 million during 2008
and was $14.5 million during the year ended December 31, 2009. The Company has increased its level
of allowance for loan losses to total loans from 1.97% at
December 31, 2008 to 2.88% at December
31, 2009 and has increased its allowance for loan losses from
$7.2 million to $9.6 million for the
same periods. Net charge-offs as a percentage of average loans increased to 3.43% for 2009 from
0.45% for 2008 and 0.14% for 2007. Net charge-offs on construction and land developments loans as a
percentage of average loans increased to 2.94% for 2009 from 0.15% for 2008. The Company has made
progress, during 2009, in decreasing its level of nonperforming loans. After increasing from $2.6
million at December 31, 2007 to $26.7 million at December 31, 2008 nonperforming loans declined to
$14.3 million at December 31 2009. Based on information currently available, management believes
that the allowance for loan losses is appropriate to absorb potential risks in the portfolio.
However, no assurance can be given that the Company may not sustain charge-offs which are in excess
of the allowance in any given period. 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.
Non-Interest Income
The following table sets forth the components of non-interest income for the years ended December
31, 2009, 2008 and 2007.
| Years Ended December 31, | Change during Year | |||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
Service charges on deposit
accounts |
$ | 3,796 | $ | 3,951 | $ | 3,806 | $ | (155 | ) | $ | 145 | |||||||||
Gain on sale of loans, net |
593 | 111 | 47 | 482 | 64 | |||||||||||||||
Earnings on bank owned life
insurance policies |
434 | 421 | 415 | 13 | 6 | |||||||||||||||
Merchant processing |
282 | 286 | 282 | (4 | ) | 4 | ||||||||||||||
Loan servicing fees |
139 | 96 | 140 | 43 | (44 | ) | ||||||||||||||
Customer service fees |
121 | 114 | 119 | 7 | (5 | ) | ||||||||||||||
Investment services |
81 | 125 | 162 | (44 | ) | (37 | ) | |||||||||||||
Safe deposit box and night
depository income |
68 | 67 | 67 | 1 | — | |||||||||||||||
Official check fees |
17 | 93 | 157 | (76 | ) | (64 | ) | |||||||||||||
Federal Home Loan Bank
dividends |
4 | 105 | 109 | (101 | ) | (4 | ) | |||||||||||||
Impairment loss on investment
security |
— | (415 | ) | — | 415 | (415 | ) | |||||||||||||
Other income |
217 | 137 | 144 | 80 | (7 | ) | ||||||||||||||
Total non-interest income |
$ | 5,752 | $ | 5,091 | $ | 5,448 | $ | 661 | $ | (357 | ) | |||||||||
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2009 compared to 2008. During 2009, total non-interest income increased by $661 thousand or 13%,
to $5.8 million, up from $5.1 million from the comparable period in 2008. This increase was
primarily related to two items: (i) during the 2008 period non-interest income was adversely
affected by an other than temporary impairment write down of $415 thousand on a security issued by
Lehman Brothers Holdings Inc., which filed for Chapter 11 bankruptcy on September 15, 2008 and;
(ii) during 2009 we increased our gain on sale of SBA government guaranteed loans by $482 thousand.
In addition, other income increased by $80 thousand and loan servicing fees increased by $43
thousand.
Gains on loan sales are related to the sale of the guaranteed portion of SBA loans. The increase in
loan sale gains include an increase in loans sold from $4.3 million during the year ended December
31, 2008 to $10.8 million during 2009, increases in the market price of SBA guaranteed loans and an
increase, during 2009, in the percentage of each loan that is guaranteed by the SBA.
Partially offsetting these increases in income were declines in service charges, investment
services income, official check fees and FHLB dividends. Service charge income decreased by $155
thousand related to a decrease in NSF/overdraft income. Investment services income decreased by $44
thousand; however, the Company offset this decrease by a decrease in staffing dedicated to this
department. The Company attributes these decreases primarily to the economic conditions present
during 2009. Official checks fees declined by $76 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 2009. Additionally, during 2008 the
processor changed the fee structure further reducing fees that we earn under this relationship. The
FHLB paid only one dividend totaling $4 thousand during 2009 compared to four quarterly dividends
totaling $105 thousand during 2008.
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. Due to the
significant decline in the price of this security following its 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. Smaller decreases were
experienced in loan servicing income which declined by $44 thousand and investment services revenue
which declined $37 thousand.
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Non-Interest Expense
The following table sets forth the components of other non-interest expense for the years ended
December 31, 2009, 2008 and 2007.
| Years Ended December 31, | Change during Year | |||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
Salaries and employee benefits |
$ | 11,054 | $ | 10,884 | $ | 11,200 | $ | 170 | $ | (316 | ) | |||||||||
Occupancy and equipment |
3,759 | 3,838 | 3,552 | (79 | ) | 286 | ||||||||||||||
Provision for OREO losses |
4,800 | 618 | — | 4,182 | 618 | |||||||||||||||
FDIC insurance |
1,125 | 258 | 48 | 867 | 210 | |||||||||||||||
Outside service fees |
892 | 735 | 671 | 157 | 64 | |||||||||||||||
Professional fees |
789 | 688 | 738 | 101 | (50 | ) | ||||||||||||||
Loan collection costs |
399 | 205 | 154 | 194 | 51 | |||||||||||||||
Telephone and data
communications |
392 | 400 | 362 | (8 | ) | 38 | ||||||||||||||
Business development |
333 | 467 | 530 | (134 | ) | (63 | ) | |||||||||||||
OREO costs |
370 | 175 | 38 | 195 | 137 | |||||||||||||||
Advertising and promotion |
327 | 448 | 520 | (121 | ) | (72 | ) | |||||||||||||
Director compensation and
retirement |
293 | 323 | 349 | (30 | ) | (26 | ) | |||||||||||||
Armored car and courier |
281 | 289 | 279 | (8 | ) | 10 | ||||||||||||||
Postage |
207 | 208 | 242 | (1 | ) | (34 | ) | |||||||||||||
Stationery and supplies |
183 | 236 | 278 | (53 | ) | (42 | ) | |||||||||||||
Core deposit intangible
amortization |
173 | 216 | 301 | (43 | ) | (85 | ) | |||||||||||||
Loss on sale of OREO |
158 | — | — | 158 | — | |||||||||||||||
Insurance |
142 | 235 | 177 | (93 | ) | 58 | ||||||||||||||
Other operating expense |
677 | 252 | 232 | 425 | 20 | |||||||||||||||
Total non-interest expense |
$ | 26,354 | $ | 20,475 | $ | 19,671 | $ | 5,879 | $ | 804 | ||||||||||
2009 compared to 2008. During the year ended December 31, 2009, total non-interest expense
increased by $5.9 million, or 29%, to $26.4 million, up from $20.5 million for the comparable
period in 2008. This increase in non-interest expense was primarily the result of an increase in
the provision for OREO losses of $4.2 million and an increase in FDIC insurance assessments of $867
thousand. Other significant increases included $170 thousand in salaries and employee benefits,
$157 thousand in outside service fees, $101 thousand in professional fees, $194 thousand in loan
collection costs, $195 thousand in OREO costs, $158 thousand in losses on the sale of OREO and $425
thousand in other expense. These items were partially offset by reductions in other costs, the
three largest of which where advertising and shareholder relations, business development and
insurance expense.
A valuation allowance for losses on other real estate is maintained to provide for declines in
value. The provision for OREO losses for the year ended
December 31, 2009 totaled $4.8 million
which represents significant declines in the value of several properties. At December 31, 2009 OREO
consisted of twenty-nine properties with a total fair value, which
includes a $5.1 million
valuation allowance, of $11.2 million. At December 31, 2008 OREO consisted of nineteen properties
with a fair value of $4.1 million.
During 2009 the FDIC increased regular assessments and implemented a special assessment resulting
in a significant increase in FDIC assessments. Additionally, during the first quarter of 2008 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. The Company is currently forecasting elevated FDIC insurance premiums for next several
years.
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Salaries and other employee benefits increased by $170 thousand primarily related to a decrease in
the deferral of loan origination costs. Salary expense increased by $21 thousand as an increase
in salary expense of $296 thousand related to our government guaranteed lending operations was
mostly offset by reductions in staffing in other areas including our Reno loan production office
and our branch network. Related to a decrease in loan production, the deferral of loan origination
cost, which reduces salary and benefits cost, declined by $160 thousand.
During the fourth quarter of 2009 the Company outsourced the oversight of its computer network,
resulting in a reduction in information technology staffing. The cost of this outsourcing is
included in the increase in outside services fees. In addition, during 2009 we implemented an
outsourced online banking product which also increased outside service fees.
Consistent with the increase in nonperforming loans and assets during the period (See the section
“Analysis of Asset Quality and Allowance for Loan Losses”) loan collection costs and OREO expenses
increased by $389 thousand. OREO costs which include the cost of holding and maintaining
foreclosed real estate increased by $195 thousand to $370 thousand while loan collection costs
increased by $194 thousand to $399 thousand. Losses incurred on the sale of OREO totaled $158
thousand and relate to the sale of nine properties. Proceeds received on sale of these properties
totaled $2.0 million.
The increase in other expense, which totaled $425 thousand, is primarily related to nonrecurring
expense items, the largest of which totaled $140 thousand.
We implemented cost control initiatives which, among other things, have resulted in savings in
advertising, shareholder relation costs and business development costs. These cost savings totaled
$255 thousand during 2009 when compared to 2008. We reduced our shareholder expense by eliminating
the glossy section of our annual report. Business development costs declined as we reduced certain
employee travel and relationship-building initiatives which generated an annual savings of
approximately $75 thousand.
During the first quarter of 2009 our Chief Information and Technology officer retired from the
Company. Because his retirement took place prior to the age of sixty-five he forfeited his
benefits under his company provided split dollar life insurance plan. To reflect this forfeiture
we recorded a one-time reduction in insurance expense totaling $83 thousand.
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 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.
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 loan collection costs increased by $51 thousand to
$205 thousand and OREO expenses increased by $137 thousand from $38 thousand during 2007 to $175
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.
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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.
Provision
for income taxes. The Company recorded an income tax benefit of
$6.8 million, or 42.6%
of pre-tax loss for the year ended December 31, 2009. During 2008 the Company recorded an income
tax benefit of $212 thousand as tax exempt income exceeded pretax income.
Deferred tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The
determination of the amount of deferred income tax assets which are more likely than not to be
realized is primarily dependent on projections of future earnings, which are subject to uncertainty
and estimates that may change given economic conditions and other factors. The realization of
deferred income tax assets is assessed and a valuation allowance is recorded if it is “more likely
than not” that all or a portion of the deferred tax asset will not be realized. “More likely than
not” is defined as greater than a 50% chance. All available evidence, both positive and negative
is considered to determine whether, based on the weight of that evidence, a valuation allowance is
needed.
As part of its analysis, the Company considered the following positive evidence:
| • | The Company’s 2009 net loss was largely attributable to losses on its Construction and
Land Development portfolio that represented approximately 80% of net charge-offs during
the year ended December 31, 2009. This portfolio has significantly decreased during the
current year and the Company is not growing the portfolio. |
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| • | The Company’s 2009 net loss was also attributable to large write-downs in Construction
and Land Development real estate owned which represented the majority of its provision for
losses on other real estate during 2009. Given that the Construction and Land Development
REO is valued significantly below the original appraised value as of December 31, 2009,
management does not anticipate significant additional declines in future periods. |
||
| • | The Company has a long history of earnings profitability. |
||
| • | The Company is projecting future taxable and book income will be generated by
operations. |
||
| • | The size of loan credits in the Company’s pipeline of potential problem loans has
significantly decreased. |
As part of its analysis, the Company considered the following negative evidence:
| • | The Company recorded a large net loss in 2009 and is in a cumulative loss position for
the current and preceding two years. |
||
| • | The Company did not meet its financial projections in 2009 or 2008. |
Based upon our analysis of available evidence, we have determined that it is “more likely than not”
that all of our deferred income tax assets as of December 31, 2009 and 2008 will be fully realized
and therefore no valuation allowance was recorded.
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 and land development loans. These categories accounted for approximately 48.5%, 16.4%
and 11.4%, respectively of the Company’s total loan portfolio at December 31, 2009, and
approximately 41.5%, 16.9% and 20.2%, respectively of the Company’s total loan portfolio at
December 31, 2008. The construction and land development portfolio component has been identified
by Management as a higher-risk loan category. The quality of the construction and land development
category is highly dependent on property values both in terms of the likelihood of repayment once
the property is transacted by the current owner as well as the level of collateral the Company has
securing the loan in the event of default. Loans in this category are characterized by the
speculative nature of commercial and residential development properties and can include property in
various stages of development from raw land to finished lots. The decline in these loans as a
percentage of the Company’s loan portfolio reflects management’s efforts to reduce its exposure to
construction and land development loans in 2009 due to the severe valuation decrease in the real
estate market.
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 77% and 75% of the total loan portfolio at December 31, 2009 and 2008. Moreover, the
business activities of the Company currently are focused in the California counties of Plumas,
Nevada, Placer, Lassen, Modoc, Shasta, Sierra and in Washoe County in Northern Nevada.
Consequently, the results of operations and financial condition of the Company are dependent upon
the general trends in these economies and, in particular, the residential and commercial real
estate markets. In addition, the concentration of the
Company’s operations in these areas of Northeastern California and Northwestern Nevada exposes it
to greater risk than other banking companies with a wider geographic base in the event of
catastrophes, such as earthquakes, fires and floods in these regions.
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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, 2009 and 2008, approximately
68% and 67%, 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 $42 million and $36 million at December
31, 2009 and 2008, respectively.
The following table sets forth the amounts of loans outstanding by category as of the dates
indicated.
| At December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
Real estate — mortgage |
$ | 161,397 | $ | 151,943 | $ | 128,357 | $ | 116,329 | $ | 110,686 | ||||||||||
Real estate — construction |
38,061 | 73,820 | 76,478 | 75,930 | 56,370 | |||||||||||||||
Commercial |
37,056 | 42,528 | 39,584 | 36,182 | 42,252 | |||||||||||||||
Consumer |
54,442 | 61,706 | 72,768 | 90,694 | 81,320 | |||||||||||||||
Agriculture |
41,722 | 36,020 | 35,762 | 35,577 | 31,018 | |||||||||||||||
Total loans |
332,678 | 366,017 | 352,949 | 354,712 | 321,646 | |||||||||||||||
Less: |
||||||||||||||||||||
Deferred costs |
(298 | ) | (279 | ) | (564 | ) | (1,182 | ) | (766 | ) | ||||||||||
Allowance for loan losses |
9,568 | 7,224 | 4,211 | 3,917 | 3,256 | |||||||||||||||
Net loans |
$ | 323,408 | $ | 359,072 | $ | 349,302 | $ | 351,977 | $ | 319,156 | ||||||||||
The following table sets forth the maturity of gross loan categories as of December 31, 2009.
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 |
$ | 20,617 | $ | 30,097 | $ | 110,683 | $ | 161,397 | ||||||||
Real estate — construction |
19,011 | 7,861 | 11,189 | 38,061 | ||||||||||||
Commercial |
11,947 | 22,315 | 2,794 | 37,056 | ||||||||||||
Consumer |
9,422 | 15,801 | 29,219 | 54,442 | ||||||||||||
Agriculture |
18,585 | 9,407 | 13,730 | 41,722 | ||||||||||||
Total |
$ | 79,582 | $ | 85,481 | $ | 167,615 | $ | 332,678 | ||||||||
Loans maturing after one year with: |
||||||||||||||||
Fixed interest rates |
$ | 27,428 | $ | 58,294 | $ | 85,722 | ||||||||||
Variable interest rates |
58,053 | 109,321 | 167,374 | |||||||||||||
Total |
$ | 85,481 | $ | 167,615 | $ | 253,096 | ||||||||||
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 helps facilitate the early
identification of potential criticized loans.
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Table of Contents
The Company has implemented a Management Asset Resolution Committee (MARC) to develop an
action plan to significantly reduce nonperforming loans. It consists of members of executive
management, credit administration management and the Board of Directors, and the activities are
governed by a formal written charter. The MARC meets semi-monthly and reports to the Board’s Loan
Committee.
More specifically, a formal plan to effect repayment and/or disposition of every significant
nonperforming loan relationship is developed and documented for review and on-going oversight by
the MARC. Some of the strategies used include but are not limited to: 1) obtaining additional
collateral, 2) obtaining additional investor cash infusion, 3) sale of the promissory note to an
outside party, 4) proceeding with foreclosure on the underlying collateral, 5) legal action against
borrower/guarantors to encourage settlement of debt and/or collect any deficiency balance owed.
Each step includes a benchmark timeline to track progress.
MARC also provides guidance for the maintenance and timely disposition of OREO properties;
including developing financing and marketing programs to incent individuals to purchase OREO.
Related to the severe economic downturn and the resulting decline in real estate values the
Company’s charge-offs increased dramatically during 2009. Net charge-offs during the year ended
December 31, 2009 totaled $12,156 thousand, or 3.43% of average loans, compared to $1,587 thousand,
or 0.45% of average loans for 2008 and $506 thousand, or 0.14% of average loans for 2007. The
allowance for loan losses stood at 2.88% of total loans as of December 31, 2009, versus 1.97% of
total loans as of December 31, 2008.
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.
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
43
Table of Contents
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 determined in accordance with ASC Topic 310 — Receivables
(formerly FAS 114, “Accounting for Impairment of a loan” based on probable losses on specific loans. |
||
| • | general reserves determined in accordance with guidance in ASC Topic 450 —
Contingencies (formerly SFAS No. 5, “Accounting for Contingencies”, based on historical
loan loss experience adjusted for other qualitative risk factors both internal and
external to the Company. |
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.
44
Table of Contents
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, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
Balance at beginning of period |
$ | 7,224 | $ | 4,211 | $ | 3,917 | $ | 3,256 | $ | 2,722 | ||||||||||
Charge-offs: |
||||||||||||||||||||
Commercial and agricultural |
663 | 477 | 83 | 126 | 297 | |||||||||||||||
Real estate mortgage |
1,145 | 95 | — | — | — | |||||||||||||||
Real estate construction |
10,133 | 522 | 46 | — | — | |||||||||||||||
Consumer |
559 | 689 | 657 | 519 | 442 | |||||||||||||||
Total charge-offs |
12,500 | 1,783 | 786 | 645 | 739 | |||||||||||||||
Recoveries: |
||||||||||||||||||||
Commercial and agricultural |
18 | 11 | 53 | 46 | 21 | |||||||||||||||
Real estate mortgage |
8 | 14 | — | — | — | |||||||||||||||
Real estate construction |
90 | — | — | — | — | |||||||||||||||
Consumer |
228 | 171 | 227 | 260 | 152 | |||||||||||||||
Total recoveries |
344 | 196 | 280 | 306 | 173 | |||||||||||||||
Net charge-offs |
12,156 | 1,587 | 506 | 339 | 566 | |||||||||||||||
Provision for loan losses |
14,500 | 4,600 | 800 | 1,000 | 1,100 | |||||||||||||||
Balance at end of period |
$ | 9,568 | $ | 7,224 | $ | 4,211 | $ | 3,917 | $ | 3,256 | ||||||||||
Net charge-offs during the period
to average loans |
3.43 | % | 0.45 | % | 0.14 | % | 0.10 | % | 0.19 | % | ||||||||||
Allowance for loan losses to total loans |
2.88 | % | 1.97 | % | 1.19 | % | 1.10 | % | 1.01 | % | ||||||||||
The increase in the allowance for loan losses from December 31, 2008 is attributable to a $1.2
million increase in specific reserves related to impaired loans from by $3.1 million at December
31, 2008 to $4.3 million at December 31, 2009 and a $1.2
million increase in general reserves. General reserves totaled
$5.3 million at December 31, 2009 and $4.1 million at December 31, 2008. As a percentage of total loans general reserves increased from 1.12% at
December 31, 2008 to 1.59% at December 31, 2009.
Charge-offs totaled $12.5 million
of which $10.1 million was related to our real estate construction and land development portfolio.
We do not expect a similar level of losses in 2010 because in 2009 we dealt aggressively with
our problem real estate loans as evidenced by a decrease in nonperforming loans from $26.7 million
at December 31, 2008 to $14.3 million at December 31, 2009. In addition, we reduced our exposure
to construction and land development loans as our construction and land development portfolio
decreased by $35.7 million from $73.8 million at December 31, 2008 to $38.1 million at
December 31, 2009. As a result, we currently anticipate that charge-offs could range from approximately
$4 million to $7 million in 2010, the largest part of which are anticipated to be related to real
estate loans and consistent with 2009 activity within the real estate category most of the
charge-offs are expected to be associated with construction and land development loans. For other categories of loans we expect charge-offs to be similar to 2009 activity. However, given the lack of stability in the real estate market and the recent volatility in
charge-offs, there can be no assurance that charge offs of loans in future periods will not
increase or decrease from this estimate.
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.
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Table of Contents
The following table sets forth the amount of the Company’s nonperforming assets as of the dates
indicated. Loans restructured and in compliance with modified terms totaled $3.4 million at
December 31, 2009. There were no troubled debt restructurings at December 31, 2008, 2007, 2006 or
2005.
| At December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
Nonaccrual loans |
$ | 14,263 | $ | 26,444 | $ | 2,618 | $ | 972 | $ | 1,661 | ||||||||||
Loans past due 90 days or
more and still accruing |
28 | 297 | 14 | 41 | — | |||||||||||||||
Total nonperforming loans |
14,291 | 26,741 | 2,632 | 1,013 | 1,661 | |||||||||||||||
Other real estate owned |
11,204 | 4,148 | 402 | — | — | |||||||||||||||
Other vehicles owned |
65 | 129 | 135 | 47 | 40 | |||||||||||||||
Total nonperforming assets |
$ | 25,560 | $ | 31,018 | $ | 3,169 | $ | 1,060 | $ | 1,701 | ||||||||||
Interest income forgone on
nonaccrual loans |
$ | 568 | $ | 576 | $ | 161 | $ | 53 | $ | 39 | ||||||||||
Interest income recorded on a
cash basis on nonaccrual loans |
$ | 369 | $ | 74 | $ | 118 | $ | 116 | $ | 16 | ||||||||||
Nonperforming loans to total
loans |
4.30 | % | 7.31 | % | 0.75 | % | 0.29 | % | 0.52 | % | ||||||||||
Nonperforming assets to total
Assets |
4.84 | % | 6.78 | % | 0.70 | % | 0.22 | % | 0.36 | % | ||||||||||
Allowance for loan losses to nonperforming
Loans |
67 | % | 27 | % | 160 | % | 387 | % | 196 | % | ||||||||||
Nonperforming loans at December 31, 2009 were $14.3 million, a decrease of $12.4 million from
the $26.7 million balance at December 31, 2008. Of the total nonperforming loans at December 31,
2009, eight loans had principal balances ranging from $2.3 million to $534 thousand. In total these
loans amount to $9.5 million representing 66% of the nonaccrual balance of $14.3 million. Specific
reserves of $1.8 million were allocated to these loans. For all nonaccrual loans at December 31,
2009 specific reserves totaled $2.6 million or 18% of total nonaccrual loans. Additionally, the
nonaccrual balances at December 31, 2009 are net of $965 thousand in partial charge-offs.
At December 31, 2009 and 2008, the Company’s recorded investment in impaired loans totaled $19.2
million and $26.4 million, respectively. The specific allowance for loan losses related to
impaired loans was $4.3 million and $3.1 million at December 31, 2009 and 2008, respectively. The
average recorded investment in impaired loans was $25.1 million, $5.2 million, $1.7 million for the
years ended December 31, 2009, 2008 and 2007, respectively. In most cases, the Company uses the
cash basis method of income recognition for impaired loans. For the years ended December 31, 2009,
2008 and 2007, the Company recognized $369 thousand, $74 thousand and $118 thousand, respectively,
of income on such loans. Interest foregone on impaired loans totaled $568 thousand $576 thousand
and $161 thousand for the years ended December 31, 2009, 2008 and 2007, respectively.
It is the policy of management to make additions to the allowance for loan losses so that it
remains appropriate to absorb the inherent risk of loss in the portfolio. Management believes that
the allowance at December 31, 2009 is appropriate. However, the determination of the amount of the
allowance is judgmental and subject to economic conditions which cannot be predicted with
certainty. Accordingly, the Company cannot predict whether charge-offs of loans in excess of the
allowance may occur in future periods.
OREO represents real property taken by the Bank either through foreclosure or through a deed in
lieu thereof from the borrower. Repossessed assets include vehicles and other commercial assets
acquired under agreements with delinquent borrowers. Repossessed assets and OREO are carried at
the lesser of cost or fair market value, less selling costs. OREO holdings represented twenty-nine
properties totaling $11.2 million at December 31, 2009 and nineteen properties totaling $4.1 million at December 31, 2008. Of
the twenty-nine properties, four properties represent 82% of the balance or $9.2 million of the
$11.2 million. Nonperforming assets as a percentage of total
assets decreased to 4.84% at December
31, 2009 down from 6.78% at December 31, 2008.
46
Table of Contents
Investment Portfolio and Federal Funds Sold. Total investment securities increased $49.6 million,
or 129%, to $88.0 million as of December 31, 2009, up from $38.4 million as of December 31, 2008.
There were no Federal funds sold at December 31, 2009 or 2008.
The growth in the investment portfolio was related to purchases of securities of U.S. government
agencies, resulting in a significant increase in these securities as a percentage of total
investment securities. The investment portfolio balances in U.S. Treasuries, U.S. Government
agencies, corporate debt securities and municipal obligations comprised 1%, 86%, 0% and 13%,
respectively, at December 31, 2009 versus 4%, 59%, 4% and 33%, respectively, at December 31, 2008.
The Company increased its level of agency securities primarily to support our growth in public
agency deposits which require the pledging of investment securities for balances in excess of those
covered by FDIC insurance. In addition, these investments provide a favorable spread over the
Company’s cost of interest-bearing liabilities. Funding for the increase in securities of U.S.
government agencies was provided by an increase in our deposits and proceeds from the sale of
Series A Preferred Stock.
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, 2009, total balances in these mortgage-backed securities were
$19.3 million up from $12.4 million at December 31, 2008. 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 transferred its municipal obligations to the available-for-sale category on December 31,
2009 as it no longer has the intention to hold these securities until maturity. 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, | ||||||||||||
| Available-for-sale (fair value) | 2009 | 2008 | 2007 | |||||||||
| (dollars in thousands) | ||||||||||||
U.S. Treasuries |
$ | 1,052 | $ | 1,508 | $ | 3,481 | ||||||
U.S. Government agencies |
55,889 | 10,392 | 19,662 | |||||||||
Corporate debt securities |
— | 1,550 | 3,923 | |||||||||
U.S. Government agency mortgage-backed
Securities |
19,287 | 12,357 | 14,738 | |||||||||
Municipal obligations |
11,722 | — | — | |||||||||
Total |
$ | 87,950 | $ | 25,807 | $ | 41,804 | ||||||
| December 31, | ||||||||||||
| Held-to-maturity (amortized cost) | 2009 | 2008 | 2007 | |||||||||
| (dollars in thousands) | ||||||||||||
Municipal obligations |
$ | — | $ | 12,567 | $ | 13,488 | ||||||
47
Table of Contents
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, 2009.
| After One Through | After Five Through | |||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | One Year or Less | Five Years | Ten Years | After Ten Years | Total | |||||||||||||||||||||||||||||||||||
| Available-for-sale (Fair Value) |
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||||||||
U.S. Treasuries |
$ | — | — | % | $ | 1,052 | 1.07 | % | $ | — | — | % | $ | — | — | % | $ | 1,052 | 1.07 | % | ||||||||||||||||||||
U.S. Government agencies |
— | — | % | 55,889 | 2.45 | % | — | — | % | — | — | % | 55,889 | 2.45 | % | |||||||||||||||||||||||||
U.S. Government agency
mortgage-backed securities |
1,815 | 3.52 | % | 2,539 | 3.90 | % | 4,439 | 4.78 | % | 10,494 | 3.94 | % | 19,287 | 4.08 | % | |||||||||||||||||||||||||
Municipal obligations |
— | — | % | 3,725 | 5.19 | % | 7,997 | 5.71 | % | — | — | % | 11,722 | 5.55 | % | |||||||||||||||||||||||||
Total |
$ | 1,815 | 3.52 | % | $ | 63,205 | 2.65 | % | $ | 12,436 | 5.39 | % | $ | 10,494 | 3.94 | % | $ | 87,950 | 3.19 | % | ||||||||||||||||||||
48
Table of Contents
Deposits. Total deposits were $433.3 million as of December 31, 2009, an increase of $61.8
million, or 17%, from the December 31, 2008 balance of $371.5 million. The largest components of
this increase were increases of $33.5 million in interest-bearing transaction accounts (NOW), $24.4
million in time deposits and $5.0 million in money market deposits. The increase in NOW accounts is
primarily related to a new interest bearing transaction account designed for local public agencies,
which we have successfully marketed to several of the municipalities in our service area. Deposits
related to this account increased by $31.8 million from $6.0 million at December 31, 2008 to $37.8
million at December 31, 2009. These accounts pay rates comparable to those available on a money
market fund offered by a typical brokerage firm. We are required to pledge investment securities as
collateral against the uninsured portion of these deposits. The increase in time deposits is
primary related to a promotional time deposit product we began offering in June, 2009. This
product had an 18 month term and a 2% rate. Money market balances benefited from an on balance
sheet corporate sweep product which we introduced during the first quarter of 2008. Deposits
related to this product increased by $4.3 million from $9.0 million at December 31, 2008 to $13.3
million at December 31, 2009.
As of December 31, 2009, primarily due to the change in mix of deposits, non-interest bearing
demand deposits and interest checking deposits increased to 50.3% of total deposits versus 49.9% at
December 31, 2008. Money market and savings deposits decreased to 21.4% of total deposits as of
December 31, 2009 compared to 23.6% as of December 31, 2008. Time deposits increased to 28.3% of
total deposits as of December 31, 2009 compared to 26.5% at December 31, 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 secured borrowing arrangements with the Federal
Home Loan Bank and the Federal Reserve Bank of San Francisco. Included in time deposits at
December 31, 2009 were $5 million in CDARS reciprocal time deposits which, under regulatory
guidelines, are classified as brokered deposits. The Company did not hold brokered deposits during
the years ended December 31, 2008 or 2007.
The following chart sets forth the distribution of the Company’s average daily deposits for the
periods indicated.
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Balance | Rate % | Balance | Rate % | Balance | Rate % | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
Non-interest-bearing deposits |
$ | 108,059 | $ | 111,999 | $ | 114,831 | ||||||||||||||||||
Interest-bearing deposits: |
||||||||||||||||||||||||
Interest bearing demand deposits |
98,394 | 0.68 | % | 73,338 | 0.75 | % | 77,254 | 1.73 | % | |||||||||||||||
Money market accounts |
41,844 | 0.83 | % | 37,626 | 0.83 | % | 39,431 | 0.83 | % | |||||||||||||||
Savings |
50,286 | 0.18 | % | 48,573 | 0.33 | % | 50,448 | 0.49 | % | |||||||||||||||
Time deposits |
105,313 | 1.96 | % | 110,743 | 3.16 | % | 121,808 | 4.35 | % | |||||||||||||||
Total interest bearing deposits |
295,837 | 1.07 | % | 270,280 | 1.67 | % | 288,941 | 2.50 | % | |||||||||||||||
Total deposits |
$ | 403,896 | 0.78 | % | $ | 382,279 | 1.18 | % | $ | 403,772 | 1.79 | % | ||||||||||||
49
Table of Contents
The Company’s time deposits of $100,000 or more had the following schedule of maturities at
December 31, 2009:
| (dollars in thousands) | Amount | |||
Remaining Maturity: |
||||
Three months or less |
$ | 13,031 | ||
Over three months to six months |
7,729 | |||
Over six months to 12 months |
9,881 | |||
Over 12 months |
24,362 | |||
Total |
$ | 55,003 | ||
Time deposits of $100,000 or more are generally from the Company’s local business and individual
customer base. The potential impact on the Company’s liquidity from the withdrawal of these
deposits is discussed at the Company’s asset and liability management committee meetings, and is
considered to be minimal.
Short-term borrowing arrangements. The Company has a secured short-term borrowing arrangement with
one of its correspondent banks in the amount of $5,000,000. No borrowings were outstanding under
this arrangement at December 31, 2009 or December 31, 2008. In addition, the Company has the
ability to secure advances through the FRB discount window. These advances also must be
collateralized.
The Company is a member of the FHLB and can borrow up to $82,056,000 from the FHLB secured by
commercial and residential mortgage loans with carrying values totaling $231,492,000. The Company
is required to hold FHLB stock as a condition of membership. At December 31, 2009, the Company
held $1,933,000 of FHLB stock which is recorded as a component of other assets. At this level of
stock holdings the Company can borrow up to $41,132,000. Total borrowings at December 31, 2009 from
the FHLB were $40,000,000 consisting of both short-term and long-term FHLB advances. To borrow the
$82,056,000 in available credit the Company would need to purchase $1,924,000 in additional FHLB
stock.
Short-term borrowings at December 31, 2009 consisted of a $20,000,000 FHLB advance at 0.47% with a
maturity date of January 19, 2010. At December 31, 2008 short-term borrowings consisted of a one
day $34,000,000 FHLB advance with an interest rate of 0.05%.
The average balance in short-term borrowings during the years ended December 31, 2009 and 2008 were
$24.3 million and $11.9 million, respectively. The average rate paid on these borrowings was 0.33%
during 2009 and 1.70% during 2008. The maximum amount of short-term borrowings outstanding at any
month-end during 2009 and 2008 was $33.8 million and $34.0 million, respectively.
Long-term borrowing arrangements. Long-term borrowings at December 31, 2009 consisted of two
$10,000,000 FHLB advances. The first advance matures on November 23, 2011 and bears interest at
1.00%. The second advance matures on November 23, 2012 and bears interest at 1.60%. Interest
rates on both advances are fixed until maturity.
Capital Resources
Shareholders’
equity as of December 31, 2009 increased to $38.2 million up from $35.4 million as of
December 31, 2008. This increase is related to the issuance of $11.9 million in Preferred Stock,
Series A as described in the following paragraph, partially offset by our 2009 net loss and $628
thousand of dividends on the Preferred Stock.
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, 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. 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.
50
Table of Contents
Eight million of the twelve million in proceeds from the sale of the Series A Preferred Stock was
injected into Plumas Bank providing addition capital for the bank to support growth in loans and
investment securities and strengthen its capital ratios. The remainder provides funds for holding
company activities and general corporate purposes.
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.
No common cash dividends were paid in 2009. On April 24, 2009, the Company announced that it would
be suspending its semi-annual common stock cash dividend for the first half of 2009. During 2008
the Company paid two semi-annual common cash dividends to holders of common stock, the first was 16
cents paid on May 16, 2008 and on November 21, 2008 we paid a second cash dividend of 8 cents per
share. The Company’s Board of Directors will continue to evaluate the payment of a semi-annual
common stock cash dividend in future quarters, but does not anticipate paying a cash dividend in
2010. The Company is subject to various restrictions on the payment of dividends. See Note 11
“Shareholders’ Equity — Dividend Restrictions” of the Company’s Consolidated Financial Statements
in Item 8 — Financial Statements and Supplementary Data of this Annual Report on Form 10K.
Capital Standards. The decrease in the Company’s regulatory capital during 2009 is
attributed to an increase in that portion of the Company’s deferred tax asset that under regulatory
capital guidelines is required to deducted from capital in the computation of regulatory capital
ratios, mostly offset by the increase in shareholders’ equity described above. In addition, the
Company’s leverage capital ratios declined due to an increase in its quarterly average assets from
$449 million during the fourth quarter of 2008 to $523 million during the current fourth quarter.
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. On March 23, 2009 the requirement to
deduct goodwill was delayed until March 31, 2011.
51
Table of Contents
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, 2009 and 2008 (amounts in thousands except percentage amounts).
| December 31, 2009 | December 31, 2008 | |||||||||||||||
| Amount | Ratio | Amount | Ratio | |||||||||||||
Tier 1 Leverage Ratio |
||||||||||||||||
Plumas Bancorp and Subsidiary |
$ | 40,564 | 7.9 | % | $ | 43,885 | 9.8 | % | ||||||||
Minimum regulatory requirement |
20,652 | 4.0 | % | 17,907 | 4.0 | % | ||||||||||
Plumas Bank |
38,172 | 7.4 | % | 43,372 | 9.7 | % | ||||||||||
Minimum requirement for
“Well-Capitalized” institution
under the prompt corrective
action plan |
25,848 | 5.0 | % | 22,365 | 5.0 | % | ||||||||||
Minimum regulatory requirement |
20,678 | 4.0 | % | 17,892 | 4.0 | % | ||||||||||
Tier 1 Risk-Based Capital Ratio |
||||||||||||||||
Plumas Bancorp and Subsidiary |
40,564 | 10.4 | % | 43,885 | 11.0 | % | ||||||||||
Minimum regulatory requirement |
15,641 | 4.0 | % | 16,021 | 4.0 | % | ||||||||||
Plumas Bank |
38,172 | 9.8 | % | 43,372 | 10.8 | % | ||||||||||
Minimum requirement for
“Well-Capitalized” institution
under the prompt corrective
action plan |
23,433 | 6.0 | % | 23,996 | 6.0 | % | ||||||||||
Minimum regulatory requirement |
15,622 | 4.0 | % | 15,997 | 4.0 | % | ||||||||||
Total Risk-Based Capital Ratio |
||||||||||||||||
Plumas Bancorp and Subsidiary |
45,512 | 11.6 | % | 48,919 | 12.2 | % | ||||||||||
Minimum regulatory requirement |
31,281 | 8.0 | % | 32,042 | 8.0 | % | ||||||||||
Plumas Bank |
43,113 | 11.0 | % | 48,399 | 12.1 | % | ||||||||||
Minimum requirement for
“Well-Capitalized” institution
under the prompt corrective
action plan |
39,056 | 10.0 | % | 39,994 | 10.0 | % | ||||||||||
Minimum regulatory requirement |
31,244 | 8.0 | % | 31,995 | 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, 2009, the Company had $67.3 million in unfunded loan commitments
and $304 thousand in letters of credit. This compares to $78.8 million in unfunded commitments and
$534 thousand in letters of credit at December 31, 2008. Of the $67.3 million in unfunded loan
commitments, $30.3 million and $37.0 million represented commitments to commercial and consumer
customers, respectively. Of the total unfunded commitments at December 31, 2009, $34.3 million
were secured by real estate, of which $7.6 million was secured by commercial real estate and $26.7
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
a non branch automated teller machine location. Total rental expenses under all operating leases,
including premises, totaled $317,000 $347,000 and $209,000, in 2009, 2008 and 2007 respectively.
The expiration dates of the leases vary, with the first such lease expiring during 2010 and the
last such lease expiring during 2018.
52
Table of Contents
Liquidity
The Company manages its liquidity to provide the ability to generate funds to support asset growth,
meet deposit withdrawals (both anticipated and unanticipated), fund customers’ borrowing needs,
satisfy maturity of short-term borrowings and maintain reserve requirements. The Company’s
liquidity needs are managed using assets or liabilities, or both. On the asset side, in addition to
cash and due from banks, the Company maintains an investment portfolio containing U.S. Government,
agency and municipal securities that are classified as available-for-sale. On the liability side,
liquidity needs are managed by charging competitive offering rates on deposit products and the use
of established lines of credit.
The Company is a member of the FHLB and can borrow up to $82,056,000 from the FHLB secured by
commercial and residential mortgage loans with carrying values totaling $231,492,000. The Company
is required to hold FHLB stock as a condition of membership. At December 31, 2009, the Company
held $1,933,000 of FHLB stock which is recorded as a component of other assets. At this level of
stock holdings the Company can borrow up to $41,132,000. Total borrowings at December 31, 2009 from
the FHLB were $40,000,000 consisting of both short-term and long-term FHLB advances. To borrow the
$82,056,000 in available credit the Company would need to purchase $1,924,000 in additional FHLB
stock. At December 31, 2008 FHLB borrowings consisted of a one day $34,000,000 FHLB advance.
The Company has a secured short-term borrowing arrangement with one of its correspondent banks
in the amount of $5,000,000. No borrowings were outstanding under this arrangement at December 31,
2009 or 2008. In addition, the Company has the ability to secure advances through the FRB discount
window. These advances also must be collateralized.
Customer deposits are the Company’s primary source of funds. Total deposits were $433.3 million as
of December 31, 2009, an increase of $61.8 million, or 17%, from the December 31, 2008 balance of
$371.5 million. Deposits are held in various forms with varying maturities. 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 cash held at the FRB, Federal funds sold and investment securities, to serve as a source of
funding for future loan growth. Management believes that the Company’s available sources of funds,
including borrowings, will provide adequate liquidity for its operations in the foreseeable future.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a smaller reporting company we are not required to provide the information required by this
item.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The following consolidated financial statements of Plumas Bancorp and subsidiary, and report of the
independent registered public accounting firm are included in the Annual Report of Plumas Bancorp
to its shareholders for the years ended December 31, 2009, 2008 and 2007.
| Page | ||||
| F-1 | ||||
| F-2 | ||||
| F-3 | ||||
| F-5 | ||||
| F-7 | ||||
| F-10 |
53
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Directors
Plumas Bancorp and Subsidiary
Plumas Bancorp and Subsidiary
We have audited the accompanying consolidated balance sheet of Plumas Bancorp and subsidiary
(the “Company”) as of December 31, 2009 and 2008 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, 2009. 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, 2009 and 2008 and the consolidated results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of America.
We
were not required or engaged to examine the effectiveness of Plumas
Bancorp’s internal control over financial reporting as of
December 31, 2009, and, accordingly, we do not express an
opinion thereon.
| /s/ Perry-Smith LLP | ||||
Sacramento, California
March 19, 2010
March 19, 2010
F-1
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 2009 and 2008
| 2009 | 2008 | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 59,493,000 | $ | 18,791,000 | ||||
Investment securities |
87,950,000 | 38,374,000 | ||||||
Loans, less allowance for loan losses of $9,568,000
in 2009 and $7,224,000 in 2008 |
323,408,000 | 359,072,000 | ||||||
Premises and equipment, net |
14,544,000 | 15,764,000 | ||||||
Intangible assets, net |
648,000 | 821,000 | ||||||
Bank owned life insurance |
10,111,000 | 9,766,000 | ||||||
Real estate and vehicles acquired through foreclosure |
11,269,000 | 4,277,000 | ||||||
Accrued interest receivable and other assets |
20,694,000 | 10,310,000 | ||||||
Total assets |
$ | 528,117,000 | $ | 457,175,000 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Deposits: |
||||||||
Non-interest bearing |
$ | 111,958,000 | $ | 112,783,000 | ||||
Interest bearing |
321,297,000 | 258,710,000 | ||||||
Total deposits |
433,255,000 | 371,493,000 | ||||||
Short-term borrowings |
20,000,000 | 34,000,000 | ||||||
Long-term debt |
20,000,000 | — | ||||||
Accrued interest payable and other liabilities |
6,321,000 | 5,935,000 | ||||||
Junior subordinated deferrable interest debentures |
10,310,000 | 10,310,000 | ||||||
Total liabilities |
489,886,000 | 421,738,000 | ||||||
Commitments and contingencies (Note 10) |
||||||||
Shareholders’ equity: |
||||||||
Serial preferred stock — no par value; 10,000,000
shares authorized; 11,949 issued and outstanding
at December 31, 2009 |
11,595,000 | — | ||||||
Common stock — no par value; 22,500,000 shares
authorized; issued and outstanding — 4,776,339
shares in 2009 and 4,775,339 shares in 2008 |
5,970,000 | 5,302,000 | ||||||
Retained earnings |
20,044,000 | 29,818,000 | ||||||
Accumulated other comprehensive income |
622,000 | 317,000 | ||||||
Total shareholders’ equity |
38,231,000 | 35,437,000 | ||||||
Total liabilities and shareholders’ equity |
$ | 528,117,000 | $ | 457,175,000 | ||||
The accompanying notes are an integral
part of these consolidated financial statements.
part of these consolidated financial statements.
F-2
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31, 2009, 2008 and 2007
| 2009 | 2008 | 2007 | ||||||||||
Interest income: |
||||||||||||
Interest and fees on loans |
$ | 20,658,000 | $ | 23,550,000 | $ | 27,709,000 | ||||||
Interest on investment securities: |
||||||||||||
Taxable |
1,708,000 | 1,398,000 | 1,900,000 | |||||||||
Exempt from Federal income taxes |
455,000 | 489,000 | 504,000 | |||||||||
Interest on Federal funds sold |
15,000 | 3,000 | 171,000 | |||||||||
Total interest income |
22,836,000 | 25,440,000 | 30,284,000 | |||||||||
Interest expense: |
||||||||||||
Interest on deposits |
3,169,000 | 4,522,000 | 7,211,000 | |||||||||
Interest on short-term borrowings |
80,000 | 202,000 | 467,000 | |||||||||
Interest on junior subordinated
deferrable interest debentures |
371,000 | 623,000 | 835,000 | |||||||||
Other |
35,000 | 17,000 | 23,000 | |||||||||
Total interest expense |
3,655,000 | 5,364,000 | 8,536,000 | |||||||||
Net interest income before
provision for loan losses |
19,181,000 | 20,076,000 | 21,748,000 | |||||||||
Provision for loan losses |
14,500,000 | 4,600,000 | 800,000 | |||||||||
Net interest income after
provision for loan losses |
4,681,000 | 15,476,000 | 20,948,000 | |||||||||
Non-interest income: |
||||||||||||
Service charges |
3,796,000 | 3,951,000 | 3,806,000 | |||||||||
Gain on sale of loans |
593,000 | 111,000 | 47,000 | |||||||||
Impairment loss on investment
security |
— | (415,000 | ) | — | ||||||||
Earnings on Bank owned life
insurance policies |
434,000 | 421,000 | 415,000 | |||||||||
Other |
929,000 | 1,023,000 | 1,180,000 | |||||||||
Total non-interest income |
5,752,000 | 5,091,000 | 5,448,000 | |||||||||
(Continued)
F-3
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
| 2009 | 2008 | 2007 | ||||||||||
Non-interest expenses: |
||||||||||||
Salaries and employee benefits |
$ | 11,054,000 | $ | 10,884,000 | $ | 11,200,000 | ||||||
Occupancy and equipment |
3,759,000 | 3,838,000 | 3,552,000 | |||||||||
Provision for losses on other real
estate |
4,800,000 | 618,000 | — | |||||||||
Other |
6,741,000 | 5,135,000 | 4,919,000 | |||||||||
Total non-interest expenses |
26,354,000 | 20,475,000 | 19,671,000 | |||||||||
Income (loss) before income
taxes |
(15,921,000 | ) | 92,000 | 6,725,000 | ||||||||
Provision (benefit) for income taxes |
(6,775,000 | ) | (212,000 | ) | 2,502,000 | |||||||
Net income (loss) |
$ | (9,146,000 | ) | $ | 304,000 | $ | 4,223,000 | |||||
Basic earnings (loss) per share |
$ | (2.05 | ) | $ | 0.06 | $ | 0.85 | |||||
Diluted earnings (loss) per share |
$ | (2.05 | ) | $ | 0.06 | $ | 0.84 | |||||
Common dividends per share |
$ | — | $ | 0.24 | $ | 0.30 | ||||||
The accompanying notes are an integral
part of these consolidated financial statements.
part of these consolidated financial statements.
F-4
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2009, 2008 and 2007
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive | Total | Total | ||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Retained | (Loss) Income | Shareholders’ | Comprehensive | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Earnings | (Net of Taxes) | Equity | Income | |||||||||||||||||||||||||||||||||||||
Balance, January 1, 2007 |
5,023,205 | $ | 4,828,000 | $ | 31,716,000 | $ | (692,000 | ) | $ | 35,852,000 | ||||||||||||||||||||||||||||||||||
Comprehensive income): |
||||||||||||||||||||||||||||||||||||||||||||
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 |
(4,630 | ) | (70,000 | ) | (70,000 | ) | ||||||||||||||||||||||||||||||||||||||
Stock options exercised and related
tax benefit |
19,292 | 152,000 | 152,000 | |||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
288,000 | 288,000 | ||||||||||||||||||||||||||||||||||||||||||
Repurchase and retirement of
common stock |
(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 | ||||||||||||||||||||||||||||||||||||||
Cumulative effect of change in accounting principle,
adoption of EITF 06-4 |
(420,000 | ) | (420,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||||
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 |
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 |
12,476 | 68,000 | 68,000 | |||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
292,000 | 292,000 | ||||||||||||||||||||||||||||||||||||||||||
Repurchase and retirement of
common stock |
(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 | |||||||||||||||||||||||||||||||||||
(Continued)
F-5
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
| Accumulated | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Comprehensive | Total | Total | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Retained | Income | Shareholders’ | Comprehensive | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Earnings | (Net of Taxes) | Equity | Income | |||||||||||||||||||||||||
Balance, December 31, 2008 |
4,775,339 | $ | 5,302,000 | $ | 29,818,000 | $ | 317,000 | $ | 35,437,000 | |||||||||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||
Net loss |
(9,146,000 | ) | (9,146,000 | ) | $ | (9,146,000 | ) | |||||||||||||||||||||||||
Other comprehensive loss, net of tax: |
||||||||||||||||||||||||||||||||
Unrealized gains on securities transferred
from held-to-maturity to available-for-sale |
197,000 | 197,000 | 197,000 | |||||||||||||||||||||||||||||
Net change in unrealized gains
on available-for-sale investment
securities |
108,000 | 108,000 | 108,000 | |||||||||||||||||||||||||||||
Total comprehensive loss |
$ | (8,841,000 | ) | |||||||||||||||||||||||||||||
Preferred stock issued |
11,949 | $ | 11,516,000 | 11,516,000 | ||||||||||||||||||||||||||||
Preferred stock discount accretion |
79,000 | 79,000 | ||||||||||||||||||||||||||||||
Stock warrants issued |
407,000 | 407,000 | ||||||||||||||||||||||||||||||
Preferred stock dividends & accretion |
(628,000 | ) | (628,000 | ) | ||||||||||||||||||||||||||||
Stock options exercised and related
tax benefit |
1,000 | 5,000 | 5,000 | |||||||||||||||||||||||||||||
Stock-based compensation expense |
256,000 | 256,000 | ||||||||||||||||||||||||||||||
Balance, December 31, 2009 |
11,949 | $ | 11,595,000 | 4,776,339 | $ | 5,970,000 | $ | 20,044,000 | $ | 622,000 | $ | 38,231,000 | ||||||||||||||||||||
The accompanying notes are an integral
part of these consolidated financial statements.
part of these consolidated financial statements.
F-6
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2009, 2008 and 2007
| 2009 | 2008 | 2007 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) |
$ | (9,146,000 | ) | $ | 304,000 | $ | 4,223,000 | |||||
Adjustments to reconcile net income to net
cash provided by operating activities: |
||||||||||||
Provision for loan losses |
14,500,000 | 4,600,000 | 800,000 | |||||||||
Change in deferred loan origination
costs/fees, net |
(19,000 | ) | 285,000 | 618,000 | ||||||||
Stock-based compensation expense |
256,000 | 292,000 | 288,000 | |||||||||
Excess tax benefits from stock-based
compensation |
(9,000 | ) | ||||||||||
Depreciation and amortization |
1,929,000 | 1,984,000 | 2,197,000 | |||||||||
Amortization of investment security
premiums |
283,000 | 56,000 | 149,000 | |||||||||
Accretion of investment security discounts |
(53,000 | ) | (55,000 | ) | (63,000 | ) | ||||||
Impairment loss on investment security |
415,000 | |||||||||||
Gain on sale of investments |
(10,000 | ) | ||||||||||
Gain on sale of loans held for sale |
(593,000 | ) | ||||||||||
Loans originated for sale |
(12,598,000 | ) | ||||||||||
Proceeds from loan sales |
11,393,000 | |||||||||||
Provision for losses on other real estate |
4,800,000 | 618,000 | ||||||||||
Net (gain) loss on sale of premises and
equipment |
(6,000 | ) | 13,000 | 39,000 | ||||||||
Net loss (gain) on sale of other
real estate and vehicles owned |
198,000 | 18,000 | (17,000 | ) | ||||||||
Gain on life insurance death benefit |
(63,000 | ) | ||||||||||
Earnings on bank owned life insurance
policies |
(434,000 | ) | (421,000 | ) | (415,000 | ) | ||||||
Expenses on bank owned life insurance
policies |
89,000 | 83,000 | 80,000 | |||||||||
Benefit for deferred income taxes |
(3,852,000 | ) | (1,459,000 | ) | (787,000 | ) | ||||||
Decrease (increase) in accrued interest
receivable and other assets |
(7,022,000 | ) | 297,000 | (426,000 | ) | |||||||
(Decrease) increase in accrued interest
payable and other liabilities |
355,000 | (711,000 | ) | 1,325,000 | ||||||||
Net cash provided by operating
activities |
70,000 | 6,319,000 | 7,939,000 | |||||||||
(Continued)
F-7
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
| 2009 | 2008 | 2007 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from matured and called available-for-sale investment securities |
$ | 8,000,000 | $ | 16,475,000 | $ | 27,876,000 | ||||||
Proceeds from sale of available-for-sale securities |
||||||||||||
Proceeds from matured and called held-to-maturity investment securities |
1,836,000 | 920,000 | 585,000 | |||||||||
Proceeds from sale of held-to-maturity securities |
943,000 | |||||||||||
Proceeds from sale of available-for-sale securities |
86,000 | |||||||||||
Purchases of available-for-sale investment
securities |
(65,876,000 | ) | (2,990,000 | ) | (11,009,000 | ) | ||||||
Purchases of held-to-maturity investment
securities |
(1,586,000 | ) | ||||||||||
Proceeds from principal repayments from
available-for-sale government-guaranteed
mortgage-backed securities |
7,320,000 | 2,819,000 | 2,961,000 | |||||||||
Net decrease (increase) in loans |
8,683,000 | (19,520,000 | ) | 355,000 | ||||||||
Proceeds from sale of vehicles |
270,000 | 376,000 | 429,000 | |||||||||
Proceeds from sale of other real estate |
1,992,000 | |||||||||||
Proceeds from the sale of premises and
equipment |
20,000 | |||||||||||
Purchases of premises and equipment |
(253,000 | ) | (2,566,000 | ) | (1,116,000 | ) | ||||||
Proceeds from bank owned life insurance |
419,000 | |||||||||||
Net cash (used in) provided by
investing activities |
(38,585,000 | ) | (4,486,000 | ) | 20,520,000 | |||||||
Cash flows from financing activities: |
||||||||||||
Net increase (decrease) in demand,
interest-bearing and savings deposits |
37,383,000 | 9,658,000 | (37,881,000 | ) | ||||||||
Net increase (decrease) in time deposits |
24,379,000 | (30,105,000 | ) | 27,645,000 | ||||||||
Net (decrease) increase in short-term
borrowings |
(14,000,000 | ) | 26,500,000 | (12,500,000 | ) | |||||||
Proceeds from long-term debt |
20,000,000 | |||||||||||
Issuance of preferred stock, net of discount |
11,516,000 | |||||||||||
Payment of cash dividend on preferred stock |
(473,000 | ) | ||||||||||
Issuance of common stock warrant |
407,000 | |||||||||||
Proceeds from exercise of stock options |
5,000 | 68,000 | 73,000 | |||||||||
Excess tax benefits from stock-based
compensation |
9,000 | |||||||||||
Repurchase and retirement of common stock |
(1,217,000 | ) | (2,400,000 | ) | ||||||||
Payment of cash dividends on common stock |
(1,153,000 | ) | (1,491,000 | ) | ||||||||
Net cash provided by (used in) financing
activities |
79,217,000 | 3,751,000 | (26,545,000 | ) | ||||||||
Increase in cash and cash
equivalents |
40,702,000 | 5,584,000 | 1,914,000 | |||||||||
Cash and cash equivalents at beginning of year |
18,791,000 | 13,207,000 | 11,293,000 | |||||||||
Cash and cash equivalents at end of year |
$ | 59,493,000 | $ | 18,791,000 | $ | 13,207,000 | ||||||
(Continued)
F-8
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
| 2009 | 2008 | 2007 | ||||||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash paid during the year for: |
||||||||||||
Interest expense |
$ | 3,666,000 | $ | 5,804,000 | $ | 8,184,000 | ||||||
Income taxes |
$ | 65,000 | $ | 1,385,000 | $ | 3,495,000 | ||||||
Non-cash investing activities: |
||||||||||||
Real estate acquired through foreclosure |
$ | 14,053,000 | $ | 4,364,000 | $ | 402,000 | ||||||
Vehicles acquired through repossession |
$ | 245,000 | $ | 388,000 | $ | 500,000 | ||||||
Reclassification of loans to other assets |
$ | 113,000 | ||||||||||
Investment securities transferred from
held-to-maturity to available-for-sale |
$ | 11,722,000 | ||||||||||
Net change in unrealized gain/loss on
available-for-sale investment securities |
$ | 108,000 | $ | 424,000 | $ | 585,000 | ||||||
Non-cash financing activities: |
||||||||||||
Common stock retired in connection
with the exercise of stock options |
$ | 70,000 | ||||||||||
Tax benefit from stock options exercised |
$ | 9,000 | ||||||||||
The accompanying notes are an integral
part of these consolidated financial statements.
part of these consolidated financial statements.
F-9
Table of Contents
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. During the first quarter of 2010 the Bank closed its
Loyalton and Westwood branches and transferred the deposits maintained at these branches to
the Portola and Chester branches, respectively. 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 FDIC Transaction Account
Guarantee Program. Under the program, through June 30, 2010, 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 $268,000 and Trust II of $149,000 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. |
F-10
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Reclassifications |
||
Certain reclassifications have been made to prior years’ balances to conform to the
classifications used in 2009. |
||
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. As of December 31, 2009 all cash held with other federally insured institutions
was fully insured by the FDIC. |
||
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. |
F-11
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Investment Securities (Continued) |
||
During 2009, management determined they no longer had the positive intent to hold their
held-to-maturity securities and transferred their held-to-maturity securities to available-for-sale (see note 4.) This transfer increases the Company’s flexibility in managing its
loan portfolio; allowing the investments to be sold in implementing its asset/liability
management strategies and in response to changes in interest rates, prepayment rates and
similar factors. All transfers between categories are accounted for at fair value. There
were no transfers between categories during 2008. As of December 31, 2009 and 2008 the
Company did not have any investment securities classified as trading and gains or losses on
the sale of securities are computed on the specific identification method. Interest earned
on investment securities is reported in interest income, net of applicable adjustments for
accretion of discounts and amortization of premiums. |
||
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, and
management does not intend to sell the security or it is more likely than not that sale of
the security will not be required before recovery, only the portion of the impairment loss
representing credit exposure is recognized as a charge to earnings, with the balance
recognized as a charge to other comprehensive income. If management intends to sell the
security or it is more likely than not that they will be required to sell the security
before recovering its forecasted cost, the entire impairment loss is recognized as a charge
to earnings. |
||
Investment in Federal Home Loan Bank Stock |
||
As a member of the Federal Home Loan Bank 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, 2009 and 2008, Federal Home Loan Bank stock totaled $1,933,000. 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 |
||
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, 2009, the premiums and guaranteed portion of these sold loans subject to
these recourse provisions was not significant. |
F-12
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
Loans Held for Sale, Loan Sales and Servicing (Continued) |
||
During 2009, 2008 and 2007 the Company was not required to refund any significant amounts of
sales premiums related to the loans sold. |
||
As of December 31 2009 the Company had $1,798,000 in SBA loans held for sale. Loans held
for sale are recorded at the lower of cost or fair vale and therefore maybe reported at fair
value on a non-recurring basis. The fair values for loans held for sale are based on either
observable transactions of similar instruments or formally committed loan sale prices. |
||
Government guaranteed loans with unpaid balances of $18,512,000 and $8,920,000 were being
serviced for others at December 31, 2009 and 2008, respectively. The Company also serviced
loans previously sold to the Federal National Mortgage Association (FNMA) totaling
$3,014,000 and $3,993,000 as of December 31, 2009 and 2008, respectively. |
||
The Company accounts for the transfer and servicing of financial assets based on the fair
value of financial and servicing assets it controls and liabilities it has assumed,
derecognizes financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. |
||
Servicing rights acquired through 1) a purchase or 2) the origination of loans which are
sold or securitized with servicing rights retained are recognized as separate assets or
liabilities. Servicing assets or liabilities are recorded at 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. |
||
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. |
F-13
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
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. |
||
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. 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. |
||
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, 2009 and 2008, 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. |
F-14
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Allowance for Loan Losses (Continued) |
||
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 and (2) historical losses. These estimates are particularly
susceptible to changes in the economic environment and market conditions. |
||
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, 2009 and 2008, respectively, reflects management’s estimate of probable losses in the
portfolio. This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as new information becomes available, and accordingly
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 $141,000 and
$55,000 at December 31, 2009 and 2008, respectively 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 $11,204,000 net of a
valuation allowance of $5,066,000 at December 31, 2009 and $4,148,000 net of a valuation
allowance of $618,000 at December 31, 2008. Sales of other real estate totaled $1,992,000
for the year ended December 31, 2009 and a loss of $158,000 was recorded on sale. There were
no sales of other real estate in 2008. 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. |
F-15
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
Intangible Assets |
||
Intangible assets consist of core deposit intangibles related to branch acquisitions and are
amortized using the straight-line method over 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. There were no such events or circumstances in 2009 or 2008. |
||
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. A valuation allowance is recognized if, based on the weight
of available evidence management believes it is more likely than not that some portion or
all of the deferred tax assets will not be realized. On the consolidated balance sheet, net
deferred tax assets are included in accrued interest receivable and other assets. |
||
Accounting for Uncertainty in Income Taxes |
||
When tax returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject to
uncertainty about the merits of the position taken or the amount of the position that would
be ultimately sustained. The benefit of a tax position is recognized in the financial |
F-16
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
Accounting for Uncertainty in Income Taxes (Continued) |
||
statements in the period during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any. Tax positions taken
are not offset or aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of tax benefit
that is more than 50 percent likely of being realized upon settlement with the applicable
taxing authority. The portion of the benefits associated with tax positions taken that
exceeds the amount measured as described above is reflected as a liability for unrecognized
tax benefits in the accompanying balance sheet along with any associated interest and
penalties that would be payable to the taxing authorities upon examination. |
||
Interest expense and penalties associated with unrecognized tax benefits, if any, are
classified as income tax expense in the consolidated statement of income. There have been
no significant changes to unrecognized tax benefits or accrued interest and penalties for
the years ended December 31, 2009 and 2008. |
||
Earnings (Loss) Per Share |
||
Basic earnings (loss) per share (EPS), which excludes dilution, is computed by dividing
income (loss) available to common stockholders (net income or (loss) less preferred
dividends) 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, 2009, 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 2009, 2008 and 2007 totaled
$237,000, $269,000 and $262,000 or $0.05, $0.06 and $0.05 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
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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 | |||||||
Expected life of stock options |
5.2 years | 6.6 years | ||||||
Interest rate—stock options |
2.98 | % | 4.71 | % | ||||
Volatility—stock options |
25.3 | % | 26.8 | % | ||||
Dividend yields |
2.61 | % | 1.72 | % | ||||
Weighted-average fair value
of options granted during the
year |
$ | 2.54 | $ | 4.53 | ||||
No options were granted during the year ended December 31, 2009. |
||
Adoption of New Financial Accounting Standards |
||
FASB Accounting Standards Codification™ (ASC or Codification) |
||
In June 2009, the Financial Accounting Standards Board (FASB) issued new accounting
standards ASC 105-10 (previously SFAS No. 168), The FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting Principles.
With the issuance of ASC 105-10, the FASB Accounting Standards Codification (“the
Codification” or “ASC”) becomes the single source of authoritative U.S. accounting and
reporting standards applicable for all nongovernmental entities Rules and interpretive
releases of the SEC under the authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. This change is effective for financial statements
issued for interim or annual periods ended after September 15, 2009. Accordingly, all
specific references to generally accepted accounting principles (GAAP) refer to the
Codification and not to the pre-Codification literature. |
||
FASB Clarifies Other-Than-Temporary Impairment |
||
In April 2009, the FASB issued ASC No. 320-10-35 (previously FSP 115-2 and 124-2 and EITF
99-20-2), Recognition and Presentation of
Other-Than-Temporary-Impairment. This standard (i) changes previously existing guidance for determining whether an impairment
to debt securities is other than temporary and (ii) replaces the previously existing
requirement that the entity’s management assert it has both the intent and ability to hold
an impaired security until recovery with a requirement that management assert: (a) it does
not have the intent to sell the security; and (b) it is more likely than not it will not
have to sell the security before recovery of its cost basis. Under this standard, declines
in fair value below cost that are deemed to be other than temporary are reflected in
earnings as realized losses to the extent the impairment is related to credit |
F-18
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
Adoption of New Financial Accounting Standards (Continued) |
||
losses for both held-to-maturity and available-for-sale securities. The amount of impairment
related to other factors is recognized in other comprehensive income. These changes were
effective for interim and annual periods ended after June 15, 2009. Management adopted the
provisions of this standard on January 1, 2009 without a material impact on the Company’s
financial condition or results of operations. |
||
FASB Clarifies Application of Fair Value Accounting |
||
In April 2009, the FASB issued ASC 820-10 (previously FSP FAS 157-4), Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. This standard affirms the
objective of fair value when a market is not active, clarifies and includes additional
factors for determining whether there has been a significant decrease in market activity,
eliminates the presumption that all transactions are distressed unless proven otherwise, and
requires an entity to disclose a change in valuation technique. This standard was effective
for interim and annual periods ended after June 15, 2009. The Company adopted the
provisions of this standard on April 1, 2009 without a material impact on the Company’s
financial condition or results of operations. |
||
Measuring Liabilities at Fair Value |
||
In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures
(ASC Topic 820) — Measuring Liabilities at Fair Value. This update provides amendments for
the fair value measurement of liabilities. It provides clarification that in circumstances
in which a quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more techniques. It also
clarifies that when estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs relating to the existence
of a restriction that prevents the transfer of the liability. This update was effective for
the first reporting period (including interim periods) beginning after August 2009.
Management adopted the provisions of this update on October 1, 2009 without a material
impact on the Company’s financial condition or results of operations. |
||
Business Combinations |
||
In December 2007, the FASB issued ASC Topic 805 (previously SFAS 141(R)), Business
Combinations. This standard broadens the guidance for business combinations and extends its
applicability to all transactions and other events in which one entity obtains control over
one or more other businesses. It broadens the fair value measurement and recognition of
assets acquired, liabilities assumed, and interests transferred as a result of business
combinations. The acquirer is no longer permitted to recognize a separate valuation
allowance as of the acquisition date for loans and other assets acquired in a business
combination. It also requires acquisition-related costs and restructuring costs that the
acquirer expected but was not obligated to incur to be expensed separately from the business
combination. It also expands on required disclosures to improve the ability of the users of the financial statements to evaluate the
nature and financial effects of business combinations. Management adopted these provisions
on January 1, 2009 and had no transactions that created an impact on the Company’s financial
condition or result of operations. |
F-19
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
Adoption of New Financial Accounting Standards (Continued) |
||
Subsequent Events |
||
In February 2010, the FASB issued ASU 2010-2009 which
amends ASC 855-10 (formerly SFAS No. 165), Subsequent Events, which establishes general standards
of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The ASU addresses certain
implementation issues related to an entity's requirement to perform and disclose subsequent-events
procedures. The ASU requires SEC filers to evaluate subsequent events through the date the
financial statements are issued and exempts SEC filers from disclosing the date through which
subsequent events have been evaluated. |
||
Accounting for Transfers of Financial Assets |
||
In June 2009, the FASB issued ASC Topic 860 (previously SFAS No. 166), Accounting for
Transfers of Financial Assets, an amendment of SFAS No. 140. This standard amends the
derecognition accounting and disclosure guidance included in previously issued standards.
This standard eliminates the exemption from consolidation for qualifying special-purpose
entities (SPEs) and also requires a transferor to evaluate all existing qualifying SPEs to
determine whether they must be consolidated in accordance with ASC Topic 810. This standard
also provides more stringent requirements for derecognition of a portion of a financial
asset and establishes new conditions for reporting the transfer of a portion of a financial
asset as a sale. This standard is effective as of the beginning of the first annual
reporting period that begins after November 15, 2009. Management is assessing the impact
this standard may have on the Company’s financial condition and results of operations. |
||
Transfers and Servicing |
||
In December 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-16, Transfers
and Servicing (ASC Topic 860): Accounting for Transfers of Financial Assets, which updates
the derecognition guidance in ASC Topic 860 for previously issued
SFAS No. 166. This update reflects the Board’s response to issues entities have encountered when
applying ASC 860, including: (1) requires that all arrangements made in connection with a
transfer of financial assets be considered in the derecognition analysis, (2) clarifies when
a transferred asset is considered legally isolated from the transferor, (3) modifies the
requirements related to a transferee’s ability to freely pledge or exchange transferred
financial assets, and (4) provides guidance on when a portion of a financial asset can be
derecognized. This update is effective for financial asset transfers occurring after the
beginning of an entity’s first fiscal year that begins after November 15, 2009. Early
adoption is prohibited. Management is assessing the impact of this standard on the
Company’s financial condition and results of operations. |
F-20
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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, 2009 | December 31, 2008 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 59,493,000 | $ | 59,493,000 | $ | 18,791,000 | $ | 18,791,000 | ||||||||
Investment securities |
87,950,000 | 87,950,000 | 38,374,000 | 38,606,000 | ||||||||||||
Loans |
323,408,000 | 325,589,000 | 359,072,000 | 363,811,000 | ||||||||||||
Bank owned life insurance |
10,111,000 | 10,111,000 | 9,766,000 | 9,766,000 | ||||||||||||
Accrued interest receivable |
2,487,000 | 2,487,000 | 2,063,000 | 2,063,000 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
$ | 433,255,000 | $ | 433,311,000 | $ | 371,493,000 | $ | 371,761,000 | ||||||||
Short-term borrowings |
20,000,000 | 20,000,000 | 34,000,000 | 34,000,000 | ||||||||||||
Long-term debt |
20,000,000 | 19,817,000 | ||||||||||||||
Junior subordinated deferrable
interest debentures |
10,310,000 | 2,909,000 | 10,310,000 | 2,420,000 | ||||||||||||
Accrued interest payable |
476,000 | 476,000 | 487,000 | 487,000 | ||||||||||||
These estimates do not reflect any premium or discount that could result from offering
the Company’s entire holdings of a particular financial instrument for sale at one time, nor
do they attempt to estimate the value of anticipated future business related to the
instruments. In addition, the tax ramifications related to the realization of unrealized
gains and losses can have a significant effect on fair value estimates and have not been
considered in any of these estimates. |
The following methods and assumptions were used by management to estimate the fair value of
its financial instruments at December 31, 2009 and December 31, 2008: |
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. |
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 fair value of accrued interest receivable approximates its fair value as
adjusted for accrued interest on impaired loans. |
F-21
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 3. | FAIR VALUE MEASUREMENTS (Continued) |
The fair value of impaired loans is based on either the estimated fair value of underlying
collateral or estimated cash flows, discounted at the loans effective rate. Assumptions
regarding credit risk and cash flows are determined using available market information and
specific borrower information. |
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. |
Long-term borrowings: The fair values for Long-term FHLB term advances are
estimated using discounted cash flow analyses, using interest rates currently being offered
at each reporting date for FHLB advances with a similar maturity. |
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. |
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. |
F-22
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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, 2009, and indicates
the fair value hierarchy of the valuation techniques utilized by the Company to determine
such fair value: |
Level 1: Quoted prices for identical instruments traded in active exchange markets. |
Level 2: Quoted process for similar instruments in active markets, quoted process for
identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable or can be corroborated by
observable market data. |
Level 3: Model based techniques that use one significant assumption not observable in the
market. These unobservable assumptions reflect the Company’s estimates of assumptions that
market participants would use on pricing the asset or liability. Valuation techniques
include management judgment and estimation which may be significant. |
In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, the level in the fair value hierarchy within which
the fair value measurement in its entirety falls has been determined based on the lowest
level input that is significant to the fair value measurement in its entirety. The Company’s
assessment of the significance of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to the asset or liability. |
Assets and liabilities measured at fair value on a recurring basis are summarized below: |
| Fair Value Measurements at December 31, 2009 Using | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Significant | ||||||||||||||
| Identical Assets | Observable Inputs | Unobservable | ||||||||||||||
| Total Fair Value | (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets: |
||||||||||||||||
Available-for-sale
securities |
$ | 87,950,000 | $ | 68,663,000 | $ | 19,287,000 | $ | — | ||||||||
F-23
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 3. | FAIR VALUE MEASUREMENTS (Continued) |
| Fair Value Measurements at December 31, 2008 Using | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Significant | ||||||||||||||
| Identical Assets | Observable Inputs | Unobservable | ||||||||||||||
| Total Fair Value | (Level 1) | (Level 2) | Inputs (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 2009 or 2008. Changes in fair market value are recorded in other comprehensive
income. |
Assets and liabilities measured at fair value on a non-recurring basis are summarized below: |
| Fair Value Measurements at December 31, 2009 Using | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Significant | ||||||||||||||
| Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
| Total Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: |
||||||||||||||||
Impaired
loans |
$ | 9,435,000 | $ | — | $ | 9,435,000 | $ | — | ||||||||
Other real estate |
11,204,000 | — | 11,204,000 | — | ||||||||||||
| $ | 20,639,000 | $ | — | $ | 20,639,000 | $ | — | |||||||||
| Fair Value Measurements at December 31, 2008 Using | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Significant | ||||||||||||||
| Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
| Total Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: |
||||||||||||||||
Impaired
loans |
$ | 19,125,000 | $ | — | $ | 19,125,000 | $ | — | ||||||||
Other real estate |
4,148,000 | — | 4,148,000 | — | ||||||||||||
| $ | 23,273,000 | $ | — | $ | 23,273,000 | $ | — | |||||||||
F-24
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 3. | FAIR VALUE MEASUREMENTS (Continued) |
The following methods were used to estimate the fair value of each class of assets above. |
Impaired Loans: The fair value of impaired loans is based on the fair value of the
collateral as they are virtually all collateral dependent loans. These loans had a principal
balance of $13,716,000 with a related valuation allowance of $4,281,000 at December 31,
2009. There were no changes in the valuation techniques used during 2009. During the year
ended December 31, 2009, declines in the collateral values of impaired loans held as of
December 31, 2009 were $5.1 million and are reflected as additional specific allocations of
the allowance for loan losses and/or partial charge-offs of the impaired loan. During the
year ended December 31, 2008, declines in the collateral values of impaired loans held as of
December 31, 2008 were $2.8 million and are reflected as additional specific allocations of
the allowance for loan losses. |
Other Real Estate: The fair value of other real estate is based on property
appraisals at the time of transfer and as appropriate thereafter, less estimated costs to
sell. Estimated costs to sell other real estate were based on standard market factors.
Management periodically reviews other real estate to determine whether the property
continues to be carried at the lower of its recorded book value or estimated fair value, net
of estimated costs to sell. During the years ended December 31, 2009 and 2008, declines in
the collateral values of other real estate during 2009 and 2008 totaled $4.5 million and
$0.6 million, respectively and are reflected in the provision for losses on other real
estate. |
F-25
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 4. | INVESTMENT SECURITIES |
The amortized cost and estimated fair value of investment securities at December 31, 2009
and 2008 consisted of the following: |
Available-for-Sale |
| 2009 | ||||||||||||||||
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
Debt securities: |
||||||||||||||||
U.S. Treasury securities |
$ | 1,059,000 | $ | (7,000 | ) | $ | 1,052,000 | |||||||||
U.S. Government agencies |
55,520,000 | $ | 420,000 | (51,000 | ) | 55,889,000 | ||||||||||
U.S. Government agencies
collateralized by mortgage
obligations |
18,925,000 | 362,000 | 19,287,000 | |||||||||||||
Obligations of states and
political subdivisions |
11,387,000 | 360,000 | (25,000 | ) | 11,722,000 | |||||||||||
| $ | 86,891,000 | $ | 1,142,000 | $ | (83,000 | ) | $ | 87,950,000 | ||||||||
Net unrealized gains on available-for-sale investment securities totaling $1,059,000
were recorded, net of $437,000 in tax expense, as accumulated other comprehensive income
within shareholders’ equity at December 31, 2009. During 2009 we sold one available-for sale
security for $86,000, recording a $1,000 gain on 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 years ended December 31, 2008 or 2007. |
F-26
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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. This security was sold during 2009. |
Held-to-Maturity |
Related to a significant deterioration in creditworthiness, during 2009 we sold five held-to
maturity securities for $943,000, recording a $9,000 gain on sale. At December 31, 2009 the
Company transferred all of its obligations of states and political subdivisions from
held-to-maturity to available-for-sale as it was determined that management no longer had
the intent to hold these investments to maturity. At the time of the transfer these
securities had an amortized cost of $11,387,000 and a fair value of $11,722,000. There were
no sales or transfers of held-to-maturity investment securities during the years ended
December 31, 2008 or 2007. |
| 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 | |||||||
Investment securities with unrealized losses at December 31, 2009 are summarized and
classified according to the duration of the loss period as follows: |
| Less than 12 Months | ||||||||
| Fair | Unrealized | |||||||
| Value | Losses | |||||||
Debt securities: |
||||||||
U.S. Treasury securities |
$ | 1,052,000 | $ | 7,000 | ||||
U.S. Government agencies |
10,787,000 | 51,000 | ||||||
Obligations of states and political subdivisions |
1,208,000 | 25,000 | ||||||
| $ | 13,047,000 | $ | 83,000 | |||||
There were no securities in a loss position for more than one year as December 31,
2009. |
F-27
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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 | |||||||||||||
At December 31, 2009, the Company held 121 securities of which 16 were in a loss
position. Of the securities in a loss position, all were in a loss position for less than
twelve months. Of the 16 securities 1 is a U. S. Treasury, 10 are U.S. government agencies
and 5 are obligations of states and political subdivisions. The unrealized losses relate
principally to market rate conditions. All of the securities continue to pay as scheduled.
When analyzing an issuer’s financial condition, management considers the length of time and
extent to which the market value has been less than cost; the historical and implied
volatility of the security; the financial condition of the issuer of the security; and the
Company’s intent and ability to hold the security to recovery. As of December 31, 2009,
management does not have the intent to sell these securities nor does it believe it is more
likely than not that it will be required to sell these securities before the recovery of its
amortized cost basis. Based on the Company’s evaluation of the above and other relevant
factors, the Company does not believe the securities that are in an unrealized loss position
as of December 31, 2009 are other than temporarily impaired. |
The amortized cost and estimated fair value of investment securities at December 31, 2009 by
contractual maturity are shown below. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to call or prepay
obligations with or without call or prepayment penalties. |
| Estimated | ||||||||
| Amortized | Fair | |||||||
| Cost | Value | |||||||
After one year through five years |
$ | 60,178,000 | $ | 60,666,000 | ||||
After five years through ten years |
7,788,000 | 7,997,000 | ||||||
| 67,966,000 | 68,663,000 | |||||||
Investment securities not due at a single maturity date: |
||||||||
Government-guaranteed mortgage-backed securities |
18,925,000 | 19,287,000 | ||||||
| $ | 86,891,000 | $ | 87,950,000 | |||||
Investment securities with amortized costs totaling $72,154,000 and $36,249,000 and
estimated fair values totaling $73,254,000 and $37,056,000 at December 31, 2009 and 2008,
respectively, were pledged to secure deposits, including public deposits and treasury, tax
and loan accounts. |
F-28
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 5. | LOANS AND THE ALLOWANCE FOR LOAN LOSSES |
Outstanding loans are summarized below: |
| December 31, | ||||||||
| 2009 | 2008 | |||||||
Commercial |
$ | 37,056,000 | $ | 42,528,000 | ||||
Agricultural |
41,722,000 | 36,020,000 | ||||||
Real estate — mortgage |
161,397,000 | 151,943,000 | ||||||
Real estate — construction and land
development |
38,061,000 | 73,820,000 | ||||||
Installment |
54,442,000 | 61,706,000 | ||||||
| 332,678,000 | 366,017,000 | |||||||
Deferred loan costs, net |
298,000 | 279,000 | ||||||
Allowance for loan losses |
(9,568,000 | ) | (7,224,000 | ) | ||||
| $ | 323,408,000 | $ | 359,072,000 | |||||
Changes in the allowance for loan losses were as follows: |
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
Balance, beginning of year |
$ | 7,224,000 | $ | 4,211,000 | $ | 3,917,000 | ||||||
Provision charged to operations |
14,500,000 | 4,600,000 | 800,000 | |||||||||
Losses charged to allowance |
(12,500,000 | ) | (1,783,000 | ) | (786,000 | ) | ||||||
Recoveries |
344,000 | 196,000 | 280,000 | |||||||||
Balance, end of year |
$ | 9,568,000 | $ | 7,224,000 | $ | 4,211,000 | ||||||
The recorded investment in impaired loans totaled $19,228,000 and $26,444,000 at December
31, 2009 and 2008, respectively. The Company had specific allowances for loan losses of
$4,281,000 on impaired loans of $13,716,000 at December 31, 2009 as compared to specific
allowances for loan losses of $3,132,000 on impaired loans of $19,125,000 at December 31,
2008. The average recorded investment in impaired loans for the years ended December 31,
2009, 2008 and 2007 was $25,092,000, $5,243,000 and $1,736,000, respectively. The Company
recognized $369,000, $74,000 and $118,000 in interest income on a cash basis for impaired
loans during the years ended December 31, 2009, 2008 and 2007, respectively. |
||
Included in impaired loans are troubled debt restructurings. A troubled debt restructuring
is a formal restructure of a loan where the Company for economic or legal reasons related to
the borrower’s financial difficulties, grants a concession to the borrower. The concessions
may be granted in various forms, including reduction in the standard interest rate,
reduction in the loan balance or accrued interest, and extension of the maturity date. |
F-29
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 5. | LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued) |
At December 31, 2009 and 2008, nonaccrual loans totaled $14,263,000 and $26,444,000,
respectively. Interest foregone on nonaccrual loans totaled $568,000, $576,000 and $161,000
for the years ended December 31, 2009, 2008 and 2007, respectively. Loans past due 90 days
or more and on accrual status were $28,000 and $297,000 at December 31, 2009 and 2008,
respectively. |
||
Salaries and employee benefits totaling $708,000, $868,000 and $753,000 have been deferred
as loan origination costs during the years ended December 31, 2009, 2008 and 2007,
respectively. |
||
Servicing Assets and Interest-Only Strips Receivable |
||
The Company serviced government guaranteed loans for others totaling $18,512,000, $8,920,000
and 5,300,000 as of December 31, 2009, 2008 and 2007, respectively. |
||
A summary of the related servicing assets and interest-only strips receivable are as
follows: |
| Year Ended December 31, | ||||||||||||
| Servicing Assets: | 2009 | 2008 | 2007 | |||||||||
Balance at beginning of year |
$ | 108,000 | $ | 76,000 | $ | 69,000 | ||||||
Increase from loan sales |
176,000 | 62,000 | 24,000 | |||||||||
Amortization charged to income |
(35,000 | ) | (30,000 | ) | (17,000 | ) | ||||||
Balance at end of year |
$ | 249,000 | $ | 108,000 | $ | 76,000 | ||||||
| Interest-Only Strips Receivable: | 2009 | 2008 | 2007 | |||||||||
Balance at beginning of year |
$ | 213,000 | $ | 247,000 | $ | 238,000 | ||||||
Increase from loan sales |
46,000 | 68,000 | ||||||||||
Amortization charged to income |
(54,000 | ) | (80,000 | ) | (59,000 | ) | ||||||
Balance at end of year |
$ | 159,000 | $ | 213,000 | $ | 247,000 | ||||||
At December 31, 2009, 2008, and 2007, the Company had interest-only strips of $159,000,
$213,000, and $247,000, respectively, which approximates fair value. There were no
significant gains or losses recognized on the interest-only strips for the years ended
December 31, 2009, 2008 and 2007. |
F-30
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 6. | PREMISES AND EQUIPMENT |
Premises and equipment consisted of the following: |
| December 31, | ||||||||
| 2009 | 2008 | |||||||
Land |
$ | 2,377,000 | $ | 2,397,000 | ||||
Premises |
14,220,000 | 14,220,000 | ||||||
Furniture, equipment and leasehold improvements |
10,108,000 | 9,912,000 | ||||||
| 26,705,000 | 26,529,000 | |||||||
Less accumulated depreciation
and amortization |
(12,161,000 | ) | (10,765,000 | ) | ||||
| $ | 14,544,000 | $ | 15,764,000 | |||||
Depreciation and amortization included in occupancy and equipment expense totaled
$1,756,000, $1,769,000 and $1,897,000 for the years ended December 31, 2009, 2008 and 2007,
respectively. |
| 7. | DEPOSITS |
Interest-bearing deposits consisted of the following: |
| December 31, | ||||||||
| 2009 | 2008 | |||||||
Interest-bearing demand deposits |
$ | 106,083,000 | $ | 72,589,000 | ||||
Money market |
44,239,000 | 39,225,000 | ||||||
Savings |
48,304,000 | 48,604,000 | ||||||
Time, $100,000 or more |
55,003,000 | 36,179,000 | ||||||
Other time |
67,668,000 | 62,113,000 | ||||||
| $ | 321,297,000 | $ | 258,710,000 | |||||
F-31
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 7. | DEPOSITS (Continued) |
|
At December 31, 2009, the scheduled maturities of time deposits were as follows: |
| Year Ending December 31, | ||||
2010 |
$ | 75,549,000 | ||
2011 |
42,916,000 | |||
2012 |
2,903,000 | |||
2013 |
757,000 | |||
2014 |
515,000 | |||
Thereafter |
31,000 | |||
| $ | 122,671,000 | |||
At December 31, 2009, the contractual maturities of time deposits with a denomination of
$100,000 and over were as follows: $13,031,000 in 3 months or less, $7,729,000 over 3 months
through 6 months, $9,881,000 over 6 months through 12 months, and $24,362,000 over 12
months. |
Deposit overdrafts reclassified as loan balances were $328,000 and $484,000 at December 31,
2009 and 2008, respectively. |
| 8. | BORROWING ARRANGEMENTS |
The Company has a secured short-term borrowing arrangement with one of its correspondent
banks in the amount of $5,000,000. No borrowings were outstanding under this arrangement at
December 31, 2009 or 2008. In addition, the Company has the ability to secure advances
through the Federal Reserve Bank of San Francisco discount window. These advances also must
be collateralized. |
The Company is a member of the FHLB and can borrow up to $82,056,000 from the FHLB secured
by commercial and residential mortgage loans with carrying values totaling $231,492,000. The
Company is required to hold FHLB stock as a condition of membership. At December 31, 2009,
the Company held $1,933,000 of FHLB stock which is recorded as a component of other assets.
At this level of stock holdings the Company can borrow up to $41,132,000. Total borrowings
at December 31, 2009 from the FHLB were $40,000,000 consisting of both short-term and
long-term FHLB advances. To borrow the $82,056,000 in available credit the Company would
need to purchase $1,924,000 in additional FHLB stock. |
Short-term borrowings at December 31, 2009 consisted of a $20,000,000 FHLB advance at
0.47% which matured and was repaid on January 19, 2010. At December 31, 2008 short-term
borrowings consisted of a one day $34,000,000 FHLB advance with an interest rate of 0.05%. |
F-32
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 8. | BORROWING ARRANGEMENTS (Continued) |
Long-term borrowings at December 31, 2009 consisted of two $10,000,000 FHLB advances. The
first advance matures on November 23, 2011 and bears interest at 1.00%. The second advance
matures on November 23, 2012 and bears interest at 1.60%. Interest rates on both advances
are fixed until maturity. |
| 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, 2009, all of the trust preferred securities that have been
issued qualify as Tier 1 capital. |
During 2002, Plumas Statutory Trust I issued 6,000 Floating Rate Capital Trust Pass-Through
Securities (“Trust Preferred Securities”), with a liquidation value of $1,000 per security,
for gross proceeds of $6,000,000. During 2005, Plumas Statutory Trust II issued 4,000 Trust
Preferred Securities with a liquidation value of $1,000 per security, for gross proceeds of
$4,000,000. The entire proceeds were invested by Trust I in the amount of $6,186,000 and
Trust II in the amount of $4,124,000 in Floating Rate Junior Subordinated Deferrable
Interest Debentures (the “Subordinated Debentures”) issued by the Company, with identical
maturity, repricing and payment terms as the Trust Preferred Securities. The Subordinated
Debentures represent the sole assets of Trusts I and II. |
Trust I’s Subordinated Debentures mature on September 26, 2032, bear a current interest rate
of 3.65% (based on 3-month LIBOR plus 3.40%), with repricing and payments due quarterly.
Trust II’s Subordinated Debentures mature on September 28, 2035, bear a current interest
rate of 1.73% (based on 3-month LIBOR plus 1.48%), with repricing and payments due
quarterly. The Subordinated Debentures are redeemable by the Company, subject to receipt by
the Company of prior approval from the Federal Reserve Board of Governors, on any quarterly
anniversary date on or after the 5-year anniversary date of the issuance. The redemption
price is par plus accrued and unpaid interest, except in the case of redemption under a
special event which is defined in the debenture. The Trust Preferred Securities are subject
to mandatory redemption to the extent of any early redemption of the Subordinated Debentures
and upon maturity of the Subordinated Debentures on September 26, 2032 for Trust I and
September 28, 2035 for Trust II. |
Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on
the liquidation amount of $1,000 per security. The interest rate of the Trust Preferred
Securities issued by Trust I adjust on each quarterly anniversary date to equal the 3-month
LIBOR plus 3.40%. The Trust Preferred Securities issued by Trust II adjust on
each quarterly anniversary date to equal the 3-month LIBOR plus 1.48%. Both Trusts I and II
have the option to defer payment of the distributions for a period of up to five |
F-33
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 9. | JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES (Continued) |
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, 2009, 2008 and
2007 related to the subordinated debentures was $371,000, $623,000 and $835,000,
respectively. |
| 10. | COMMITMENTS AND CONTINGENCIES |
Leases |
The Company has commitments for leasing premises under the terms of noncancelable operating
leases expiring from 2010 to 2018. Future minimum lease payments are as follows: |
| Year Ending December 31, | ||||
2010 |
$ | 265,000 | ||
2011 |
234,000 | |||
2012 |
234,000 | |||
2013 |
158,000 | |||
2014 |
143,000 | |||
Thereafter |
465,000 | |||
| $ | 1,499,000 | |||
Rental expense included in occupancy and equipment expense totaled $317,000, $347,000 and
$209,000 for the years ended December 31, 2009, 2008 and 2007, 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. |
F-34
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 10. | COMMITMENTS AND CONTINGENCIES (Continued) |
The following financial instruments represent off-balance-sheet credit risk: |
| December 31, | ||||||||
| 2009 | 2008 | |||||||
Commitments to extend credit |
$ | 67,258,000 | $ | 78,787,000 | ||||
Letters of credit |
$ | 304,000 | $ | 534,000 | ||||
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since some
of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company evaluates each
customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on management’s credit
evaluation of the borrower. Collateral held varies, but may include accounts receivable,
crops, inventory, equipment, income-producing commercial properties, farm land and
residential properties. |
Letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to customers. The fair
value of the liability related to these letters of credit, which represents the fees
received for issuing the guarantees, was not significant at December 31, 2009 and 2008. The
Company recognizes these fees as revenues over the term of the commitment or when the
commitment is used. |
At December 31, 2009, consumer loan commitments represent approximately 15% of total
commitments and are generally unsecured. Commercial and agricultural loan commitments
represent approximately 34% 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. |
F-35
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 10. | COMMITMENTS AND CONTINGENCIES (Continued) |
Concentrations of Credit Risk (Continued) |
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. |
| 11. | SHAREHOLDERS’ EQUITY |
Dividend Restrictions |
The Company’s ability to pay cash dividends is dependent on dividends paid to it by the Bank
and limited by California corporation law. Under California law, the holders of common
stock of the Company are entitled to receive dividends when and as declared by the Board of
Directors, out of funds legally available, subject to certain restrictions. The California
general corporation law prohibits the Company from paying dividends on its common stock
unless: (i) its retained earnings, immediately prior to the dividend payment, equals or
exceeds the amount of the dividend or (ii) immediately after giving effect to the dividend,
the sum of the Company’s assets (exclusive of goodwill and deferred charges) would be at
least equal to 125% of its liabilities (not including deferred taxes, deferred income and
other deferred liabilities) and the current assets of the Company would be at least equal to
its current liabilities, or, if the average of its earnings before taxes on income and
before interest expense for the two preceding fiscal years was less than the average of its
interest expense for the two preceding fiscal years, at least equal to 125% of its current
liabilities. |
Dividends from the Bank to the Company are restricted under California law to the lesser of
the Bank’s retained earnings or the Bank’s net income for the latest three fiscal years,
less dividends previously declared during that period, or, with the approval of the
Department of Financial Institutions (“DFI”), 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, 2009, the bank was restricted, without prior
approval from the DFI, from paying cash dividends to the Company under this restriction. 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). |
As describe below, dividends on common stock are also limited related to the Company’s
participation in the Capital Purchase Program. |
F-36
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 11. | SHAREHOLDERS’ EQUITY (Continued) |
Preferred Stock |
On January 30, 2009 the Company entered into a Letter Agreement (the “Purchase Agreement”)
with the United States Department of the Treasury (“Treasury”), pursuant to which the
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 qualifies 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 exercisable, 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. |
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. |
F-37
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 11. | SHAREHOLDERS’ EQUITY (Continued) |
Preferred Stock (Continued) |
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. Discount
accretion for the year ended December 31, 2009 totaled $79,000. |
Earnings Per Share |
Basic earnings per share is computed by dividing income (loss) 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 Year Ended December 31, | ||||||||||||
| (In thousands, except per share data) | 2009 | 2008 | 2007 | |||||||||
Net Income (loss): |
||||||||||||
Net income (loss) |
$ | (9,146 | ) | $ | 304 | $ | 4,223 | |||||
Dividends accrued and discount accreted on
preferred shares |
(628 | ) | — | — | ||||||||
Net income (loss) available to common shareholders |
$ | (9,774 | ) | $ | 304 | $ | 4,223 | |||||
Earnings (loss) Per Share: |
||||||||||||
Basic earnings (loss) per share |
$ | (2.05 | ) | $ | 0.06 | $ | 0.85 | |||||
Diluted earnings (loss) per share |
$ | (2.05 | ) | $ | 0.06 | $ | 0.84 | |||||
Weighted Average Number of Shares Outstanding: |
||||||||||||
Basic shares |
4,776 | 4,817 | 4,963 | |||||||||
Diluted shares |
4,776 | 4,835 | 5,005 | |||||||||
Included in diluted shares were dilutive stock options totaling 18,022 and 41,957 for
the years ended December 31, 2008 and 2007, respectively. |
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. When a net loss occurs, no difference
in earnings per share is calculated because the conversion of potential common stock is
anti-dilutive. Stock options not included in the computation of diluted earnings per share,
due to their antidilutive effect, were 394,000 and 215,000 for the years ended December 31,
2008 and 2007, respectively. |
F-38
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 11. | SHAREHOLDERS’ EQUITY (Continued) |
Stock Options |
In 2001 and 1991, the Company established Stock Option Plans for which 873,185 shares
of common stock remain reserved for issuance to employees and directors and 469,219 shares
are available for future grants under incentive and nonstatutory agreements as of December
31, 2009. 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, 2007 |
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 | |||||||||||||
Options exercised |
(1,000 | ) | 5.43 | |||||||||||||
Options cancelled |
(61,990 | ) | 12.38 | |||||||||||||
Options outstanding at December 31, 2009 |
403,966 | $ | 13.56 | 4.7 | $ | — | ||||||||||
Options exercisable at December 31, 2009 |
270,797 | $ | 13.11 | 4.3 | $ | — | ||||||||||
Expected to vest after December 31, 2009 |
115,996 | $ | 14.47 | 5.7 | $ | — | ||||||||||
As of December 31, 2009, there was $297,000 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 1.5 years. |
The total fair value of options vested was $237,000 for the year ended December 31,
2009.The total intrinsic value of options at time of exercise was $1,000, $56,000 and
$132,000 for the years ended December 31, 2009, 2008, and 2007, respectively. |
Cash received from option exercise for the years ended December 31, 2009, 2008, and 2007,
was $5,000, $68,000 and $73,000, respectively. There was no tax benefit realized for
the tax deduction from options exercised in 2009 or 2008. The tax benefit realized for the
tax deductions from option exercise totaled $9,000 for the year ended December 31, 2007. |
F-39
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 11. | SHAREHOLDERS’ EQUITY (Continued) |
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, 2009 and 2008. |
F-40
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 11. | SHAREHOLDERS’ EQUITY (Continued) |
Regulatory Capital (Continued) |
| December 31, | ||||||||||||||||
| 2009 | 2008 | |||||||||||||||
| Amount | Ratio | Amount | Ratio | |||||||||||||
Leverage Ratio |
||||||||||||||||
Plumas Bancorp and Subsidiary |
$ | 40,564,000 | 7.9 | % | $ | 43,885,000 | 9.8 | % | ||||||||
Minimum regulatory requirement |
$ | 20,652,000 | 4.0 | % | $ | 17,907,000 | 4.0 | % | ||||||||
Plumas Bank |
$ | 38,172,000 | 7.4 | % | $ | 43,372,000 | 9.7 | % | ||||||||
Minimum requirement for “Well-
Capitalized” institution under the
prompt corrective action plan |
$ | 25,848,000 | 5.0 | % | $ | 22,365,000 | 5.0 | % | ||||||||
Minimum regulatory requirement |
$ | 20,678,000 | 4.0 | % | $ | 17,892,000 | 4.0 | % | ||||||||
Tier 1 Risk-Based Capital Ratio |
||||||||||||||||
Plumas Bancorp and Subsidiary |
$ | 40,564,000 | 10.4 | % | $ | 43,885,000 | 11.0 | % | ||||||||
Minimum regulatory requirement |
$ | 15,641,000 | 4.0 | % | $ | 16,021,000 | 4.0 | % | ||||||||
Plumas Bank |
$ | 38,172,000 | 9.8 | % | $ | 43,372,000 | 10.8 | % | ||||||||
Minimum requirement for “Well-
Capitalized” institution under the
prompt corrective action plan |
$ | 23,433,000 | 6.0 | % | $ | 23,996,000 | 6.0 | % | ||||||||
Minimum regulatory requirement |
$ | 15,622,000 | 4.0 | % | $ | 15,997,000 | 4.0 | % | ||||||||
Total Risk-Based Capital Ratio |
||||||||||||||||
Plumas Bancorp and Subsidiary |
$ | 45,512,000 | 11.6 | % | $ | 48,919,000 | 12.2 | % | ||||||||
Minimum regulatory requirement |
$ | 31,281,000 | 8.0 | % | $ | 32,042,000 | 8.0 | % | ||||||||
Plumas Bank |
$ | 43,113,000 | 11.0 | % | $ | 48,399,000 | 12.1 | % | ||||||||
Minimum requirement for “Well-
Capitalized” institution under the
prompt corrective action plan |
$ | 39,056,000 | 10.0 | % | $ | 39,994,000 | 10.0 | % | ||||||||
Minimum regulatory requirement |
$ | 31,244,000 | 8.0 | % | $ | 31,995,000 | 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-41
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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. The Board of Directors did not reauthorize the repurchase plan
in 2009. |
| 12. | OTHER EXPENSES |
Other expenses consisted of the following: |
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
FDIC Insurance |
$ | 1,125,000 | $ | 258,000 | $ | 48,000 | ||||||
Outside service fees |
892,000 | 735,000 | 671,000 | |||||||||
Professional fees |
789,000 | 688,000 | 738,000 | |||||||||
Loan collection expenses |
399,000 | 205,000 | 154,000 | |||||||||
Telephone and data communications |
392,000 | 400,000 | 362,000 | |||||||||
OREO expenses |
370,000 | 175,000 | 38,000 | |||||||||
Business development |
333,000 | 467,000 | 530,000 | |||||||||
Advertising and promotion |
327,000 | 448,000 | 520,000 | |||||||||
Director compensation and retirement |
293,000 | 323,000 | 349,000 | |||||||||
Armored car and courier |
281,000 | 289,000 | 279,000 | |||||||||
Postage |
207,000 | 208,000 | 242,000 | |||||||||
Stationery and supplies |
183,000 | 236,000 | 278,000 | |||||||||
Core deposit intangible amortization |
173,000 | 216,000 | 301,000 | |||||||||
Loss on sale of other real estate |
158,000 | |||||||||||
Insurance |
142,000 | 235,000 | 177,000 | |||||||||
Other operating expenses |
677,000 | 252,000 | 232,000 | |||||||||
| $ | 6,741,000 | $ | 5,135,000 | $ | 4,919,000 | |||||||
| 13. | INCOME TAXES |
The (benefit from) provision for income taxes for the years ended December 31, 2009, 2008
and 2007 consisted of the following: |
| Federal | State | Total | ||||||||||
2009 |
||||||||||||
Current |
$ | (2,803,000 | ) | $ | (120,000 | ) | $ | (2,923,000 | ) | |||
Deferred |
(2,122,000 | ) | (1,730,000 | ) | (3,852,000 | ) | ||||||
Benefit from income
taxes |
$ | (4,925,000 | ) | $ | (1,850,000 | ) | $ | (6,775,000 | ) | |||
F-42
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 13. | INCOME TAXES (Continued) |
| Federal | State | Total | ||||||||||
2008 |
||||||||||||
Current |
$ | 788,000 | $ | 459,000 | $ | 1,247,000 | ||||||
Deferred |
(1,002,000 | ) | (457,000 | ) | (1,459,000 | ) | ||||||
(Benefit from) provision for income
taxes |
$ | (214,000 | ) | $ | 2,000 | $ | (212,000 | ) | ||||
| 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 | ||||||
Deferred tax assets (liabilities) consisted of the following: |
| December 31, | ||||||||
| 2009 | 2008 | |||||||
Deferred tax assets: |
||||||||
Allowance for loan losses |
$ | 2,838,000 | $ | 2,635,000 | ||||
NOL carryovers |
1,353,000 | |||||||
Deferred compensation |
1,588,000 | 1,572,000 | ||||||
Core deposit premium |
266,000 | 278,000 | ||||||
OREO valuation allowance |
2,066,000 | 254,000 | ||||||
Future benefit for state income tax deduction |
145,000 | |||||||
Other |
427,000 | 84,000 | ||||||
Total deferred tax assets |
8,538,000 | 4,968,000 | ||||||
Deferred tax liabilities: |
||||||||
Prepaid costs |
(95,000 | ) | (107,000 | ) | ||||
Deferred loan costs |
(782,000 | ) | (866,000 | ) | ||||
Premises and equipment |
(135,000 | ) | (319,000 | ) | ||||
Unrealized gain on available-for-sale
investment securities |
(436,000 | ) | (223,000 | ) | ||||
Other |
(174,000 | ) | (174,000 | ) | ||||
Total deferred tax liabilities |
(1,622,000 | ) | (1,689,000 | ) | ||||
Net deferred tax assets |
$ | 6,916,000 | $ | 3,279,000 | ||||
F-43
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 13. | INCOME TAXES (Continued) |
Deferred tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The determination of the amount of deferred income tax assets which
are more likely than not to be realized is primarily dependent on projections of future
earnings, which are subject to uncertainty and estimates that may change given economic
conditions and other factors. The realization of deferred income tax assets is assessed and
a valuation allowance is recorded if it is “more likely than not” that all or a portion of
the deferred tax asset will not be realized. “More likely than not” is defined as greater
than a 50% chance. All available evidence, both positive and negative is considered to
determine whether, based on the weight of that evidence, a valuation allowance is needed.
As part of its analysis, the Company considered the following positive evidence:
| • | The Company’s 2009 net loss was largely attributable to losses on its
Construction and Land Development portfolio that represented approximately 80% of
net charge-offs during the year ended December 31, 2009. This portfolio has
significantly decreased during the current year and the Company is not growing the
portfolio. |
||
| • | The Company’s 2009 net loss was also attributable to large write-downs in
Construction and Land Development real estate owned which represented the majority
of its provision for losses on other real estate during 2009. Given that the
Construction and Land Development REO is valued significantly below the original
appraised value as of December 31, 2009, management does not anticipate significant
additional declines in future periods. |
||
| • | The Company has a long history of earnings profitability. |
||
| • | The Company is projecting future taxable and book income will be generated by
operations. |
||
| • | The size of loan credits in the Company’s pipeline of potential problem loans
has significantly decreased. |
As part of its analysis, the Company considered the following negative evidence:
| • | The Company recorded a large net loss in 2009 and is in a cumulative loss
position for the current and preceding two years. |
||
| • | The Company did not meet its financial projections in 2009 or 2008. |
Based upon our analysis of available evidence, we have determined that it is “more likely
than not” that all of our deferred income tax assets as of December 31, 2009 and 2008 will
be fully realized and therefore no valuation allowance was recorded. On the consolidated
balance sheet, net deferred tax assets are included in accrued interest receivable and other
assets.
F-44
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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:
| 2009 | 2008 | 2007 | ||||||||||
Federal income tax, at statutory rate |
34.0 | % | 34.0 | % | 34.0 | % | ||||||
State franchise tax, net of Federal tax effect |
7.0 | % | 1.7 | % | 7.0 | % | ||||||
Interest on obligations of states and political
subdivisions |
1.3 | % | (256.3 | )% | (3.2 | )% | ||||||
Net increase in cash surrender value of bank
owned life insurance |
0.8 | % | (125.1 | )% | (1.7 | )% | ||||||
Other |
(0.5 | )% | 114.7 | % | 1.1 | % | ||||||
Effective tax rate |
42.6 | % | (231.0 | )% | 37.2 | % | ||||||
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, 2006, and by state and local taxing
authorities for years ended before December 31, 2005.
The
unrecognized tax benefits and changes therein and the interest and penalties
accrued by the Company as of December 31, 2009 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 2009:
Balance, January 1, 2009 |
$ | 1,384,000 | ||
Disbursements |
8,000 | |||
Amounts repaid |
(22,000 | ) | ||
Balance, December 31, 2009 |
$ | 1,370,000 | ||
Undisbursed commitments to related
parties, December 31, 2009 |
$ | 255,000 | ||
F-45
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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, 2009, 2008 and 2007, the Company’s contribution totaled
$213,000, $206,000 and $205,000, 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.
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, 2009, 2008 and 2007 totaled $330,000, $238,000 and $580,000, respectively.
Accrued compensation payable under the salary continuation plan totaled $3,483,000 and
$3,357,000 at December 31, 2009 and 2008, 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 $10,111,000 and $9,766,000 at December 31, 2009
and 2008, respectively. Income earned on these policies, net of expenses, totaled $345,000,
$338,000 and $335,000 for the years ended December 31, 2009, 2008 and 2007, 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-46
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 16. | COMPREHENSIVE INCOME (LOSS) |
Comprehensive income (loss) is reported in addition to net income for all periods presented.
Comprehensive income (loss) 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 (loss) and the components of accumulated other
comprehensive income (loss) are presented in the consolidated statement of changes in
shareholders’ equity.
At December 31, 2009, 2008 and 2007, the Company held securities classified as
available-for-sale which had unrealized gains as follows:
| Tax | ||||||||||||
| Before | Benefit | After | ||||||||||
| Tax | (Expense) | Tax | ||||||||||
For the Year Ended December 31, 2009 |
||||||||||||
Total other comprehensive loss: |
||||||||||||
Unrealized gains on securities transferred
from held-to-maturity to available
for-sale |
$ | 335,000 | $ | (138,000 | ) | $ | 197,000 | |||||
Unrealized holding gains |
184,000 | (75,000 | ) | 109,000 | ||||||||
Reclassification adjustment for gains
included in net loss |
(1,000 | ) | — | (1,000 | ) | |||||||
Total other comprehensive income |
$ | 518,000 | $ | (213,000 | ) | $ | 305,000 | |||||
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 | |||||
F-47
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 17. | INTANGIBLE ASSETS |
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, 2009, 2008 and 2007, no impairment of the intangible asset has been
recognized in the consolidated financial statements. Amortization expense totaled $173,000,
$216,000 and $301,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
The gross carrying amount of intangible assets and accumulated amortization was:
| December 31, 2009 | December 31, 2008 | |||||||||||||||
| Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
| Amount | Amortization | Amount | Amortization | |||||||||||||
Core Deposit Intangibles |
$ | 1,709,000 | $ | 1,061,000 | $ | 1,709,000 | $ | 888,000 | ||||||||
The estimated remaining intangible amortization is as follows:
| Year Ending | ||||
| December 31, | ||||
2010 |
$ | 173,000 | ||
2011 |
173,000 | |||
2012 |
173,000 | |||
2013 |
129,000 | |||
| $ | 648,000 | |||
F-48
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 18. | PARENT ONLY CONDENSED
FINANCIAL STATEMENTS |
CONDENSED BALANCE SHEET
December 31, 2009 and 2008
| 2009 | 2008 | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 3,710,000 | $ | 662,000 | ||||
Investment in bank subsidiary |
44,734,000 | 44,672,000 | ||||||
Other assets |
452,000 | 576,000 | ||||||
Total assets |
$ | 48,896,000 | $ | 45,910,000 | ||||
LIABILITIES AND
SHAREHOLDERS’ EQUITY |
||||||||
Other liabilities |
$ | 355,000 | $ | 163,000 | ||||
Junior subordinated deferrable interest debentures |
10,310,000 | 10,310,000 | ||||||
Total liabilities |
10,665,000 | 10,473,000 | ||||||
Shareholders’ equity: |
||||||||
Preferred stock |
11,595,000 | — | ||||||
Common stock |
5,970,000 | 5,302,000 | ||||||
Retained earnings |
20,044,000 | 29,818,000 | ||||||
Accumulated other comprehensive income |
622,000 | 317,000 | ||||||
Total shareholders’ equity |
38,231,000 | 35,437,000 | ||||||
Total liabilities and shareholders’ equity |
$ | 48,896,000 | $ | 45,910,000 | ||||
CONDENSED STATEMENT OF INCOME
For the Years Ended December 31, 2009, 2008 and 2007
| 2009 | 2008 | 2007 | ||||||||||
Income: |
||||||||||||
Dividends declared by bank subsidiary |
$ | — | $ | 3,000,000 | $ | 4,300,000 | ||||||
Earnings from investment in Plumas
Statutory Trusts I and II |
11,000 | 19,000 | 18,000 | |||||||||
Total income |
11,000 | 3,019,000 | 4,318,000 | |||||||||
Expenses: |
||||||||||||
Interest on junior subordinated
deferrable interest debentures |
371,000 | 623,000 | 835,000 | |||||||||
Other expenses |
808,000 | 730,000 | 765,000 | |||||||||
Total expenses |
1,179,000 | 1,353,000 | 1,600,000 | |||||||||
Income (loss) before equity in
undistributed income of subsidiary |
(1,168,000 | ) | 1,666,000 | 2,718,000 | ||||||||
Equity in undistributed income (loss) of
subsidiary |
(8,452,000 | ) | (1,911,000 | ) | 896,000 | |||||||
Income (loss) before income taxes |
(9,620,000 | ) | (245,000 | ) | 3,614,000 | |||||||
Income tax benefit |
474,000 | 549,000 | 609,000 | |||||||||
Net income (loss) |
$ | (9,146,000 | ) | $ | 304,000 | $ | 4,223,000 | |||||
F-49
Table of Contents
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
| 18. | PARENT ONLY CONDENSED
FINANCIAL STATEMENTS (Continued) |
CONDENSED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2009, 2008 and 2007
| 2009 | 2008 | 2007 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) |
$ | (9,146,000 | ) | $ | 304,000 | $ | 4,223,000 | |||||
Adjustments to reconcile net income (loss) to
net cash provided by operating activities: |
||||||||||||
Undistributed loss (income) of
subsidiary |
8,452,000 | 1,911,000 | (896,000 | ) | ||||||||
Excess tax benefits from stock-based
compensation |
(9,000 | ) | ||||||||||
Stock-based compensation expense |
47,000 | 58,000 | 164,000 | |||||||||
Decrease (increase) in other assets |
124,000 | (35,000 | ) | 118,000 | ||||||||
Increase in other liabilities |
115,000 | 28,000 | 50,000 | |||||||||
Net cash (used in) provided by
operating activities |
(408,000 | ) | 2,266,000 | 3,650,000 | ||||||||
Cash flows from investing activities: |
||||||||||||
Investment in bank subsidiary |
(8,000,000 | ) | ||||||||||
Net cash used in investing activities |
(8,000,000 | ) | — | — | ||||||||
Cash flows from financing activities: |
||||||||||||
Payment of cash dividends on common stock |
(1,153,000 | ) | (1,491,000 | ) | ||||||||
Payment of cash dividends on preferred stock |
(473,000 | ) | ||||||||||
Issuance of preferred stock, net of discount |
11,517,000 | |||||||||||
Issuance of common stock warrant |
407,000 | |||||||||||
Proceeds from the exercise of stock
options |
5,000 | 68,000 | 73,000 | |||||||||
Excess tax benefits from stock-based
compensation |
9,000 | |||||||||||
Repurchase and retirement of common stock |
(1,217,000 | ) | (2,400,000 | ) | ||||||||
Net cash provided by (used in)
financing activities |
11,456,000 | (2,302,000 | ) | (3,809,000 | ) | |||||||
Increase (decrease) in cash and cash
equivalents |
3,048,000 | (36,000 | ) | (159,000 | ) | |||||||
Cash and cash equivalents at beginning
of year |
662,000 | 698,000 | 857,000 | |||||||||
Cash and cash equivalents at end of year |
$ | 3,710,000 | $ | 662,000 | $ | 698,000 | ||||||
Non-cash investing activities: |
||||||||||||
Net change in unrealized gain/loss on
investment securities available-for-sale |
$ | 305,000 | $ | 424,000 | $ | 585,000 | ||||||
Non-cash financing activities: |
||||||||||||
Common stock retired in connection
with the exercise of stock options |
$ | 70,000 | ||||||||||
Tax benefit from stock options exercised |
$ | 9,000 | ||||||||||
F-50
Table of Contents
| ITEM 9. | CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
| ITEM 9A(T). | 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,
2009. 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, 2009, 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 19, 2010
54
Table of Contents
| 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.
55
Table of Contents
| 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, is included as exhibit 3.2 to the
Registrant’s 10-K for December 31, 2008, which is incorporated by this reference herein. |
|
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, is
included as exhibit 10.1 to the Registrant’s 10-K for December 31, 2008, which is incorporated
by this reference herein. |
|
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. |
56
Table of Contents
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. |
57
Table of Contents
10.37
|
Deferred Fee Agreement of Alvin Blickenstaff is included as Exhibit 10.37 to the Registrant’s
10-Q for March 31, 2009, which is incorporated by this reference herein. |
|
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 (Plumas Bancorp) is included as Exhibit 10.41 to the
Registrant’s 10-Q for March 31, 2009, which is incorporated by this reference herein. |
|
10.42
|
Form of Indemnification Agreement (Plumas Bank) is included as Exhibit 10.42 to the
Registrant’s 10-Q for March 31, 2009, which is incorporated by this reference herein. |
|
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, is included as exhibit 10.50 to the
Registrant’s 10-K for December 31, 2008, which is incorporated by this reference herein. |
|
10.51
|
First Amendment to Split Dollar Agreement of Andrew J. Ryback, is included as exhibit 10.51 to
the Registrant’s 10-K for December 31, 2008, which is incorporated by this reference herein. |
|
10.52
|
Executive Salary Continuation Agreement of Douglas N. Biddle dated December 17, 2008, is
included as exhibit 10.52 to the Registrant’s 10-K for December 31, 2008, which is
incorporated by this reference herein. |
|
10.53
|
Second Amendment to Executive Salary Continuation Agreement of Douglas N. Biddle dated June 2,
1994 and Amended February 16, 2000, is included as exhibit 10.53 to the Registrant’s 10-K for
December 31, 2008, which is incorporated by this reference herein. |
|
10.54
|
First Amendment to Addendum A of Split Dollar Agreements of Douglas N. Biddle dated January
24, 2002, is included as exhibit 10.54 to the Registrant’s 10-K for December 31, 2008, which
is incorporated by this reference herein. |
|
10.55
|
First Amendment to Addendum B of Split Dollar Agreements of Douglas N. Biddle dated January
24, 2002, is included as exhibit 10.55 to the Registrant’s 10-K for December 31, 2008, which
is incorporated by this reference herein. |
58
Table of Contents
10.56
|
Second Amendment to Executive Salary Continuation Agreement of Robert T. Herr dated
June 4, 2002 and Amended September 15, 2004, is included as exhibit 10.56 to the Registrant’s
10-K for December 31, 2008, which is incorporated by this reference herein. |
|
10.57
|
First Amendment to Split Dollar Agreements of Robert T. Herr dated September 15, 2004, is
included as exhibit 10.57 to the Registrant’s 10-K for December 31, 2008, which is
incorporated by this reference herein. |
|
10.58
|
Executive Salary Continuation Agreement of Robert T. Herr dated December 17, 2008, is included
as exhibit 10.58 to the Registrant’s 10-K for December 31, 2008, which is incorporated by this
reference herein. |
|
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. |
|
21.01
|
Plumas Bank — California. |
|
21.02
|
Plumas Statutory Trust I — Connecticut. |
|
21.03
|
Plumas Statutory Trust II — Connecticut. |
|
23
|
Independent Registered Public Accountant’s Consent letter dated March 19, 2010 |
|
31.1
|
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated March 19, 2010 |
|
31.2
|
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated March 19, 2010 |
|
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 19, 2010. |
|
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 19, 2010. |
59
Table of Contents
99.1
|
Certification of Chief Executive Officer pursuant to Section 111(b)(4) of the Emergency
Economic Stabilization Act of 2008 dated March 19, 2010. |
|
99.2
|
Certification of Chief Financial Officer pursuant to Section 111(b)(4) of the Emergency
Economic Stabilization Act of 2008 dated March 19, 2010. |
60
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PLUMAS BANCORP
(Registrant)
Date: March 19, 2010
| /s/ D. N. BIDDLE | ||||
| Douglas N. Biddle | ||||
| President/Chief Executive Officer | ||||
| /s/ ANDREW RYBACK | ||||
| Andrew J. Ryback | ||||
| Executive Vice President/Chief Financial Officer | ||||
61
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
/s/ DANIEL E. WEST
|
Dated: March 19, 2010 | |
/s/ TERRANCE J. REESON
|
Dated: March 19, 2010 | |
/s/ D. N. BIDDLE
|
Dated: March 19, 2010 | |
/s/ ALVIN G. BLICKENSTAFF
|
Dated: March 19, 2010 | |
/s/ W. E. ELLIOTT
|
Dated: March 19, 2010 | |
/s/ GERALD W. FLETCHER
|
Dated: March 19, 2010 | |
/s/ JOHN FLOURNOY
|
Dated: March 19, 2010 | |
/s/ ARTHUR C. GROHS
|
Dated: March 19, 2010 | |
/s/ ROBERT J. MCCLINTOCK
|
Dated: March 19, 2010 |
62