UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
March 31, 2020

 

 

TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ___________

 

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)

(I.R.S. Employer Identification No.)

 

 

35 S. Lindan Avenue, Quincy, California

95971

(Address of Principal Executive Offices)

(Zip Code)

 

 

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

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒   No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act:

 

Large Accelerated Filer ☐    Accelerated Filer ☒     Non-Accelerated Filer ☐     Smaller Reporting Company ☒    Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐  No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:

Trading Symbol

Name of Each Exchange on which Registered:

Common Stock, no par value

PLBC

The NASDAQ Stock Market LLC

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 30, 2020. 5,178,532 shares.

 

 

 

 

 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Assets

               

Cash and cash equivalents

  $ 58,058     $ 46,942  

Investment securities available for sale

    159,247       159,320  

Loans, less allowance for loan losses of $7,804 at March 31, 2020 and $7,243 at December 31, 2019

    619,487       616,036  

Real estate acquired through foreclosure

    707       707  

Premises and equipment, net

    14,774       14,629  

Bank owned life insurance

    13,275       13,184  

Accrued interest receivable and other assets

    14,023       14,373  

Total assets

  $ 879,571     $ 865,191  
                 

Liabilities and Shareholders’ Equity

               
                 

Deposits:

               

Non-interest bearing

  $ 336,375     $ 331,619  

Interest bearing

    426,511       415,705  

Total deposits

    762,886       747,324  

Repurchase agreements

    8,383       16,013  

Accrued interest payable and other liabilities

    7,765       7,039  

Junior subordinated deferrable interest debentures

    10,310       10,310  

Total liabilities

    789,344       780,686  
                 

Commitments and contingencies (Note 5)

               
                 

Shareholders’ equity:

               

Common stock, no par value; 22,500,000 shares authorized; issued and outstanding – 5,176,032 shares at March 31, 2020 and 5,165,760 at December 31, 2019

    7,425       7,312  

Retained earnings

    78,460       75,144  

Accumulated other comprehensive income, net

    4,342       2,049  

Total shareholders’ equity

    90,227       84,505  

Total liabilities and shareholders’ equity

  $ 879,571     $ 865,191  

 

See notes to unaudited condensed consolidated financial statements.

 

 

1

 
 

 

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

 

   

For the Three Months Ended

 
   

March 31,

 
   

2020

   

2019

 

Interest Income:

               

Interest and fees on loans

  $ 8,540     $ 8,510  

Interest on investment securities

    952       1,137  

Other

    107       179  

Total interest income

    9,599       9,826  

Interest Expense:

               

Interest on deposits

    259       297  

Interest on junior subordinated deferrable interest debentures

    116       140  

Other

    3       3  

Total interest expense

    378       440  

Net interest income before provision for loan losses

    9,221       9,386  

Provision for Loan Losses

    750       400  

Net interest income after provision for loan losses

    8,471       8,986  

Non-Interest Income:

               

Service charges

    705       650  

Interchange revenue

    539       513  

Gain on sale of loans

    464       244  

Other

    517       558  

Total non-interest income

    2,225       1,965  

Non-Interest Expenses:

               

Salaries and employee benefits

    3,529       3,200  

Occupancy and equipment

    865       858  

Other

    1,742       1,626  

Total non-interest expenses

    6,136       5,684  

Income before provision for income taxes

    4,560       5,267  

Provision for Income Taxes

    1,244       1,449  

Net income

  $ 3,316     $ 3,818  
                 

Basic earnings per share

  $ 0.64     $ 0.74  

Diluted earnings per share

  $ 0.63     $ 0.73  

 

See notes to unaudited condensed consolidated financial statements.

 

2

 
 

 

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

   

For the Three Months Ended

 
   

March 31,

 
   

2020

   

2019

 
                 

Net income

  $ 3,316     $ 3,818  

Other comprehensive income:

               

Change in net unrealized gain/loss

    3,254       2,599  

Reclassification adjustments for net (gains) losses included in net income

    -       -  

Net unrealized holding gain

    3,254       2,599  

Related tax effect:

               

Change in net unrealized gain/loss

    (961 )     (768 )

Reclassification of net gains (losses) included in net income

    -       -  

Income tax effect

    (961 )     (768 )

Other comprehensive income

    2,293       1,831  

Total comprehensive income

  $ 5,609     $ 5,649  

    

See notes to unaudited condensed consolidated financial statements.

 

3

 
 

 

PLUMAS BANCORP AND SUBSIDIARY 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 

(in thousands, except shares)

 

   

Common Stock

   

Retained

   

Accumulated Other Comprehensive Income (Loss)

   

Total Shareholders’

 
   

Shares

   

Amount

   

Earnings

   

(Net of Taxes)

   

Equity

 
                                         

Balance, December 31, 2018

    5,137,476     $ 6,944     $ 62,005     $ (2,017 )   $ 66,932  

Net Income

                    3,818               3,818  

Other comprehensive income

                            1,831       1,831  

Exercise of stock options and tax effect

    13,400       76                       76  

Stock-based compensation expense

            50                       50  

Balance, March 31, 2019

    5,150,876     $ 7,070     $ 65,823     $ (186 )   $ 72,707  
                                         

Balance, December 31, 2019

    5,165,760     $ 7,312     $ 75,144     $ 2,049     $ 84,505  

Net Income

                    3,316               3,316  

Other comprehensive income

                            2,293       2,293  

Exercise of stock options and tax effect

    10,272       35                       35  

Stock-based compensation expense

            78                       78  

Balance, March 31, 2020

    5,176,032     $ 7,425     $ 78,460     $ 4,342     $ 90,227  

 

See notes to unaudited condensed consolidated financial statements.  

 

 

4

 
 

 

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   

For the Three Months Ended

 
   

March 31,

 
   

2020

   

2019

 

Cash Flows from Operating Activities:

               

Net income

  $ 3,316     $ 3,818  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Provision for loan losses

    750       400  

Change in deferred loan origination costs/fees, net

    (167 )     (266 )

Depreciation and amortization

    348       355  

Stock-based compensation expense

    78       50  

Amortization of investment security premiums

    221       180  

Gain on sale of OREO and other vehicles

    3       (9 )

Gain on sale of loans held for sale

    (464 )     (244 )

Loans originated for sale

    (7,539 )     (3,711 )

Proceeds from loan sales

    10,495       6,048  

Earnings on bank-owned life insurance

    (91 )     (82 )

Increase in accrued interest receivable and other assets

    (533 )     (627 )

Increase in accrued interest payable and other liabilities

    726       994  

Net cash provided by operating activities

    7,143       6,906  
                 

Cash Flows from Investing Activities:

               

Proceeds from principal repayments from available-for-sale government-sponsored mortgage-backed securities

    6,822       4,211  

Proceeds from matured and called available-for-sale securities

    380       -  

Purchases of available-for-sale securities

    (4,081 )     (3,500 )

Net increase in loans

    (6,823 )     (9,801 )

Proceeds from sale of other vehicles

    118       167  

Purchase of premises and equipment

    (410 )     (202 )

Net cash used in investing activities

    (3,994 )     (9,125 )

 

Continued on next page.

 

5

 

 

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

(Continued)

 

   

For the Three Months Ended

 
   

March 31,

 
   

2020

   

2019

 

Cash Flows from Financing Activities:

               

Net increase in demand, interest bearing and savings deposits

  $ 16,028     $ 6,707  

Net decrease in time deposits

    (466 )     (2,349 )

Net decrease in securities sold under agreements to repurchase

    (7,630 )     (4,148 )

Proceeds from exercise of stock options

    35       76  

Net cash provided by financing activities

    7,967       286  

Increase (decrease) in cash and cash equivalents

    11,116       (1,933 )

Cash and Cash Equivalents at Beginning of Year

    46,942       46,686  

Cash and Cash Equivalents at End of Period

  $ 58,058     $ 44,753  
                 

Supplemental Disclosure of Cash Flow Information:

               

Cash paid during the period for:

               

Interest expense

  $ 383     $ 434  

Income taxes

  $ -     $ -  
                 

Non-Cash Investing Activities:

               

Real estate and vehicles acquired through foreclosure

  $ 127     $ 189  
                 

Non-Cash Financing Activities:

               

Common stock retired in connection with the exercise of stock options

  $ 46     $ -  

 

See notes to unaudited condensed consolidated financial statements.  

 

6

 

 

PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. THE BUSINESS OF PLUMAS BANCORP

 

During 2002, Plumas Bancorp (the "Company") was incorporated as a bank holding company for the purpose of acquiring Plumas Bank (the "Bank") in a one bank holding company reorganization. This corporate structure gives the Company and the Bank greater flexibility in terms of operation, expansion and diversification. The Company formed Plumas Statutory Trust I ("Trust I") for the sole purpose of issuing trust preferred securities on September 26, 2002. The Company formed Plumas Statutory Trust II ("Trust II") for the sole purpose of issuing trust preferred securities on September 28, 2005.

 

The Bank operates eleven branches in California, including branches in Alturas, Chester, Fall River Mills, Greenville, Kings Beach, Portola, Quincy, Redding, Susanville, Tahoe City, and Truckee. In December 2015 the Bank opened a branch in Reno, Nevada; its first branch outside of California and in 2018 the Bank purchased a branch located in Carson City, Nevada. The Bank’s administrative headquarters is in Quincy, California. In addition, the Bank operates a lending office specializing in government-guaranteed lending in Auburn, California, and commercial/agricultural lending offices in Chico California and Klamath Falls, Oregon. The Bank's primary source of revenue is generated from providing loans to customers who are predominately small and middle market businesses and individuals residing in the surrounding areas.

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Consolidation and Basis of Presentation

 

The consolidated financial statements include the accounts of the Company and the consolidated accounts of its wholly-owned subsidiary, Plumas Bank. All significant intercompany balances and transactions have been eliminated.

 

Plumas Statutory Trust I and Trust II are not consolidated into the Company's consolidated financial statements and, accordingly, are accounted for under the equity method. The Company's investment in Trust I of $352,000 and Trust II of $180,000 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. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position at March 31, 2020 and the results of its operations and its cash flows for the three- month period ended March 31, 2020 and 2019. Our condensed consolidated balance sheet at December 31, 2019 is derived from audited financial statements.

 

The unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. Accordingly, certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2019 Annual Report to Shareholders on Form 10-K. The results of operations for the three-month period ended March 31, 2020 may not necessarily be indicative of future operating results. In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the periods reported. Actual results could differ significantly from those estimates.

 

 

7

 

 

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.

 

Revenue from Contracts with Customers

 

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

 

Most of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as the Company’s loans and investment securities. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Condensed Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

 

Recently Adopted Accounting Pronouncements

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The update is effective for interim and annual periods in fiscal years beginning after December 15, 2019, with early adoption permitted.  As ASU No. 2018-13 only revises disclosure requirements, it did not have a material impact on the Company’s Consolidated Financial Statements.

 

8

 

 

Pending Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU No. 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company has begun its implementation efforts by establishing an implementation team chaired by the Company’s Chief Lending Officer and composed of members of the Company’s credit administration and accounting departments. We have purchased software to support the CECL calculation of the allowance for loan losses under ASU No 2016-13 and have engaged the software vendor to assist in the transition to the CECL model. The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the Company’s Consolidated Financial Statements, in particular the level of the reserve for credit losses. However, the Company continues to evaluate the extent of the potential impact.

 

 

On October 16, 2019, the FASB approved a proposal to change the effective date of ASU No. 2016-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities delaying the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods. As the Company is a smaller reporting company and has not adopted provisions of the standard early, the delay is applicable to the Company.

 

 

 

9

 

 

 

3.   INVESTMENT SECURITIES AVAILABLE FOR SALE

 

The amortized cost and estimated fair value of investment securities at March 31, 2020 and December 31, 2019 consisted of the following, in thousands:

 

Available-for-Sale

 

March 31, 2020

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 

Debt securities:

                               

U.S. Government-sponsored agencies collateralized by mortgage obligations- residential

  $ 121,019     $ 4,876     $ -     $ 125,895  

Obligations of states and political subdivisions

    32,064       1,289       (1 )     33,352  
    $ 153,083     $ 6,165     $ (1 )   $ 159,247  

 

Unrealized gain on available-for-sale investment securities totaling $6,164,000 were recorded, net of $1,822,000 in tax expense, as accumulated other comprehensive income within shareholders' equity at March 31, 2020.  No securities were sold during the three months ended March 31, 2020.

 

Available-for-Sale

 

December 31, 2019

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 

Debt securities:

                               

U.S. Government-sponsored agencies collateralized by mortgage obligations- residential

  $ 123,940     $ 1,924     $ (186 )   $ 125,678  

Obligations of states and political subdivisions

    32,470       1,201       (29 )     33,642  
    $ 156,410     $ 3,125     $ (215 )   $ 159,320  

 

Unrealized gain on available-for-sale investment securities totaling $2,910,000 were recorded, net of $861,000 in tax expense, as accumulated other comprehensive loss within shareholders' equity at December 31, 2019. No securities were sold during the three months ended March 31, 2019

 

There were no transfers of available-for-sale investment securities during the three months ended March 31, 2020 and twelve months ended December 31, 2019. There were no securities classified as held-to-maturity at March 31, 2020 or December 31, 2019.

 

10

 

 

Investment securities with unrealized losses at March 31, 2020 and December 31, 2019 are summarized and classified according to the duration of the loss period as follows, in thousands:

 

March 31, 2020

 

Less than 12 Months

   

12 Months or More

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

Debt securities:

                                               

U.S. Government-sponsored agencies collateralized by mortgage obligations-residential

  $ -     $ -     $ -     $ -     $ -     $ -  

Obligations of states and political subdivisions

    998       1                       998       1  
    $ 998     $ 1     $ -     $ -     $ 998     $ 1  

 

December 31, 2019

 

Less than 12 Months

   

12 Months or More

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

Debt securities:

                                               

U.S. Government-sponsored agencies collateralized by mortgage obligations-residential

  $ 10,319     $ 31     $ 19,733     $ 155     $ 30,052     $ 186  

Obligations of states and political subdivisions

    2,965       29       -       -       2,965       29  
    $ 13,284     $ 60     $ 19,733     $ 155     $ 33,017     $ 215  

 

At March 31, 2020, the Company held 185 securities of which 2 were in a loss position. All of the securities in a loss position were in a loss position for less than twelve months. Of the 185 securities, 98 are U.S. Government-sponsored agencies collateralized by residential mortgage obligations and 87 were obligations of states and political subdivisions. The unrealized losses relate principally to market rate conditions. All of the securities continue to pay as scheduled. When analyzing an issuer’s financial condition, management considers the length of time and extent to which the market value has been less than cost; the historical and implied volatility of the security; the financial condition of the issuer of the security; and the Company’s intent and ability to hold the security to recovery. As of March 31, 2020, 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 March 31, 2020 are other than temporarily impaired.

 

The amortized cost and estimated fair value of investment securities at March 31, 2020 by contractual maturity are shown below, in thousands.

 

   

Amortized Cost

   

Estimated Fair Value

 

Within one year

  $ -     $ -  

After one year through five years

    3,468       3,569  

After five years through ten years

    5,464       5,629  

After ten years

    23,132       24,154  

Investment securities not due at a single maturity date:

               

Government-sponsored mortgage-backed securities

    121,019       125,895  
    $ 153,083     $ 159,247  

 

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.

 

Investment securities with amortized costs totaling $91,211,000 and $83,596,000 and estimated fair values totaling $94,906,000 and $84,625,000 at March 31, 2020 and December 31, 2019, respectively, were pledged to secure deposits and repurchase agreements. 

  

11

 

 

 

4. LOANS AND THE ALLOWANCE FOR LOAN LOSSES

 

Outstanding loans are summarized below, in thousands:

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Commercial

  $ 49,246     $ 47,892  

Agricultural

    76,044       78,785  

Real estate – residential

    13,820       14,530  

Real estate – commercial

    332,294       316,986  

Real estate – construction and land development

    19,674       31,181  

Equity lines of credit

    35,262       35,471  

Auto

    92,862       90,310  

Other

    4,541       4,563  

Total loans

    623,743       619,718  

Deferred loan costs, net

    3,548       3,561  

Allowance for loan losses

    (7,804 )     (7,243 )

Total net loans

  $ 619,487     $ 616,036  

 

Changes in the allowance for loan losses, in thousands, were as follows:

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Balance, beginning of period

  $ 7,243     $ 6,958  

Provision charged to operations

    750       1,500  

Losses charged to allowance

    (268 )     (1,521 )

Recoveries

    79       306  

Balance, end of period

  $ 7,804     $ 7,243  

 

The recorded investment in impaired loans totaled $2,247,000 and $2,244,000 at March 31, 2020 and December 31, 2019, respectively. The Company had specific allowances for loan losses of $154,000 on impaired loans of $538,000 at March 31, 2020 as compared to specific allowances for loan losses of $154,000 on impaired loans of $539,000 at December 31, 2019. The balance of impaired loans in which no specific reserves were required totaled $1,709,000 and $1,705,000 at March 31, 2020 and December 31, 2019, respectively. The average recorded investment in impaired loans for the three months ended March 31, 2020 and March 31, 2019 was $2,256,000 and $1,352,000, respectively. The Company recognized $15,000 and $18,000 in interest income for impaired loans during the three months ended March 31, 2020 and 2019, respectively. No interest was recognized on nonaccrual loans accounted on a cash basis during the three months ended March 31, 2020 and 2019.

 

Included in impairied loans are troubled debt restructurings. Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides that a qualifying loan modification or extension is exempt by law from classification as a Troubled Debt Restructuring ("TDR") pursuant to FASB ASC 340-10. In addition, FIL-36-2020 issued by the FDIC on April 7, 2020 provides more limited circumstances in which a loan modification or extension is not subject to classification as a TDR pursuant to FASB ASC 340-10.

 

The Company evaluates loan extensions or modifications not qualified under Section 4013 of the CARES Act or under FIL-36-2020 in accordance with FASB ASC 340-10 with respect to the classification of the loan as a TDR. Under ASC 340-10, if the Company grants a loan extension or modification to a borrower experiencing financial difficulties for other than an insignificant period of time that includes a below–market interest rate, principal forgiveness, payment forbearance or other concession intended to minimize the economic loss to the Company, the loan extension or loan modification is classified as a TDR. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal then due and payable, management measures any impairment on the restructured loan in the same manner as for impaired loans as noted above. To determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

 

The carrying value of troubled debt restructurings at March 31, 2020 and December 31, 2019 was $1,012,000 and $1,016,000, respectively. The Company has allocated  $33,000 of specific reserves on loans to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2020 and December 31, 2019. The Company has not committed to lend additional amounts on loans classified as troubled debt restructurings at March 31, 2020 and December 31, 2019.

  

There were no troubled debt restructurings that occurred during the three months ending March 31, 2020 or March 31, 2019.

 

12

 

 

There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the three months ended March 31, 2020 and 2019, respectively.

 

At March 31, 2020 and December 31, 2019, nonaccrual loans totaled $2,310,000 and $2,050,000, respectively. Interest foregone on nonaccrual loans totaled $33,000 and $26,000 for the three months ended March 31, 2020 and 2019, respectively.  There were no loans past due 90 days or more and on accrual status at March 31, 2020 and December 31, 2019.

 

Salaries and employee benefits totaling $496,000 and $598,000 have been deferred as loan origination costs during the three months ended March 31, 2020 and 2019, respectively.

 

The Company assigns a risk rating to all loans and periodically, but not less than annually, performs detailed reviews of all criticized and classified loans over $100,000 to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by independent specialists engaged by the Company and the Company’s regulators. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each individual loan.

 

The risk ratings can be grouped into three major categories, defined as follows:

 

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

Substandard – A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or the value of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well defined weaknesses include a project's lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

 

13

 

 

The following table shows the loan portfolio allocated by management's internal risk ratings at the dates indicated, in thousands:

 

March 31, 2020

 

Commercial Credit Exposure

 
   

Credit Risk Profile by Internally Assigned Grade

 

Grade:

 

Commercial

   

Agricultural

   

Real Estate-Residential

   

Real Estate-Commercial

   

Real Estate-Construction

   

Equity LOC

   

Total

 

Pass

  $ 48,784     $ 73,909     $ 13,553     $ 326,468     $ 19,592     $ 34,688     $ 516,994  

Special Mention

    415       2,135       -       4,935       -       -       7,485  

Substandard

    47       -       267       891       82       574       1,861  

Doubtful

    -       -       -       -       -       -       -  

Total

  $ 49,246     $ 76,044     $ 13,820     $ 332,294     $ 19,674     $ 35,262     $ 526,340  

 



 

December 31, 2019

 

Commercial Credit Exposure

 
   

Credit Risk Profile by Internally Assigned Grade

 

Grade:

 

Commercial

   

Agricultural

   

Real Estate-Residential

   

Real Estate-Commercial

   

Real Estate-Construction

   

Equity LOC

   

Total

 

Pass

  $ 47,334     $ 76,620     $ 14,253     $ 309,785     $ 31,097     $ 34,855     $ 513,944  

Special Mention

    478       2,165       -       4,954       -       -       7,597  

Substandard

    80       -       277       2,247       84       616       3,304  

Doubtful

    -       -       -       -       -       -       -  

Total

  $ 47,892     $ 78,785     $ 14,530     $ 316,986     $ 31,181     $ 35,471     $ 524,845  

 



 

   

Consumer Credit Exposure

   

Consumer Credit Exposure

 
   

Credit Risk Profile Based on Payment Activity

   

Credit Risk Profile Based on Payment Activity

 
   

March 31, 2020

   

December 31, 2019

 
   

Auto

   

Other

   

Total

   

Auto

   

Other

   

Total

 

Grade:

                                               

Performing

  $ 92,448     $ 4,506     $ 96,954     $ 90,128     $ 4,559     $ 94,687  

Non-performing

    414       35       449       182       4       186  

Total

  $ 92,862     $ 4,541     $ 97,403     $ 90,310     $ 4,563     $ 94,873  

 

14

 

 

The following tables show the allocation of the allowance for loan losses at the dates indicated, in thousands:

 

Three Months Ended March 31, 2020:

 

Commercial

   

Agricultural

   

Real Estate-Residential

   

Real Estate-Commercial

   

Real Estate-Construction

   

Equity LOC

   

Auto

   

Other

   

Total

 

Allowance for Loan Losses

                                                                       

Beginning balance

  $ 617     $ 653     $ 163     $ 3,426     $ 481     $ 393     $ 1,409     $ 101     $ 7,243  

Charge-offs

    (131 )     -       -       -       -       -       (134 )     (3 )     (268 )

Recoveries

    2       -       1       1       -       1       70       4       79  

Provision

    226       (31 )     7       403       (84 )     28       196       5       750  

Ending balance

  $ 714     $ 622     $ 171     $ 3,830     $ 397     $ 422     $ 1,541     $ 107     $ 7,804  

Three Months Ended March 31, 2019:

                                                                       

Allowance for Loan Losses

                                                                       

Beginning balance

  $ 914     $ 538     $ 214     $ 2,686     $ 758     $ 464     $ 1,289     $ 95     $ 6,958  

Charge-offs

    (16 )     -       -       -       -       -       (312 )     (23 )     (351 )

Recoveries

    9       -       1       -       -       1       47       2       60  

Provision

    (111 )     4       (20 )     283       (117 )     (15 )     360       16       400  

Ending balance

  $ 796     $ 542     $ 195     $ 2,969     $ 641     $ 450     $ 1,384     $ 90     $ 7,067  

March 31, 2020:

                                                                       

Allowance for Loan Losses

                                                                       

Ending balance: individually evaluated for impairment

  $ -     $ -     $ 28     $ 121     $ 5     $ -     $ -     $ -     $ 154  

Ending balance: collectively evaluated for impairment

    714       622       143       3,709       392       422       1,541       107       7,650  

Ending balance

  $ 714     $ 622     $ 171     $ 3,830     $ 397     $ 422     $ 1,541     $ 107     $ 7,804  

Loans

                                                                       

Ending balance: individually evaluated for impairment

  $ -     $ 247     $ 656     $ 805     $ 109     $ 430     $ -     $ -     $ 2,247  

Ending balance: collectively evaluated for impairment

    49,246       75,797       13,164       331,489       19,565       34,832       92,862       4,541       621,496  

Ending balance

  $ 49,246     $ 76,044     $ 13,820     $ 332,294     $ 19,674     $ 35,262     $ 92,862     $ 4,541     $ 623,743  

 

15

 

 

December 31, 2019:

 

Commercial

   

Agricultural

   

Real Estate-Residential

   

Real Estate-Commercial

   

Real Estate-Construction

   

Equity LOC

   

Auto

   

Other

   

Total

 

Allowance for Loan Losses

                                                                       

Ending balance: individually evaluated for impairment

  $ -     $ -     $ 28     $ 121     $ 5     $ -     $ -     $ -     $ 154  

Ending balance: collectively evaluated for impairment

    617       653       135       3,305       476       393       1,409       101       7,089  

Ending Balance

  $ 617     $ 653     $ 163     $ 3,426     $ 481     $ 393     $ 1,409     $ 101     $ 7,243  

Loans

                                                                       

Ending balance: individually evaluated for impairment

  $ 25     $ 248     $ 612     $ 815     $ 110     $ 434     $ -     $ -     $ 2,244  

Ending balance: collectively evaluated for impairment

    47,867       78,537       13,918       316,171       31,071       35,037       90,310       4,563       617,474  

Ending balance

  $ 47,892     $ 78,785     $ 14,530     $ 316,986     $ 31,181     $ 35,471     $ 90,310     $ 4,563     $ 619,718  

 

16

 

 

The following table shows an aging analysis of the loan portfolio by the time past due, in thousands:

 

                           

Total

                 

March 31, 2020

         

90 Days

           

Past Due

                 
   

30-89 Days

   

and Still

           

and

                 
   

Past Due

   

Accruing

   

Nonaccrual

   

Nonaccrual

   

Current

   

Total

 
                                                 

Commercial

  $ 213     $ -     $ 47     $ 260     $ 48,986     $ 49,246  

Agricultural

    130       -       -       130       75,914       76,044  

Real estate – residential

    111       -       267       378       13,442       13,820  

Real estate – commercial

    828       -       891       1,719       330,575       332,294  

Real estate - construction & land

    -       -       82       82       19,592       19,674  

Equity Lines of Credit

    326       -       574       900       34,362       35,262  

Auto

    1,275       -       414       1,689       91,173       92,862  

Other

    40       -       35       75       4,466       4,541  

Total

  $ 2,923     $ -     $ 2,310     $ 5,233     $ 618,510     $ 623,743  

 

                           

Total

                 

December 31, 2019

       

90 Days

           

Past Due

                 
    30-89 Days     and Still             and                  
   

Past Due

   

Accruing

   

Nonaccrual

   

Nonaccrual

   

Current

   

Total

 
                                                 

Commercial

  $ 333     $ -     $ 58     $ 391     $ 47,501     $ 47,892  

Agricultural

    199       -       -       199       78,586       78,785  

Real estate – residential

    -       -       277       277       14,253       14,530  

Real estate - commercial

    1,467       -       830       2,297       314,689       316,986  

Real estate - construction & land

    -       -       83       83       31,098       31,181  

Equity Lines of Credit

    288       -       616       904       34,567       35,471  

Auto

    1,281       -       182       1,463       88,847       90,310  

Other

    87       -       4       91       4,472       4,563  

Total

  $ 3,655     $ -     $ 2,050     $ 5,705     $ 614,013     $ 619,718  

 

17

 

 

The following tables show information related to impaired loans at March 31, 2020, in thousands:

 

           

Unpaid

           

Average

   

Interest

 
   

Recorded

   

Principal

   

Related

   

Recorded

   

Income

 

As of March 31, 2020:

 

Investment

   

Balance

   

Allowance

   

Investment

   

Recognized

 
                                         

With no related allowance recorded:

                                       

Commercial

  $ -     $ -     $ -     $ -     $ -  

Agricultural

    247       247       -       248       5  

Real estate – residential

    479       489       -       480       7  

Real estate – commercial

    553       611       -       558       -  

Real estate – construction & land

    -       -       -       -       -  

Equity Lines of Credit

    430       458       -       432       -  

Auto

    -       -       -       -       -  

Other

    -       -       -       -       -  

With an allowance recorded:

                                       

Commercial

  $ -     $ -     $ -     $ -     $ -  

Agricultural

    -       -       -       -       -  

Real estate – residential

    177       176       28       177       2  

Real estate – commercial

    252       265       121       252       -  

Real estate – construction & land

    109       109       5       109       1  

Equity Lines of Credit

    -       -       -       -       -  

Auto

    -       -       -       -       -  

Other

    -       -       -       -       -  

Total:

                                       

Commercial

  $ -     $ -     $ -     $ -     $ -  

Agricultural

    247       247       -       248       5  

Real estate – residential

    656       665       28       657       9  

Real estate – commercial

    805       876       121       810       0  

Real estate – construction & land

    109       109       5       109       1  

Equity Lines of Credit

    430       458       -       432       0  

Auto

    -       -       -       -       -  

Other

    -       -       -       -       -  

Total

  $ 2,247     $ 2,355     $ 154     $ 2,256     $ 15  

 

18

 

 

The following tables show information related to impaired loans at December 31, 2019, in thousands:

 

           

Unpaid

           

Average

   

Interest

 
   

Recorded

   

Principal

   

Related

   

Recorded

   

Income

 

As of December 31, 2019:

 

Investment

   

Balance

   

Allowance

   

Investment

   

Recognized

 
                                         

With no related allowance recorded:

                                       

Commercial

  $ 25     $ 85     $ -     $ 23     $ -  

Agricultural

    248       248       -       249       19  

Real estate – residential

    435       447       -       385       29  

Real estate – commercial

    563       614       -       476       -  

Real estate – construction & land

    -       -       -       -       -  

Equity Lines of Credit

    434       457       -       213       -  

Auto

    -       -       -       -       -  

Other

    -       -       -       -       -  

With an allowance recorded:

                                       

Commercial

  $ -     $ -     $ -     $ -     $ -  

Agricultural

    -       -       -       -       -  

Real estate – residential

    177       177       28       178       7  

Real estate – commercial

    252       261       121       139       -  

Real estate – construction & land

    110       110       5       114       7  

Equity Lines of Credit

    -       -       -       -       -  

Auto

    -       -       -       -       -  

Other

    -       -       -       -       -  

Total:

                                       

Commercial

  $ 25     $ 85     $ -     $ 23     $ -  

Agricultural

    248       248       -       249       19  

Real estate – residential

    612       624       28       563       36  

Real estate – commercial

    815       875       121       615       -  

Real estate – construction & land

    110       110       5       114       7  

Equity Lines of Credit

    434       457       -       213       -  

Auto

    -       -       -       -       -  

Other

    -       -       -       -       -  

Total

  $ 2,244     $ 2,399     $ 154     $ 1,777     $ 62  

 

 

 

5. COMMITMENTS AND CONTINGENCIES

 

The Company is party to claims and legal proceedings arising in the ordinary course of business. In the opinion of the Company’s management, the amount of ultimate liability with respect to such proceedings will not have a material adverse effect on the financial condition or result of operations of the Company taken as a whole.

 

In the normal course of business, there are various outstanding commitments to extend credit, which are not reflected in the financial statements, including loan commitments of $104.5 million and $111.4 million and stand-by letters of credit of $126 thousand and $126 thousand at March 31, 2020 and December 31, 2019, respectively.

 

Of the loan commitments outstanding at March 31, 2020, $7.1 million are real estate construction loan commitments that are expected to fund within the next twelve months. The remaining commitments primarily relate to revolving lines of credit or other commercial loans, and many of these are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. Each loan commitment and the amount and type of collateral obtained, if any, are evaluated on an individual basis. Collateral held varies, but may include real property, bank deposits, debt or equity securities or business assets.

 

Stand-by letters of credit are conditional commitments written to guarantee the performance of a customer to a third party. These guarantees are primarily related to the purchases of inventory by commercial customers and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to customers and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. The deferred liability related to the Company’s stand-by letters of credit was not significant at March 31, 2020 or December 31, 2019.

 

19

 

 

 

6. EARNINGS PER SHARE

 

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

   

For the Three Months Ended

 
   

March 31,

 

(In thousands, except per share data)

 

2020

   

2019

 

Net Income:

               

Net income

  $ 3,316     $ 3,818  

Earnings Per Share: