UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2020
☐	TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ___________

COMMISSION FILE NUMBER: 000-49883

PLUMAS BANCORP

(Exact Name of Registrant as Specified in Its Charter)

California	75-2987096
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
35 S. Lindan Avenue, Quincy, California	95971
(Address of Principal Executive Offices)	(Zip Code)
Registrant’s Telephone Number, Including Area Code (530) 283-7305

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

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

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

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

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

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

Yes ☐  No ☒

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

Title of Each Class:	Trading Symbol	Name of Each Exchange on which Registered:
Common Stock, no par value	PLBC	The NASDAQ Stock Market LLC

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

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

	March 31,		December 31,
	2020		2019
Assets
Cash and cash equivalents	$	58,058	$	46,942
Investment securities available for sale		159,247		159,320
Loans, less allowance for loan losses of $7,804 at March 31, 2020 and $7,243 at December 31, 2019		619,487		616,036
Real estate acquired through foreclosure		707		707
Premises and equipment, net		14,774		14,629
Bank owned life insurance		13,275		13,184
Accrued interest receivable and other assets		14,023		14,373
Total assets	$	879,571	$	865,191
Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing	$	336,375	$	331,619
Interest bearing		426,511		415,705
Total deposits		762,886		747,324
Repurchase agreements		8,383		16,013
Accrued interest payable and other liabilities		7,765		7,039
Junior subordinated deferrable interest debentures		10,310		10,310
Total liabilities		789,344		780,686
Commitments and contingencies (Note 5)
Shareholders’ equity:
Common stock, no par value; 22,500,000 shares authorized; issued and outstanding – 5,176,032 shares at March 31, 2020 and 5,165,760 at December 31, 2019		7,425		7,312
Retained earnings		78,460		75,144
Accumulated other comprehensive income, net		4,342		2,049
Total shareholders’ equity		90,227		84,505
Total liabilities and shareholders’ equity	$	879,571	$	865,191

See notes to unaudited condensed consolidated financial statements.

1

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

	For the Three Months Ended
	March 31,
	2020		2019
Interest Income:
Interest and fees on loans	$	8,540	$	8,510
Interest on investment securities		952		1,137
Other		107		179
Total interest income		9,599		9,826
Interest Expense:
Interest on deposits		259		297
Interest on junior subordinated deferrable interest debentures		116		140
Other		3		3
Total interest expense		378		440
Net interest income before provision for loan losses		9,221		9,386
Provision for Loan Losses		750		400
Net interest income after provision for loan losses		8,471		8,986
Non-Interest Income:
Service charges		705		650
Interchange revenue		539		513
Gain on sale of loans		464		244
Other		517		558
Total non-interest income		2,225		1,965
Non-Interest Expenses:
Salaries and employee benefits		3,529		3,200
Occupancy and equipment		865		858
Other		1,742		1,626
Total non-interest expenses		6,136		5,684
Income before provision for income taxes		4,560		5,267
Provision for Income Taxes		1,244		1,449
Net income	$	3,316	$	3,818
Basic earnings per share	$	0.64	$	0.74
Diluted earnings per share	$	0.63	$	0.73

See notes to unaudited condensed consolidated financial statements.

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PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	For the Three Months Ended
	March 31,
	2020			2019
Net income	$	3,316		$	3,818
Other comprehensive income:
Change in net unrealized gain/loss		3,254			2,599
Reclassification adjustments for net (gains) losses included in net income		-			-
Net unrealized holding gain		3,254			2,599
Related tax effect:
Change in net unrealized gain/loss		(961	)		(768	)
Reclassification of net gains (losses) included in net income		-			-
Income tax effect		(961	)		(768	)
Other comprehensive income		2,293			1,831
Total comprehensive income	$	5,609		$	5,649

See notes to unaudited condensed consolidated financial statements.

3

PLUMAS BANCORP AND SUBSIDIARY 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 

(in thousands, except shares)

	Common Stock				Retained		Accumulated Other Comprehensive Income (Loss)			Total Shareholders’
	Shares		Amount		Earnings		(Net of Taxes)			Equity
Balance, December 31, 2018		5,137,476	$	6,944	$	62,005	$	(2,017	)	$	66,932
Net Income						3,818					3,818
Other comprehensive income								1,831			1,831
Exercise of stock options and tax effect		13,400		76							76
Stock-based compensation expense				50							50
Balance, March 31, 2019		5,150,876	$	7,070	$	65,823	$	(186	)	$	72,707
Balance, December 31, 2019		5,165,760	$	7,312	$	75,144	$	2,049		$	84,505
Net Income						3,316					3,316
Other comprehensive income								2,293			2,293
Exercise of stock options and tax effect		10,272		35							35
Stock-based compensation expense				78							78
Balance, March 31, 2020		5,176,032	$	7,425	$	78,460	$	4,342		$	90,227

See notes to unaudited condensed consolidated financial statements.  

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PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	For the Three Months Ended
	March 31,
	2020			2019
Cash Flows from Operating Activities:
Net income	$	3,316		$	3,818
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		750			400
Change in deferred loan origination costs/fees, net		(167	)		(266	)
Depreciation and amortization		348			355
Stock-based compensation expense		78			50
Amortization of investment security premiums		221			180
Gain on sale of OREO and other vehicles		3			(9	)
Gain on sale of loans held for sale		(464	)		(244	)
Loans originated for sale		(7,539	)		(3,711	)
Proceeds from loan sales		10,495			6,048
Earnings on bank-owned life insurance		(91	)		(82	)
Increase in accrued interest receivable and other assets		(533	)		(627	)
Increase in accrued interest payable and other liabilities		726			994
Net cash provided by operating activities		7,143			6,906
Cash Flows from Investing Activities:
Proceeds from principal repayments from available-for-sale government-sponsored mortgage-backed securities		6,822			4,211
Proceeds from matured and called available-for-sale securities		380			-
Purchases of available-for-sale securities		(4,081	)		(3,500	)
Net increase in loans		(6,823	)		(9,801	)
Proceeds from sale of other vehicles		118			167
Purchase of premises and equipment		(410	)		(202	)
Net cash used in investing activities		(3,994	)		(9,125	)

Continued on next page.

5

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

(Continued)

	For the Three Months Ended
	March 31,
	2020			2019
Cash Flows from Financing Activities:
Net increase in demand, interest bearing and savings deposits	$	16,028		$	6,707
Net decrease in time deposits		(466	)		(2,349	)
Net decrease in securities sold under agreements to repurchase		(7,630	)		(4,148	)
Proceeds from exercise of stock options		35			76
Net cash provided by financing activities		7,967			286
Increase (decrease) in cash and cash equivalents		11,116			(1,933	)
Cash and Cash Equivalents at Beginning of Year		46,942			46,686
Cash and Cash Equivalents at End of Period	$	58,058		$	44,753
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest expense	$	383		$	434
Income taxes	$	-		$	-
Non-Cash Investing Activities:
Real estate and vehicles acquired through foreclosure	$	127		$	189
Non-Cash Financing Activities:
Common stock retired in connection with the exercise of stock options	$	46		$	-

See notes to unaudited condensed consolidated financial statements.  

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PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. THE BUSINESS OF PLUMAS BANCORP

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation and Basis of Presentation

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

Plumas Statutory Trust I and Trust II are not consolidated into the Company's consolidated financial statements and, accordingly, are accounted for under the equity method. The Company's investment in Trust I of $352,000 and Trust II of $180,000 are included in accrued interest receivable and other assets on the consolidated balance sheet. The junior subordinated deferrable interest debentures issued and guaranteed by the Company and held by Trust I and Trust II are reflected as debt on the consolidated balance sheet.

The accounting and reporting policies of Plumas Bancorp and subsidiary conform with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position at March 31, 2020 and the results of its operations and its cash flows for the three- month period ended March 31, 2020 and 2019. Our condensed consolidated balance sheet at December 31, 2019 is derived from audited financial statements.

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

7

Segment Information

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

Revenue from Contracts with Customers

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

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

Recently Adopted Accounting Pronouncements

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

8

Pending Accounting Pronouncements

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

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

9

3.   INVESTMENT SECURITIES AVAILABLE FOR SALE

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

Available-for-Sale	March 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Debt securities:
U.S. Government-sponsored agencies collateralized by mortgage obligations- residential	$	121,019	$	4,876	$	-		$	125,895
Obligations of states and political subdivisions		32,064		1,289		(1	)		33,352
	$	153,083	$	6,165	$	(1	)	$	159,247

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

Available-for-Sale	December 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Debt securities:
U.S. Government-sponsored agencies collateralized by mortgage obligations- residential	$	123,940	$	1,924	$	(186	)	$	125,678
Obligations of states and political subdivisions		32,470		1,201		(29	)		33,642
	$	156,410	$	3,125	$	(215	)	$	159,320

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

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

10

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

March 31, 2020	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Debt securities:
U.S. Government-sponsored agencies collateralized by mortgage obligations-residential	$	-	$	-	$	-	$	-	$	-	$	-
Obligations of states and political subdivisions		998		1						998		1
	$	998	$	1	$	-	$	-	$	998	$	1

December 31, 2019	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Debt securities:
U.S. Government-sponsored agencies collateralized by mortgage obligations-residential	$	10,319	$	31	$	19,733	$	155	$	30,052	$	186
Obligations of states and political subdivisions		2,965		29		-		-		2,965		29
	$	13,284	$	60	$	19,733	$	155	$	33,017	$	215

At March 31, 2020, the Company held 185 securities of which 2 were in a loss position. All of the securities in a loss position were in a loss position for less than twelve months. Of the 185 securities, 98 are U.S. Government-sponsored agencies collateralized by residential mortgage obligations and 87 were obligations of states and political subdivisions. The unrealized losses relate principally to market rate conditions. All of the securities continue to pay as scheduled. When analyzing an issuer’s financial condition, management considers the length of time and extent to which the market value has been less than cost; the historical and implied volatility of the security; the financial condition of the issuer of the security; and the Company’s intent and ability to hold the security to recovery. As of March 31, 2020, management does not have the intent to sell these securities nor does it believe it is more likely than not that it will be required to sell these securities before the recovery of its amortized cost basis. Based on the Company’s evaluation of the above and other relevant factors, the Company does not believe the securities that are in an unrealized loss position as of March 31, 2020 are other than temporarily impaired.

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

	Amortized Cost		Estimated Fair Value
Within one year	$	-	$	-
After one year through five years		3,468		3,569
After five years through ten years		5,464		5,629
After ten years		23,132		24,154
Investment securities not due at a single maturity date:
Government-sponsored mortgage-backed securities		121,019		125,895
	$	153,083	$	159,247

Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

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

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4. LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Outstanding loans are summarized below, in thousands:

	March 31,			December 31,
	2020			2019
Commercial	$	49,246		$	47,892
Agricultural		76,044			78,785
Real estate – residential		13,820			14,530
Real estate – commercial		332,294			316,986
Real estate – construction and land development		19,674			31,181
Equity lines of credit		35,262			35,471
Auto		92,862			90,310
Other		4,541			4,563
Total loans		623,743			619,718
Deferred loan costs, net		3,548			3,561
Allowance for loan losses		(7,804	)		(7,243	)
Total net loans	$	619,487		$	616,036

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

	March 31,			December 31,
	2020			2019
Balance, beginning of period	$	7,243		$	6,958
Provision charged to operations		750			1,500
Losses charged to allowance		(268	)		(1,521	)
Recoveries		79			306
Balance, end of period	$	7,804		$	7,243

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

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

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

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

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

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

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

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

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

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

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

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

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

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

13

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

March 31, 2020	Commercial Credit Exposure
	Credit Risk Profile by Internally Assigned Grade
Grade:	Commercial		Agricultural		Real Estate-Residential		Real Estate-Commercial		Real Estate-Construction		Equity LOC		Total
Pass	$	48,784	$	73,909	$	13,553	$	326,468	$	19,592	$	34,688	$	516,994
Special Mention		415		2,135		-		4,935		-		-		7,485
Substandard		47		-		267		891		82		574		1,861
Doubtful		-		-		-		-		-		-		-
Total	$	49,246	$	76,044	$	13,820	$	332,294	$	19,674	$	35,262	$	526,340

December 31, 2019	Commercial Credit Exposure
	Credit Risk Profile by Internally Assigned Grade
Grade:	Commercial		Agricultural		Real Estate-Residential		Real Estate-Commercial		Real Estate-Construction		Equity LOC		Total
Pass	$	47,334	$	76,620	$	14,253	$	309,785	$	31,097	$	34,855	$	513,944
Special Mention		478		2,165		-		4,954		-		-		7,597
Substandard		80		-		277		2,247		84		616		3,304
Doubtful		-		-		-		-		-		-		-
Total	$	47,892	$	78,785	$	14,530	$	316,986	$	31,181	$	35,471	$	524,845

	Consumer Credit Exposure						Consumer Credit Exposure
	Credit Risk Profile Based on Payment Activity						Credit Risk Profile Based on Payment Activity
	March 31, 2020						December 31, 2019
	Auto		Other		Total		Auto		Other		Total
Grade:
Performing	$	92,448	$	4,506	$	96,954	$	90,128	$	4,559	$	94,687
Non-performing		414		35		449		182		4		186
Total	$	92,862	$	4,541	$	97,403	$	90,310	$	4,563	$	94,873

14

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

Three Months Ended March 31, 2020:	Commercial			Agricultural			Real Estate-Residential			Real Estate-Commercial		Real Estate-Construction			Equity LOC			Auto			Other			Total
Allowance for Loan Losses
Beginning balance	$	617		$	653		$	163		$	3,426	$	481		$	393		$	1,409		$	101		$	7,243
Charge-offs		(131	)		-			-			-		-			-			(134	)		(3	)		(268	)
Recoveries		2			-			1			1		-			1			70			4			79
Provision		226			(31	)		7			403		(84	)		28			196			5			750
Ending balance	$	714		$	622		$	171		$	3,830	$	397		$	422		$	1,541		$	107		$	7,804
Three Months Ended March 31, 2019:
Allowance for Loan Losses
Beginning balance	$	914		$	538		$	214		$	2,686	$	758		$	464		$	1,289		$	95		$	6,958
Charge-offs		(16	)		-			-			-		-			-			(312	)		(23	)		(351	)
Recoveries		9			-			1			-		-			1			47			2			60
Provision		(111	)		4			(20	)		283		(117	)		(15	)		360			16			400
Ending balance	$	796		$	542		$	195		$	2,969	$	641		$	450		$	1,384		$	90		$	7,067
March 31, 2020:
Allowance for Loan Losses
Ending balance: individually evaluated for impairment	$	-		$	-		$	28		$	121	$	5		$	-		$	-		$	-		$	154
Ending balance: collectively evaluated for impairment		714			622			143			3,709		392			422			1,541			107			7,650
Ending balance	$	714		$	622		$	171		$	3,830	$	397		$	422		$	1,541		$	107		$	7,804
Loans
Ending balance: individually evaluated for impairment	$	-		$	247		$	656		$	805	$	109		$	430		$	-		$	-		$	2,247
Ending balance: collectively evaluated for impairment		49,246			75,797			13,164			331,489		19,565			34,832			92,862			4,541			621,496
Ending balance	$	49,246		$	76,044		$	13,820		$	332,294	$	19,674		$	35,262		$	92,862		$	4,541		$	623,743

15

December 31, 2019:	Commercial		Agricultural		Real Estate-Residential		Real Estate-Commercial		Real Estate-Construction		Equity LOC		Auto		Other		Total
Allowance for Loan Losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	28	$	121	$	5	$	-	$	-	$	-	$	154
Ending balance: collectively evaluated for impairment		617		653		135		3,305		476		393		1,409		101		7,089
Ending Balance	$	617	$	653	$	163	$	3,426	$	481	$	393	$	1,409	$	101	$	7,243
Loans
Ending balance: individually evaluated for impairment	$	25	$	248	$	612	$	815	$	110	$	434	$	-	$	-	$	2,244
Ending balance: collectively evaluated for impairment		47,867		78,537		13,918		316,171		31,071		35,037		90,310		4,563		617,474
Ending balance	$	47,892	$	78,785	$	14,530	$	316,986	$	31,181	$	35,471	$	90,310	$	4,563	$	619,718

16

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

							Total
March 31, 2020			90 Days				Past Due
	30-89 Days		and Still				and
	Past Due		Accruing		Nonaccrual		Nonaccrual		Current		Total
Commercial	$	213	$	-	$	47	$	260	$	48,986	$	49,246
Agricultural		130		-		-		130		75,914		76,044
Real estate – residential		111		-		267		378		13,442		13,820
Real estate – commercial		828		-		891		1,719		330,575		332,294
Real estate - construction & land		-		-		82		82		19,592		19,674
Equity Lines of Credit		326		-		574		900		34,362		35,262
Auto		1,275		-		414		1,689		91,173		92,862
Other		40		-		35		75		4,466		4,541
Total	$	2,923	$	-	$	2,310	$	5,233	$	618,510	$	623,743

							Total
December 31, 2019			90 Days				Past Due
	30-89 Days		and Still				and
	Past Due		Accruing		Nonaccrual		Nonaccrual		Current		Total
Commercial	$	333	$	-	$	58	$	391	$	47,501	$	47,892
Agricultural		199		-		-		199		78,586		78,785
Real estate – residential		-		-		277		277		14,253		14,530
Real estate - commercial		1,467		-		830		2,297		314,689		316,986
Real estate - construction & land		-		-		83		83		31,098		31,181
Equity Lines of Credit		288		-		616		904		34,567		35,471
Auto		1,281		-		182		1,463		88,847		90,310
Other		87		-		4		91		4,472		4,563
Total	$	3,655	$	-	$	2,050	$	5,705	$	614,013	$	619,718

17

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

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
As of March 31, 2020:	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Agricultural		247		247		-		248		5
Real estate – residential		479		489		-		480		7
Real estate – commercial		553		611		-		558		-
Real estate – construction & land		-		-		-		-		-
Equity Lines of Credit		430		458		-		432		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
With an allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Agricultural		-		-		-		-		-
Real estate – residential		177		176		28		177		2
Real estate – commercial		252		265		121		252		-
Real estate – construction & land		109		109		5		109		1
Equity Lines of Credit		-		-		-		-		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total:
Commercial	$	-	$	-	$	-	$	-	$	-
Agricultural		247		247		-		248		5
Real estate – residential		656		665		28		657		9
Real estate – commercial		805		876		121		810		0
Real estate – construction & land		109		109		5		109		1
Equity Lines of Credit		430		458		-		432		0
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total	$	2,247	$	2,355	$	154	$	2,256	$	15

18

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

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
As of December 31, 2019:	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	25	$	85	$	-	$	23	$	-
Agricultural		248		248		-		249		19
Real estate – residential		435		447		-		385		29
Real estate – commercial		563		614		-		476		-
Real estate – construction & land		-		-		-		-		-
Equity Lines of Credit		434		457		-		213		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
With an allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Agricultural		-		-		-		-		-
Real estate – residential		177		177		28		178		7
Real estate – commercial		252		261		121		139		-
Real estate – construction & land		110		110		5		114		7
Equity Lines of Credit		-		-		-		-		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total:
Commercial	$	25	$	85	$	-	$	23	$	-
Agricultural		248		248		-		249		19
Real estate – residential		612		624		28		563		36
Real estate – commercial		815		875		121		615		-
Real estate – construction & land		110		110		5		114		7
Equity Lines of Credit		434		457		-		213		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total	$	2,244	$	2,399	$	154	$	1,777	$	62

5. COMMITMENTS AND CONTINGENCIES

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

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

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

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

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6. EARNINGS PER SHARE

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

	For the Three Months Ended
	March 31,
(In thousands, except per share data)	2020		2019
Net Income:
Net income	$	3,316	$	3,818
Earnings Per Share: