PLUMAS BANCORP

Previous wording

The following discussion and analysis sets forth certain statistical information relating to the Company as of June 30, 2024 and December 31, 2023 and for the three and six-month periods ended June 30, 2024 and 2023. This discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto included in Plumas Bancorp’s Annual Report filed on Form 10-K for the year ended December 31, 2023.

Current wording

The following discussion and analysis sets forth certain statistical information relating to the Company as of September 30, 2024 and December 31, 2023 and for the three and nine-month periods ended September 30, 2024 and 2023. This discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto included in Plumas Bancorp’s Annual Report filed on Form 10-K for the year ended December 31, 2023.

Previous wording

On January 19, 2024, Plumas Bank entered into two agreements for the purchase and sale of real property (the “Sale Agreements”). One Sale Agreement provided for the sale to MountainSeed of nine properties owned and operated by Plumas Bank as branches (the “Branches”) for an aggregate cash purchase price of approximately $25.7 million. The branch portion of the sale was completed on February 14, 2024 resulting in a net gain on sale of $19.9 million, recording of right-of-use assets totaling $22.3 million and recording a lease liability of $22.3 million. The second Sale Agreement provides for the sale to MountainSeed of up to three properties operated as non-branch administrative offices (the “Non-Branch Offices”) for an aggregate cash purchase price of $7.9 million, assuming all of the Non-Branch Offices are sold. MountianSeed has indicated that is it unlikely that they will complete the Non-Branch transaction given the current market for office space. We are reviewing other sources for the Non-Branch Offices transaction.

Current wording

On January 19, 2024, Plumas Bank entered into two agreements for the purchase and sale of real property (the “Sale Agreements”). One Sale Agreement provided for the sale to MountainSeed of nine properties owned and operated by Plumas Bank as branches (the “Branches”) for an aggregate cash purchase price of approximately $25.7 million. The branch portion of the sale was completed on February 14, 2024 resulting in a net gain on sale of $19.9 million, recording of right-of-use assets totaling $22.3 million and recording a lease liability of $22.3 million. The second Sale Agreement provided for the sale to MountainSeed of up to three properties operated as non-branch administrative offices (the “Non-Branch Offices”). This agreement was terminated in August 2024. We continue to review opportunities for the sale of the Non-Branch Offices.

Previous wording

Under the Sale Agreements, the parties have agreed, concurrently with the closing of the sale of the properties, to enter into triple net lease agreements (the “Lease Agreements”) pursuant to which Plumas Bank will lease each of the properties sold. Each Lease Agreement will have an initial term of fifteen years with one 15-year renewal option. The Lease Agreements will provide for an annual rent of approximately $3.1 million in the aggregate for all Properties of which $2.4 million relates to the completed branch sale, increased by two percent (2%) per annum for each year during the initial Term. During the renewal term, the initial rent will be the basic rent during the last year of the initial term, increased by two percent (2%) per annum for each year during the renewal term.

Current wording

Concurrently with the closing of the sale of the branch properties, we entered into triple net lease agreements (the “Lease Agreements”) pursuant to which Plumas Bank leased back each of the properties sold. Each Lease Agreement has an initial term of fifteen years with one 15-year renewal option. The Lease Agreements provide for an annual rent of approximately $2.4 million in the aggregate for the nine properties increased by two percent (2%) per annum for each year during the initial Term. During the renewal term, the initial rent will be the basic rent during the last year of the initial term, increased by two percent (2%) per annum for each year during the renewal term.

Previous wording

The gain on sales of the branches was offset by losses on the sale of approximately $115 million in investment securities. During the six months ended June 30, 2024 we sold $115 million in investment securities having a weighted average tax equivalent yield of 2.24% recording a $19.8 million loss on the sales. As part of the restructuring, beginning in December 2023 and ending on March 27, 2024, we purchased $120 million in investments securities having a weighted average tax equivalent yield of 5.25%.

Current wording

The gain on sales of the branches was offset by losses on the sale of approximately $115 million in investment securities. During the nine months ended September 30, 2024 we sold $115 million in investment securities having a weighted average tax equivalent yield of 2.24% recording a $19.8 million loss on the sales. As part of the restructuring, beginning in December 2023 and ending on March 27, 2024, we purchased $120 million in investment securities having a weighted average tax equivalent yield of 5.25%.

Previous wording

RESULTS OF OPERATIONS FOR THE Six MONTHS ENDED June 30, 2024

Current wording

RESULTS OF OPERATIONS FOR THE Nine MONTHS ENDED September 30, 2024

Previous wording

**Net Income.**The Company recorded net income of $13.0 million for the six months ended June 30, 2024, down from net income of $14.3 million for the six months ended June 30, 2023. An increase of $1.5 million in net interest income and declines of $1.1 million in the provision for credit losses and $348,000 in the provision for income taxes were offset by a decline of $1.7 million in non-interest income and an increase of $2.5 million in non-interest expense. The annualized return on average assets was 1.61% for the six months ended June 30, 2024, down from 1.81% for the six months ended June 30, 2023. The annualized return on average equity decreased from 22.7% during the first half of 2023 to 16.7% during the current period.

Current wording

**Net Income.**The Company recorded net income of $20.9 million for the nine months ended September 30, 2024, down from net income of $22.3 million for the nine months ended September 30, 2023. An increase of $2.6 million in net interest income and declines of $1.3 million in the provision for credit losses and $336,000 in the provision for income taxes were offset by a decline of $1.8 million in non-interest income and an increase of $3.9 million in non-interest expense. The annualized return on average assets was 1.69% for the nine months ended September 30, 2024, down from 1.88% for the nine months ended September 30, 2023. The annualized return on average equity decreased from 23.3% during the first nine months of 2023 to 17.2% during the current period.

Previous wording

**Net interest income before provision for credit losses.**Driven by an increase in market rates, growth in the loan portfolio, and the restructuring of a portion of our investment portfolio partially offset by an increase in interest expense, net interest income increased by $1.5 million from $34.4 million during the six months ended June 30, 2023, to $35.9 million for the six months ended June 30, 2024. The increase in net interest income includes an increase of $5.2 million in interest income partially offset by an increase of $3.7 million in interest expense.

Current wording

**Net interest income before provision for credit losses.**Driven by an increase in market rates, growth in the loan portfolio, growth in cash balances and the restructuring of a portion of our investment portfolio partially offset by an increase in interest expense, net interest income increased by $2.6 million from $52.1 million during the nine months ended September 30, 2023, to $54.7 million for the nine months ended September 30, 2024. The increase in net interest income includes an increase of $8.0 million in interest income partially offset by an increase of $5.4 million in interest expense.

Previous wording

Interest and fees on loans increased by $3.9 million related to an increase in average balance and yield. The average balance of loans during the six months ended June 30, 2024 was $972 million, an increase of $55 million from $917 million during the same period in 2023. The average yield on loans increased by 48 basis points from 5.73% during the first six months of 2023 to 6.21% during the current period.

Current wording

Interest and fees on loans increased by $5.3 million related to an increase in average balance and yield. The average balance of loans during the nine months ended September 30, 2024 was $982 million, an increase of $56 million from $926 million during the same period in 2023. The average yield on loans increased by 38 basis points from 5.83% during the first nine months of 2023 to 6.21% during the current period.

Previous wording

Interest on investment securities increased by $1.3 million related to an increase in yield of 65 basis points to 3.89%. The increase in investment yields is consistent with the increase in market rates and the restructuring of the investment portfolio. Average investment securities declined from $472 million during the six months ended June 30, 2023 to $462 million during the current period. Interest on cash balances declined by $78 thousand as an increase in yield of 70 basis points was offset by a decline in average balance from $97.1 million during the first six months of 2023 to $81.8 million in the current period.

Current wording

Interest on investment securities increased by $2.0 million related to an increase in yield of 67 basis points to 3.92%. The increase in investment yields is consistent with an increase in market rates and the restructuring of the investment portfolio during the first quarter of 2024. Average investment securities declined from $469 million during the nine months ended September 30, 2023 to $457 million during the current period. Interest on cash balances increased by $712 thousand related to an increase in yield of 54 basis points and an increase in average balance of $8.4 million from $88.8 million during the first nine months of 2023 to $97.2 million in the current period. Cash balances primarily relate to cash held at the Federal Reserve Bank of San Francisco (FRB). The average rate earned on FRB balances was 5.38% during the nine months ended September 30, 2024 and 4.99% during the nine months ended September 30, 2023.

Previous wording

Interest expense increased from $1.6 million during the six months ended June 30, 2023 to $5.3 million during the current period related to an increase in rate paid on interest bearing liabilities and an increase in borrowings. The average rate paid on interest bearing liabilities increased from 0.46% during the 2023 period to 1.39% in 2024 related mainly to an increase in market interest rates, an increase in borrowings and the effect of a 4% time deposit promotion.

Current wording

Interest expense increased from $2.9 million during the nine months ended September 30, 2023 to $8.3 million during the current period related to an increase in rate paid on interest bearing liabilities and an increase in borrowings. The average rate paid on interest bearing liabilities increased from 0.55% during the 2023 period to 1.43% in 2024 related to an increase in borrowings and an increase in market interest rates. The average balance of borrowings increased by $107 million from $10 million during the nine months ended September 30, 2023 to $117 million during the current period. Interest incurred on borrowings totaled $4.2 million and $396 thousand during the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Interest paid on deposits increased by $1.2 million and is broken down by product type as follows: money market accounts - $289 thousand and time deposits - $935 thousand. Related to a decline in average balance of $64 million, interest on savings deposits declined by $53 thousand. The average rate paid on interest-bearing deposits increased from 0.39% during the six months ended June 30, 2023 to 0.79% during the current period.

Current wording

Interest paid on deposits increased by $1.6 million and is broken down by product type as follows: money market accounts - $556 thousand, and time deposits - $1.1 million. Related to a decline in average balance of $57 million, interest on savings deposits declined by $75 thousand. The average rate paid on interest-bearing deposits increased from 0.49% during the nine months ended September 30, 2023 to 0.85% during the current period.

Previous wording

Net interest margin for the six months ended June 30, 2024 increased 10 basis points to 4.76%, up from 4.66% for the same period in 2023.

Current wording

Net interest margin for the nine months ended September 30, 2024 increased 6 basis points to 4.76%, up from 4.70% for the same period in 2023.

Previous wording

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

Current wording

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

Previous wording

The following table sets forth changes in interest income and interest expense for the six-month periods indicated and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates:

Current wording

The following table sets forth changes in interest income and interest expense for the nine-month periods indicated and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates:

Previous wording

**Provision for credit losses.**During the first half of 2024 we recorded a provision for credit losses of $1,746,000 consisting of a provision for credit losses on loans of $1,825,000 and a decrease in the reserve for unfunded commitments of $79,000. The $1.8 million loan provision includes growth in the portfolio, net losses during the six-month period and an increase in loan delinquencies. This compares to a provision for credit losses of $2,875,000 consisting of a provision for credit losses on loans of $2,550,000 and an increase in the reserve for unfunded commitments of $325,000 during the first half of 2023. The 2023 provision for credit losses on loans included specific reserves totaling $868,000 on three loans. 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. See “Analysis of Asset Quality and Allowance for Credit Losses” for a discussion of loan quality trends and the provision for credit losses.

Current wording

**Provision for credit losses.**During the first nine months of 2024 we recorded a provision for credit losses of $1,346,000 consisting of a provision for credit losses on loans of $1,475,000 and a decrease in the reserve for unfunded commitments of $129,000. This compares to a provision for credit losses of $2,675,000 consisting of a provision for credit losses on loans of $2,425,000 and an increase in the reserve for unfunded commitments of $250,000 during the nine months ended September 30, 2023. 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. See “Analysis of Asset Quality and Allowance for Credit Losses” for a discussion of loan quality trends and the provision for credit losses.

Previous wording

The following tables present the activity in the allowance for credit losses and the reserve for unfunded commitments during the six months ended June 30, 2024 and 2023 (in thousands).

Current wording

The following tables present the activity in the allowance for credit losses and the reserve for unfunded commitments during the nine months ended September 30, 2024 and 2023 (in thousands).

Previous wording

**Non-interest income.**During the six months ended June 30, 2024, non-interest income totaled $4.3 million, a decrease of $1.7 million from the six months ended June 30, 2023. The largest component of this decrease was a $1.7 million gain on termination of our interest rate swaps during the 2023 period. As discussed earlier, during the first quarter of 2024, a $19.9 million gain on sale of buildings was offset by a $19.8 million loss on investment securities.

Current wording

**Non-interest income.**During the nine months ended September 30, 2024, non-interest income totaled $6.6 million, a decrease of $1.8 million from the nine months ended September 30, 2023. The largest component of this decrease was a $1.7 million gain on termination of our interest rate swaps during 2023. As discussed earlier, during the first quarter of 2024, a $19.9 million gain on the sale of buildings was offset by a $19.8 million loss on sale of investment securities.

Previous wording

Provision for income taxes. The Company recorded an income tax provision of $4.6 million, or 26.2% of pre-tax income, for the six months ended June 30, 2024. This compares to an income tax provision of $5.0 million, or 25.8% of pre-tax income, for the six months ended June 30, 2023. The percentages for 2024 and 2023 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal securities interest decrease taxable income.

Current wording

Provision for income taxes. The Company recorded an income tax provision of $7.5 million, or 26.4% of pre-tax income, for the nine months ended September 30, 2024. This compares to an income tax provision of $7.8 million, or 26.0% of pre-tax income, for the nine months ended September 30, 2023. The percentages for 2024 and 2023 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal securities interest decrease taxable income.

Previous wording

**Net Income.**The Company recorded net income of $6.8 million for the three months ended June 30, 2024, up slightly from net income of $6.7 million for the three months ended June 30, 2023. An increase of $1.2 million in net interest income and $59,000 in non-interest income and a decline of $425,000 in the provision for credit losses were mostly offset by increases of $1.3 million in non-interest expense and $226,000 in the provision for income taxes. The annualized return on average assets was 1.67% for the three months ended June 30, 2024, down from 1.70% for the three months ended June 30, 2023. The annualized return on average equity decreased from 20.5% during the second quarter of 2023 to 17.1% during the current quarter.

Current wording

**Net Income.**The Company recorded net income of $7.8 million for the three months ended September 30, 2024, down from net income of $8.0 million for the three months ended September 30, 2023. An increase of $1.1 million in net interest income and a decline of $200,000 in the provision for credit losses were offset by increases of $1.4 million in non-interest expense and a decline of $76,000 in non-interest income. Included in non-interest expense were nonrecurring costs related to a litigation matter totaling $376,000. The annualized return on average assets was 1.84% for the three months ended September 30, 2024, down from 2.00% for the three months ended September 30, 2023. The annualized return on average equity decreased from 24.4% during the third quarter of 2023 to 18.1% during the current quarter.

Previous wording

**Net interest income before provision for credit losses.**Net interest income was $18.4 million for the three months ended June 30, 2024, an increase of $1.2 million from the same period in 2023. The increase in net interest income includes an increase of $2.9 million in interest income partially offset by an increase of $1.8 million in interest expense. Interest and fees on loans increased by $2.0 million related to growth in the loan portfolio and an increase in yield on the portfolio.

Current wording

**Net interest income before provision for credit losses.**Net interest income was $18.9 million for the three months ended September 30, 2024, an increase of $1.1 million from the same period in 2023. The increase in net interest income includes an increase of $2.8 million in interest income partially offset by an increase of $1.7 million in interest expense.

Previous wording

Interest on investment securities increased by $669 thousand related to an increase in yield of 86 basis points to 4.11%. The increase in investment yields is consistent with the increase in market rates and the restructuring of the investment portfolio discussed earlier. Average investment securities declined from $478 million during the three months ended June 30, 2023, to $444 million during the current quarter. Interest on cash balances increased by $249 thousand related to an increase in average balance of $13 million and an increase in rate earned on these balances of 37 basis points from 5.14% during the three months ended June 30, 2023 to 5.51%. during the current quarter. The increase in rate earned was mostly related to an increase in the rate paid on balances held at the Federal Reserve Bank (FRB). The average rate earned on FRB balances increased from 5.06% during the second quarter of 2023 to 5.40% during the current quarter.

Current wording

Interest on investment securities increased by $670 thousand related to an increase in yield of 71 basis points to 3.99%. The increase in investment yields is consistent with the increase in market rates and the restructuring of the investment portfolio during the first quarter of 2024. Average investment securities declined from $462 million during the three months ended September 30, 2023 to $447 million during the current quarter. Interest on cash balances increased by $791 thousand related to an increase in average balance of $57 million and an increase in rate earned on these balances of 7 basis points from 5.37% during the three months ended September 30, 2023 to 5.44% during the current quarter. Cash balances primarily relate to cash held at the FRB. The average rate earned on FRB balances was 5.33% during both the third quarter of 2024 and 2023.

Previous wording

Interest expense increased from $984 thousand during the three months ended June 30, 2023, to $2.8 million during the current period related to an increase in rate paid on interest bearing liabilities and an increase in borrowings. The average rate paid on interest bearing liabilities increased from 0.56% during the 2023 quarter to 1.44% in 2024 related mainly to an increase in market interest rates, an increase in borrowings and the effect of a 4% time deposit promotion.

Current wording

Interest expense increased by $1.7 million from $1.3 million during the three months ended September 30, 2023 to $3.0 million during the current period related to an increase in rate paid on interest bearing liabilities and an increase in borrowings. The average rate paid on interest bearing liabilities increased from 0.73% during the 2023 quarter to 1.52% in 2024 related mainly to an increase in market interest rates, and an increase in borrowings.

Previous wording

Interest paid on deposits increased by $452 thousand and is broken down by product type as follows: money market accounts - $130 thousand and time deposits - $356 thousand. Related to a decline in average balance of $61 million, interest on savings deposits declined by $34 thousand. The average rate paid on interest-bearing deposits increased from 0.51% during the second quarter of 2023 to 0.84% during the current quarter.

Current wording

Interest paid on deposits increased by $391 thousand and is broken down by product type as follows: money market accounts - $266 thousand, and time deposits - $146 thousand. Related to a decline in average balance of $43 million, interest on savings deposits declined by $21 thousand. The average rate paid on interest-bearing deposits increased from 0.69% during the third quarter of 2023 to 0.97% during the current quarter.

Previous wording

Net interest margin for the three months ended June 30, 2024 increased 20bp to 4.89%, up from 4.69% for the same period in 2023.

Current wording

Net interest margin for the three months ended September 30, 2024 was 4.76%, down slightly from 4.77% for the same period in 2023.

Previous wording

**Provision for credit losses.**During the second quarter of 2024 we recorded a provision for credit losses of $925,000 consisting of a provision for credit losses on loans of $925,000. This compares to a provision for credit losses of $1,350,000 during the 2023 quarter consisting of a provision for credit losses on loans of $1,300,000 and an increase in the reserve for unfunded commitments of $50,000. 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. See “Analysis of Asset Quality and Allowance for Credit Losses” for a discussion of loan quality trends and the provision for credit losses.

Current wording

**Provision for credit losses.**During the third quarter of 2024 we recorded a provision for credit losses of ($400,000) consisting of a provision for credit losses on loans of ($350,000) and a decrease in the reserve for unfunded commitments of $50,000. This compares to a provision for credit losses of ($200,000) during the 2023 quarter consisting of a provision for credit losses on loans of ($125,000) and a decrease in the reserve for unfunded commitments of $75,000. 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. See “Analysis of Asset Quality and Allowance for Credit Losses” for a discussion of loan quality trends and the provision for credit losses.

Previous wording

**Non-interest income.**Non-interest income increased by $59 thousand to $2.2 million during the current quarter. Increases of $49 thousand in service charge income, $50 thousand in Federal Home Loan Bank dividends and $57 thousand in other non-interest income were partially offset by declines in interchange income of $42 thousand and loan servicing fees of $55 thousand.

Current wording

**Non-interest income.**Non-interest income decreased by $76 thousand to $2.2 million during the current quarter. Increases of $29 thousand in service charge income, $21 thousand in Federal Home Loan Bank dividends and $6 thousand in other non-interest income were offset by declines in interchange income of $101 thousand, loan servicing fees of $27 thousand and earnings on insurance policies of $4 thousand. Interchange income can fluctuate period to period mostly based on the volume of debit card transactions.

Previous wording

**Non-interest expense.**During the three months ended June 30, 2024, total non-interest expense increased by $1.3 million from $9.1 million during the second quarter of 2023 to $10.4 million during the current quarter. The largest components of this increase were an increase in salary and benefit expense of $417 thousand and an increase in occupancy and equipment costs of $696 thousand. The increase in salary and benefit expense primarily relates to an increase in salary expense and commissions. Salary expense increased by $197 thousand which we attribute primarily to merit and promotional salary increases and an increase in employees. Commissions increased by $328 thousand related mostly to SBA production which has been quite strong during 2024. Partially offsetting the increase in salary and commission expense was an increase in the deferral of loan origination cost of $254 thousand related to the increase in SBA loan production. Occupancy and equipment costs increased by $696 thousand related to an increase in rent expense of $685 thousand related to the sales/leaseback transaction.

Current wording

**Non-interest expense.**During the three months ended September 30, 2024, total non-interest expense increased by $1.4 million from $9.4 million during the third quarter of 2023 to $10.8 million during the current quarter. The largest components of this increase were an increase in salary and benefit expense of $367 thousand, an increase in occupancy and equipment costs of $636 thousand, an increase in professional fees of $117 thousand and an increase in other non-interest expense of $262 thousand. The increase in salary and benefit expense primarily relates to an increase in salary expense and a decrease in the deferral of loan origination costs. Salary expenses increased by $138 thousand, which we attribute primarily to merit and promotional salary increases and an increase in employees. Our full time equivalent employee count has increased from 180 at September 30, 2023 to 189 at September 30, 2024. Deferred loan origination cost declined by $95 thousand from $694 thousand during the three months ended September 30, 2023 to $599 thousand during the current period. The amount of loan origination costs deferred is primarily related to loan volume, both new originations and renewals, during the period. Occupancy and equipment costs increased by $636 thousand related to an increase in rent expense of $705 thousand mostly related to the sales/leaseback transaction completed during the first quarter of 2024. This increase in rent expense was offset by additional income resulting from the restructuring of our investment portfolio which also took place during the first quarter of 2024. The increase in other non-interest expense includes a $300 thousand accrual related to a litigation matter. In addition, professional fees include $76 thousand related to this matter, mostly legal fees. While portions of this matter are still being litigated these amounts represent our best estimate of potential costs to Plumas Bank related to this matter.

Previous wording

Provision for income taxes. The Company recorded an income tax provision of $2.5 million, or 26.9% of pre-tax income, for the three months ended June 30, 2024. This compares to an income tax provision of $2.3 million, or 25.5% of pre-tax income, for the three months ended June 30, 2023. The percentages for 2024 and 2023 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal securities interest decrease taxable income.

Current wording

Provision for income taxes. The Company recorded an income tax provision of $2.9 million, or 26.7% of pre-tax income, for the three months ended September 30, 2024. This compares to an income tax provision of $2.8 million, or 26.3% of pre-tax income, for the three months ended September 30, 2023. The percentages for 2024 and 2023 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal securities interest decrease taxable income.

Previous wording

Total assets on June 30, 2024, were $1.6 billion, an increase of $32 million from December 31, 2023. Net loans increased by $38 million from $949 million on December 31, 2023, to $987 million at June 30, 2024. Cash and cash equivalents increased by $24 million to $110 million on June 30, 2024. Related to the sales/leaseback transaction right-of use assets increased by $22 million. These increases were offset by declines of $44 million in investment securities, $6.0 million in property and equipment and $2 million in all other assets. Deposits totaled $1.3 billion June 30, 2024, a decrease of $29 million from December 31, 2023. Borrowings increased by $30 million from $90 million on December 31, 2023, to $120 million on June 30, 2024. Shareholders’ equity increased by $18 million from $147 million on December 31, 2023, to $165 million on June 30, 2024. A detailed discussion of each of these changes follows.

Current wording

Total assets on September 30, 2024, were $1.6 billion, an increase of $54 million from December 31, 2023. Net loans increased by $44 million from $949 million on December 31, 2023, to $993 million at September 30, 2024. Cash and cash equivalents increased by $32 million to $118 million on September 30, 2024. Related to the sales/leaseback transaction right-of use assets increased by $22 million. These increases were offset by declines of $32 million in investment securities, $6 million in property and equipment and $6 million in all other assets.

Previous wording

**Loan Portfolio.**Gross loans increased by $39 million, or 4%, from $958.6 million at December 31, 2023, to $997.3 million at June 30, 2024. Increases in loans included $44 million in commercial real estate loans, $10 million in construction loans, and $7 million in commercial loans and $1 million in equity lines of credit; these items were offset by declines of $17 million in automobile loans and $6 million in agricultural loans. Although the Company offers a broad array of financing options, it continues to concentrate its focus on small to medium sized commercial businesses. These 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. In the fourth quarter of 2023 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.

Current wording

**Loan Portfolio.**Gross loans increased by $45 million, or 4%, from $959 million at December 31, 2023, to $1 billion at September 30, 2024. Increases in loans included $74 million in commercial real estate loans and $8 million in commercial loans. These items were offset by declines of $26 million in automobile loans, $8 million in agricultural loans and $3 million in all other categories. Although the Company offers a broad array of financing options, it continues to concentrate its focus on small to medium sized commercial businesses. These 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. In the fourth quarter of 2023 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.

Previous wording

The Company’s real estate related loans, including real estate mortgage loans, real estate construction and land development loans, consumer equity lines of credit, and agricultural loans secured by real estate, comprised 79% of the total loan portfolio at June 30, 2024. Moreover, the business activities of the Company currently are focused in the California counties of Butte, Lassen, Modoc, Nevada, Placer, Plumas, Shasta and Sutter and in Washoe and Carson City Counties 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 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.

Current wording

The Company’s real estate related loans, including real estate mortgage loans, real estate construction and land development loans, consumer equity lines of credit, and agricultural loans secured by real estate, comprised 80% of the total loan portfolio at September 30, 2024. Moreover, the business activities of the Company currently are focused in the California counties of Butte, Lassen, Modoc, Nevada, Placer, Plumas, Shasta and Sutter and in Washoe and Carson City Counties 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 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.

Previous wording

Commercial real estate loans (“CRE”), which comprised 59% of the lending portfolio at June 30, 2024, included 26% investor-owned, 24% owner-occupied, and 9% multi-family. Concentrations by real estate type within the CRE portfolio included 15% multi-family, 13% retail,12% office, 11% mixed commercial real estate, 8% hospitality, 7% industrial, and 6% mini storage facilities, with all remaining concentrations below 5%. There were no rent-controlled properties within the multi-family category. Office facilities are typically small and located in more rural areas. 36% of CRE loans were located in northern Nevada and 43% were located in northern California, including the Sacramento area. Of the $2.5 million in non-accrual balances at June 30, 2024, approximately 33% were CRE. Of the $18.0 million in substandard balances at June 30, 2024, 10% were CRE, much of which was related to a single borrower who has not missed payments.

Current wording

Commercial real estate loans (“CRE”), which comprised 61% of the lending portfolio at September 30, 2024, included 26% investor-owned, 26% owner-occupied, and 9% multi-family. Concentrations by real estate type within the CRE portfolio included 15% multi-family, 11% retail, 11% office, 10% mixed commercial real estate, 8% hospitality, 6% industrial, 6% special purpose, 6% gas stations and 5% mini storage facilities, with all remaining concentrations below 5%. There were no rent-controlled properties within the multi-family category. Office facilities are typically small and located in more rural areas. 28% of CRE loans were located in northern Nevada and 47% were located in northern California, including the Sacramento area. Of the $4.5 million in non-accrual balances at September 30, 2024, approximately 39% were CRE. Of the $22.4 million in substandard balances at September 30, 2024, 17% were CRE.

Previous wording

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 in which variable rate loans reprice can vary from one day to several years. At June 30, 2024 and December 31, 2023, approximately 75% and 78%, respectively, of the Company's loan portfolio was comprised of variable rate loans. Loans indexed to the prime interest rate were approximately 25% of the Company’s variable rate loan portfolio; these loans reprice within one day to three months of a change in the prime rate. The remainder of the Company's variable rate loans mostly consist of commercial real estate loans tied to U.S. Treasury rates and reprice every five years. Approximately 72% of the variable rate loans are indexed to the five-year T-Bill rate and reprice every five years. While real estate mortgage, agricultural, 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.

Current wording

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 in which variable rate loans reprice can vary from one day to several years. At September 30, 2024 and December 31, 2023, approximately 77% and 78%, respectively, of the Company's loan portfolio was comprised of variable rate loans. Loans indexed to the prime interest rate were approximately 22% of the Company’s variable rate loan portfolio on September 30, 2024; these loans reprice within one day to three months of a change in the prime rate. The remainder of the Company's variable rate loans mostly consist of commercial real estate loans tied to U.S. Treasury rates and reprice every five years. Approximately 75% of the variable rate loans are indexed to the five-year T-Bill rate and reprice every five years. While real estate mortgage, agricultural, 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.

Previous wording

The allowance for credit losses totaled $14.1 million at June 30, 2024, and $12.9 million at December 31, 2023. At least quarterly, the Company evaluates each specific reserve and if it determines that the loss represented by the specific reserve is uncollectable it records a charge-off for the uncollectable portion. Specific reserves related to collateral dependent loans totaled $27,000 and $28,000 at June 30, 2024, and December 31, 2023, respectively. The allowance for credit losses as a percentage of total loans was 1.41% on June 30, 2024, and 1.34% on December 31, 2023.

Current wording

The allowance for credit losses totaled $13.6 million at September 30, 2024, and $12.9 million at December 31, 2023. At least quarterly, the Company evaluates each specific reserve and if it determines that the loss represented by the specific reserve is uncollectable it records a charge-off for the uncollectable portion. Specific reserves related to collateral dependent loans totaled $26,000 and $28,000 at September 30, 2024, and December 31, 2023, respectively. The allowance for credit losses as a percentage of total loans was 1.35% on September 30, 2024, and 1.34% on December 31, 2023.

Previous wording

Nonperforming loans at June 30, 2024 were $9.0 million, an increase of $4.2 million from $4.8 million at December 31, 2023. Included in nonperforming loans at June 30, 2024 were agricultural loans from one borrower totaling $6.2 million which were over 90 days past due but not nonaccrual. We received payments on these loans totaling $1.6 million in July and concurrently with these payments we extended the maturity of the loans to August 15, 2024 which allows time for the borrower to sell the crops securing the remaining balance of principal and interest on the loans. Nonaccrual loans totaled $2.5 million at June 30, 2024, and $4.8 million at December 31, 2023.

Current wording

Nonperforming loans at September 30, 2024 were $4.5 million, a decrease of $0.3 million from $4.8 million at December 31, 2023.

Previous wording

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. Total substandard loans decreased by $3.7 million from $21.7 million on December 31, 2023, to $18.0 million on June 30, 2024. Loans classified as special mention increased by $0.4 million from $9.3 million on December 31, 2023, to $9.7 million on June 30, 2024.

Current wording

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. Total substandard loans increased by $0.7 million from $21.7 million on December 31, 2023, to $22.4 million on September 30, 2024. Loans classified as special mention increased by $4.8 million from $9.3 million on December 31, 2023, to $14.1 million on September 30, 2024.

Previous wording

Nonperforming assets as a percentage of total assets were 0.56% at June 30, 2024 and 0.33% at December 31, 2023.

Current wording

Nonperforming assets as a percentage of total assets were 0.29% at September 30, 2024 and 0.33% at December 31, 2023.

Previous wording

The following table provides a summary of the change in the number and balance of OREO properties for the six months ended June 30, 2024 and 2023 (dollars in thousands):

Current wording

The following table provides a summary of the change in the number and balance of OREO properties for the nine months ended September 30, 2024 and 2023 (dollars in thousands):

Previous wording

Investment Portfolio and Federal Funds Sold. Total investment securities were $445.1 million as of June 30, 2024, and $489.2 million at December 31, 2023. Unrealized losses on available-for-sale investment securities totaling $35,645,000 were recorded, net of $10,536,000 in tax benefit, as accumulated other comprehensive loss within shareholders' equity at June 30, 2024. Net unrealized losses on available-for-sale investment securities totaling $46.1 million were recorded, net of $13.6 million in tax benefit, as accumulated other comprehensive loss within shareholders' equity at December 31, 2023. During the six months ended June 30, 2024 we sold $115 million in investment securities having a weighted average tax equivalent yield of 2.24% recording a $19.8 million loss on sale. Beginning in December 2023 and ending on March 27, 2024 we purchased $120 million in investments securities having a weighted average tax equivalent yield of 5.25%. These sales and purchases were made as part of the investment restructure described earlier. No securities were sold during the six months ended June 30, 2023.

Current wording

Investment Portfolio and Federal Funds Sold. Total investment securities were $456.7 million as of September 30, 2024, and $489.2 million at December 31, 2023. Unrealized losses on available-for-sale investment securities totaling $20.9 million were recorded, net of $6.2 million in tax benefit, as accumulated other comprehensive loss within shareholders' equity at September 30, 2024. Net unrealized losses on available-for-sale investment securities totaling $46.1 million were recorded, net of $13.6 million in tax benefit, as accumulated other comprehensive loss within shareholders' equity at December 31, 2023. During the first quarter of 2024 we sold $116 million in investment securities having a weighted average tax equivalent yield of 2.24% recording a $19.8 million loss on sale. Beginning in December 2023 and ending on March 27, 2024 we purchased $120 million in investment securities having a weighted average tax equivalent yield of 5.25%. These sales and purchases were made as part of the investment restructure described earlier. No securities were sold during the nine months ended September 30, 2023.

Previous wording

The investment portfolio at June 30, 2024, consisted of $3.9 million in U.S. Treasury securities, $352.6 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies, and 173 municipal securities totaling $88.6 million. The investment portfolio at December 31, 2023 consisted of $6.9 million in U.S. Treasury securities, $351.9 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies and 244 municipal securities totaling $130.4 million.

Current wording

The investment portfolio at September 30, 2024, consisted of $4.0 million in U.S. Treasury securities, $363.1 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies, and 170 municipal securities totaling $89.6 million. The investment portfolio at December 31, 2023 consisted of $6.9 million in U.S. Treasury securities, $351.9 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies and 244 municipal securities totaling $130.4 million.