plbc20170630

10-Q 1 plbc20170630_10q.htm FORM 10-Q plbc20170630_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

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

COMMISSION FILE NUMBER: 000-49883

PLUMAS BANCORP

(Exact Name of Registrant as Specified in Its Charter)

California	75-2987096
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

35 S. Lindan Avenue, Quincy, California	95971
(Address of Principal Executive Offices)	(Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer (Do not check if a smaller reporting company)	☐	Smaller Reporting Company	☒
Emerging growth company	☐

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

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

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of July 31, 2017. 5,042,971 shares

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLUMAS BANCORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

	June 30, 2017			December 31, 2016

Assets
Cash and cash equivalents	$	68,851		$	62,646
Investment securities available for sale		112,329			101,595
Loans, less allowance for loan losses of $6,855 at June 30, 2017 and $6,549 at December 31, 2016		471,418			456,580
Real estate acquired through foreclosure		844			735
Premises and equipment, net		11,459			11,768
Bank owned life insurance		12,695			12,528
Accrued interest receivable and other assets		12,292			12,123
Total assets	$	689,888		$	657,975

Liabilities and Shareholders’ Equity

Deposits:
Non-interest bearing	$	258,464		$	236,779
Interest bearing		357,695			345,574
Total deposits		616,159			582,353
Repurchase agreements		4,325			7,547
Note payable		-			2,375
Accrued interest payable and other liabilities		6,166			7,396
Junior subordinated deferrable interest debentures		10,310			10,310
Total liabilities		636,960			609,981
Commitments and contingencies (Note 5)

Shareholders’ equity:
Common stock, no par value; 22,500,000 shares authorized; issued and outstanding – 5,042,971 shares at June 30, 2017 and 4,896,875 at December 31, 2016		6,252			5,918
Retained earnings		46,884			43,048
Accumulated other comprehensive loss, net		(208	)		(972	)
Total shareholders’ equity		52,928			47,994
Total liabilities and shareholders’ equity	$	689,888		$	657,975

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2017		2016		2017			2016
Interest Income:
Interest and fees on loans	$	6,433	$	5,553	$	12,541		$	11,009
Interest on investment securities		603		473		1,164			945
Other		83		51		179			123
Total interest income		7,119		6,077		13,884			12,077
Interest Expense:
Interest on deposits		140		130		280			262
Interest on note payable		4		31		28			76
Interest on junior subordinated deferrable interest debentures		99		85		192			169
Other		1		1		2			2
Total interest expense		244		247		502			509
Net interest income before provision for loan losses		6,875		5,830		13,382			11,568
Provision for Loan Losses		200		200		400			400
Net interest income after provision for loan losses		6,675		5,630		12,982			11,168
Non-Interest Income:
Service charges		1,118		1,034		2,173			1,965
Gain on sale of loans		786		559		1,314			892
Loss on sale of investments		-		-		(17	)		(32	)
Other		478		462		960			882
Total non-interest income		2,382		2,055		4,430			3,707
Non-Interest Expenses:
Salaries and employee benefits		2,864		2,558		5,791			5,166
Occupancy and equipment		654		677		1,423			1,384
Other		1,374		1,445		2,761			2,763
Total non-interest expenses		4,892		4,680		9,975			9,313
Income before provision for income taxes		4,165		3,005		7,437			5,562
Provision for Income Taxes		1,624		1,168		2,832			2,152
Net income	$	2,541	$	1,837	$	4,605		$	3,410

Basic earnings per share	$	0.51	$	0.38	$	0.93		$	0.70
Diluted earnings per share	$	0.49	$	0.36	$	0.89		$	0.67

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2017			2016			2017			2016

Net income	$	2,541		$	1,837		$	4,605		$	3,410
Other comprehensive income:
Change in net unrealized gain		780			681			1,283			2,072
Less: reclassification adjustments for net losses included in net income		-			-			17			32
Net unrealized holding gains		780			681			1,300			2,104
Related tax effect:
Change in net unrealized gain		(322	)		(281	)		(529	)		(856	)
Reclassification of net losses included in net income		-			-			(7	)		(13	)
Income tax effect		(322	)		(281	)		(536	)		(869	)
Other comprehensive income		458			400			764			1,235
Total comprehensive income	$	2,999		$	2,237		$	5,369		$	4,645

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	For the Six Months
	Ended June 30,
	2017			2016
Cash Flows from Operating Activities:
Net income	$	4,605		$	3,410
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		400			400
Change in deferred loan origination costs/fees, net		(459	)		(78	)
Depreciation and amortization		520			538
Stock-based compensation expense		86			55
Loss on sale of investments		17			32
Amortization of investment security premiums		295			320
Gain on sale of OREO and other vehicles		(7	)		(6	)
Gain on sale of loans held for sale		(1,314	)		(892	)
Loans originated for sale		(19,681	)		(14,863	)
Proceeds from loan sales		22,260			15,307
Provision from change in OREO valuation		9			9
Earnings on bank-owned life insurance		(167	)		(171	)
(Increase) decrease in accrued interest receivable and other assets		(106	)		997
Decrease in accrued interest payable and other liabilities		(1,230	)		(491	)
Net cash provided by operating activities		5,228			4,567

Cash Flows from Investing Activities:
Proceeds from principal repayments from available-for-sale government-sponsored mortgage-backed securities		6,073			5,973
Proceeds from matured and called available-for-sale investment securities		-			1,000
Purchases of available-for-sale securities		(20,287	)		(22,529	)
Proceeds from sale of available-for-sale securities		4,221			14,589
Net increase in loans		(16,722	)		(31,269	)
Proceeds from sale of OREO		75			92
Proceeds from sale of other vehicles		114			164
Purchase of premises and equipment		(179	)		(375	)
Net cash used in investing activities		(26,705	)		(32,355	)

Continued on next page.

PLUMAS BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

(Continued)

	For the Six Months
	Ended June 30,
	2017			2016
Cash Flows from Financing Activities:
Net increase in demand, interest bearing and savings deposits	$	36,978		$	8,520
Net decrease in time deposits		(3,172	)		(1,162	)
Principal payment on note payable		(2,375	)		(2,250	)
Net decrease in securities sold under agreements to repurchase		(3,222	)		(3,777	)
Repurchase of common stock warrant		-			(862	)
Cash dividends paid on common stock		(691	)		-
Proceeds from exercise of stock options		164			89
Net cash provided by financing activities		27,682			558
Increase (decrease) in cash and cash equivalents		6,205			(27,230	)
Cash and Cash Equivalents at Beginning of Year		62,646			68,195
Cash and Cash Equivalents at End of Period	$	68,851		$	40,965

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest expense	$	502		$	509
Income taxes	$	3,490		$	2,500

Non-Cash Investing Activities:
Real estate and vehicles acquired through foreclosure	$	288		$	1,301


Non-Cash Financing Activities:
Common stock retired in connection with the exercise of stock options	$	10		$	-
Common stock issued in connection with the cashless exercise of stock warrant	$	787		$	-

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. GENERAL

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

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

2. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated financial statements include the accounts of the Company and the accounts of its wholly-owned subsidiary, Plumas Bank. Plumas Statutory Trust I and Plumas Statutory Trust II are not consolidated into the Company’s consolidated financial statements and, accordingly, are accounted for under the equity method. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position at June 30, 2017 and the results of its operations and its cash flows for the three-month and six-month periods ended June 30, 2017 and 2016. Our condensed consolidated balance sheet at December 31, 2016 is derived from audited financial statements. Certain reclassifications have been made to prior period’s balances to conform to classifications used in 2017.

The unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. Accordingly, certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. The Company believes that the disclosures are adequate to make the information not misleading.

These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2016 Annual Report to Shareholders on Form 10-K. The results of operations for the three-month and six-month periods ended June 30, 2017 may not necessarily be indicative of future operating results. In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the periods reported. Actual results could differ significantly from those estimates.

Management has determined that because all of the commercial banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment. No single customer accounts for more than 10% of the revenues of the Company or the Bank.

3. INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost and estimated fair value of investment securities at June 30, 2017 and December 31, 2016 consisted of the following, in thousands:

Available-for-Sale	June 30, 2017
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Debt securities:
U.S. Government-sponsored agencies collateralized by mortgage obligations- residential	$	81,137	$	100	$	(821	)	$	80,416
Obligations of states and political subdivisions		31,546		505		(138	)		31,913
	$	112,683	$	605	$	(959	)	$	112,329

Net unrealized loss on available-for-sale investment securities totaling $354,000 were recorded, net of $146,000 in tax benefit, as accumulated other comprehensive loss within shareholders' equity at June 30, 2017. During the six months ended June 30, 2017 the Company sold seven available-for-sale investment securities for total proceeds of $4,221,000 recording a $17,000 loss on sale. The Company realized a gain on sale from four of these securities totaling $4,000 and a loss on sale on three securities of $21,000. No securities were sold during the three months ended June 30, 2017.

Available-for-Sale	December 31, 2016
			Gross		Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Debt securities:
U.S. Government-sponsored agencies collateralized by mortgage obligations- residential	$	76,207	$	11	$	(1,307	)	$	74,911
Obligations of states and political subdivisions		27,042		89		(447	)		26,684
	$	103,249	$	100	$	(1,754	)	$	101,595

Net unrealized loss on available-for-sale investment securities totaling $1,654,000 were recorded, net of $682,000 in tax benefits, as accumulated other comprehensive loss within shareholders' equity at December 31, 2016. During the six months ended June 30, 2016 the Company sold fourteen available-for-sale investment securities for total proceeds of $14,589,000 recording a $32,000 loss on sale. The Company realized a gain on sale from eight of these securities totaling $48,000 and a loss on sale on six securities of $80,000. No securities were sold during the three months ended June 30, 2016.

There were no transfers of available-for-sale investment securities during the six months ended June 30, 2017 and twelve months ended December 31, 2016. There were no securities classified as held-to-maturity at June 30, 2017 or December 31, 2016.

Investment securities with unrealized losses at June 30, 2017 and December 31, 2016 are summarized and classified according to the duration of the loss period as follows, in thousands:

June 30, 2017	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Debt securities:
U.S. Government agencies collateralized by mortgage obligations-residential	$	58,300	$	764	$	1,845	$	57	$	60,145	$	821
Obligations of states and political subdivisions		6,546		138		-		-		6,546		138
	$	64,846	$	902	$	1,845	$	57	$	66,691	$	959

December 31, 2016	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Debt securities:
U.S. Government agencies collateralized by mortgage obligations-residential	$	68,338	$	1,237	$	2,043	$	70	$	70,381	$	1,307
Obligations of states and political subdivisions		18,052		447		-		-		18,052		447
	$	86,390	$	1,684	$	2,043	$	70	$	88,433	$	1,754

At June 30, 2017, the Company held 179 securities of which 76 were in a loss position. Of the 179 securities 68 are U.S. Government-sponsored agencies collateralized by residential mortgage obligations and 111 were obligations of states and political subdivisions. The unrealized losses relate principally to market rate conditions. All of the securities continue to pay as scheduled. When analyzing an issuer’s financial condition, management considers the length of time and extent to which the market value has been less than cost; the historical and implied volatility of the security; the financial condition of the issuer of the security; and the Company’s intent and ability to hold the security to recovery. As of June 30, 2017, management does not have the intent to sell these securities nor does it believe it is more likely than not that it will be required to sell these securities before the recovery of its amortized cost basis. Based on the Company’s evaluation of the above and other relevant factors, the Company does not believe the securities that are in an unrealized loss position as of June 30, 2017 are other than temporarily impaired.

The amortized cost and estimated fair value of investment securities at June 30, 2017 by contractual maturity are shown below, in thousands.

	Amortized Cost		Estimated Fair Value
Within one year	$	-	$	-
After one year through five years		2,842		2,891
After five years through ten years		16,639		16,930
After ten years		12,065		12,092
Investment securities not due at a single maturity date:
Government-sponsored mortgage-backed securities		81,137		80,416
	$	112,683	$	112,329

Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties. Investment securities with amortized costs totaling $71,619,000 and $73,331,000 and estimated fair values totaling $70,926,000 and $72,112,000 at June 30, 2017 and December 31, 2016, respectively, were pledged to secure deposits and repurchase agreements.

4. LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Outstanding loans are summarized below, in thousands:

	June 30,			December 31,
	2017			2016

Commercial	$	39,394		$	41,293
Agricultural		54,974			51,103
Real estate – residential		18,952			21,283
Real estate – commercial		236,791			226,136
Real estate – construction and land development		24,819			21,904
Equity lines of credit		42,211			42,338
Auto		55,255			53,553
Other		3,695			3,513
		476,091			461,123
Deferred loan costs, net		2,182			2,006
Allowance for loan losses		(6,855	)		(6,549	)
Loans, net	$	471,418		$	456,580

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

	June 30,			December 31,
	2017			2016

Balance, beginning of year	$	6,549		$	6,078
Provision charged to operations		400			800
Losses charged to allowance		(175	)		(979	)
Recoveries		81			650
Balance, end of period	$	6,855		$	6,549

The recorded investment in impaired loans totaled $5,300,000 and $5,442,000 at June 30, 2017 and December 31, 2016, respectively. The Company had specific allowances for loan losses of $480,000 on impaired loans of $1,600,000 at June 30, 2017 as compared to specific allowances for loan losses of $366,000 on impaired loans of $1,534,000 at December 31, 2016. The balance of impaired loans in which no specific reserves were required totaled $3,700,000 and $3,908,000 at June 30, 2017 and December 31, 2016, respectively. The average recorded investment in impaired loans for the six months ended June 30, 2017 and June 30, 2016 was $4,890,000 and $5,421,000, respectively. The Company recognized $79,000 and $61,000 in interest income for impaired loans during the six months ended June 30, 2017 and 2016, respectively. No interest was recognized on nonaccrual loans accounted for on a cash basis during the six months ended June 30, 2017 and 2016.

Included in impaired loans are troubled debt restructurings. A troubled debt restructuring is a formal restructure of a loan where the Company for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms to include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

The carrying value of troubled debt restructurings at June 30, 2017 and December 31, 2016 was $4,132,000 and $4,616,000, respectively. The Company has allocated $328,000 and $342,000 of specific reserves on loans to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2017 and December 31, 2016, respectively. The Company has not committed to lend additional amounts on loans classified as troubled debt restructurings at June 30, 2017 and December 31, 2016. There were no troubled debt restructurings that occurred during the six months ending June 30, 2017 or June 30, 2016. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the six months ended June 30, 2017 and 2016, respectively.

At June 30, 2017 and December 31, 2016, nonaccrual loans totaled $2,910,000 and $2,724,000, respectively. Interest foregone on nonaccrual loans totaled $89,000 and $106,000 for the six months ended June 30, 2017 and 2016, respectively. Interest foregone on nonaccrual loans totaled $38,000 and $31,000 for the three months ended June 30, 2017 and 2016, respectively. There were no loans past due 90 days or more and on accrual status at June 30, 2017 and December 31, 2016.

Salaries and employee benefits totaling $936,000 and $942,000 have been deferred as loan origination costs during the six months ended June 30, 2017 and 2016, respectively. Salaries and employee benefits totaling $541,000 and $569,000 have been deferred as loan origination costs during the three months ended June 30, 2017 and 2016, respectively.

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

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

Pass – A pass loan is a strong credit with no existing or known potential weaknesses deserving of management's close attention.

Watch – A Watch loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Watch loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

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

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

Loss – Loans classified as loss are considered uncollectible and charged off immediately.

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

June 30, 2017	Commercial Credit Exposure
	Credit Risk Profile by Internally Assigned Grade
Grade:	Commercial		Agricultural		Real Estate- Residential		Real Estate- Commercial		Real Estate- Construction		Equity LOC		Total
Pass	$	38,221	$	51,320	$	18,688	$	234,800	$	24,123	$	41,951	$	409,103
Watch		811		3,654		133		343		-		-		4,941
Substandard		362		-		131		1,648		696		260		3,097
Doubtful		-		-		-		-		-		-		-
Total	$	39,394	$	54,974	$	18,952	$	236,791	$	24,819	$	42,211	$	417,141

December 31, 2016	Commercial Credit Exposure
	Credit Risk Profile by Internally Assigned Grade
Grade:	Commercial		Agricultural		Real Estate- Residential		Real Estate- Commercial		Real Estate- Construction		Equity LOC		Total
Pass	$	40,459	$	50,790	$	21,125	$	223,854	$	21,201	$	41,983	$	399,412
Watch		565		280		-		400		-		-		1,245
Substandard		269		33		158		1,882		703		355		3,400
Doubtful		-		-		-		-		-		-		-
Total	$	41,293	$	51,103	$	21,283	$	226,136	$	21,904	$	42,338	$	404,057

	Consumer Credit Exposure						Consumer Credit Exposure
	Credit Risk Profile Based on Payment Activity						Credit Risk Profile Based on Payment Activity
	June 30, 2017						December 31, 2016
	Auto		Other		Total		Auto		Other		Total
Grade:
Performing	$	54,947	$	3,693	$	58,640	$	53,474	$	3,511	$	56,985
Non-performing		308		2		310		79		2		81
Total	$	55,255	$	3,695	$	58,950	$	53,553	$	3,513	$	57,066

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

	Commercial			Agricultural		Real Estate- Residential			Real Estate- Commercial			Real Estate- Construction			Equity LOC			Auto			Other			Total
Six months ended 6/30/17:
Allowance for Loan Losses
Beginning balance	$	655		$	466	$	280		$	2,740		$	927		$	575		$	815		$	91		$	6,549
Charge-offs		(67	)		-		-			-			-			-			(90	)		(18	)		(175	)
Recoveries		19			-		2			3			-			2			50			5			81
Provision		98			48		(30	)		69			144			(16	)		70			17			400
Ending balance	$	705		$	514	$	252		$	2,812		$	1,071		$	561		$	845		$	95		$	6,855
Three months ended 6/30/17:
Allowance for Loan Losses
Beginning balance	$	788		$	473	$	268		$	2,919		$	838		$	561		$	806		$	90		$	6,743
Charge-offs		(67	)		-		-			-			-			-			(40	)		(13	)		(120	)
Recoveries		11			-		1			1			-			2			16			1			32
Provision		(27	)		41		(17	)		(108	)		233			(2	)		63			17			200
Ending balance	$	705		$	514	$	252		$	2,812		$	1,071		$	561		$	845		$	95		$	6,855
Six months ended 6/30/16:
Allowance for Loan Losses
Beginning balance	$	639		$	294	$	341		$	2,525		$	874		$	528		$	784		$	93		$	6,078
Charge-offs		(73	)		-		-			(252	)		-			(23	)		(158	)		(24	)		(530	)
Recoveries		17			-		36			2			329			1			82			15			482
Provision		252			122		(55	)		190			(320	)		67			133			11			400
Ending balance	$	835		$	416	$	322		$	2,465		$	883		$	573		$	841		$	95		$	6,430
Three months ended 6/30/16:
Allowance for Loan Losses
Beginning balance	$	637		$	311	$	318		$	2,762		$	800		$	524		$	763		$	83		$	6,198
Charge-offs		-			-		-			(252	)		-			1			(53	)		(6	)		(310	)
Recoveries		6			-		1			2			300			1			25			7			342
Provision		192			105		3			(47	)		(217	)		47			106			11			200
Ending balance	$	835		$	416	$	322		$	2,465		$	883		$	573		$	841		$	95		$	6,430
June 30, 2017:
Allowance for Loan Losses
Ending balance: individually evaluated for impairment	$	93		$	-	$	53		$	76		$	218		$	22		$	16		$	2		$	480
Ending balance: collectively evaluated for impairment	$	612		$	514	$	199		$	2,736		$	853		$	539		$	829		$	93		$	6,375
Loans
Ending balance	$	39,394		$	54,974	$	18,952		$	236,791		$	24,819		$	42,211		$	55,255		$	3,695		$	476,091
Ending balance: individually evaluated for impairment	$	105		$	256	$	1,288		$	2,258		$	823		$	260		$	308		$	2		$	5,300
Ending balance: collectively evaluated for impairment	$	39,289		$	54,718	$	17,664		$	234,533		$	23,996		$	41,951		$	54,947		$	3,693		$	470,791
December 31, 2016:
Allowance for Loan Losses
Ending balance: individually evaluated for impairment	$	2		$	-		53		$	81		$	206		$	24		$	-		$	-		$	366
Ending balance: collectively evaluated for impairment	$	653		$	466	$	227		$	2,659		$	721		$	551		$	815		$	91		$	6,183
Loans
Ending balance	$	41,293		$	51,103	$	21,283		$	226,136		$	21,904		$	42,338		$	53,553		$	3,513		$	461,123
Ending balance: individually evaluated for impairment	$	16		$	258	$	1,615		$	2,323		$	833		$	326		$	69		$	2		$	5,442
Ending balance: collectively evaluated for impairment	$	41,277		$	50,845	$	19,668		$	223,813		$	21,071		$	42,012		$	53,484		$	3,511		$	455,681

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

June 30, 2017	30-89 Days		90 Days and Still				Total Past Due and
	Past Due		Accruing		Nonaccrual		Nonaccrual		Current		Total

Commercial	$	618	$	-	$	90	$	708	$	38,686	$	39,394
Agricultural		302		-		-		302		54,672		54,974
Real estate – residential		153		-		131		284		18,668		18,952
Real estate – commercial		1,590		-		1,422		3,012		233,779		236,791
Real estate – construction & land		-		-		696		696		24,123		24,819
Equity Lines of Credit		595		-		260		855		41,356		42,211
Auto		872		-		308		1,180		54,075		55,255
Other		31		-		3		34		3,661		3,695
Total	$	4,161	$	-	$	2,910	$	7,071	$	469,020	$	476,091

December 31, 2016	30-89 Days		90 Days and Still				Total Past Due and
	Past Due		Accruing		Nonaccrual		Nonaccrual		Current		Total

Commercial	$	77	$	-	$	-	$	77	$	41,216	$	41,293
Agricultural		-		-		-		-		51,103		51,103
Real estate – residential		179		-		145		324		20,959		21,283
Real estate – commercial		519		-		1,479		1,998		224,138		226,136
Real estate – construction & land		10		-		703		713		21,191		21,904
Equity Lines of Credit		276		-		326		602		41,736		42,338
Auto		919		-		69		988		52,565		53,553
Other		23		-		2		25		3,488		3,513
Total	$	2,003	$	-	$	2,724	$	4,727	$	456,396	$	461,123

The following tables show information related to impaired loans at the dates indicated, in thousands:

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
As of June 30, 2017:	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-			$	-	$	-
Agricultural		256		256				257		10
Real estate – residential		1,048		1,059				1,060		30
Real estate – commercial		1,731		2,169				1,618		29
Real estate – construction & land		171		171				176		-
Equity Lines of Credit		219		219				207		-
Auto		275		275				87		-
Other		-		-				-		-
With an allowance recorded:
Commercial	$	105	$	105	$	93	$	35	$	1
Agricultural		-		-		-		-		-
Real estate – residential		240		240		53		241		5
Real estate – commercial		527		735		76		530		-
Real estate – construction & land		652		652		218		664		4
Equity Lines of Credit		41		41		22		13		-
Auto		33		34		16		1		-
Other		2		2		2		1		-
Total:
Commercial	$	105	$	105	$	93	$	35	$	1
Agricultural		256		256		-		257		10
Real estate – residential		1,288		1,299		53		1,301		35
Real estate – commercial		2,258		2,904		76		2,148		29
Real estate – construction & land		823		823		218		840		4
Equity Lines of Credit		260		260		22		220		-
Auto		308		309		16		88		-
Other		2		2		2		1		-
Total	$	5,300	$	5,958	$	480	$	4,890	$	79

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
As of December 31, 2016:	Investment		Balance		Allowance		Investment		Recognized

With no related allowance recorded:
Commercial	$	-	$	-			$	-	$	-
Agricultural		258		258				259		19
Real estate – residential		1,373		1,385				1,291		77
Real estate – commercial		1,789		2,227				1,589		33
Real estate – construction & land		198		198				210		-
Equity Lines of Credit		219		219				121		-
Auto		69		69				46		-
Other		2		2				-		-
With an allowance recorded:
Commercial	$	16	$	16	$	2	$	16	$	1
Agricultural		-		-		-		-		-
Real estate – residential		242		242		53		243		11
Real estate – commercial		534		742		81		534		-
Real estate – construction & land		635		635		206		658		8
Equity Lines of Credit		107		107		24		110		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total:
Commercial	$	16	$	16	$	2	$	16	$	1
Agricultural		258		258		-		259		19
Real estate – residential		1,615		1,627		53		1,534		88
Real estate – commercial		2,323		2,969		81		2,123		33
Real estate – construction & land		833		833		206		868		8
Equity Lines of Credit		326		326		24		231		-
Auto		69		69		-		46		-
Other		2		2		-		-		-
Total	$	5,442	$	6,100	$	366	$	5,077	$	149

5. COMMITMENTS AND CONTINGENCIES

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

In the normal course of business, there are various outstanding commitments to extend credit, which are not reflected in the financial statements, including loan commitments of $93.6 million and $93.7 million and stand-by letters of credit of $100 thousand and $625 thousand at June 30, 2017 and December 31, 2016, respectively.

Of the loan commitments outstanding at June 30, 2017, $10,075,000 are real estate construction loan commitments that are expected to fund within the next twelve months. The remaining commitments primarily relate to revolving lines of credit or other commercial loans, and many of these are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. Each loan commitment and the amount and type of collateral obtained, if any, are evaluated on an individual basis. Collateral held varies, but may include real property, bank deposits, debt or equity securities or business assets.

Stand-by letters of credit are conditional commitments written to guarantee the performance of a customer to a third party. These guarantees are primarily related to the purchases of inventory by commercial customers and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to customers and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. The deferred liability related to the Company’s stand-by letters of credit was not significant at June 30, 2017 or December 31, 2016.

6. EARNINGS PER SHARE

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

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
(In thousands, except per share data)	2017		2016		2017		2016
Net Income:
Net income	$	2,541	$	1,837	$	4,605	$	3,410
Earnings Per Share:
Basic earnings per share	$	0.51	$	0.38	$	0.93	$	0.70
Diluted earnings per share	$	0.49	$	0.36	$	0.89	$