Rapidly rising rates have also put pressure on variable-rate borrowers, creating some elevated loan loss risk in the banking industry. At Plumas, however, we do not expect significant losses because criticized assets are being proactively addressed with advanced preparation of solutions and collaborative monitoring for potential challenges. Additionally, non-performing loans are well-collateralized. In the fourth quarter we terminated our indirect auto loan program. Ending this program, which was our lowest yielding loan segment, also improved our loan loss risk profile since this program had historically higher charge-off rates. Terminating this program also improved our consumer compliance risk profile.

Another current industry challenge is that of margin compression. Fortunately, at Plumas, our extremely low cost of funds coupled with higher yielding loans has resulted in margin expansion rather than the more typical margin compression experienced by most banks.

The higher rate environment presented some opportunities that we took advantage of during 2023. One of those opportunities involved harvesting a significant gain from an interest rate swap while locking in a lower cost borrowing. We also developed a sale leaseback strategy which we expect to implement in the first quarter of 2024 and which will provide an opportunity to restructure our investment portfolio by divesting lower yielding securities and replacing them with higher yielding securities. This possible restructuring of our investment portfolio has the potential to enhance the bank’s interest income streams for years to come.

Looking forward, the Fed is signaling some rate decreases in the coming year which we anticipate will result in improved demand for loans. We also anticipate stabilization of deposit balances as clients may be less likely to self-fund with savings and more likely to borrow with rates declining. As the banking environment for community banks improves, we expect to continue to out-perform the industry and will explore avenues for strategic opportunities that align with our long-term growth objectives.”

“We would like to thank our clients, communities, employees, and investors for their continued support which empowers Plumas Bank to be Here. FOR GOOD.,” Ryback concluded.

Loans, Deposits, Investments and Cash

Gross loans, excluding loans held for sale, increased by $47 million, or 5%, from $912 million at December 31, 2022, to $959 million at December 31, 2023. Increases in loans included $28 million in commercial real estate loans, $14 million in construction loans, $7 million in agricultural loans, $2 million in equity lines of credit, and $1 million in automobile loans; these items were partially offset by decreases of $3 million in residential real estate loans and $2 million in commercial loans.

On   December 31, 2023, approximately 78% of the Company's loan portfolio was comprised of variable rate loans. The rates of interest charged on variable rate loans are set at specific increments in relation to the Company's lending rate or other indexes such as the published prime interest rate or U.S. Treasury rates and vary with changes in these indexes. The frequency at which variable rate loans reprice can vary from one day to several years. The largest portion of variable rate loans are variable rate commercial real estate loans which predominantly reprice every five years and are indexed to the 5-year Treasury. Loans indexed to the prime interest rate were approximately 20% of the Company’s loan portfolio; these loans reprice within one day to three months of a change in the prime rate.

Total deposits decreased by $124 million to $1.3 billion at December 31, 2023. The decrease in deposits includes decreases of $74 million in demand deposits, $69 million in savings, and $24 million in money market accounts deposits. Partially offsetting these decreases was an increase in time deposit of $43 million. We attribute much of the decrease to the current interest rate environment as we have seen some deposits leave for higher rates and some customers reluctant to borrow to fund operating expense and instead have drawn down their excess deposit balances. Beginning in April 2023 we began offering a time deposit promotion offering 7-month and 11-month time deposits at an interest rate of 4%. Effective June 30, 2023 we discontinued this promotion which generated $46 million in deposits. However, during the fourth quarter we allowed those customers who had promotional time deposits to renew those deposits at similar terms. At December 31, 2023, 52% of the Company’s deposits were in the form of non-interest bearing demand deposits. The Company has no brokered deposits.

Total investment securities increased by $44 million from $445 million at December 31, 2022, to $489 million at December 31, 2023. The Bank’s investment security portfolio consists of debt securities issued by the US Government, US Government agencies, US Government sponsored agencies and municipalities. Cash and due from banks decreased by $98 million to $86 million at December 31, 2023.

Asset Quality and CECL

Nonperforming assets (which are comprised of nonperforming loans, other real estate owned (“OREO”) and repossessed vehicle holdings) at December 31, 2023 were $5.3 million, up from $1.2 million at December 31, 2022. Nonperforming assets as a percentage of total assets increased to 0.33% at December 31, 2023 up from 0.07% at December 31, 2022. OREO increased to $357,000 at December 31, 2023 and represented one loan. There was no OREO outstanding at December 31, 2022. Nonperforming loans were $4.8 million at December 31, 2023, and $1.2 million at December 31, 2022. The largest increase in nonperforming loans was related to agricultural loans to one borrower totaling $2.1 million. These loans are well secured. Nonperforming loans as a percentage of total loans increased to 0.50% at December 31, 2023, up from 0.13% at December 31, 2022.

On January 1, 2023, the Company adopted ASU 2016-03 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology. This is referred to as the current expected credit loss (CECL) methodology. Upon adoption we recorded an increase in the allowance for credit losses of $529,000 and an increase in the reserve for unfunded commitments of $258,000. The decline in equity, net of tax, related to these two adjustments totaled $554,000. During the year ended December 31, 2023 we recorded a provision for credit losses of $2,775,000 consisting of a provision for loan losses of $2,575,000 and an increase in the reserve for unfunded commitments of $200,000. As time progresses the results of economic conditions will require CECL model assumption inputs to change and further refinements to the estimation process may also be identified.

Net charge-offs totaled $954,000 and $935,000 during the years ended December 31, 2023 and 2022, respectively. The allowance for credit losses totaled $12.9 million at December 31, 2023 and $10.7 million at December 31, 2022. The allowance for credit losses as a percentage of total loans increased from 1.18% at December 31, 2022 to 1.34% at December 31, 2023.

The following tables present the activity in the allowance for credit losses and the reserve for unfunded commitments during the years ended December 31, 2023 and 2022 (in thousands).

Borrowings

The Company is eligible to participate in the Bank Term Lending Program. The Federal Reserve Board, on March 12, 2023, announced the creation of a new Bank Term Funding Program (BTFP). The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets are valued at par. At December 31, 2023, the Company had outstanding borrowings under the BTFP totaling $80 million, secured by $107 million in par value of securities pledged as collateral under the BTFP. This borrowing is payable on December 18, 2024, and accrues interest at the rate of 4.96%. Borrowings under the BTFP can be prepaid without penalty. Interest expense for the three and 12 months ended December 31, 2023 on the BTFP borrowing totaled $527,000.

Shareholders’ Equity

Shareholders’ equity increased by $28.3 million from $119.0 million at December 31, 2022 to $147.3 million at December 31, 2023. The $28.3 million increase was related to net income during 2023, of $29.8 million, a decline in accumulated other comprehensive loss of $4.3 million and stock option and restricted stock activity of $661,000 partially offset by shareholder dividends of $5.9 million and $554,000 related to the cumulative change from adoption of ASU 2016-13.

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 and satisfy maturity of short-term borrowings. The Company’s liquidity needs are managed using assets or liabilities, or both. On the asset side, in addition to cash and due from banks, the Company maintains an investment portfolio which includes unpledged U.S. Government-sponsored agency securities that are classified as available-for-sale. On the liability side, liquidity needs are managed by offering competitive 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 $215 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $396 million. The Company is also eligible to participate in the BTFP as noted previously. In addition to its FHLB borrowing line and the BTFP, the Company has unsecured short-term borrowing agreements with two of its correspondent banks in the amounts of $50 million and $20 million. There were no outstanding borrowings to the FHLB or the correspondent banks at December 31, 2023 and December 31, 2022.

The Company estimates that it has approximately $416 million in uninsured deposits. Of this amount, $85 million represents deposits that are collateralized such as deposits of states, municipalities and tribal accounts.

Management believes that the Company’s available sources of funds, including borrowings, will provide adequate liquidity for its operations for the foreseeable future.

Net Interest Income and Net Interest Margin

Year ended December 31, 2023

Net interest income for the year ended December 31, 2023 was $69.8 million, an increase of $11.3 million from the $58.5 million earned during 2022. The increase in net interest income includes an increase of $14.8 million in interest income partially offset by an increase of $3.5 million in interest expense. Interest and fees on loans, including loans held for sale, increased by $9.3 million related to growth in the loan portfolio and an increase in yield on the portfolio. Net loan fees/costs declined from net fees of $234,000 during 2022 to net costs of $1.3 million during 2023. This decline is mostly related to a decline in fees earned on PPP loans. The average yield on loans, including loans held for sale, increased by 61 basis points from 5.28% during 2022 to 5.89% during 2023. The average prime rate increased from 4.86% in 2022 to 8.20% in 2023.

Interest on investment securities increased by $6.1 million from 2022, related to an increase in average investment securities of $100 million to $462 million and an increase in yield on the investment portfolio from 2.52% during 2022 to 3.29% during 2023. Interest on interest-earning cash balances decreased by $0.5 million related to a decrease in average interest-earning cash balances partially offset by an increase in the rate earned on these balances. The rate paid on interest-earning cash balances increased from 1.61% during 2022 to 5.05% during the current quarter mostly related to an increase in the rate paid on balances held at the Federal Reserve Bank. The average rate paid on Federal Reserve balances was 1.76% during 2022 and 5.1% during 2023. Average interest-earning cash balances declined from $305 million during 2022 to $87 million during 2023 related to a decline in average deposits and increases in average loans and investment securities.

Average interest earning assets during 2023 totaled $1.5 billion, a decrease of $50 million from 2022. This decrease in average interest earning assets resulted from a decline in average interest-earning cash balances of $218 million, mostly offset by increases of $68 million in average loan balances and $100 million in average investment securities. The average yield on interest earning assets increased by 113 basis points to 5.03%, related to increases in market rates.

Interest expense increased from $1.2 million during 2022 to $4.8 million during 2023 related to an increase in rate paid on interest bearing liabilities. The average rate paid on interest bearing liabilities increased from 0.17% during 2022 to 0.67% in 2023 related mainly to an increase in market interest rates and the effect of the 4% time deposit promotion.

Net interest margin for the year ended December 31, 2023 increased 89 basis points to 4.71%, up from 3.82% during 2022.

Three months ended December 31, 2023

Net interest income was $17.7 million for the three months ended December 31, 2023, an increase of $316,000 from the same period in 2022. The increase in net interest income includes an increase of $1.8 million in interest income partially offset by an increase of $1.5 million in interest expense. Interest and fees on loans, including loans held for sale, increased by $2.4 million related to growth in the loan portfolio and an increase in yield on the portfolio. Net loan costs were $368,000 and $326,000 during the three months periods ending December 31, 2023 and 2022, respectively.

Including loans held for sale, average loan balances increased by $71 million, while the average yield on these loans increased by 57 basis points from 5.50% during the fourth quarter of 2022 to 6.07% during the current quarter. The increase in loan yield includes the effect of an increase in market rates during 2023. The average prime interest rate increased from 6.82% during the fourth quarter of 2022 to 8.50% during the current quarter.

Interest on investment securities increased by $695 thousand from the fourth quarter of 2022, related to an increase in average investment securities of $31 million to $442 million and an increase in yield on the investment portfolio from 3.00% during the fourth quarter of 2022 to 3.41% during the current quarter. Interest on interest-earning cash balances decreased by $1.2 million related to a decrease in average interest-earning cash balances partially offset by an increase in the rate earned on these balances. The rate paid on interest-earning cash balances increased from 3.72% during the fourth quarter of 2022 to 5.39% during the current quarter mostly related to an increase in the rate paid on balances held at the Federal Reserve Bank. The average rate paid on Federal Reserve balances was 3.72% during the fourth quarter of 2022 and 5.40% during the current quarter. Average interest-earning cash balances declined from $248 million during the fourth quarter of 2022 to $81 million in the current quarter related to a decline in average deposits and increases in loans and investments.

Average interest earning assets during the three months ended December 31, 2023 totaled $1.5 billion, a decrease of $66 million from the same period in 2022. The average yield on interest earning assets increased 69 basis points to 5.24%, up from 4.55% for the same period in 2022.

Interest expense increased from $370,000 during the three months ended December 31, 2022 to $1.9 million during 2023 related mostly to an increase in rate paid on interest bearing liabilities. The average rate paid on interest bearing liabilities increased from 0.20% during 2022 to 1.02% in 2023 related mainly to an increase in market interest rates, the effect of the 4% time deposit promotion and the effect of the BTFP borrowings.

Net interest margin for the three months ended December 31, 2023 increased 29 basis points to 4.74%, up from 4.45% for the same period in 2022.

Non-Interest Income/Expense

Year ended December 31, 2023

During 2023, non-interest income totaled $10.7 million, a decrease of $328,000 from $11.0 million during the twelve months ended December 31, 2022. The largest component of this decrease was a decline in gain on sale of SBA 7(a) loans of $2.5 million from $2.7 million during the twelve months ended December 31, 2022 to $234,000 during the current period. We did not sell SBA 7(a) loans during the second and third quarters of 2021 resulting in an inventory of loans held for sale of $31.3 million at December 31, 2021. During 2022 we sold $50.5 million in guaranteed portions of SBA 7(a) loans. This compares to $5.3 million in sales during the current period. Partially offsetting the decline in SBA gains was a gain of $1.7 million on termination of our interest rate swaps during the first quarter of 2023. In addition, service charges on deposit accounts increased by $325,000. This was mostly related to our Yuba City, California branch acquired in the acquisition of Feather River Bancorp in 2021. During most of 2022 we waived service charges on deposit accounts at the Yuba City Branch.

During 2023, non-interest expense increased by $4.9 million to $37.5 million. The largest components of this increase were $2.9 million in salary and benefit expense, $692,000 in occupancy and equipment costs, $439,000 in outside service fees and $268,000 in advertising and shareholder relations. The largest single components of the increase in salary and benefit expense were a $1.5 million increase in salary expense and a $1.2 million reduction in the deferral of loan origination expense. We attribute much of the increase in salary expense to two factors. Merit and promotional salary increases and employee termination costs which included $115,000 related to the termination of our automobile loan program. We have seen a reduction in loan demand given the current economic environment, especially in SBA 7(a) loans tied to the prime interest rate resulting in the reduction in the deferral of loan origination costs. Occupancy and equipment costs increased by $692,000, a considerable portion of which relates to snow removal and other costs attributable to an unusually harsh winter in our service area and to our new Chico, California branch. The increase in outside service fees was spread among several different categories, none of which exceeded $100,000. The increase in advertising costs reflects an increase in our budgeted advertising program, with an emphasis on Northern Nevada growth opportunities.

Three months ended December 31, 2023

During the three months ended December 31, 2023, and 2022, non-interest income totaled $2.3 million and $2.2 million, respectively. The largest increase was $96,000 in service charges on deposit accounts.

During the three months ended December 31, 2023, total non-interest expense increased by $1.1 million from $8.7 million during the fourth quarter of 2022 to $9.8 million during the current quarter. The largest components of this increase were increases in salary and benefit expense of $522 thousand and an increase of $215 thousand in occupancy and equipment costs. Included in the increase in occupancy and equipment costs was $55 thousand related to our Chico, California branch.

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Plumas Bancorp is headquartered in Reno, Nevada. Plumas Bancorp’s principal subsidiary is Plumas Bank, which was founded in 1980. Plumas Bank is a full-service community bank headquartered in Quincy, California. The bank operates fifteen branches: thirteen located in the California counties of Butte, Lassen, Modoc, Nevada, Placer, Plumas, Shasta and Sutter and two branches located in Nevada in the counties of Carson City and Washoe. The bank also operates two loan production offices located in Auburn, California and Klamath Falls, Oregon. Plumas Bank offers a wide range of financial and investment services to consumers and businesses and has received nationwide Preferred Lender status with the United States Small Business Administration. For more information on Plumas Bancorp and Plumas Bank, please visit our website at www.plumasbank.com.

This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended and Plumas Bancorp intends for such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "anticipate," "intend," "plan," "estimate," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may." These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in this news release. Factors that might cause such differences include, but are not limited to: the Company's ability to successfully execute its business plans and achieve its objectives; changes in general economic and financial market conditions, either nationally or locally in areas in which the Company conducts its operations; changes in interest rates; continuing consolidation in the financial services industry; new litigation or changes in existing litigation; increased competitive challenges and expanding product and pricing pressures among financial institutions; legislation or regulatory changes which adversely affect the Company's operations or business; loss of key personnel; and changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies.

Contact: Jamie Huynh
Investor Relations
Plumas Bancorp
5525 Kietzke Lane Ste. 100
Reno, NV 89511
775.786.0907 x8908
investorrelations@plumasbank.com