ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Plumas Bancorp is a bank holding company for Plumas Bank, a California state-chartered commercial bank. We derive our income primarily from interest received on real estate related, commercial, automobile and consumer loans and, to a lesser extent, interest on investment securities and cash balances and fees received in connection with servicing deposit and loan customers. Our major operating expenses are the interest we pay on deposits and borrowings and general operating expenses. We rely on locally-generated deposits to provide us with funds for making loans.
We are subject to competition from other financial institutions and our operating results, like those of other financial institutions operating in California and Northern Nevada, are significantly influenced by economic conditions in California and Northern Nevada, including the strength of the real estate market. In addition, both the fiscal and regulatory policies of the federal and state government and regulatory authorities that govern financial institutions and market interest rates also impact the Bank’s financial condition, results of operations and cash flows.
S ALES/LEASEBACK AND i NVESTMENT R ESTRUCTURING
2025 Sale/Leaseback
On March 28, 2025, Plumas Bank entered into an agreement for the purchase and sale of real property (the “Purchase Agreement”). The Purchase Agreement as amended provided for the sale to BBS Branch III, LLC, a Delaware limited liability company, two administrative buildings located in Quincy California for an aggregate cash purchase price of $5.5 million. The sale was completed on November 19, 2025, resulting in a net gain on sale of $5.5 million, recording of right-of-use assets totaling $5.3 million and recording a lease liability of $4.7 million.
Concurrent with the closing of the sale, Plumas Bank and Plumas Investor, LLC, a Delaware limited liability company and Plumas Quincy, LLC, a Delaware limited liability company entered into triple net lease agreements (the “Lease Agreements”) pursuant to which the Bank leased back the Properties sold. The Lease Agreements have an initial term of 15 years with three five-year renewal options. The Lease Agreements provide for annual rent of approximately $463,000 in the aggregate for both Properties, increasing by three percent per annum each year.
The gain on sales of the branches was mostly offset by a $5.4 million loss on the sale of approximately $47 million in investment securities. We sold $47 million in investment securities having a weighted average tax equivalent yield of 2.43% recording a $5.4 million loss on the sales. As part of the restructuring, beginning in November 2025 and ending on January 13, 2026, we purchased $42 million in investment securities having a weighted average tax equivalent yield of 4.88%.
2024 Sale/Leaseback
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 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.
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.
The gain on sales of the branches was offset by losses on the sale of approximately $115 million in investment securities. 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%.
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B USINESS C OMBINATION - Acquisition OF Cornerstone C OMMUNITY B ancorp
On July 1, 2025 (the “Closing Date”), Plumas Bancorp (the “Company”) completed its previously announced acquisition of Cornerstone Community Bancorp (“Cornerstone”) pursuant to an Agreement and Plan of Merger and Reorganization, dated as of January 28, 2025, by and between the Company and Cornerstone (the “Merger Agreement”). Total book value of assets acquired from Cornerstone, excluding fair value adjustments, were $658 million, gross loans totaled $478 million, and deposits totaled $580 million. Goodwill associated with the acquisition of Cornerstone was $18.7 million; the core deposit intangible (CDI) was $11.6 million. In addition, the Company recorded a discount on the acquired loans totaling $15.5 million. With the completion of the merger, Plumas Bank adds four branches in Anderson, Red Bluff and Redding (two branches), California.
Pursuant to the Merger Agreement, on the Closing Date, Cornerstone merged with and into the Company (the “Merger”) with the Company continuing as the surviving corporation. Immediately following the Merger, Cornerstone’s subsidiary, Cornerstone Community Bank (CCB) merged with and into the Company’s subsidiary, Plumas Bank with Plumas Bank as the surviving bank. Pursuant to the terms of the Merger Agreement, upon the completion of the Merger, each share of Cornerstone common stock outstanding immediately prior was converted into the right to receive 0.6608 shares of common stock of the Company and $9.75 cash, with cash paid in lieu of fractional shares. The total aggregate consideration delivered to holders of Cornerstone common stock in the Merger was 1,003,718 shares of Company common stock and $14.8 million cash. In addition, in accordance with the Merger Agreement, the Company paid approximately $1.3 million to holders of options to purchase Cornerstone common stock that were terminated in connection with the Merger. The Company also assumed options to purchase 35,000 shares of Cornerstone common stock representing, on an as-converted basis, options to purchase 30,803 shares of the Company’s common stock.
As a result of and upon the completion of the Merger, the Company assumed Cornerstone’s obligations with respect to an aggregate principal amount of $12 million of subordinated notes, comprised of (a) $2 million in aggregate principal amount of 4.75% Fixed to Floating Rate Subordinated Notes due November 30, 2035 (the “2035 Notes”) and (b) $10 million in aggregate principal amount of 4.75% Fixed-to-Floating Rate Subordinated Notes due November 30, 2030 (the “2030 Notes”). The 2035 Notes, which were issued in 2020, have a fixed interest rate of 4.75% for the first ten years and thereafter a quarterly variable interest rate equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”) plus 4.14%. The 2030 Notes, which were issued in 2020, have a fixed interest rate of 4.75% for the first five years and thereafter a quarterly variable interest rate equal to the then current three-month term SOFR plus 4.52%. The 2030 notes were called for redemption on December 30, 2025. Of the $10 million originally outstanding on the 2030 notes, principal payments were made on $5.8 million while $4.2 million remain outstanding at December 31, 2025. The remaining $4.2 million will be paid once the notes are surrendered for cancelation by the debenture holders as required under the 2030 Notes. In accordance with the terms of the 2030 Notes interest has ceased to accrue on the remaining $4.2 million. Interest expense recognized on the subordinated notes for the twelve months ended December 31, 2025, was $426 thousand.
Our financial statements are prepared in conformity with accounting principles generally accepted in the United States (U.S. GAAP). In connection with the acquisition, the Company incurred a variety of non-recurring expenses related to the Merger which are summarized on the following page under the heading “Reconciliation of Non-GAAP Disclosure”. The non-recurring expenses for the twelve months ended December 31, 2025 were $7.3 million. Excluding these expenses, non-GAAP net income for the twelve months ended December 31, 2025 would have been $35.0 million, resulting in diluted earnings per share of $5.37 and return on average assets of 1.80%.
In addition, during the second half of 2025, the Company recorded additional expense and income related to the amortization and accretion, respectively related to the amortization/accretion of various Fair Value (FV) marks required under GAAP. The following table presents the effect on pretax earnings of the amortization/accretion of the FV marks recorded during the six months ended December 31, 2025 and the projected effect for the twelve months ended December 31, 2026. Positive numbers would increase pretax income and negative are a decrease in pretax income.
(in thousands)
Actual
Projected
Six Months
Twelve Months
Ending
Ending
Amortization/accretion of Fair Value marks
Core Deposit Intangible
Discount on acquired loans
Premium/discount on acquired time deposits
Discount on acquired debentures
Total amortization/accretion of Fair Value marks
The projected accretion of the discount on acquired loans is based on the acquired loans contractual payment schedules and may differ significantly from the actual accretion during the projected periods. The accretion of the premium on time deposits of $655 thousand was accelerated with the payoff of $38.5 million in brokered deposits during the three months ended September 30, 2025. This resulted in a $160 thousand discount going forward which will be amortized as an increase in interest expense over the remaining life of the time deposits acquired.
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NON-GAAP FINANCIAL MEASURES
In addition to results presented in accordance with generally accepted accounting principles in the GAAP, Management has presented these non-GAAP financial measures because it believes that they provide useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP.
Reconciliation of Non-GAAP Disclosure
(Unaudited. In thousands, except per share data)
GAAP
Non-GAAP
For the Twelve Months Ended
Income before tax
Exclude merger related items:
Investment banking, legal and other expenses
CECL Day 1 loan loss allowance on acquired non-PCD loans
Unfunded commitment liability related to acquired loans
Total merger related items
Adjusted income before tax
Provision for income taxes
Net Income
Diluted shares outstanding
Average assets
Diluted earnings per share
Return on average assets
Critical Accounting Policies
Our accounting policies are integral to understanding the financial results reported. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and internal control procedures that are intended to ensure valuation methods are applied in an environment that is designed and operating effectively and applied consistently from period to period. The following is a brief description of our current accounting policies involving significant management valuation judgments.
Allowance for Credit Losses. The allowance for credit losses is an estimate of credit losses inherent in the Company's loan portfolio that have been incurred as of the balance-sheet date. The allowance is established through a provision for credit losses which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance.
To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various economic metrics, including California unemployment rates, California housing prices, and California gross domestic product. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. At both January 1, 2023, the adoption and implementation date of ASC Topic 326, and December 31, 2025, the Company utilized a reasonable and supportable forecast period of approximately four quarters and obtained the forecast data from publicly available sources. The Company also considered the impact of portfolio concentrations, changes in underwriting practices, and other risk factors that might influence its loss estimation process. Management believes that the allowance for credit losses at December 31, 2025, appropriately reflected expected credit losses inherent in the loan portfolio at that date.
In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company's policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans, in excess of $100,000, are individually evaluated for reserves. As of December 31, 2025, the Bank's nonaccrual loans comprised the entire population of loans individually evaluated. The Company's policy is that nonaccrual loans in excess of $100,000, also represent the subset of loans where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loans should be categorized as collateral dependent.
We cannot provide you with any assurance that economic difficulties or other circumstances which would adversely affect our borrowers and their ability to repay outstanding loans will not occur which would be reflected in increased losses in our loan portfolio and which could result in actual losses that exceed reserves previously established.
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The following discussion is designed to provide a better understanding of significant trends related to the Company's financial condition, results of operations, liquidity and capital. It pertains to the Company's financial condition, changes in financial condition and results of operations as of December 31, 2025 and 2024 and for each of the three years in the period ended December 31, 2025. The discussion should be read in conjunction with the Company's audited consolidated financial statements and notes thereto and the other financial information appearing elsewhere herein.
Overview
The Company recorded net income of $29.6 million for the year ended December 31, 2025, an increase of $1.0 million or 4% from net income of $28.6 million during the year ended December 31, 2024. Pretax income increased by $591 thousand, or 2%, to $39.6 million in 2025 from $39.0 million during the year ended December 31, 2024. Net interest income increased by $14.1 million to $87.8 million during 2025 from $73.7 million for the year ended December 31, 2024. This increase in net interest income resulted from an increase in interest income of $17.3 million partially offset by an increase in interest expense of $3.2 million. Increases of $17.4 million in interest and fees on loans and $1.6 million in interest on investment securities were partially offset by decreases in interest on other interest earning assets totaling $1.7 million. Mostly related to the acquisition of Cornerstone the provision for credit losses increased from $1.2 million during the twelve months ended December 31, 2024 to $6.8 million during 2025.
During the year ended December 31, 2025, non-interest income totaled $10.5 million, an increase of $1.7 million from the $8.8 million earned during 2024. Non-interest expense increased by $9.6 million from $42.3 million during 2024 to $51.9 million during the twelve months ending December 31, 2025. The provision for income taxes totaled $10.0 million, a decrease of $407 thousand from 2024.
Total assets at December 31, 2025 were $2.2 billion, an increase of $615 million from December 31, 2024. The largest component of this increase was an increase in net loans of $490 million mostly related to the acquisition of Cornerstone.
Gross loans increased by approximately $497 million, or 49%, from $1.0 billion at December 31, 2024, to $1.5 billion at December 31, 2025. Increases in loans included $356 million in commercial real estate loans, $90 million in commercial loans, $39 million in agricultural loans, $22 million in residential real estate loans, $16 million in equity lines and $12 million in consumer and other loans. These increases were partially offset by decreases of $25 million in automobile loans and $13 million in construction loans. In the fourth quarter of 2023 we terminated our indirect automobile 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.
Related mostly to the acquisition of Cornerstone, total deposits increased by $439 million from $1.4 billion at December 31, 2024, to $1.8 billion at December 31, 2025. The increase in deposits includes increases of $150 million in demand deposits, $173 million in money market accounts and $117 million in time deposits. Partially offsetting these increases was a decline of $1 million in savings deposits.
Borrowings increased from $15 million at December 31, 2024 to $21 million at December 31, 2025. Borrowings at December 31, 2025 consisted of $6 million in subordinated debentures and a $15 million Bancorp term loan with a correspondent bank. Borrowings at December 31, 2024 consisted of a $15 million Bancorp line of credit with a correspondent bank. This line of credit converted to a term loan on February 1, 2025.
Shareholders’ equity increased by $83 million from $178 million at December 31, 2024 to $261 million at December 31, 2025. The $83 million increase includes earnings during the twelve-month period of $29.6 million, common stock and stock options issued in the acquisition of Cornerstone totaling $45.2 million, a decrease in other comprehensive loss of $14.7 million and restricted stock and stock option activity totaling $1.4 million. These items were partially offset by the payment of cash dividends totaling $7.7 million.
The return on average assets was 1.52% for the twelve months ended December 31, 2025, down from 1.74% for the twelve months ended December 31, 2024. The return on average equity decreased from 17.2% during 2024 to 13.6% during 2025.
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Results of Operations
Net Interest Income
The following table presents, for the years indicated, the distribution of consolidated average assets, liabilities and shareholders' equity. Average balances are based on average daily balances. It also presents the amounts of interest income from interest-earning assets and the resultant yields expressed in both dollars and yield percentages, as well as the amounts of interest expense on interest-bearing liabilities and the resultant cost expressed in both dollars and rate percentages. Nonaccrual loans are included in the calculation of average loans while nonaccrued interest thereon is excluded from the computation of yields earned.
Year ended December 31,
Interest
Rates
Interest
Rates
Interest
Rates
Average
income/
earned/
Average
income/
earned/
Average
income/
earned/
balance
expense
paid
balance
expense
paid
balance
expense
paid
(dollars in thousands)
Assets
Interest-bearing cash and due from banks and deposits in banks
Taxable investment securities
Non-taxable investment securities (1)
Total loans (2)(3)
Total earning assets
Cash and due from banks
Other assets
Total assets
Liabilities and shareholders’ equity
Money market deposits
Savings deposits
Time deposits
Other borrowings
Junior subordinated debentures
Repurchase agreements and other
Total interest-bearing liabilities
Noninterest bearing demand deposits
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest income
Net interest spread (4)
Net interest margin (5)
Interest income is reflected on an actual basis and is not computed on a tax-equivalent basis.
Average nonaccrual loan balances of $9.2 million for 2025, $4.4 million for 2024 and $3.0 million for 2023 are included in average loan balances for computational purposes.
Loan origination fees and costs are included in interest income as adjustments of the loan yields over the life of the loan using the interest method. Loan interest income includes net costs of $988 thousand, $1.4 million and $1.3 million for 2025, 2024 and 2023, respectively.
Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
Net interest margin is computed by dividing net interest income by total average earning assets.
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The following table sets forth changes in interest income and interest expense, for the years indicated and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates:
2025 compared to 2024
2024 compared to 2023
Increase (decrease) due to change in:
Increase (decrease) due to change in:
Average
Average
Average
Average
Volume(1)
Rate(2)
Mix(3)
Total
Volume(1)
Rate(2)
Mix(3)
Total
(dollars in thousands)
Interest-earning assets:
Interest-bearing cash and due from banks and deposits in banks
Taxable investment securities
Non-taxable investment securities
Loans
Total interest income
Interest-bearing liabilities:
Money market deposits
Savings deposits
Time deposits
Other borrowings
Junior subordinated debentures
Repurchase agreements and other
Total interest expense
Net interest income
The volume change in net interest income represents the change in average balance multiplied by the previous year’s rate.
The rate change in net interest income represents the change in rate multiplied by the previous year’s average balance.
The mix change in net interest income represents the change in average balance multiplied by the change in rate.
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2025 compared to 2024. Net interest income was $87.8 million for the year ended December 31, 2025, an increase of $14.1 million from the same period in 2024. The increase in net interest income includes an increase of $17.3 million in interest income partially offset by an increase of $3.2 million in interest expense.
Interest and fees on loans increased by $17.4 million, mostly related to an increase in average balance. The average balance of loans during the year ended December 31, 2025, was $1.3 billion, an increase of $263 million from $989 million during the same period in 2024. The average yield on loans increased by 9 basis points from 6.21% during 2024 to 6.30% during 2025.
Interest on investment securities increased by $1.6 million related to an increase in yield of 29 basis points to 4.22%. The increase in investment yields is consistent with market rate trends, the partial restructuring of the investment portfolio in February of 2024 and again in December 2025 and an increase in accretion of discount. Most of the increase in the accretion of discount was related to an investment security that prepaid during the fourth quarter of 2025. This repayment resulted in the recognition of $635 thousand in unamortized discount. Average investment securities increased from $455 million during the year ended December 31, 2024, to $462 million during the current period.
Interest on cash balances declined by $1.7 million, related to both a decline in balance and a decline in yield. The rate earned on cash balances declined by 100 basis points to 4.36% and the average balance declined from $93.1 million during 2024 to $75.1 million during 2025. The decline in rate is consistent with the decline in rate earned on FRB balances. The average rate earned on FRB balances declined from 5.21% during 2024 to 4.27% during 2025.
Related to an increase in interest bearing deposits, an increase in the cost of these deposits and the acquisition of Cornerstone partially offset by a $4.0 million decline in interest on Bank Term Funding Program (BTFP) borrowings, interest expense increased by $3.2 million to $13.9 during the year ended December 31, 2025. During 2024 Plumas Bank had borrowings under the BTFP which averaged $83 million for the twelve months ended December 31, 2024. All BTFP borrowings were paid off during 2024.
Interest paid on deposits increased by $6.1 million and is broken down by product type as follows: money market accounts - $4.6 million, savings deposits - $302 thousand and time deposits - $1.2 million. The average rate paid on interest-bearing deposits increased from 0.92% during 2024, to 1.43% during 2025. Average interest-bearing deposits totaled $840 million during the year ended December 31, 2025, an increase of $194 million from $646 million during the year ended December 31, 2024.
The average rate paid on interest bearing liabilities increased from 1.39% during 2024 to 1.52% during 2025.
Net interest margin for the year ended December 31, 2025, increased 12 basis points to 4.91%, up from 4.79% for the same period in 2024.
2024 compared to 2023. Net interest income for the twelve months ended December 31, 2024 was $73.7 million, an increase of $3.9 million from the $69.8 million earned during 2023. The increase in net interest income includes an increase of $9.7 million in interest income partially offset by an increase of $5.8 million in interest expense.
Interest and fees on loans increased by $6.5 million related to an increase in average balance and yield. The average balance of loans during the twelve months ended December 31, 2024 was $989 million, an increase of $55 million from $934 million during 2023. The average yield on loans increased by 32 basis points from 5.89% during 2023 to 6.21% during 2024.
Interest on investment securities increased by $2.7 million related to an increase in yield of 64 basis points to 3.93%. The increase in investment yield is consistent with the increase in market rates and the partial restructuring of the investment portfolio. Average investment securities declined from $462 million during the twelve months ended December 31, 2023 to $455 million during the current period. Interest on cash balances increased by $606 thousand related to an increase in yield of 31 basis points and an increase in average balance of $6.2 million from $86.9 million during 2023 to $93.1 million during 2024.
Interest expense increased from $4.8 million during 2023 to $10.6 million during the current period related mostly to an increase in rate paid on interest bearing liabilities and an increase in average borrowings. The average rate paid on interest bearing liabilities increased from 0.67% during the 2023 period to 1.39% in 2024 related to an increase in borrowings and an increase in market interest rates. Interest incurred on borrowings, including junior subordinated debentures in 2023, totaled $4.7 million and $1.0 million during 2024 and 2023, respectively. The average balance of borrowings increased by $78 million from $20 million during 2023 to $98 million during 2024.
Interest paid on deposits increased by $2.2 million; this increase is broken down by product type as follows: money market accounts - $1.1 million and time deposits -$1.2 million. Related to a decline in average balance of $51 million, interest on savings deposits declined by $90 thousand. The average rate paid on interest-bearing deposits increased from 0.55% during 2023 to 0.92% during the current period. Rates paid on money market accounts and time deposits increased by 49 basis points and 75 basis points, respectively. This is consistent with market conditions and an increase in higher rate public entity money market accounts.
Net interest margin for the year ended December 31, 2024 increased 8 basis points to 4.79%, up from 4.71% during 2023.
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Provision for credit losses. During 2025 we recorded a provision for credit losses of $6.8 million, consisting of a provision for credit losses on loans of $6.9 million and a decrease in the reserve for unfunded commitments of $40 thousand. The provision includes the Current Expected Credit Losses (CECL) day 1 provision on non-Purchased Credit Deteriorated (non-PCD) loans acquired from CCB and a reserve for unfunded commitments on loans acquired from CCB. This compares to a provision for credit losses of $1.2 million consisting of a provision for credit losses on loans of $1.4 million and a decrease in the reserve for unfunded commitments of $179 thousand during 2024. See “Analysis of Asset Quality and Allowance for Credit Losses” for a discussion of loan quality trends and the provision for credit losses.
The following tables present the activity in the allowance for credit losses and the reserve for unfunded commitments during the twelve months ended December 31, 2025, and 2024 (in thousands).
Allowance for Credit Losses
December 31, 2025
December 31, 2024
Balance, beginning of period
CECL Day 1 provision on acquired non-PCD loans
Provision charged to operations
Reserve on PCD loans
Losses charged to allowance
Recoveries
Balance, end of period
Reserve for Unfunded Commitments
December 31, 2025
December 31, 2024
Balance, beginning of period
Provision on acquired loans
Recovery of provision for credit losses
Balance, end of period
These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. Based on information currently available, management believes that the allowance for credit losses is appropriate to absorb potential risks in the portfolio. However, no assurance can be given that the Company may not sustain charge-offs which are in excess of the allowance in any given period.
Non-Interest Income
The following table sets forth the components of non-interest income for the years ended December 31, 2025, 2024 and 2023
Years Ended December 31,
Change during Year
(dollars in thousands)
Gain on sale of buildings
Interchange revenue
Service charges on deposit accounts
Earnings on bank owned life insurance policies, net (BOLI)
FHLB Dividends
Loan servicing fees
Gain on sale of loans
Loss on sale of investments
Other income
Total non-interest income
2025 compared to 2024. During the year ended December 31, 2025, non-interest income totaled $10.5 million, an increase of $1.7 million from the year ended December 31, 2024. The largest components of this increase were a legal settlement totaling $1.1 million related to the Dixie Fire in August of 2021 and an increase in earnings on BOLI of $332 thousand. A $14.3 million reduction in gain on sale of buildings related to our 2024 sales/lease back transaction was mostly offset by a $14.0 million reduction in loss on sale of investment securities related to the 2024 partial restructuring of our investment portfolio. Loss on sale of investment securities during 2025 consisted of the December 2025 partial restructuring of the investment portfolio discussed earlier, and a $628 thousand loss generated on the disposition of Cornerstone’s investment portfolio during the third quarter of 2025.
2024 compared to 2023. During the year ended December 31, 2024, non-interest income totaled $8.8 million, a decrease of $1.9 million from the year ended December 31, 2023. The largest component of this decrease was a $1.7 million gain on termination of our interest rate swaps during 2023 which is included in other income in the above table. Related to the sale/leaseback transaction and the partial restructuring of our investment portfolio, a $19.9 million gain on sale of buildings was offset by a $19.8 million loss on investment securities. Other changes in non-interest income include a decline in interchange income of $289 thousand and an increase in service charges on deposit accounts of $199 thousand.
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Non-Interest Expense
The following table sets forth the components of other non-interest expense for the years ended December 31, 2025, 2024 and 2023 (in thousands).
Years Ended December 31,
Change during Year
(dollars in thousands)
Salaries and employee benefits
Occupancy and equipment
Outside service fees
Merger and acquisition expenses
Amortization of Core Deposit Intangible
Professional fees
Advertising and promotion
Armored car and courier
Deposit insurance
Business development
Director compensation, education and retirement
Telephone and data communications
Loan collection costs
Other operating expense
Total non-interest expense
2025 compared to 2024. During the year ended December 31, 2025, total non-interest expense increased by $9.6 million from $42.3 million during the year ended December 31, 2024, to $51.9 million during the current period. The largest components of this increase were salary and benefit expenses of $4.3 million, merger related expenses of $2.0 million, occupancy and equipment expenses of $1.5 million, amortization of Core Deposit Intangible of $1.1 million and an increase in outside service fees of $1.0 million. The increase in salary and benefit expense included an increase in salary expense of $3.0 million primarily related to the acquisition of Cornerstone and to a lesser extent merit and promotional salary increases. Other significant increases in salary and benefit expense were $934 thousand in bonus expense, $256 thousand in health insurance costs and $269 thousand in payroll taxes. The increase in occupancy and equipment expenses and outside service fees mostly relates to the acquisition of Cornerstone.
2024 compared to 2023. During 2024 non-interest expense increased by $4.7 million to $42.3 million. The largest components of this increase were a $1.4 million increase in salary and benefit expenses, a $2.3 million increase in occupancy and equipment expenses and a $643 thousand increase in other non-interest expenses. The largest increases in salary and benefit expense were $695 thousand in salary expense and $401 thousand in commission expense. The increase in salary expense relates to both an increase in FTE and merit and promotional increases, while the increase in commission is related to increased SBA loan production. These were partially offset by an increase in the deferral of loan origination costs of $414 thousand related to an increase in SBA loan production. The increase in occupancy and equipment costs relates to a $2.4 million increase in rent expense related to the sales/leaseback transaction. The increase in other non-interest expense includes $277 thousand related to a recently concluded litigation.
Provision for Income Taxes. The Company recorded an income tax provision of $10.0 million, or 25.2% of pre-tax income for the year ended December 31, 2025. This compares to an income tax provision of $10.4 million, or 26.6% of pre-tax income during 2024. The percentages for 2025 and 2024 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 while non-deductible merger transaction costs incurred during the current period increase taxable income. In addition, during the fourth quarter of 2025, we purchased green energy tax credits at a discount resulting in a $700 thousand reduction in the provision for income taxes.
Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amount of assets and liabilities and their tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The determination of the amount of deferred income tax assets which are more likely than not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. The realization of deferred income tax assets is assessed, and a valuation allowance is recorded if it is "more likely than not" that all or a portion of the deferred tax asset will not be realized. "More likely than not" is defined as greater than a 50% chance. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Based upon the analysis of available evidence, management has determined that it is "more likely than not" that all deferred income tax assets as of December 31, 2025 and 2024 will be fully realized and therefore no valuation allowance was recorded.
Financial Condition
Mostly related to the acquisition of Cornerstone, total assets increased by $615 million from $1.6 billion on December 31, 2024, to $2.2 billion on December 31, 2025. The largest components of this increase were increases in gross loans of $497 million, investment securities of $39 million, accrued interest receivable and other assets of $25 million, Goodwill of $19 million, BOLI of $17 million, premises and equipment of $12 million and CDI of $10 million. Increases in liabilities include $439 million in deposits, $76 million in repurchase agreements, $6 million in borrowings and $7 million in accrued interest payable and other liabilities and $4 million in lease liabilities. Total shareholders' equity increased by $83 million. The following discussion provides detail on the major components of assets, liabilities and equity and the changes during 2025.
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Loan Portfolio. Mostly related to the acquisition of CCB, gross loans increased by $497 million, or 49%, from $1.0 billion at December 31, 2024, to $1.5 billion at December 31, 2025. Increases in loans included $356 million in commercial real estate loans, $90 million in commercial loans, $39 million in agricultural loans, $22 million in residential real estate loans, $16 million in equity lines and $12 million in consumer and other loans. These increases were partially offset by decreases of $25 million in automobile loans and $13 million in construction 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 automobile 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.
As shown in the following table the Company's largest lending categories are commercial real estate loans, agricultural loans and commercial loans.
Percent of
Percent of
Loans in
Loans in
Balance at
Each
Balance at
Each
End of
Category to
End of
Category to
(dollars in thousands)
Period
Total Loans
Period
Total Loans
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land development
Equity Lines of Credit
Auto
Other
Total
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 82% of the total loan portfolio at December 31, 2025. Moreover, the business activities of the Company currently are focused in the California counties of Butte, Lassen, Modoc, Nevada, Placer, Plumas, Shasta, Sutter and Tehama 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.
Commercial real estate loans (“CRE”) comprised 67% of the lending portfolio at December 31, 2025. CRE loans were 43% investor-owned, 43% owner-occupied, and 14% multi-family. Concentrations by real estate type within the CRE portfolio, excluding multi-family, were 14% Mixed Commercial Real Estate, 13% Office, 13% Retail, 10% Hospitality, 10% Industrial, 8% Gas Stations, 5% Medical buildings, 5% Special Purpose, 5% Mini Storage Facilities and, 5% Residential, 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. 21% of CRE loans were located in northern Nevada and 57% were located in northern California. Of the $15.1 million in non-accrual balances at December 31, 2025, approximately 13% were CRE. Of the $34.2 million in substandard balances at December 31, 2025 approximately 28% were CRE.
CRE loans consist of term loans secured by a mortgage lien on real property and include both owner occupied CRE loans as well as investor-owned loans. Investor- owned CRE loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, multi-family, industrial, office, retail and other specific use properties. The primary risk characteristics in the investor-owned portfolio include impacts of overall leasing rates, absorption timelines, levels of vacancy rates and operating expenses. The Company requires collateral values in excess of the loan amounts, cash flows in excess of expected debt service requirements and equity investment in the project. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. Inherent lending risks are monitored on a continuous basis through quarterly monitoring and the Bank’s annual underwriting process, incorporating an analysis of cash flow, collateral, market conditions and guarantor liquidity, if applicable. CRE loan policies are specific to individual product types and underwriting parameters vary depending on the risk profile of each asset class. CRE loan policies are reviewed no less than annually by management and approved by the Company’s Board of Directors to ensure they align with current market conditions and the Company’s moderate risk appetite. CRE concentration limits have been established by product type and are monitored quarterly by the Company’s Board of Directors.
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 December 31, 2025, and December 31, 2024, approximately 80% and 77%, respectively, of the Company's loan portfolio was comprised of variable rate loans. Loans indexed to the prime interest rate were approximately 21% of the Company’s variable rate loan portfolio on December 31, 2025; 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.
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 $11.2 million from $23.0 million on December 31, 2024, to $34.2 million on December 31, 2025. Loans classified as special mention increased by $8.1 million from $12.0 million on December 31, 2024, to $20.1 million on December 31, 2025.
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The following table sets forth the maturity of gross loan categories as of December 31, 2025. Also provided with respect to such loans are the amounts due after one year, classified according to sensitivity to changes in interest rates:
After One
After 5
Within
Through 5
Through 15
Due After 15
One Year
Years
Years
Years
Total
( in thousands)
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land development
Equity Lines of Credit
Auto
Other
Total
Amount due after one year at fixed interest rates:
(in thousands)
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land development
Equity Lines of Credit
Auto
Other
Total
Amount due after one year at variable interest rates:
(in thousands)
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land development
Equity Lines of Credit
Auto
Other
Total
Analysis of Asset Quality and Allowance for Credit Losses. The Company attempts to minimize credit risk through its underwriting and credit review policies. The Company’s credit review process includes internally prepared credit reviews as well as contracting with an outside firm to conduct periodic credit reviews. The Company’s management and lending officers evaluate the loss exposure of classified and nonaccrual loans on a quarterly basis, or more frequently as loan conditions change. The Management Asset Resolution Committee (MARC) reviews the asset quality of criticized and past due loans monthly and reports the findings to the full Board of Directors. In management's opinion, this loan review system helps facilitate the early identification of potential criticized loans. MARC also provides guidance for the maintenance and timely disposition of OREO properties including developing financing and marketing programs to incent individuals to purchase OREO. MARC consists of the Bank’s Chief Executive Officer, Chief Financial Officer, Chief Banking Officer, Regional President and Chief Credit Officer, and the activities are governed by a formal written charter. The MARC meets monthly and reports to the Board of Directors.
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The allowance for credit losses is established through charges to earnings in the form of the provision for credit losses. Loan losses are charged to, and recoveries are credited to, the allowance for credit losses. The allowance for credit losses is maintained at a level deemed appropriate by management to provide for known and inherent risks in the loan portfolio.
To estimate the Allowance for Credit Loss (ACL), the Company elected to use the Discounted Cash Flow (DCF) methodology. This method uses loan level repayment terms to determine expected cash flows which are then discounted by various assumptions such as prepayment or curtailment rates, Probability of Default and Loss Given Default rates.
The ACL is measured on the loan’s amortized cost over the remaining contractual lives of the loan portfolios, adjusted for industry average prepayment and curtailment rates. The Company established a 12-month term for forecasting economic conditions followed by a 24-month straight line reversion to historical average conditions as its basis for the probability of loan default. The probability of default rate is determined by reviewing loans with similar risk characteristics that are combined to form loan pools which are statistically correlated with historical credit losses, defaults and various economic metrics, including California Unemployment rates, California Housing Prices and California Gross Domestic Product. Pool balances that are determined to have probable default are then adjusted for expected Loss Given Default. The Company selected the Frye Jacobs Index as its basis for Loss Given Default. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and annual back-testing of model performance to actual realized results.
At December 31, 2025, and December 31, 2024, the Company utilized a reasonable and supportable forecast period of approximately four quarters and obtained the forecast data from publicly available sources. The Company also considered the impact of portfolio concentrations, changes in underwriting practices, and other risk factors that might influence its loss estimation process.
In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company's policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans, in excess of $100,000, are individually evaluated for reserves. As of December 31, 2025 and December 31, 2024, the Bank's nonaccrual loans comprised the entire population of loans individually evaluated. The Company's policy is that nonaccrual loans, in excess of $100,000, also represent the subset of loans where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loans should be categorized as collateral dependent. Nonaccrual loans with a balance less than or equal to $100,000 are evaluated collectively and consist primarily of automobile loans.
During the twelve months ended December 31, 2025, we recorded a provision for credit losses of $6.9 million, consisting of a provision for credit losses on loans of $6.9 million and a decrease in the reserve for unfunded commitments of $40 thousand. The provision includes the CECL day 1 provision on non-PCD loans acquired from CCB and the reserve for unfunded commitments on loans acquired from CCB. During 2024 we recorded a provision for credit losses of $1.2 million consisting of a provision for credit losses on loans of $1.4 million and a decrease in the reserve for unfunded commitments of $179 thousand.
Net charge-offs totaled $442 thousand and $1.0 million during the twelve months ended December 31, 2025, and 2024, respectively. The allowance for credit losses totaled $20.0 million at December 31, 2025, and $13.2 million at December 31, 2024. 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 $1,516,000 and $29,000 at December 31, 2025, and December 31, 2024, respectively. The allowance for credit losses as a percentage of total loans was 1.32% on December 31, 2025, and 1.30% on December 31, 2024.
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The following table provides selected credit ratios as of December 31, 2025, 2024 and 2023:
(dollars in thousands)
As of and for the Year Ended December 31,
Allowance for credit losses to total loans outstanding
Allowance for credit losses
Total loans outstanding
Nonaccrual loans to total loans outstanding
Nonaccrual loans
Total loans outstanding
Allowance for credit losses to nonaccrual loans
Allowance for credit losses
Nonaccrual loans
Net charge-offs during the period to average loans outstanding:
Commercial
Net charge-off during the period
Average amount outstanding
Agricultural
Net charge-off during the period
Average amount outstanding
Real estate - residential
Net charge-off during the period
Average amount outstanding
Real estate - commercial
Net charge-off during the period
Average amount outstanding
Real estate - construction & land development
Net charge-off during the period
Average amount outstanding
Equity lines of credit
Net charge-off during the period
Average amount outstanding
Auto
Net charge-off during the period
Average amount outstanding
Other
Net charge-off during the period
Average amount outstanding
Total Loans
Net charge-off during the period
Average amount outstanding
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The following table provides a breakdown of the allowance for credit losses:
Percent of
Percent of
Loans in
Loans in
Balance at
Each
Balance at
Each
End of
Category to
End of
Category to
(dollars in thousands)
Period
Total Loans
Period
Total Loans
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction & land development
Equity Lines of Credit
Auto
Other
Total
The Company places loans 90 days or more past due on nonaccrual status unless the loan is well secured and in the process of collection. A loan is considered to be in the process of collection if, based on a probable specific event, it is expected that the loan will be repaid or brought current. Generally, this collection period would not exceed 90 days. When a loan is placed on nonaccrual status the Company's general policy is to reverse and charge against current income previously accrued but unpaid interest. Interest income on such loans is subsequently recognized only to the extent that cash is received and future collection of principal is deemed by management to be probable. Where the collectability of the principal or interest on a loan is considered to be doubtful by management, it is placed on nonaccrual status prior to becoming 90 days delinquent.
Nonperforming loans were $15.1 million on December 31, 2025, and $4.1 million on December 31, 2024. Nonperforming loans as a percentage of total loans increased to 1.00% on December 31, 2025, up from 0.40% on December 31, 2024. The increase in nonperforming loans is related to one agricultural loan relationship of 15 loans totaling $9.8 million. The borrower on these loans was unable to meet his commitments under modified loan agreements and therefore during the second quarter of 2025 we placed the loans on nonaccrual status. Specific loan loss reserves totaling $1.4 million related to this relationship’s loans were included in the allowance for credit losses at December 31, 2025.
It is the policy of management to make additions to the allowance for credit losses so that it remains appropriate to absorb the inherent risk of loss in the portfolio. Management believes that the allowance on December 31, 2025, is appropriate. However, the determination of the amount of the allowance is judgmental and subject to economic conditions which cannot be predicted with certainty. Accordingly, the Company cannot predict whether charge-offs of loans in excess of the allowance may occur in future periods.
Nonperforming assets (which are comprised of nonperforming loans, other real estate owned (“OREO”) and repossessed vehicle holdings) at December 31, 2025, were $15.3 million, up from $4.3 million at December 31, 2024. Nonperforming assets as a percentage of total assets increased to 0.68% at December 31, 2025, up from 0.27% at December 31, 2024. OREO totaled $226 thousand at December 31, 2025, and $91 thousand December 31, 2024.
The following table sets forth the amount of the Company's nonperforming assets as of the dates indicated.
At December 31,
(dollars in thousands)
Nonaccrual loans
Loans past due 90 days or more and still accruing
Total nonperforming loans
Other real estate owned
Other vehicles owned
Total nonperforming assets
Interest income forgone on nonaccrual loans
Interest income recorded on a cash basis on nonaccrual loans
Nonperforming loans to total loans
Nonperforming assets to total assets
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The following table provides a summary of the change in the number and balance of OREO properties for the years ended December 31, 2025 and 2024, dollars in thousands:
Year Ended December 31,
Number
Number
Beginning Balance
Additions
Dispositions
Provision from change in OREO valuation
Ending Balance
Investment Portfolio and Federal Reserve Balances. Total investment securities were $477 million as of December 31, 2025, and $438 million at December 31, 2024. Unrealized losses on available-for-sale investment securities totaling $14.9 million were recorded, net of $4.4 million in tax benefits, as accumulated other comprehensive loss within shareholders' equity at December 31, 2025. During the twelve months ended December 31, 2025, the Company sold 135 available-for-sale investment securities for proceeds of $130.6 million recording a $6.1 million net loss on sale. The loss was partially offset by a gain of $254 thousand on the termination of a fair value hedge. The Company realized a gain on sale from 15 of these securities totaling $36 thousand and a loss on sale of 120 securities totaling $6.1 million. These sales mostly relate to the sale of the investment portfolio acquired from CCB and a partial restructure of our investment portfolio in which we offset the $5.5 million gain on our 2025 sales/leaseback transaction with a loss on sale of $5.4 million of investment securities. The securities sold had a weighted average tax equivalent yield of 2.43%. As part of the restructure, we replaced these securities with $42 million in securities having a weighted average yield of 4.88%.
Unrealized losses on available-for-sale investment securities totaling $35.7 million were recorded, net of $10.6 million in tax benefits, as accumulated other comprehensive loss within shareholders' equity at December 31, 2024. 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 an investment restructure, the losses of which were offset by the gain recorded on the sales/leaseback.
The investment portfolio at December 31, 2025, consisted of $388 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies, and 156 municipal securities totaling $89 million. The investment portfolio at December 31, 2024, consisted of $350 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies, and 170 municipal securities totaling $88 million.
There were no Federal funds sold at December 31, 2025, and December 31, 2024; however, the Bank maintained interest earning balances at the Federal Reserve Bank totaling $39 million at December 31, 2025, and $47 million at December 31, 2024. The balance on December 31, 2025, earns interest at the rate of 3.65%.
The Company classifies its investment securities as available-for-sale or held-to-maturity. Currently all securities are classified as available-for-sale. Securities classified as available-for-sale may be sold to implement the Company's asset/liability management strategies and in response to changes in interest rates, prepayment rates and similar factors.
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The following table summarizes the maturities of the Company's securities at their carrying value, which represents fair value, and their weighted average tax equivalent yields at December 31, 2025. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations.
After One Through
After Five Through
(dollars in thousands)
Within One Year
Five Years
Ten Years
After Ten Years
Total
Available-for-sale (Fair Value)
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
U.S. Government-sponsored agency mortgage-backed securities - residential
U.S. Government agency mortgage-backed securities - commercial
Municipal obligations
Total
Deposits. Related mostly to the acquisition of Cornerstone, total deposits increased by $439 million from $1.4 billion at December 31, 2024, to $1.8 billion at December 31, 2025. The increase in deposits includes increases of $150 million in demand deposits, $173 million in money market accounts and $117 million in time deposits. Partially offsetting these increases was a decline of $1 million in savings deposits. At December 31, 2025, 47% of the Company’s deposits were in the form of non-interest-bearing demand deposits. During the third quarter of 2025 we transferred over $60 million of third-party reciprocal deposits acquired from Cornerstone to our repurchase agreement product and paid off $38.5 million in brokered time deposits. These brokered deposits had a weighted average rate of 4.91%. At December 31, 2025, brokered deposits consist of a $10 million time deposit acquired from Cornerstone. The rate on this deposit is 3.80%.
The following tables show the distribution of deposits by type at December 31, 2025 and 2024 and the average balance and rates paid on deposits for the three years ending December 31, 2025:
Percent of
Percent of
Deposits in
Deposits in
Each Category
Each Category
Balance at End
to Total
Balance at End
to Total
of Period
Deposits
of Period
Deposits
(dollars in thousands)
Non-interest bearing
Money Market
Savings
Time
Total Deposits
Average Balance
Yields/Rates
Average Balance
Yields/Rates
Average Balance
Yields/Rates
(dollars in thousands)
Non-interest bearing
Money Market
Savings
Time
Total interest bearing
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Deposits represent the Bank's primary source of funds. Deposits are primarily core deposits in that they are demand, savings and time deposits generated from local businesses and individuals. These sources are considered to be relatively stable, long-term relationships thereby enhancing steady growth of the deposit base without major fluctuations in overall deposit balances. The Company experiences, to a small degree, some seasonality with the slower growth period between November through April, and the higher growth period from May through October. To assist in meeting any funding demands, the Company maintains several borrowing agreements as described below.
On December 31, 2025, the Company estimates that it has approximately $720 million in uninsured deposits representing 40% of total deposits. Of this amount, $186 million represents deposits that are collateralized such as deposits of states, municipalities, and tribal accounts. On December 31, 2024, the Company estimates that it has approximately $496 million in uninsured deposits representing 36% of total deposits. Of this amount, $128 million represents deposits that are collateralized such as deposits of states, municipalities, and tribal accounts. Uninsured amounts are estimated based on the portion of the account balances in excess of FDIC insurance limits.
The following table presents the maturity distribution of the portion of time deposits in excess of the FDIC insurance limit.
Maturity Distribution of Estimated Uninsured Time Deposits
December 31,
December 31,
(dollars in thousands)
Remaining maturity:
Three months or less
After three through six months
After six through twelve months
After twelve months
Total
Short-term Borrowing Arrangements. The Company is a member of the Federal Home Loan Bank of San Francisco (FHLB) and can borrow up to $400 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $659 million. Based on its current level of FHLB stock holdings the Company can borrow up to $326 million. To borrow the full $400 million in available credit the Company would need to purchase $2 million in additional FHLB stock. The Company is also eligible to borrow at the Federal Reserve Bank (FRB) Discount Window. At December 31, 2025, the Company could borrow up to $39 million at the Discount Window secured by investment securities with a fair value of $41 million. In addition to its FHLB borrowing line and the Discount Window, 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, FRB Discount Window or the correspondent banks at December 31, 2025 and 2024.
Note Payable. Plumas Bancorp had outstanding borrowings of $15 million with a correspondent bank. This loan matures on January 25, 2035, and can be prepaid at any time. During the initial three years the loan functioned as an interest only revolving line of credit. On February 1, 2025, the loan converted into a term loan requiring semi-annual interest payments and annual principal reductions. This borrowing bears interest at a fixed rate of 3.85% for the first 5 years and then beginning January 25, 2027 at a floating interest rate linked to WSJ Prime Rate for the remaining eight-year term. Interest expense recognized on this loan for the twelve-months ended December 31, 2025 and 2024, was $585 thousand and $641 thousand, respectively.
The Note is secured by the common stock of the Bank. The Loan Agreement contains certain financial and non-financial covenants, which include, but are not limited to, a minimum leverage ratio at the Bank, a minimum total risk-based capital ratio at the Bank, a maximum Texas Ratio at the Bank, a minimum level of Tier 1 capital at the Bank and a return on average assets needed to generate a 1.25X debt service coverage ratio. The Loan Agreement also contains customary events of default, including, but not limited to, failure to pay principal or interest, the commencement of certain bankruptcy proceedings, and certain adverse regulatory events affecting the Company or the Bank. Upon the occurrence of an event of default under the Loan Agreement, the Company’s obligations under the Loan Agreement may be accelerated. The Company was in compliance with all covenants related to the Term Note at December 31, 2025.
Repurchase Agreements. The Bank offers a repurchase agreement product for its larger customers which use securities sold under agreements to repurchase as an alternative to interest-bearing deposits. Securities sold under agreements to repurchase totaling $97.9 million and $22.1 million at December 31, 2025, and December 31, 2024, respectively, are secured by U.S. Government agency securities with a carrying amount of $112.1 million and $38.5 million at December 31, 2025 and December 31, 2024, respectively. The increase in repurchase agreements is mostly related to the acquisition of Cornerstone. Cornerstone maintained reciprocal deposits with several customers. During July 2025 we converted these reciprocal deposits to repurchase agreements. Interest expense recognized on repurchase agreements for the twelve-months ended December 31, 2025 and 2024, was $776 thousand and $36 thousand, respectively.
Subordinated Debentures. As a result of and upon the completion of the Merger, the Company assumed Cornerstone’s obligations with respect to an aggregate principal amount of $12 million of subordinated notes, comprised of (a) $2 million in aggregate principal amount of 4.75% Fixed to Floating Rate Subordinated Notes due November 30, 2035 (the “2035 Notes”) and (b) $10 million in aggregate principal amount of 4.75% Fixed-to-Floating Rate Subordinated Notes due November 30, 2030 (the “2030 Notes”). The 2035 Notes, which were issued in 2020, have a fixed interest rate of 4.75% for the first ten years and thereafter a quarterly variable interest rate equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”) plus 4.14%. The 2030 Notes, which were issued in 2020, had a fixed interest rate of 4.75% for the first five years and thereafter a quarterly variable interest rate equal to the then current three-month term SOFR plus 4.52%. The 2030 notes were called for redemption on December 30, 2025. Of the $10 million originally outstanding on the 2030 notes, principal payments were made on $5.8 million while $4.2 million remain outstanding at December 31, 2025. The remaining $4.2 million will be paid once the notes are surrendered for cancelation by the debenture holders as required under the 2030 Notes. In accordance with the terms of the 2030 Notes interest has ceased to accrue on the remaining $4.2 million. Interest expense recognized on the subordinated notes for the twelve months ended December 31, 2025, was $426 thousand.
In addition to these borrowings, Cornerstone had an outstanding borrowing from the FHLB of $15 million which was paid in full in August 2025. Interest expense on this borrowing was $50 thousand during 2025.
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Capital Resources
Shareholders ’ Equity . Shareholders’ equity increased by $83 million from $178 million at December 31, 2024 to $261 million at December 31, 2025. The $83 million increase includes earnings during the twelve-month period of $29.6 million, common stock and stock options issued in the acquisition of Cornerstone totaling $45.2 million, a decrease in other comprehensive loss of $14.7 million and restricted stock and stock option activity totaling $1.4 million. These items were partially offset by the payment of cash dividends totaling $7.7 million.
It is the policy of the Company to periodically distribute excess retained earnings to the shareholders through the payment of cash dividends. Such dividends help promote shareholder value and capital adequacy by enhancing the marketability of the Company’s stock. All authority to provide a return to the shareholders in the form of a cash or stock dividend or split rests with the Board of Directors. The Board will periodically, but on no regular schedule, review the appropriateness of a cash dividend payment. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. The Company paid a quarterly cash dividend of $0.30 per share on November 17, 2025, August 15, 2025, May 15, 2025, and February 17, 2025, and a quarterly cash dividend of $0.27 per share on February 15, 2024, May 15, 2024, August 15, 2024, and November 15, 2024.
Capital Standards. The Company uses a variety of measures to evaluate its capital adequacy. Management reviews these capital measurements on a monthly basis and takes appropriate action to ensure that they are within established internal and external guidelines. The FDIC has promulgated risk-based capital guidelines for all state non-member banks such as the Bank. These guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures.
In July, 2013, the federal bank regulatory agencies adopted rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. depository organizations, sometimes called “Basel III,” that increased the minimum regulatory capital requirements for bank holding companies and depository institutions and implemented strict eligibility criteria for regulatory capital instruments. The Basel III capital rules include a minimum common equity Tier 1 ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of 4.0% (calculated as Tier 1 capital to average consolidated assets). The minimum capital levels required to be considered “well capitalized” include a common equity Tier 1 ratio of 6.5%, a Tier 1 risk-based capital ratio of 8.0%, a total risk-based capital ratio of 10.0% and a leverage ratio of 5.0%. In addition, the Basel III capital rules require that banking organizations maintain a capital conservation buffer of 2.5% above the minimum capital requirements in order to avoid restrictions on their ability to pay dividends, repurchase stock or pay discretionary bonuses. Including the capital conservation buffer of 2.5%, the Basel III capital rules require the following minimum ratios for a bank holding company or bank to be considered well capitalized: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. At December 31, 2025, the Company’s and the Bank’s capital ratios exceeded the thresholds necessary to be considered “well capitalized” under the Basel III framework.
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Under the FRB’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (the “Policy Statement”), qualifying bank holding companies with less than $3 billion in consolidated assets are exempt from the Basel III consolidated capital rules. The Company qualifies for treatment under the Policy Statement and is not currently subject to the Basel III consolidated capital rules at the bank holding company level. The Basel III capital rules continue to apply to the Bank.
In 2019, the federal bank regulators issued a rule establishing a “community bank leverage ratio” (the ratio of a bank’s tier 1 capital to average total consolidated assets) that qualifying institutions with less than $10 billion in assets may elect to use in lieu of the generally applicable leverage and risk-based capital requirements under Basel III. A qualifying banking organization that elects to use the new ratio will be considered to have met all applicable federal regulatory capital and leverage requirements, including the minimum capital levels required to be considered “well capitalized,” if it maintains a community bank leverage ratio capital exceeding 9%. The new rule became effective on January 1, 2020. Plumas Bank has chosen not to opt into the community bank leverage ratio at this time.
The following table sets forth the Bank's actual capital amounts and ratios (dollar amounts in thousands):
Minimum Amount of Capital Required
To be Well-Capitalized
For Capital
Under Prompt
Actual
Adequacy Purposes (1)
Corrective Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2025
Common Equity Tier 1 Ratio
Tier 1 Leverage Ratio
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
December 31, 2024
Common Equity Tier 1 Ratio
Tier 1 Leverage Ratio
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
(1) Does not include amounts required to maintain the capital conservation buffer under the new capital rules.
Management believes that the Bank met all its capital adequacy requirements as of December 31, 2025.
The current and projected capital positions of the Bank and the impact of capital plans and long-term strategies are reviewed regularly by management. The Company policy is to maintain the Bank’s ratios above the prescribed well-capitalized ratios at all times.
Off-Balance Sheet Arrangements
Loan Commitments. In the normal course of business, there are various commitments outstanding to extend credits that are not reflected in the financial statements. Commitments to extend credit and letters of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Annual review of commercial credit lines, letters of credit and ongoing monitoring of outstanding balances reduces the risk of loss associated with these commitments. As of December 31, 2025, the Company had $249 million in unfunded loan commitments and $1.6 million in letters of credit. This compares to $155 million in unfunded loan commitments at December 31, 2024 and no letters of credit. Of the $249 million in unfunded loan commitments, $168 million and $81 million represent commitments to commercial and consumer customers, respectively. Of the total unfunded commitments at December 31, 2025, $117 million was secured by real estate, of which $45 million was secured by commercial real estate and $72 million was secured by residential real estate mostly in the form of equity lines of credit. The commercial loan commitments not secured by real estate primarily represent business lines of credit, while the consumer loan commitments not secured by real estate primarily represent overdraft protection lines. Since some of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements.
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Operating Leases. The Company leases eleven branches. Our Yuba City branch is classified as owned; however, it is subject to a long-term land lease. The Company also leases two lending offices and five administrative offices. Including variable lease expense, total rent expense for the years ended December 31, 2025, 2024 and 2023 were $3.6 million, $3.1 million and $635 thousand, respectively. The expiration dates of the leases vary, with the first such lease expiring during 2026 and the last such lease expiring during 2044.
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 Federal Home Loan Bank of San Francisco (FHLB) and can borrow up to $400 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $659 million. Based on its current level of FHLB stock holdings the Company can borrow up to $326 million. To borrow the full $400 million in available credit the Company would need to purchase $2 million in additional FHLB stock. The Company is also eligible to borrow at the Federal Reserve Bank (FRB) Discount Window. At December 31, 2025, the Company could borrow up to $39 million at the Discount Window secured by investment securities with a fair value of $41 million. In addition to its FHLB borrowing line and the Discount Window, 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, FRB Discount Window or the correspondent banks at December 31, 2025 and 2024.
Deposits represent the Bank's primary source of funds. Deposits are primarily core deposits in that they are demand, savings and time deposits generated from local businesses and individuals. These sources are considered to be relatively stable, long-term relationships thereby enhancing steady growth of the deposit base without major fluctuations in overall deposit balances. The Company experiences, to a small degree, some seasonality with the slower growth period between November through April, and the higher growth period from May through October. Related mostly to the acquisition of Cornerstone, total deposits increased by $439 million from $1.4 billion at December 31, 2024, to $1.8 billion at December 31, 2025. The Company estimates that it has approximately $720 million in uninsured deposits which includes uninsured deposits of Plumas Bancorp. Of this amount, $186 million represents deposits that are collateralized such as deposits of states, municipalities and tribal accounts. Uninsured amounts are estimated based on the portion of the account balances in excess of FDIC insurance limits.
The Company’s securities portfolio, Discount Window advances, FHLB advances, and cash and due from banks serve as the primary sources of liquidity, providing adequate funding for loans during periods of high loan demand. During periods of decreased lending, funds obtained from the maturing or sale of investments, loan payments, and new deposits are invested in short-term earning assets, such as cash held at the FRB and investment securities, to serve as a source of funding for future loan growth. Management believes that the Company’s available sources of funds, including borrowings, will provide adequate liquidity for its operations in the foreseeable future.
