plbc20221231b

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2022

☐ Transaction report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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)	(IRS Employer Identification No.)

5525 Kietzke Lane, Suite 100, Reno, Nevada	89511
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (775) 786-0907

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

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes ☒ No

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. ☐

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

☐ Yes ☒ No

As of June 30, 2022, the aggregate market value of the voting and non-voting common equity held by non-affiliates on the Nasdaq Stock Market was approximately $153.0 million, based on the closing price reported to the Registrant on June 30, 2022 of $28.54 per share.

Shares of Common Stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of the affiliate status is not necessarily a conclusive determination for other purposes.

As of March 13, 2023 there were 5,859,608 shares of the registrant's Common Stock outstanding.

Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2023 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to SEC Regulation 14A are incorporated by reference in Part III, Items 10-14.

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This Annual Report on Form 10-K includes forward-looking statements and information that is subject to the “safe harbor” provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements, which may involve Plumas Bancorp’s plans, beliefs, goals, expectations and forecasts are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” or words or phases of similar meaning. Forward looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:

Plumas Bancorp undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.

References in this report to the “Company,” “we,” “us” and “our” refer to Plumas Bancorp and its consolidated subsidiary, unless the context indicates otherwise. References to the “Bank” refer to Company’s wholly-owned subsidiary, Plumas Bank. References to “Management” refer to the members of the Company’s management and references to the “Board of Directors” or the “Board” refer to the Company’s Board of Directors.

The Company. Plumas Bancorp is a bank holding company headquartered in Reno, Nevada. Substantially all of the Company's operations are conducted through its subsidiary, Plumas Bank.

The Company’s principal source of income is dividends from the Bank, but the Company may explore supplemental sources of income in the future. The cash outlays of the Company, including but not limited to the payment of dividends to shareholders, if and when declared by the Board of Directors, costs of repurchasing Company common stock and the cost of servicing debt, will generally be paid from dividends paid to the Company by the Bank.

At December 31, 2022, the Company had consolidated assets of $1.6 billion, deposits of $1.5 billion, other liabilities of $44 million and shareholders’ equity of $119 million. The Company’s other liabilities include $10.3 million in junior subordinated deferrable interest debentures and $18.6 million in repurchase agreements. These items are described in detail later in this Form 10-K.

The Company is a California corporation incorporated in 2002 for the purpose of becoming the holding company for the Bank, which we acquired the same year. The Company's only other subsidiaries are Plumas Statutory Trust I and Plumas Statutory Trust II, which were formed in 2002 and 2005 solely to facilitate the issuance of trust preferred securities.

We file annual, quarterly, and other reports required under the Securities Exchange Act of 1934 with Securities and Exchange Commission (the “SEC”). These reports are available at no cost on our website, www.plumasbank.com, as soon as reasonably practicable after filing with the SEC. These reports are also available through the SEC’s website at www.sec.gov. The address of our headquarters is 5525 Kietzke Lane, Suite 100, Reno, Nevada, 89511.

The Bank. The Bank is a California state-chartered bank that was incorporated and commenced business in 1980.. The Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable legal limits. The Bank is a member of the Federal Reserve System. At December 31, 2022 the Bank had approximately $1.6 billion in assets, $906 million in net loans and $1.5 billion in deposits (including deposits of $1.0 million from the Company). It is currently the largest bank headquartered in Plumas County, California. The Bank’s operations are conducted through its administrative office in Quincy, California.

The Bank’s primary service area covers the Northeastern portion of California, with Lake Tahoe to the south and the Oregon border to the north, and the Northwestern portion of Nevada. The Bank, through its fourteen-branch network, serves Washoe and Carson City counties in Nevada and the eight contiguous California counties of Plumas, Nevada, Sierra, Placer, Lassen, Modoc, Sutter and Shasta. The branches are located in the California communities of Quincy, Portola, Greenville, Truckee, Fall River Mills, Alturas, Susanville, Chester, Tahoe City, Kings Beach, Redding and Yuba City and in Reno and Carson City, Nevada. On July 1, 2021 we acquired our Yuba City branch with the acquisition of the Bank of Feather River. See "Recent Expansion Activities". The Bank maintains eighteen automated teller machines (“ATMs”) tied in with major statewide and national networks. In addition to its branch network, the Bank operates a lending office specializing in government-guaranteed lending in Auburn, California and commercial/agricultural lending offices located in Chico, California and Klamath Falls, Oregon. The Bank’s primary business is servicing the banking needs of these communities. Its marketing strategy stresses its local ownership and commitment to serve the banking needs of individuals living and working in the Bank’s primary service areas.

The Bank primarily generates revenue from loans and investment securities in its portfolio and, to a lesser extent, service fees. With a predominant focus on personal service, the Bank positions itself as a multi-community independent bank serving the financial needs of individuals and businesses within the Bank’s geographic footprint. The Bank’s principal commercial lending services include term real estate, commercial and industrial term loans. In addition, the Bank provides government-guaranteed and agricultural loans as well as credit lines. The Bank’s principal retail lending services include consumer, automobile, and home equity loans. The Bank provides land development and construction loans on a limited basis.

The Bank provides Small Business Administration (SBA) loans to qualified borrowers throughout Northern California, and Northern Nevada through its government-guaranteed lending center headquartered in Auburn, California. In 2007 the Bank was granted nationwide Preferred Lender status with the U.S. Small Business Administration and we expect government-guaranteed lending to continue to be an important part of our overall lending operation. During 2022 proceeds from the sale of government-guaranteed loans totaled $55.4 million and we generated a gain on sale of $2.7 million. SBA loans available for sale at December 31, 2022 totaled $2.3 million, a decrease of $29.0 million from $31.3 million at December 31, 2021.

The Agricultural Credit Centers located in Alturas, Chico, and Yuba City, California and Klamath Falls, Oregon provide an array of credit services supporting the agricultural activities that are key to the continued economic development of these communities. “Ag lending” clients include a full range of individual farming customers, small to medium-sized business farming organizations and corporate farming units.

As of December 31, 2022, the principal areas to which we have directed our lending activities, and the percentage of our total loan portfolio comprised by each, were as follows: (i) commercial real estate – 56.6%; (ii) consumer loans (including residential equity lines of credit and automobile loans) – 15.0%, (iii) agricultural loans (including agricultural real estate loans) – 13.5%, (iv); commercial and industrial loans – 8.4%; (v) construction and land development – 4.8%; and (vi) residential real estate – 1.7% .

In addition to our lending activities, we offer a wide range of deposit products for the commercial and retail banking markets including checking, money market checking, business sweep, public funds sweep, savings, time deposit and retirement accounts, as well as remote deposit, telephone and mobile banking, including mobile deposit, and internet banking with bill-pay options. Interest bearing deposits include higher yielding sweep accounts designed for our commercial customers and for public entities such as municipalities. As of December 31, 2022, the Bank had 39,338 deposit accounts with balances totaling approximately $1.5 billion, compared to 38,602 deposit accounts with balances totaling approximately $1.4 billion at December 31, 2021. We attract deposits through our customer-oriented product mix, competitive pricing, convenient locations, mobile and internet banking and remote deposit operations, all provided with a high level of customer service.

Most of the Bank’s deposits are attracted from individuals, business-related sources, and smaller municipal entities. This mix of deposit customers resulted in a relatively modest average deposit balance of approximately $37 thousand at December 31, 2022. However, we believe this broad deposit base makes us less vulnerable to adverse effects from the loss of depositors who may be seeking higher yields in other markets or who may otherwise draw down balances for cash needs.

We also offer a variety of other products and services complementing our lending and deposit services. These include cashier’s checks, bank-by-mail, ATMs, night depository, safe deposit boxes, direct deposit, electronic funds transfers and other customary banking services. We offer a Remote Deposit product that allows our business customers to make non-cash deposits remotely from their physical location. This product enables us to extend our service area because we can now meet the deposit needs of customers who may not be located within a convenient distance of one of our branch offices.

The Bank has devoted a substantial amount of time and capital to the improvement of existing bank services. During 2015 we enhanced our mobile banking services and began offering mobile deposit services, and in 2018 we began offering the ability for our customers to send money to others from their mobile devices through a linked debit card (“P2P” transfers). During 2020 we added the ability for customers to make loan payments via our website regardless of whether they have a deposit relationship with us. During 2021 we increased our online banking product offerings for commercial clients including enhanced security controls. Additionally, we created a streamlined login process for our consumer clients in order to instantly access their accounts once enrolled in online banking. In 2022 Plumas Bank upgraded and replaced our fleet of ATM machines. Enhanced and streamlined incoming wire notifications and developed electronic tracking and monitoring for ACH origination and Remote Deposit Capture services and implemented the ability for our commercial online banking clients to originate one-time ACH payments.

The officers and employees of the Bank are continually engaged in marketing activities, including the evaluation and development of new products and services, to enable the Bank to retain and improve its competitive position in its service area.

We hold no patents or licenses (other than licenses required by appropriate bank regulatory agencies or local governments), franchises, or concessions. Our business has a modest seasonal component due to the heavy agricultural and tourism orientation of some of the communities we serve. We are not dependent on a single customer or group of related customers for a material portion of our deposits. We have established loan concentration guidelines as a percentage of capital and evaluate loan concentration levels within a single industry or group of related industries on quarterly basis, or more frequently as loan conditions change. There has been no material effect upon our capital expenditures, earnings, or competitive position as a result of federal, state, or local environmental regulation.

Commitment to our Communities. The Board of Directors and management believe that the Company plays an important role in the economic well-being of the communities we serve. Our Bank has a continuing responsibility to provide a wide range of lending and deposit services to both individuals and businesses. We strive to tailor these services to meet the needs of the communities served by the Company and the Bank.

We offer various loan products which encourage job growth and support community economic development. Types of loans offered range from personal and commercial loans to real estate, construction, agricultural, automobile and government-guaranteed loans. Many banking decisions are made locally with the goal of maintaining customer satisfaction through the timely delivery of high quality products and services.

Recent Expansion Activities. As part of our business strategy we may regularly review opportunities to enhance the value of our franchise, including through acquisitions. On July 1, 2021, we completed the acquisition of Feather River Bancorp and its subsidiary, Bank of Feather River, which merged with and into the Bank the same day. The estimated fair value of assets acquired at July 1, 2021 was $205.0 million consisting of $28.4 million in cash, $160.4 million in net loans, $1.0 million in core deposit intangible, $5.5 million in goodwill and $9.7 million in other assets. The estimated fair value of deposits assumed totaled $176.7 million consisting of $89.5 million in non-interest bearing transaction accounts, $9.3 million in savings accounts, $45.6 million in money market accounts and $32.3 million in time deposits.

Dividends. It is the policy of the Company to periodically distribute excess retained earnings to the shareholders through the payment of cash dividends, subject to the approval of the Board of Directors. During 2022 the Company paid quarterly cash dividends of $0.16 per share on each of November 15, 2022, August 15, 2022, May 16, 2022 and February 15, 2022. During 2021 the Company paid quarterly cash dividends of $0.14 per share on each of November 15, 2021, August 16, 2021, May 17, 2021 and February 15, 2021. During 2020 the Company paid three quarterly $0.12 per share dividends one each on May 15, 2020, August 14, 2020 and November 16, 2020.

Trust Preferred Securities. In addition to the Bank, the Company has two unconsolidated statutory trust subsidiaries, Plumas Statutory Trust I and Plumas Statutory Trust II. We organized both trust subsidiaries for the purpose of issuing an aggregate of $10.0 million of trust preferred securities to increase our regulatory capital levels. The trust preferred securities mature in 2032 and 2035 or upon earlier redemption as provided in the applicable indentures. Neither Trust I nor Trust II are consolidated into the Company’s consolidated financial statements and, accordingly, both entities are accounted for under the equity method and their junior subordinated debentures are reflected as debt on our consolidated balance sheet. The business trusts and the trust preferred securities are described in more detail in Note 10 to the Company’s consolidated financial statements in Item 8 of this Form 10-K.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) trust preferred securities issued after May 19, 2010 are excluded from Tier 1 capital unless the issuing company is a bank holding company with less than $500 million in total assets. Trust preferred securities issued prior to that date continue to count as Tier 1 capital for bank holding companies with less than $15 billion in total assets, such as the Company.

Interest Rate Swaps. From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes. These financial instruments are not used for trading or speculative purposes. On May 26, 2020 we entered into two separate interest rate swap agreements effectively converting the $10 million in floating rate subordinated debentures issued in connection with our trust preferred securities to fixed rated obligations. The swaps have a 10-year maturity and are structured to effectively fix the LIBOR rate on the Subordinated Debentures at approximately 75 basis points. These agreements have been designated and qualify as cash flow hedging instruments and, as such, changes in the fair value are recorded in accumulated other comprehensive income/loss to the extent the agreements are effective hedges. In January, 2023 we terminated these agreements receiving $1.7 million in proceeds on termination.

Business Concentrations. No individual or single group of related customer accounts is considered material in relation to the Bank's assets or deposits, or in relation to our overall business. However, at December 31, 2022 approximately 77% of the Bank's total loan portfolio consisted of real estate-secured loans, including real estate mortgage loans, real estate construction loans, consumer equity lines of credit, and agricultural loans secured by real estate. Moreover, our business activities are currently focused in the California counties of Plumas, Nevada, Placer, Lassen, Modoc, Shasta, Sutter and Sierra and Washoe and Carson City Counties in Nevada. Consequently, our results of operations and financial condition are dependent upon the general trends in these economies and, in particular, the residential and commercial real estate markets. In addition, the concentration of our operations in these areas of California and Nevada exposes us to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires, drought and floods in these regions in California and Nevada.

Competition. The banking business is highly competitive. The business is largely dominated by a relatively small number of major banks with many offices operating over a wide geographical area. These banks have, among other advantages, a greater ability to invest in technology, to finance wide-ranging marketing campaigns and to allocate their resources to regions of highest yield and demand. Many of the major banks operating in the area offer certain services that we do not offer directly but may offer indirectly through correspondent institutions. By virtue of their greater total capitalization, such banks also have substantially higher lending limits than we do. For customers whose loan demands exceed our legal lending limit, we attempt to arrange for such loans on a participation basis with correspondent or other banks.

In addition to other banks, our competitors include savings institutions, credit unions, and numerous non-banking institutions such as finance companies, leasing companies, insurance companies, brokerage firms, Internet-based fintech lenders and investment banking firms. In recent years, increased competition has also developed from specialized finance and non-finance companies that offer wholesale finance, credit card, and other consumer finance services, including on-line banking services and personal financial software. Strong competition for deposit and loan products affects the rates of those products as well as the terms on which they are offered to customers. Mergers between financial institutions have placed additional competitive pressure on banks within the industry to streamline their operations, reduce expenses, and increase revenues. In addition, competitive conditions have intensified as banks have increasingly affiliated with securities firms, insurance companies, and other financial companies.

As of June 30, 2022, within towns in which the Bank has a branch as of this same date there were 133 banking branch offices of competing institutions (excluding credit unions, but including savings banks), including 108 branches of 16 banks having assets more than $10 billion. As of June 30, 2022, the FDIC estimated the Bank’s market share of insured deposits within the communities it serves to be as follows: Greenville and Portola 100%, Quincy 83%, Alturas 67%, Chester 64%, Susanville 57%, Kings Beach 42%, Fall River Mills 38%, Tahoe City 32%, Truckee 17%, Yuba City 5%, Carson City 4%, Redding 2% and Reno less than 1%.

Technological innovations have also resulted in increased competition in financial services markets. Such innovation has, for example, made it possible for non-depository institutions to offer customers loans or automated transfer payment services that previously were considered traditional banking products. In addition, many customers now expect a choice of delivery systems and channels, including home computer, mobile, remote deposit, telephone, ATMs, mail, full-service branches and/or in-store branches. The sources of competition in such products include traditional banks as well as savings associations, credit unions, brokerage firms, money market and other mutual funds, asset management groups, finance, and insurance companies, fintechs and mortgage banking firms.

Our strategy is to counter rising competition by providing our own style of community-oriented, personalized service. We rely on local promotional activity, personal contacts by our officers, directors, employees, and shareholders, automated 24-hour banking, and the individualized service that we can provide through our flexible policies. This approach appears to be well-received by our customers who appreciate a more personal and customer-oriented environment in which to conduct their financial transactions. To meet the needs of customers who prefer to bank electronically, we offer telephone banking, mobile banking, remote deposit, mobile deposit, and internet banking with bill payment capabilities. This high tech and high touch approach allows customers to tailor their access to our services based on their particular preferences.

Employees. At December 31, 2022, we employed 193 persons. On a full-time equivalent basis, we employed 180 persons. While we expect to hire additional employees as we grow or as a result of attrition, we believe our human capital resources are adequate to support our current business. None of our employees are represented by a labor union, and management considers its relations with employees to be good.

Code of Ethics. Our Board of Directors has adopted a code of business conduct and ethics for directors, officers (including the Company’s principal executive officer and principal financial officer) and financial personnel, known as the Corporate Governance Code of Ethics. This policy is available on our website at www.plumasbank.com. Shareholders may request a free copy of this policy from Plumas Bancorp, Ms. Jamie Huynh, Administrative Coordinator, 5525 Kietzke Lane, Suite 100, Reno, Nevada, 89511.

General. As a banking organization, we are extensively regulated under federal and state law. These laws and regulations are generally intended to protect our customers and the financial system and not our shareholders. Our operations may be affected by legislative changes and by the policies of various regulatory authorities. Any change in applicable laws or regulations may have a material effect on our business and prospects. We cannot accurately predict the nature or the extent of the effects on our business and earnings that fiscal or monetary policies, or new federal or state legislation may have in the future. The following summaries of statutes and regulations are qualified in their entirety by reference to the particular statute or regulation.

Holding Company Regulation. The Company is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “FRB”). We are required to file reports with the FRB and the FRB periodically examines the Company. A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary bank and, under appropriate circumstances, to commit resources to support its subsidiary bank. FRB regulations and policies require the Company to meet or exceed certain capital requirements and regulate provisions of certain bank holding company debt. The Company is also a bank holding company for purposes of the California Financial Code, so the Company and its subsidiaries are also subject to supervision and examination by the California Department of Financial Protection and Innovation (“DFPI”).

The activities of bank holding companies are generally limited to the business of banking, managing or controlling banks, and other activities that the FRB has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Bank holding companies that qualify and register as “financial holding companies” are also able to engage in certain additional financial activities, such as merchant banking and securities and insurance underwriting, subject to limitations set forth in federal law. The Company has not elected to become a financial holding company. As a bank holding company, the Company must obtain prior approval of the FRB before taking any action that causes a bank to become a controlled subsidiary of the bank holding company, acquiring direct or indirect ownership of 5% of the outstanding shares of any class of voting securities of another bank or bank holding company, acquiring all or substantially all the assets of a bank or merging or consolidating with another bank holding company.

Federal and State Bank Regulation. As a California-chartered commercial bank that is a member of the Federal Reserve System, the Bank is subject to the supervision and regulation of the DFPI and the FRB, as well as certain of the regulations of the FDIC and the Consumer Financial Protection Bureau (“CFPB”). The DFPI and the FRB regularly examine the Bank and may prohibit the Bank from engaging in what they believe constitute unsafe or unsound banking practices or violations of law.

As a member of the Federal Reserve System, the Bank is required to purchase and maintain stock in the Federal Reserve Bank of San Francisco in an amount equal to 3.00% of the paid-up capital stock and surplus of the Bank and have available another 3.00% in reserves. At December 31, 2022, the Bank had $1.4 million in stock of the Federal Reserve Bank of San Francisco in compliance with this requirement.

Capital Adequacy. The federal banking agencies have adopted risk-based capital adequacy guidelines intended to measure capital relative to the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets, and transactions, such as letters of credit and recourse arrangements, which are reported as off-balance-sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off-balance-sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. government securities, to 100% for assets with relatively higher credit risk, such as business loans.

A banking organization’s risk-based capital ratios are calculated by dividing its qualifying capital by its total risk-adjusted assets and off-balance-sheet items. The regulators measure risk-adjusted assets and off-balance-sheet items against common equity Tier 1 capital, Tier 1 capital and total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital). Common equity Tier 1 capital generally consists of common stock and retained earnings. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock and minority interests in certain subsidiaries, less most other intangible assets. Tier 2 capital may consist of a limited amount of the allowance for loan and lease losses and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies.

If a bank does not maintain the required capital levels, federal banking regulators, as well as the DFPI, may issue a capital directive or take other enforcement measures to ensure the maintenance of required capital levels. Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At each successive lower capital category, a bank is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company and any other company deemed to control the bank must guarantee the performance of that plan.

The federal bank regulatory agencies' risk-based capital adequacy guidelines sometimes called “Basel III,” establish minimum regulatory capital requirements for bank holding companies and depository institutions. 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, 2022, the Company’s and the Bank’s capital ratios exceed the thresholds necessary to be considered “well capitalized” under the Basel III framework.

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.

For additional information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Standards.”

Dividends and Stock Repurchases. The Company's ability to pay cash dividends is limited by California law and is dependent on dividends it may receive from the Bank. The California General Corporation Law permits a California corporation such as the Company to make a distribution to its shareholders if its retained earnings equal at least the amount of the proposed distribution or if after giving effect to the distribution, the value of the corporation’s assets exceed the amount of its liabilities plus the amount of shareholders preferences, if any, and certain other conditions are met.

It is the FRB’s policy that bank holding companies should generally pay dividends on common stock only out of current income and only if prospective earnings support the organization’s expected future needs and financial condition. Further, it is the FRB’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to their banking subsidiaries. The FRB also discourages dividend payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.

In addition, the Company’s ability to pay dividends is subject to certain covenants contained in the indentures relating to the trust preferred securities issued by the Company’s business trust subsidiaries.

The Bank is a legal entity that is separate and distinct from its holding company. The Company depends on the performance of the Bank for funds which may be received as dividends from the Bank for use in the operation of the Company and the ability of the Company to pay dividends to shareholders. Future cash dividends by the Bank will also depend upon management’s assessment of future capital requirements, contractual restrictions, and other factors.

The California Financial Code restricts the dividends that the Bank may pay to the Company to the lesser of the Bank's retained earnings or the Bank's net income for the latest three fiscal years, less dividends previously declared during that period, or, with the approval of the DFPI, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year, or the net income of the Bank for its current fiscal year. As of December 31, 2022, the maximum amount available for dividend distribution under this restriction was approximately $49.1 million. In addition, the Bank is subject to the Basel III capital rules and the capital conservation buffer discussed above.

The foregoing restrictions and limitations on dividends similarly restrict the Company’s ability to repurchase shares of its common stock.

Loans-to-One Borrower. Under California law, the Bank’s ability to make aggregate secured and unsecured loans-to-one-borrower is limited to 25% and 15%, respectively, of unimpaired capital and surplus. At December 31, 2022, the Bank’s limit on aggregate secured loans-to-one-borrower was $34.3 million and unsecured loans-to-one borrower was $20.6 million. The Bank has established internal loan limits that are lower than its legal lending limits.

The Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires the federal banking regulators to evaluate the record of depository institutions in meeting the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. Federal banking regulators consider the Bank's CRA performance in evaluating applications for mergers, acquisitions and to establish new branches. A less than “Satisfactory” rating would likely result in the suspension of any growth of the Bank through acquisitions or opening de novo branches until the rating is improved. The Bank’s most recent CRA rating was “Satisfactory.”

Transactions with Affiliates. The Bank is subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders (including the Company) or any related interest of such persons. Extensions of credit must be made on substantially the same terms, including interest rates and collateral, as, and follow credit underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions with persons not affiliated with the Bank, and must not involve more than the normal risk of repayment or present other unfavorable features. Banks are also subject to certain lending limits and restrictions on overdrafts to such persons. A violation of these restrictions may result in the assessment of substantial civil monetary penalties on the affected bank or any officer, director, employee, agent or other person participating in the conduct of the affairs of that bank, the imposition of a cease and desist order, and other regulatory sanctions.

The Federal Reserve Act and the FRB’s Regulation W limit the amount of certain loan and investment transactions between the Bank and its affiliates, require certain levels of collateral for such loans, and limit the amount of advances to third parties that may be collateralized by the securities of the Company or its subsidiaries. Regulation W requires that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving nonaffiliated companies or, in the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to or would apply to nonaffiliated companies.

Safety and Soundness Standards. The federal banking regulators have adopted non-capital safety and soundness standards for institutions. These standards cover internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, and standards for asset quality, earnings and stock valuation. An institution that fails to meet these standards must develop a plan acceptable to the agency, specifying the steps that it will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory enforcement actions, including civil money penalties.

Federal Deposit Insurance. The FDIC insures the Bank’s deposits, up to prescribed statutory limits, through the Deposit Insurance Fund, currently $250,000 per depositor per institution. The Deposit Insurance Fund is funded primarily by FDIC assessments paid by the insured depository institution. The amount of FDIC assessments paid by a depository institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors. The Bank’s FDIC insurance expense totaled $528 thousand for 2022.

While the FRB is the Bank’s primary federal regulator, as a federally insured depository institution, the Bank is also subject to certain regulations of and supervision by the FDIC. The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the Deposit Insurance Fund or that may prejudice the interest of the institution’s depositors. Under California law, the termination of the Bank’s deposit insurance would result in a termination of the Bank’s charter.

Consumer Protection Laws and Regulations. The bank regulatory agencies continue to focus greater attention on compliance with consumer protection laws and their implementing regulations. Examination and enforcement have become more intense in nature, and insured institutions have been advised to carefully monitor compliance with such laws and regulations. The Company is subject to many federal and state consumer protection and privacy statutes and regulations, including but not limited to the following:

Penalties for noncompliance or violations under the above laws may include enforcement actions, fines, customer reimbursement and other penalties. Violations of consumer laws may also adversely affect the Bank’s CRA rating. Due to heightened regulatory expectations related to compliance generally, the Company may incur additional compliance costs.

The Dodd-Frank Act created the CFPB as an independent federal agency with broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions, including the Bank, are generally subject to rules promulgated by the CFPB but continue to be examined and supervised by their primary federal banking regulators for consumer compliance purposes.

Anti-Money Laundering Laws. A series of banking laws and regulations beginning with the Bank Secrecy Act require banks to prevent, detect, and report illicit or illegal financial activities to the federal government to prevent money laundering, international drug trafficking, and terrorism. Under the US PATRIOT Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account relationships, requirements regarding the Customer Identification Program, as well as enhanced due diligence and “know your customer” standards in their dealings with high risk customers, foreign financial institutions, and foreign individuals and entities. These rules also mandate a variety of record keeping, reporting and employee training requirements.

Privacy and Data Security. The Gramm-Leach Bliley Act of 1999 (“GLBA”) imposes requirements on financial institutions with respect to consumer privacy. The GLBA generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure. Financial institutions are further required to disclose their privacy policies to consumers annually. The Bank is required to have an information security program to safeguard the confidentiality and security of customer information and to ensure proper disposal of information that is no longer needed. Customers must be notified when unauthorized disclosure involves sensitive customer information that may be misused.

Potential Enforcement Actions; Supervisory Agreements. Under federal law, the Company, the Bank and their institution-affiliated parties may be the subject of potential enforcement actions by the federal banking regulators for unsafe and unsound practices in conducting their businesses, or for violations of any law, rule or regulation or provision, any consent order with any agency, any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance of deposits, the imposition of civil money penalties, the payment of restitution and removal and prohibition orders against institution-affiliated parties. The DFPI also has authority to bring similar enforcement actions against the Bank.

Legislation and Proposed Changes. From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, in the California legislature and before various bank regulatory agencies. Typically, the intent of this type of legislation is to strengthen the banking industry, even if it may on occasion prove to be a burden on management’s plans. No prediction can be made as to the likelihood of any major changes or the impact that new laws or regulations might have on us.

Effects of Government Monetary Policy. Our earnings and growth are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government, particularly the FRB. The FRB implements national monetary policy for such purposes as curbing inflation and combating recession, through its open market operations in U.S. Government securities, control of the discount rate applicable to borrowings from the FRB, and establishment of reserve requirements against certain deposits. These activities influence growth of bank loans, investments and deposits, and also affect interest rates charged on loans or paid on deposits. The Company’s profitability, like most financial institutions, is primarily dependent on interest rate spreads. In general, the difference between the interest rates paid by the Bank on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received by the Bank on interest-earning assets, such as loans extended to customers and securities held in the investment portfolio, will comprise the major portion of the Company’s earnings. These rates are highly sensitive to many factors that are beyond our control, such as inflation, recession and unemployment, the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the FRB, and the impact which future changes in domestic and foreign economic conditions might have on us cannot be predicted. The nature and impact of future changes in monetary policies and their impact on us cannot be predicted with certainty.

See Note 2 – “Summary of Significant Accounting Policies – Adoption of New Accounting Standards” of the Company’s Consolidated Financial Statements in Item 8 – Financial Statements and Supplementary Data of this Annual Report on Form 10K for information related to recent accounting pronouncements.

The ongoing COVID-19 pandemic and resulting adverse economic conditions have adversely impacted, and could continue to adversely impact, our business and results of operations.

Our business is dependent on the willingness and ability of our customers to conduct banking and other financial transactions. The ongoing COVID-19 pandemic has caused significant disruption in the United States and international economies and financial markets. Given the ongoing and dynamic nature of the circumstances and uncertainty regarding the duration of the pandemic, it is difficult to predict the full, continuing impact of the pandemic on our business.

We could, however, be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

The majority of our assets are loans, which are subject to credit risks and potential losses.

The Bank, like other lenders, is subject to credit risk, which is the risk of losing principal or interest due to borrowers’ failure to perform their obligations in accordance with the terms of their credit agreements. Underwriting and documentation controls cannot mitigate all credit risk. Accordingly, our results of operations will be directly affected by the volume and timing of loan losses, which for several reasons can vary from period to period. The risks of loan losses may be exacerbated by a downturn in the economy or the real estate market in our market areas or a rapid increase in interest rates, which could have a negative effect on collateral values and borrowers’ ability to repay. To the extent borrowers do not timely pay our loans, the loans are placed on non-accrual status, thereby reducing interest income. Further, under these circumstances, we may be required to make an additional provision for loan and lease losses or unfunded commitments, which could reduce our income and capital. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Analysis of Asset Quality and Allowance for Loan Losses”.

A deterioration of national or local economic conditions could reduce our profitability.

Our lending operations and customers are primarily located in the eastern region of Northern California and Northern Nevada. As a result, a significant majority of the loans in our loan portfolios as of December 31, 2022 were secured by properties and collateral located within these regions. As of such date, approximately 90% of the loans in our loan portfolio were made to borrowers who primarily conduct business or live in Northern California or Northern Nevada. This geographic concentration imposes risks from lack of geographic diversification, as adverse economic developments in Northern California or Northern Nevada, among other things, could affect the volume of loan originations, increase the level of nonperforming assets, increase the rate of foreclosure losses on loans and reduce the value of our loans and the underlying collateral. Any regional or local economic downturn affecting Northern California or Northern Nevada or existing or prospective borrowers or property values in such areas may affect us and our profitability more significantly and more adversely than depository organizations whose operations are less geographically concentrated. A significant downturn in the national economy or the local economy due to the real estate market, public policy decisions, agricultural commodity prices, natural disaster, fires, drought or other factors could result in a decline in the local economy in general, which could in turn negatively impact our business, financial condition, results of operations and prospects.

If our allowance for loan losses is not sufficient to absorb actual loan losses, our profitability could be reduced.

The risk of loan losses is inherent in the lending business. We maintain an allowance for loan losses based upon our actual losses over a relevant time period and management’s assessment of all relevant qualitative factors that may cause future loss experience to differ from our historical loss experience. Although we maintain a rigorous process for determining the allowance for loan losses, we cannot be certain that it will be sufficient to cover future loan losses. If our allowance for loan losses is not adequate to absorb future losses, or if bank regulatory agencies require us to increase our allowance for loan losses, our earnings could be significantly and adversely impacted.

A deterioration in the real estate market could have a material adverse effect on our business, financial condition and results of operations.

As of December 31, 2022, approximately 77% of our total loan portfolio is secured by real estate, the majority of which is commercial real estate. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the area in which the real estate is located. Adverse changes affecting real estate values and the liquidity of real estate in our markets could increase the credit risk associated with our loan portfolio, and could result in losses that would adversely affect credit quality, financial condition, and results of operation. Negative changes in the economy affecting real estate values and liquidity in our market areas could significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses. Collateral may have to be sold for less than the outstanding balance of the loan, which could result in losses on such loans. Declines in real estate market values or increases in commercial and consumer delinquency levels could require increased net charge-offs which could adversely affect our financial condition, results of operations and cash flows.

Although we maintain a rigorous process for managing the impact of possible interest rate fluctuations on earnings, there is a risk that despite our efforts, our earnings could be significantly and adversely impacted by changes in interest rates.

Our earnings depend largely upon net interest income, which is the difference between the total interest income earned on interest earning assets (primarily loans and investment securities) and the total interest expense incurred on interest bearing liabilities (primarily deposits and borrowed funds). The rate of interest that we earn on assets and pay on liabilities is affected principally by direct competition, and general economic conditions at the state and national level and other factors beyond our control such as actions of the FRB, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and other state and federal economic policies.

In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest expense we incur on our liabilities. Likewise, in a period of falling interest rates, the interest expense we incur on our liabilities may not decrease as rapidly as the interest income we earn on our assets. Historically, our liabilities have shorter contractual maturities than our assets. This creates a potential imbalance as interest rates change over time, which can create significant earnings volatility.

In addition, in a prolonged low interest rate environment, the difference between the total interest income earned on interest earning assets and the total interest expense incurred on interest bearing liabilities may compress, reducing our net interest income and adversely affecting our operating results. If short-term interest rates remain at their historically low levels for a prolonged period, and assuming longer term interest rates fall further, we could experience net interest margin compression as our interest earning assets would continue to re-price downward while our interest-bearing liability rates could fail to decline in tandem. Such an occurrence would have a material adverse effect on our net interest income and our results of operations.

Interest rate increases often result in larger payment requirements for our borrowers, increasing the potential for default. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates.

Changes in interest rates can also affect the average life of our loans. A reduction in interest rates causes increased prepayments of loans as borrowers tend to refinance their debt to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest the funds from faster prepayments at rates that are comparable to the rates earned on the prepaid loans.

We could be required to raise additional capital in the future, but that capital may not be available when it is needed or may not be available on terms that are favorable to us or our existing shareholders.

As a depository organization, we must meet significant regulatory capital requirements and maintain sufficient liquidity. We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs. Our ability to raise additional capital depends on conditions in the capital markets, economic conditions, and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance. Accordingly, we cannot assure that we will be able to raise additional capital if needed or on terms acceptable to us. If we fail to maintain capital to meet regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected.

The markets in which we operate are subject to the risks of drought, fires, earthquakes and other natural disasters.

The occurrence of catastrophic weather events or pandemics could adversely affect our financial condition or results of operations. Most of our offices are located in California, as are most of the real and personal properties securing our loans. The areas in which we operate and lend in California and Nevada are prone to earthquakes, fires, flooding and other natural disasters. In addition to possibly sustaining damage to its own properties, if there is a major earthquake, fire, flood or other natural disaster, we face the risk that many of our borrowers may experience uninsured property losses, or sustained job interruption and/or loss which may materially impair their ability to meet the terms of their loan obligations. Therefore, a major earthquake, fire, flood or other natural disaster in California or Nevada could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Over the past decade, California has experienced a severe drought, though drought conditions have lessened in the past few years. A significant portion of our borrowers are involved in or are dependent on the agricultural industry in California, which requires water. As of December 31, 2022, approximately 13% of our loans were categorized as agricultural loans. As a result of the drought, there have been governmental proposals concerning the distribution or rationing of water. If the amount of water available to agriculture becomes scarcer due to drought or rationing, growers may not be able to continue to produce agricultural products profitably, which could force some out of business. Although many of our customers are not directly involved in agriculture, they could be impacted by difficulties in the agricultural industry because many jobs and businesses in our market areas are related to the production of agricultural products. Therefore, a drought could adversely impact our loan portfolio, business, financial condition and results of operations.

We face substantial competition from larger banks and other financial institutions.

We face substantial competition for deposits and loans. Competition for deposits primarily comes from other commercial banks, savings institutions, thrift and loan associations, credit unions, money market and mutual funds and other investment alternatives. Competition for loans comes primarily from other commercial banks, savings institutions, credit unions, mortgage banking firms, thrift and loan associations and increasingly “fintech” lending platforms. Larger competitors with larger capital resources have substantially greater resources to invest in technology and marketing and higher lending limits than us. In addition, with greater financial resources, they may be able to offer longer maturities or lower rates. Our competitors may also provide certain products and services for their customers, such as technological solutions, trust services and international banking, that we are unable to offer or may only be able to offer indirectly through correspondent relationships. Ultimately, competition can reduce our profitability, as well as make it more difficult to increase the size of our loan portfolio and deposit base.

Over the past seven years, we have completed the acquisition of Bank of Feather River, two branch purchase and assumption transactions, the establishment of a new branch office in Reno, Nevada and a loan production office in Klamath Falls, Oregon. We may engage in additional acquisition activity and open additional offices in the future to expand our markets and further our growth strategy. Acquiring other banks or branches involves various other risks commonly associated with acquisitions including difficulty in estimating the value of the business to be acquired, integrating the operations, and retaining key employees and customers. We cannot assure that future acquisitions or new offices will be successful. Further, growth may strain our administrative, managerial, financial and operational resources and increase demands on our systems and controls. If we pursue our growth strategy too aggressively or fail to attract qualified personnel, control costs or maintain asset quality, or if factors beyond management’s control divert attention away from our business operations, our pursuit of growth could have a material adverse impact on our business.

Our implementation of the current Expected Credit Loss (CECL) model will significantly change how we recognize credit losses, could require that we increase our allowance for loan losses and may materially impact our results of operations, financial condition or liquidity.

Beginning January 1, 2023, we are subject to new accounting standard ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The new standard significantly changes how entities measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income.

The new standard replaces the earlier “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, applies 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. 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).

To implement the CECL model, we established an implementation team chaired by our Chief Lending Officer and composed of members of our credit administration and accounting departments, invested in technology to support the CECL calculation of the allowance for loan losses and engaged a consultant to review our CECL model and to assist us in documenting aspects of the CECL model. Based on the loan portfolio composition, characteristics and quality of the loan portfolio as of December 31, 2022, and the current economic environment, management estimates that the total allowance for loan losses will increase by between $500,000 and $800,000. The estimated decline in equity, net of tax, will range from $350,000 to $550,000. The economic conditions, forecasts and assumptions used in the model could be significantly different in future periods. The impact of the change in the allowance on our results of operations in a provision for credit losses will depend on the current period net charge-offs, level of loan originations, and change in mix of the loan portfolio. The ranges noted above exclude any impact to the Company's reserve for unfunded commitments, which is expected to increase by between $250,000 and $350,000. The estimated decline in equity, net of tax, will range from $175,000 to $250,000. As time progresses and the results of economic conditions require model assumption inputs to change, further refinements to the estimation process may also be identified.

The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our critical accounting policies, which are included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," describe those significant accounting polices and methods used in the preparation of our consolidated financial statements that we consider critical because they require judgments, assumptions and estimates that materially affect our consolidated financial statements and related disclosures. As a result, if future events or regulatory views concerning such analysis differ significantly form the judgments, assumptions and estimates in our critical accounting polices, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures, in each case resulting in our need to revise or restate prior period financial statements, cause damage to our reputation and the price of our common stock and adversely affect our business, financial condition and results of operations.

Security breaches and technological disruptions could damage our reputation and profitability.

Our electronic banking activities expose us to possible liability and harm to our reputation should an unauthorized party gain access to confidential customer information. Despite our considerable efforts and investment to provide the security and authentication necessary to effect secure transmission of data, we cannot guarantee that these precautions will protect our systems from security compromises or breaches. Although we have developed systems and processes that are designed to recognize and assist in preventing security breaches (and periodically test our security), a failure to protect against or mitigate breaches of security could adversely affect our ability to offer and grow our online services, constitute a breach of privacy or other laws, result in costly litigation and loss of customer relationships, negatively impact our reputation, and could have an adverse effect on our business, results of operations and financial condition. We may also incur substantial increases in costs in an effort to minimize or mitigate cyber security risks and to respond to cyber incidents.

The potential for operational risk exposure exists throughout our business. Integral to our performance is the continued efficacy of our technology and information systems, operational infrastructure and relationships with third parties and colleagues in day-to-day and ongoing operations. A failure by any or all of these resources subjects us to risks that may vary in size, scale and scope. This includes, but is not limited to, operational or systems failures, disruption of client operations and activities, ineffectiveness or exposure due to interruption in third party support as well as the loss of key colleagues or failure on the part of key colleagues to perform properly.

We outsource a large portion of our data processing to third parties who may encounter technological or other difficulties that could in turn significantly limit or affect our ability to process and account for customer transactions. These vendors provide services that support our operations, including the storage and processing of sensitive consumer and business customer data, as well as our sales efforts. A cyber security breach of a vendor’s system may result in theft of our data or disruption of business processes. In most cases, we would be primarily liable to our customers for losses arising from a breach of a vendor’s data security system.

We also rely on our outsourced service providers to implement and maintain prudent cyber security controls. The loss of these vendor relationships could disrupt the services we provide to customers and cause us to incur significant expense in connection with replacing these services.

The Company depends primarily on the operations of the Bank to pay dividends, repurchase shares, repay its indebtedness and fund its operations. The Bank’s ability to pay dividends to the Company depends on the success of the Bank’s operations.

The Company is a separate and distinct legal entity from its subsidiary, the Bank, and it receives substantially all of its revenue from dividends paid by the Bank. There are legal limitations on the extent to which the Bank may extend credit, pay dividends or otherwise supply funds to, or engage in transactions with, the Company. The Company’s inability to receive dividends from the Bank could adversely affect its business, financial condition, results of operations and prospects. Even if applicable laws and regulations would permit the Bank to pay dividends to the Company and would permit the Company to pay dividends to our shareholders, our Board of Directors could determine that it is not in the best interest of the Company’s shareholders to do so in order to preserve or redeploy our capital resources, for example. For these reasons, the amount and frequency of dividends that we pay to shareholders may vary from time to time.

A reduction in the value, or impairment of our investment securities, can impact our earnings and common shareholders' equity.

Generally Accepted Accounting Principles (“GAAP”) requires that we carry our available-for-sale investment securities at fair value on our balance sheet. Unrealized gains or losses on these securities, reflecting the difference between the fair market value and the amortized cost, net of its tax effect, are reported as a component of shareholders’ equity. In certain instances, GAAP requires recognition through earnings of declines in the fair value of securities that are deemed to be other than temporarily impaired. Changes in the fair value of these securities may result from a number of circumstances that are beyond our control, such as changes in interest rates, the financial condition of municipalities, government sponsored enterprises or insurers of municipal bonds, changes in demand for these securities as a result of economic conditions, or reduced market liquidity. If our investment securities decline in market value and other than temporary impairments of these assets results, we would be required to recognize a loss which could have a material adverse effect on our net income and capital levels.

Damage to our reputation could significantly harm our business and prospects.

Our reputation is an important asset. Our relationship with many of our customers is predicated upon our reputation as a high-quality provider of financial services that adheres to the highest standards of ethics, service quality and regulatory compliance. Our ability to attract and retain customers, investors and employees depends upon external perceptions. Damage to our reputation among existing and potential customers, investors and employees could cause significant harm to our business and prospects and may arise from numerous sources, including litigation or regulatory actions, failing to deliver minimum standards of service and quality, lending practices, inadequate protection of customer information, sales and marketing efforts, compliance failures, unethical behavior and the misconduct of employees. Adverse developments in the banking industry may also, by association, negatively impact our reputation or result in greater regulatory or legislative scrutiny or litigation against us. We have policies and procedures in place intended to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors, and employees, costly litigation, a decline in revenues and increased governmental regulation.

We are exposed to risk of environmental liabilities with respect to real properties that we may acquire.

If our borrowers are unable to meet their loan repayment obligations, we will initiate foreclosure proceedings with respect to and may take actions to acquire title to the personal and real property that collateralized their loans. As an owner of such properties, we could become subject to environmental liabilities and incur substantial costs for any property damage, personal injury, investigation and clean-up that may be required due to any environmental contamination that may be found to exist at any of those properties, even though we did not engage in the activities that led to such contamination. In addition, if we were the owner or former owner of a contaminated site, we could be subject to common law claims by third parties seeking damages for environmental contamination emanating from the site. If we were to become subject to significant environmental liabilities or costs, our business, financial condition, results of operations and prospects could be adversely affected.

We are subject to extensive regulation and may face regulatory enforcement actions, incur fines, penalties and other negative consequences from regulatory violations.

Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on our operations. Over time, our business has been increasingly affected by the growing breadth of these regulations, and this trend is likely to continue. Federal and state banking regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations by bank holding companies and banks in the performance of their supervisory and enforcement duties. If banking regulators determine that we have violated laws or engaged in unsafe or unsound practices, we could face enforcement actions, incur fines, penalties, and other negative consequences. While we maintain systems and procedures designed to ensure that we comply with applicable laws and regulations, we cannot be certain that these will be effective. We may also suffer other negative consequences resulting from findings of noncompliance with laws and regulations which may also damage our reputation, and this in turn might materially affect our business and results of operations. Further, some legal/regulatory frameworks provide for the imposition of fines, restitution, or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there were in place at the time systems and procedures designed to ensure compliance.

Our participation in the SBA PPP loan program exposes us to risks related to noncompliance with the PPP, as well as litigation risk related to our administration of the PPP loan program, which could have a material adverse impact on our business, financial condition and results of operations.

We are a participating lender in the PPP, a loan program administered through the SBA which was created to help eligible businesses, organizations and self-employed persons fund their operational costs during the COVID-19 pandemic. We funded 2,256 PPP loans in the aggregate principal amount of $197 million and BFR funded 562 PPP loans in the aggregate principal amount of $60 million through December 31, 2022. Under the PPP, the SBA guarantees 100% of the amounts loaned under the PPP. There is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes us to risks relating to noncompliance with the PPP. In addition, a few other financial institutions have experienced litigation related to their process and procedures used in processing applications for the PPP. Any financial liability, regulatory enforcement, litigation costs or reputational damage stemming from our participation in the PPP and any related litigation could have a material adverse impact on our business, financial condition and results of operations. In addition, we may be exposed to credit risk on PPP loans if the SBA determines that there is a deficiency in the manner we originated, funded or serviced a PPP loan. If the SBA identifies a deficiency, the SBA may deny its liability under the guaranty for the affected loan or loans, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency.

The trading price of our common stock may fluctuate as a result of a number of factors, many of which are outside our control. Among the factors that could affect the trading price of our common stock are:

A significant decline in the trading price of our common stock price could result in substantial losses for individual shareholders and could lead to costly and disruptive securities litigation.

Although our common stock is traded on the Nasdaq Stock Market, trading volume to date has been relatively modest. The limited trading market for our common stock may lead to exaggerated fluctuations in market prices and possible market inefficiencies compared to more actively traded securities. It may also make it more difficult for investors to sell our common stock at desired prices, especially for holders seeking to dispose of a large number of shares of stock.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We have designed and implemented controls and procedures to provide reasonable assurance that the information we are required to disclose in the reports that we file with the SEC under the Exchange Act is accurately accumulated and communicated to our management, and recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. However, no disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide absolute assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, that alternative reasoned judgments can be drawn, or that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control systems, misstatements due to error or fraud may occur and not be detected, which could result in a material weakness in our internal controls over financial reporting and the correction or restatement of previously disclosed financial statements or information.

We rely on key executives and personnel and the loss of any of them could have a material adverse impact on our prospects.

Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the California and Nevada community banking industry. The process of recruiting personnel with the combination of skills and attributes required to carry out the Company’s strategies is often lengthy. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing, compliance, and technical personnel and upon the continued contributions of our management and personnel. In particular, our success has been and continues to be highly dependent upon the abilities and relationships of key executives and certain other employees.

Climate change may materially adversely affect the Company's business and results of operations.

Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. We and our clients will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our clients may face cost increases, asset value reductions and operating process changes. The impact on our clients will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in certain industry sectors. In addition, we could face reductions in creditworthiness on the part of some clients or in the value of assets securing loans. Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

Of the Company’s fourteen depository branches, twelve are owned and two are leased. Our Yuba City branch is classified as owned; however, it is subject to a long term land lease. The Company also leases three lending offices and three administrative offices and owns three administrative facilities.

(5) Future home to our Chico, California branch. This branch is expected to open for business early second quarter 2023.

Including variable lease expense, total rent expense for the years ended December 31, 2022, 2021 and 2020 were $611,000, $507,000 and $407,000, respectively. The expiration dates of the leases vary, with the first such lease expiring during 2024 and the last such lease expiring during 2044.

Future minimum lease payments for operating leases having initial or remaining noncancelable lease terms in excess of one year are as follows:

The Company maintains insurance coverage on its premises, leaseholds and equipment, including business interruption and record reconstruction coverage. The branch properties and non-branch offices are adequate, suitable, in good condition and have adequate parking facilities for customers and employees. The Company and Bank are limited in their investments in real property under Federal and state banking laws. Generally, investments in real property are either for the Company and Bank use or are in real property and real property interests in the ordinary course of the Bank’s business.

From time to time, the Company and/or its subsidiary are a 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 results of operations of the Company taken as a whole.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company’s common stock is traded on the NASDAQ Capital Market under the ticker symbol "PLBC". As of December 31, 2022, there were 5,850,216 shares of the Company’s common stock outstanding held by approximately 2,250 shareholders of record.

It is the policy of the Company to periodically distribute excess retained earnings to the shareholders through the payment of cash dividends. Our Board of Directors believes that dividends help promote shareholder value and capital adequacy by enhancing the marketability of the Company’s stock. During 2022 the Company paid quarterly cash dividends of $0.16 per share on each of November 15, 2022, August 15, 2022, May 16, 2022 and February 15, 2022. During 2021 the Company paid quarterly cash dividends of $0.14 per share on each of November 15, 2021, August 16, 2021, May 17, 2021 and February 15, 2021. During 2020 the Company paid three quarterly $0.12 per share dividends, one each on May 15, 2020, August 14, 2020 and November 16, 2020.

The payment of future dividends is at the discretion of the Board. The Board generally considers the payment of dividends each quarter based on a number of factors, including our results of operations, general business conditions, growth, financial condition, anticipated capital needs and other factors deemed relevant by the Board.

Further, the Company is subject to various restrictions on the payment of dividends. See Note 13 “Shareholders’ Equity – Dividend Restrictions” of the Company’s Consolidated Financial Statements in Item 8 – Financial Statements and Supplementary Data of this report.

Issuer Purchases of Equity Securities. We did not repurchase any shares of our common stock during the quarterly period ended December 31, 2022.

The following table presents a summary of selected financial data and should be read in conjunction with the Company’s consolidated financial statements and notes thereto included under Item 8 – Financial Statements and Supplementary Data.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, fees received in connection with servicing deposit and loan customers and gains from the sale of government guaranteed loans. 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.

The CARES Act provided for the Paycheck Protection Program (PPP) and additional legislation extended this program into 2021; we have actively participated in the PPP program. The remaining principal balance of PPP loans at December 31, 2022 was $300 thousand and the remaining balance of deferred fees related to these loans totaled $18 thousand at December 31, 2022. For the years ending December 31, 2022 and 2021 we recognized PPP fees, net of costs, totaling $1.3 million and $6.1 million, respectively.

On July 1, 2021, pursuant to a previously announced Agreement and Plan of Reorganization and Merger dated as of March 10, 2021 (the “Merger Agreement”) between the Company and Feather River Bancorp, Inc. (“FRB”), FRB merged with and into the Company with the Company continuing as the surviving corporation (the “Merger”). Immediately after the Merger, Bank of Feather River, the wholly owned bank subsidiary of FRB (“BFR”), merged with and into the Bank, with the Bank continuing as the surviving bank. BFR has become our Yuba City branch. The Merger and Bank Merger are collectively referred to as the “Transaction.”

As part of its business strategy, the Company regularly reviews its business strategies and opportunities to enhance the value of its franchise, including through acquisitions. The Transaction is consistent with the Company’s business strategy, which will (1) expand Plumas’ geographic presence into new markets in Northern California, (2) diversify and bring new expertise to Plumas’ agricultural lending business, and (3) strengthen the Company’s talent base.

Pursuant to the terms of the definitive merger agreement between the Company and FRB, each issued and outstanding share of common stock of FRB (the “Common Shares”), was converted into the right to receive, at the election of each holder of Common Shares, either (i) shares of common stock of the Company (“Plumas Common Stock”) or (ii) cash (the “Merger Consideration”). Shareholder elections were subject to proration such that aggregate Merger Consideration payable by the Company was comprised of (i) $4,738,583 in cash (the “Aggregate Cash Amount”) and (ii) 598,020 shares of Plumas Common Stock (the “Aggregate Plumas Share Amount”). Holders of Common Shares received either $19.14 in cash or 0.614 shares of Plumas Common Stock. The value of the total deal consideration was approximately $23.4 million, which is based upon the volume-weighted average trading price of Plumas common stock for the 10 trading days ending on the last trading day immediately preceding July 1, 2021, the closing date of the Merger.

Immediately after the Transaction, the newly combined company, operating as Plumas Bancorp with its banking subsidiary, Plumas Bank, had total assets of approximately $1.5 billion. The estimated fair value of assets acquired at July 1, 2021 was $205.0 million consisting of $28.4 million in cash, $160.4 million in net loans, $1.0 million in core deposit intangible, $5.5 million in goodwill and $9.7 million in other assets. The estimated fair value of deposits assumed totaled $176.7 million consisting of $89.5 million in non-interest bearing transaction accounts, $9.3 million in savings accounts, $45.6 million in money market accounts and $32.3 million in time deposits.

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 Loan Losses. The allowance for loan 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 loan 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. The overall allowance consists of two primary components, specific reserves related to impaired loans and general reserves for inherent losses related to loans that are collectively evaluated for impairment.

We evaluate our allowance for loan losses quarterly. We believe that the allowance for loan losses is a “critical accounting estimate” because it is based upon management’s assessment of various factors affecting the collectability of the loans, including current economic conditions, past credit experience, delinquency status, the value of the underlying collateral, if any, and a continuing review of the portfolio of loans.

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, which could result in actual losses that exceed reserves previously established.

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, 2022 and 2021 and for each of the three years in the period ended December 31, 2022. 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.

The Company recorded net income of $26.4 million for the year ended December 31, 2022, an increase of $5.4 million or 26% from net income of $21.0 million during the year ended December 31, 2021. Pretax income increased by $7.2 million, or 25%, to $35.7 million in 2022 from $28.5 million during the year ended December 31, 2021. Results for the twelve months ended December 31, 2022 and six months ended December 31, 2021, benefited from the acquisition of the Bank of Feather River (BFR), the wholly owned subsidiary of Feather River Bancorp, effective July 1, 2021. Total assets acquired from BFR, including goodwill, were $205 million. Loans acquired in the acquisition totaled $160 million and deposits totaled $177 million. Goodwill associated with the acquisition of Feather River Bancorp was $5.5 million and the core deposit intangible was $1.0 million.

In connection with the acquisition, the Company incurred a variety of non-recurring expenses. There were no material non-recurring expenses related to the acquisition during 2022. The non-recurring costs, exclusive of salaries and benefits, for the twelve months ended December 31, 2021, were $692 thousand consisting of $292 thousand in consulting costs including investment advisor fees, $171 thousand in legal expense, $175 thousand in outside service costs and $54 thousand in other expenses.

During the twelve months ended December 31, 2022, PPP fees net of the amortization of PPP origination costs were $1.3 million. This compares to $6.1 million during the twelve months ended December 31, 2021.

During the second and third quarters of 2021 the Company qualified for the Employee Retention Credit (ERC). The ERC was made available under the Coronavirus Aid, Relief, and Economic Security Act and modified and extended under the Taxpayer Certainty and Disaster Tax Relief Act of 2020. We recorded an ERC of $1.1 million during the 2021 second quarter and $1.2 million during the 2021 third quarter as a reduction of salary and benefit expense.

The provision for loan losses increased from $1.1 million during the twelve months ended December 31, 2021 to $1.3 million during 2022.

Net interest income increased by $11.6 million to $58.5 million during 2022 from $46.9 million for the year ended December 31, 2021. This increase in net interest income resulted from an increase in interest income of $11.7 million partially offset by an increase in interest expense of $113 thousand. Interest and fees on loans, including loans held for sale, increased by $2.4 million, interest on investment securities increased by $4.7 million and interest on other interest earning assets increased by $4.6 million.

During the year ended December 31, 2022 , non-interest income totaled $11.0 million, an increase of $2.3 million from the $8.7 million earned during 2021. Non-interest expense increased by $6.6 million from $26.0 million during 2021 to $32.6 million during the twelve months ending December 31, 2022. The provision for income taxes increased by $1.7 million from $7.5 million in 2021 to $9.2 million during the year ended December 31, 2022.

Total assets at December 31, 2022 were $1.6 billion, an increase of $7 million from December 31, 2021. The largest components of this increase were increases of $75 million in net loans, $139 million in investment securities and $18 million in accrued interest and other assets. These items were mostly offset by reductions of $197 million in cash and due from banks and $29 million in loans held for sale.

Gross loans, excluding loans held for sale, increased by $73 million, or 9%, from $839 million at December 31, 2021, to $912 million at December 31, 2022. Increases in loans included $97 million in commercial real estate loans, $8 million in automobile loans and $3 million in equity lines of credit; these items were partially offset by decreases of $23 million in commercial loans, $8 million in construction loans and $4 million in agricultural loans. Excluding PPP loan activity, commercial loans would have increased by $11 million and gross loans would have increased by $107 million or 13%. PPP loans totaled $300 thousand at December 31, 2022, and $35 million at December 31, 2021. Loans held for sale represent the guaranteed portion of SBA 7(a) loans. As of December 31, 2022 and December 31, 2021 the Company had $2.3 million and $31.3 million, respectively in SBA government guaranteed loans held for sale.

Total deposits increased by $18.8 million from $1.4 billion at December 31, 2021 to $1.5 billion at December 31, 2022. The increase in deposits includes increases of $30 million in demand deposits and $27 million in savings accounts. These increases were partially offset by declines of $23 million in money market accounts, and $15 million in time deposits. At December 31, 2022, 53% of the Company’s deposits were in the form of non-interest bearing demand deposits.

Shareholders’ equity decreased by $15.1 million from $134.1 million at December 31, 2021 to $119.0 million at December 31, 2022. The $15.1 million decrease was related to a reduction in accumulated other comprehensive income/loss of $38.4 million from accumulated other comprehensive income of $1.6 million at December 31, 2021 to an accumulated other comprehensive loss of $36.8 million at December 31, 2022. In addition, shareholder dividends decreased shareholders’ equity by $3.7 million. These items were partially offset by earnings during 2022 of $26.4 million and $571 thousand representing stock option and restricted stock activity.

Return on average assets was 1.61% during the twelve months ended December 31, 2022, up from 1.52% during 2021. Return on average equity increased to 21.9% for the twelve months ended December 31, 2022, up from 17.8% during 2021.

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.

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:

2022 compared to 2021. Net interest income is the difference between interest income and interest expense. Net interest income increased by $11.6 million to $58.5 million during 2022 from $46.9 million for the year ended December 31, 2021. Driven by a large increase in the federal funds rate during 2022, interest income increased by $11.7 million from $48.1 million during 2021 to $59.8 million during the twelve months ended December 31, 2022. The increase in the federal funds rate had a much smaller affect on the Company's interest expense which increased by $113 thousand to $1.2 million. Interest and fees on loans, including loans held for sale, increased by $2.4 million, interest on investment securities increased by $4.7 million and interest on interest-bearing cash and due from banks and deposits in banks increased by $4.6 million. Net interest margin for the year ended December 31, 2022 increased 19 basis points to 3.82%, up from 3.63% during 2021.

The $2.4 million increase in interest and fees on loans and loans held for sale resulted from an increase in average balance of $65 million partially offset by a decrease in yield of 13 basis points to 5.28%. Included in interest and fees on loans during the current year were PPP fees net of costs of $1.3 million, a decrease of $4.8 million from $6.1 million during 2021. Excluding interest and fees on PPP loans, loan yield would have increased by 13 basis points to 5.18% for the current year compared to 5.05% during the twelve months ended December 31, 2021. Interest on investment securities increased by $4.7 million related to an increase in average balance of $122 million and an increase in yield of 68 basis points from 1.84% during 2021 to 2.52% during 2022. Yield on taxable investment securities increased by 81 basis points and yield on non-taxable investment securities increased by 43 basis points. Interest on interest-bearing cash and due from banks and deposits in banks, which primarily relates to interest on cash balances held at the Federal Reserve Bank of San Francisco, increased by $4.6 million related to an increase in average balance of $52 million and an increase in the average rate paid on these balances from 0.14% during 2021 to 1.61% during 2022. This is consistent with the increase in the federal funds rate during 2022 from an average of 0.13% during 2021 to an average of 1.76% during 2022.

Interest expense on deposits increased by $43 thousand to $823 thousand during 2022, up from $780 thousand during 2021. The average rate paid on interest bearing deposits decreased slightly from 0.13% during 2021 to 0.12% during 2022, while average interest bearing deposits increased by $128 million to $714 million. In recent months, market rates for deposits have increased significantly and we would expect in 2023 an increase in our cost of interest bearing deposits.

Interest expense on junior subordinated debentures increased by $11 thousand from $348 thousand during 2021 to $359 thousand during 2022 and interest on other interest bearing liabilities increased by $59 thousand to $67 thousand.

Net interest margin is net interest income expressed as a percentage of average interest-earning assets. As a result of the changes noted above, the net interest margin for 2022 increased by 19 basis points to 3.82%.

2021 compared to 2020. Net interest income increased by $8.5 million to $46.9 million during 2021 from $38.4 million for the year ended December 31, 2020. This increase in net interest income resulted from an increase in interest income of $8.4 million and a decline in interest expense of $92 thousand. Interest on loans, including loans held for sale, increased by $7.3 million, interest on investment securities increased by $978 thousand and interest on interest-bearing cash and due from banks and deposits in banks increased by $135 thousand. Net interest margin for the year ended December 31, 2021 decreased 39 basis points to 3.63%, down from 4.02% during 2020.

Interest and fees on loans, including loans held for sale, increased by $7.3 million. This increase resulted from an increase in average balance of $102 million and an increase in yield of 26 basis points to 5.41%. Included in interest income during 2021 were the amortization of PPP fees, net of costs, of $6.1 million, an increase of $3.6 million from the same period in 2020. Excluding the effect of the PPP loans, loan yield would have declined by 18 basis points to 5.05% during 2021 and 5.23% during 2020. This is consistent with a decline in market interest rates during the comparison periods. Interest on investment securities increased by $978 thousand as an increase in average balance of $80 million was partially offset by a decline in yield of 31 basis points from 2.15% during 2020 to 1.84% during 2021.Yield on taxable investment securities declined by 37 basis points and yield on non-taxable investment securities declined by 28 basis points. Interest on interest-bearing cash and due from banks and deposits in banks, which primarily relates to interest on cash balances held at the Federal Reserve Bank of San Francisco, increased by $135 thousand related to an increase in average balance $157 million partially offset by a decline in the rate paid on these balances from 0.22% during 2020 to 0.14% during 2021.

Interest expense on deposits decreased by $52 thousand to $780 thousand during 2021, down from $832 thousand during 2020 . The largest components of this decrease were declines of $77 thousand in interest on Now accounts, and $6 thousand in interest on time deposits. The decline in NOW interest expense is related to the elimination of our NOW deposit product in November 2020. The largest increase in interest expense on deposits was an increase of $29 thousand in interest on money market accounts related to an increase in average balance of $110 million mostly offset by a decline in rate paid of 10 basis points from 24 basis points during 2020 to 14 basis points during 2021. The average rate paid on interest bearing deposits declined from 0.18% during 2020 to 0.13% during 2021, while average interest bearing deposits increased by $123 million to $586 million.

Interest expense on junior subordinated debentures decreased by $37 thousand from $385 thousand during 2020 to $348 thousand during the 2020. This decrease was related to a decrease in rate paid on junior subordinated debentures from 3.73% during 2020 to 3.38% during 2021. For most of the first half of 2020 interest on the debentures fluctuated with changes in the 3-month LIBOR rate. On May 26, 2020 we entered into two separate interest rate swap agreements, effectively converting the $10 million in Subordinated Debentures to fixed obligations effective with the quarterly payments due in September, 2020. The swaps have a 10 year maturity and fix the LIBOR rate on the Subordinated Debentures at approximately 75 basis points.

As a result of the changes noted above, the net interest margin for 2021 decreased by 39 basis points to 3.63%.

During the year ended December 31, 2022 we recorded a provision for loan losses of $1.3 million an increase of $175 thousand from $1.1 million during the year ended December 31, 2021. See “Analysis of Asset Quality and Allowance for Loan Losses” for further discussion of loan quality trends and the provision for loan losses.

The allowance for loan losses is maintained at a level that management believes will be appropriate to absorb inherent losses on existing loans based on an evaluation of the collectability of the loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower's ability to repay their loan. The allowance for loan losses is based on estimates, and ultimate losses may vary from the current estimates.

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 loan 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.

The following table sets forth the components of non-interest income for the years ended December 31, 2022, 2021 and 2020.

2022 compared to 2021. During 2022, non-interest income totaled $11.0 million, an increase of $2.3 million from the $8.7 million earned during 2021. This increase included increases in several categories of non-interest income, the largest of which was $1.7 million in gains on sale of SBA loans. During 2022, we sold $50.5 million in guaranteed portions of SBA loans. This compares to sales of $14.2 million during 2021. Loans held for sale at December 31, 2022 and 2021 totaling $2.3 million and $31.3 million, respectively consist of the guaranteed portion of SBA 7(a) loans.

2021 compared to 2020. During 2021, non-interest income totaled $8.7 million, an increase of $253 thousand from the $8.5 million earned during 2020. This increase included increases in several categories of non-interest income, the largest of which were $711 thousand in interchange income, which was mostly related to an increase in the size of the bank, and $230 thousand in other income. The increase in other income mostly relates to insurance proceeds related to fire damage at our Greenville, California branch. These items were partially offset by decreases of $336 thousand in gains on sale of loans, a $218 thousand gain on sale of an administrative building in 2020 and a $209 thousand loss on sale of investment securities classified as available for sale. While gains on sale of loans decreased by $336 thousand, loans held for sale increased by $30.6 million to $31.3 million. During the year ended December 31, 2021 the Company sold twenty-nine available-for-sale investment securities for total proceeds of $20 million recording a $209 thousand loss on sale.

The following table sets forth the components of other non-interest expense for the years ended December 31, 2022, 2021 and 2020.

2022 compared to 2021. During 2022, non-interest expense increased by $6.6 million. The largest components of this increase were $4.7 million in salary and benefit expense, $627 thousand in occupancy and equipment costs, $304 thousand in outside service fees, $242 thousand in advertising and shareholder relations and $163 thousand in business development expense. The largest component of the increase in salary and benefit expense was related to a $2.3 million ERC recorded in 2021 as a reduction in salary and benefit expense. The ERC was made available under the Coronavirus Aid, Relief, and Economic Security Act and modified and extended under the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Other significant increases in salary and benefit expense include $1.4 million in salary expense and $889 thousand in accrued bonus expense. The salary expense includes normal merit increases, promotional increases and and a full year of salaries at our Yuba City branch. The increase in bonus expense includes the affect of the increase in pretax pre-bonus income during the comparison period as well as an increase in performance compared to peers.

The increase in occupancy and equipment expense includes $293 thousand related to a full year of operations of our Yuba City branch. The largest components of the increase in outside service fees were $227 thousand in interchange fees and ATM processing costs and $90 thousand in human resources administration and payroll processing. The increase in advertising and shareholder costs mostly relates to an increase of $219 thousand in expense paid to an advertising agency which is primarily focused on building our brand in Northern Nevada. The increase in business development expense mostly relates to increases in travel, and education and training expenses from relatively low levels during 2021 and 2020 related to the Pandemic.

2021 compared to 2020. During the twelve months ended December 31, 2021, total non-interest expense increased by $2.3 million from the comparable period in 2020. The largest components of this increase were increases of $882 thousand in outside service fees, $623 thousand in professional fees and $621 thousand in occupancy and equipment expense. Increases in outside service fees include operating costs associated with our Yuba City branch including data processing, item processing, statement processing, online banking expenses and network administration totaling $183 thousand and merger related costs of $175 thousand. Other significant increases in outside service fees include $121 thousand in interchange expense consistent with the increase in interchange income and $210 thousand in costs related to outsourcing of various Human Resources functions effective April 1, 2021. Professional fees included legal, investment banking, consulting and accounting costs related to the acquisition of Bank of Feather River totaling $482 thousand. In addition to merger related costs, the single largest increases in professional fees were $82 thousand in costs related to converting our loan files to a digital document imaging system and $66 thousand in consulting costs related to implementation of the current expected credit losses methodology for estimating allowances for credit losses. Both of these projects are ongoing. The largest single increase in occupancy and equipment costs was $325 thousand in occupancy and equipment costs at the Yuba City branch.

Partially offsetting the above increases in non-interest expense was a decline of $490 thousand in salary and benefit expense. We recorded an ERC of $2.3 million during 2021 as a reduction of salary and benefit expense. In addition to the ERC, the deferral of loan origination costs, which reduces salary and benefit expense, increased by $1.2 million which was mostly related to SBA loan production activities. These items were partially offset by an increase in other components of salary and benefit expense, the largest of which were an increase of $1.1 million in bonus expense consistent with the increase in pre-tax pre bonus income during the comparable periods and an increase in commission expense of $622 thousand related to an increase in SBA activity as well as commissions earned on PPP loan production and forgiveness activities and an increase in salary expense of $1.2 million of which $721 thousand was related to the Yuba City branch.

Provision for Income Taxes. The Company recorded an income tax provision of $9.2 million, or 25.9% of pre-tax income for the year ended December 31, 2022. This compares to an income tax provision of $7.5 million, or 26.2% of pre-tax income during 2021. The percentages for 2022 and 2021 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. The effect of these items during 2021 was somewhat offset by nondeductible merger expenses.

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, 2022 and 2021 will be fully realized and therefore no valuation allowance was recorded.

Deposits totaled $1.5 billion at December 31, 2022, an increase of $18.8 million from December 31, 2021. Mostly related to a $38.4 million decrease in other comprehensive loss/income from income of $1.6 million at December 31, 2021 to a loss of $36.8 million at December 31, 2022, shareholders’ equity decreased by $15.1 million from $134.1 million at December 31, 2021 to $119.0 million at December 31, 2022.

Loan Portfolio. Gross loans, excluding loans held for sale, increased by $73 million, or 9%, from $839 million at December 31, 2021, to $912 million at December 31, 2022. Increases in loans included $97 million in commercial real estate loans, $8 million in automobile loans and $3 million in equity lines of credit; these items were partially offset by decreases of $23 million in commercial loans, $8 million in construction loans and $4 million in agricultural loans. Excluding PPP loan activity, commercial loans would have increased by $11 million and gross loans would have increased by $107 million or 13%. PPP loans totaled $300 thousand at December 31, 2022, and $35 million at December 31, 2021. Loans held for sale decreased by $29.0 million to $2.3 million at December 31, 2022. See page 36 for additional information related to Loans Held for Sale.

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.

		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	18
Item 3.	Legal Proceedings	19
Item 4.	Mine Safety Disclosures	19
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	[RESERVED]	21
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 8.	Financial Statements and Supplementary Data	F-1
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	42
Item 9A.	Controls and Procedures	42
Item 9B.	Other Information	42
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	42
PART III

Item 10.	Directors, Executive Officers and Corporate Governance	43
Item 11.	Executive Compensation	43
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	43
Item 13.	Certain Relationships and Related Transactions, and Director Independence	43
Item 14.	Principal Accountant Fees and Services	43
PART IV
Item 15.	Exhibits and Financial Statement Schedules	43
Item 16.	Form 10-K Summary	46
	Signatures	47

	■	Operational interruptions including data processing systems failure and fraud.

	■	Cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national or global level.

	■	The possibility that we may reduce or discontinue the payments of dividends on common stock.

	■	Risk associated with or resulting from our growth strategy.

	■	Natural disasters, earthquakes, fires, and severe weather.

	■	Our success in managing the risks involved in the foregoing.

Owned Properties
35 South Lindan Avenue	32 Central Avenue	80 W. Main St.
Quincy, California (1)	Quincy, California (1)	Quincy, California (1)

215 N. Lake Boulevard	336 West Main Street	120 North Pine Street
Tahoe City, California	Quincy, California	Portola, California

43163 Highway 299 E	121 Crescent Street	255 Main Street
Fall River Mills, California	Greenville, California	Chester, California

510 North Main Street	3000 Riverside Drive	8475 North Lake Boulevard
Alturas, California	Susanville, California	Kings Beach, California

11638 Donner Pass Road	5050 Meadowood Mall Circle	1280 Bridge St.
Truckee, California	Reno, Nevada	Yuba City, California (4)

900 Mangrove Avenue
Chico, California (5)
Leased Properties
100 Amber Grove Dr. Suite 105	1335 Hilltop Drive	11641 Blocker Dr. Suite 140
Chico, CA (3)	Redding, California	Auburn, California (2)

1101 N. Carson St.	107 S. 7^th St.	5525 Kietzke Lane, Suite 100
Carson City, Nevada	Klamath Falls, OR (3)	Reno, Nevada (1)

424 N. Mill Creek	495 Idaho Street #102
Quincy, California (1)	Elko, Nevada (1)

Year Ending December 31,
2023	$	539,000
2024		481,000
2025		385,000
2026		263,000
2027		232,000
Thereafter		2,830,000
	$	4,730,000

	At or for the year ended December 31,
	2022			2021			2020			2019			2018
	*(dollars in thousands except per share information)*
Statement of Income
Interest income	$	59,758		$	48,070		$	39,624		$	39,302		$	34,322
Interest expense		1,249			1,136			1,228			1,747			1,236
Net interest income		58,509			46,934			38,396			37,555			33,086
Provision for loan losses		1,300			1,125			3,175			1,500			1,000
Non-interest income		11,050			8,716			8,463			8,135			8,881
Non-interest expense		32,590			26,038			23,732			22,810			21,841
Net income before income taxes		35,669			28,487			19,952			21,380			19,126
Provision for income taxes		9,225			7,478			5,477			5,868			5,134
Net income	$	26,444		$	21,009		$	14,475		$	15,512		$	13,992

Total assets	$	1,621,044		$	1,614,074		$	1,111,576		$	865,191		$	824,398
Total gross loans	$	911,949		$	838,587		$	709,246		$	617,561		$	564,898
Loans held for sale	$	2,301		$	31,277		$	693		$	2,123		$	1,301
Allowance for loan losses	$	10,717		$	10,352		$	9,902		$	7,243		$	6,958
Total deposits	$	1,457,809		$	1,438,999		$	973,974		$	747,324		$	726,565
Total shareholders’ equity	$	119,004		$	134,082		$	100,154		$	84,505		$	66,932
Balance sheet (period average)
Total assets	$	1,642,895		$	1,386,028		$	1,015,297		$	852,664		$	764,326
Total gross loans	$	856,728		$	785,527		$	695,024		$	586,672		$	513,689
Loans held for sale	$	8,771		$	15,258		$	4,231		$	2,186		$	4,937
Total deposits	$	1,487,346		$	1,231,618		$	886,515		$	747,196		$	677,829
Total shareholders’ equity	$	120,868		$	117,967		$	93,152		$	76,737		$	60,080
Asset quality ratios
Nonperforming loans/total loans		0.13	%		0.58	%		0.36	%		0.33	%		0.20	%
Nonperforming assets/total assets		0.07	%		0.33	%		0.27	%		0.33	%		0.28	%
Allowance for loan losses/total loans		1.18	%		1.23	%		1.40	%		1.17	%		1.23	%
Net loan charge-offs	$	935		$	675		$	516		$	1,215		$	711
Performance ratios
Return on average assets		1.61	%		1.52	%		1.43	%		1.82	%		1.83	%
Return on average equity		21.9	%		17.8	%		15.5	%		20.2	%		23.3	%
Net interest margin		3.82	%		3.63	%		4.02	%		4.75	%		4.70	%
Loans to deposits		62.6	%		58.3	%		72.9	%		82.6	%		77.7	%
Efficiency ratio ⁽¹⁾		46.9	%		46.8	%		50.6	%		49.9	%		52.0	%
Per share information
Basic earnings	$	4.53		$	3.82		$	2.80		$	3.01		$	2.74
Diluted earnings	$	4.47		$	3.76		$	2.77		$	2.97		$	2.68
Common cash dividends	$	0.64		$	0.56		$	0.36		$	0.46		$	0.36
Book value per common share	$	20.34		$	23.05		$	19.33		$	16.36		$	13.03
Common shares outstanding at period end		5,850,216			5,816,991			5,182,232			5,165,760			5,137,476
Capital ratios – Plumas Bank
Leverage ratio		9.2	%		8.4	%		9.2	%		10.4	%		9.3	%
Tier 1 risk-based capital		14.7	%		14.4	%		14.2	%		13.1	%		11.8	%
Total risk-based capital		15.7	%		15.5	%		15.4	%		14.2	%		13.0	%


	■	Local, regional, national and international economic conditions and the impact they may have on us and our customers, and our assessment of that impact on our estimates including, but not limited to, the allowance for loan losses.

	Year ended December 31,
	2022							2021							2020
			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	$	305,095	$	4,923		1.61	%	$	253,023	$	345		0.14	%	$	95,591	$	210		0.22	%
Taxable investment securities		258,732		6,409		2.48	%		164,199		2,746		1.67	%		119,968		2,451		2.04	%
Non-taxable investment securities (1)		103,366		2,722		2.63	%		75,673		1,666		2.20	%		39,576		983		2.48	%
Loans held for sale		8,771		510		5.81	%		15,258		826		5.41	%		4,231		254		6.00	%
Total loans (2)(3)		856,728		45,194		5.28	%		785,527		42,487		5.41	%		695,024		35,726		5.14	%
Total earning assets		1,532,692		59,758		3.90	%		1,293,680		48,070		3.72	%		954,390		39,624		4.15	%
Cash and due from banks		40,520							44,396							23,654
Other assets		69,683							47,952							37,253
Total assets	$	1,642,895						$	1,386,028						$	1,015,297

Liabilities and shareholders’ equity
Interest bearing demand deposits	$	-	$	-		0.00	%	$	-	$	-		0.00	%	$	97,395	$	77		0.08	%
Money market deposits		254,723		284		0.11	%		224,776		307		0.14	%		115,203		278		0.24	%
Savings deposits		400,314		376		0.09	%		306,911		280		0.09	%		212,470		278		0.13	%
Time deposits		59,016		163		0.28	%		53,976		193		0.36	%		38,003		199		0.52	%
Junior subordinated debentures		10,310		359		3.48	%		10,310		348		3.38	%		10,310		385		3.73	%
Repurchase agreements and other		12,327		67		0.54	%		13,419		8		0.06	%		11,899		11		0.09	%
Total interest-bearing liabilities		736,690		1,249		0.17	%		609,392		1,136		0.19	%		485,280		1,228		0.25	%
Noninterest bearing demand deposits		773,293							645,955							423,444
Other liabilities		12,044							12,714							13,421
Shareholders’ equity		120,868							117,967							93,152
Total liabilities and shareholders’ equity	$	1,642,895						$	1,386,028						$	1,015,297
Net interest income			$	58,509						$	46,934						$	38,396
Net interest spread (4)						3.73	%						3.53	%						3.90	%
Net interest margin (5)						3.82	%						3.63	%						4.02	%

⁽¹⁾	Interest income is reflected on an actual basis and is not computed on a tax-equivalent basis.

⁽²⁾	Average nonaccrual loan balances of $2.8 million for 2022, $4.4 million for 2021 and $2.3 million for 2020 are included in average loan balances for computational purposes.

⁽³⁾	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 loan fees of $234 thousand, $5.7 million and $1.4 million for 2022, 2021 and 2020, respectively.

⁽⁴⁾	Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

⁽⁵⁾	Net interest margin is computed by dividing net interest income by total average earning assets.

	2022 compared to 2021												2021 compared to 2020
	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	$	71		$	3,738		$	769		$	4,578		$	346		$	(80	)	$	(131	)	$	135
Taxable investment securities		1,581			1,321			761			3,663			904			(445	)		(164	)		295
Non-taxable investment securities		610			327			119			1,056			897			(112	)		(102	)		683
Loans held for sale		(351	)		61			(26	)		(316	)		662			(25	)		(65	)		572
Loans		3,851			(1,049	)		(95	)		2,707			4,652			1,866			243			6,761
Total interest income		5,762			4,398			1,528			11,688			7,461			1,204			(219	)		8,446

Interest-bearing liabilities:
Interest bearing demand deposits		-			-			-			-			(77	)		-			-			(77	)
Money market deposits		41			(56	)		(8	)		(23	)		265			(121	)		(115	)		29
Savings deposits		85			8			3			96			123			(84	)		(37	)		2
Time deposits		18			(44	)		(4	)		(30	)		84			(63	)		(27	)		(6	)
Junior subordinated debentures		-			11			-			11			-			(37	)		-			(37	)
Repurchase agreements and other		(1	)		65			(5	)		59			1			(4	)		-			(3	)
Total interest expense		143			(16	)		(14	)		113			396			(309	)		(179	)		(92	)

Net interest income	$	5,619		$	4,414		$	1,542		$	11,575		$	7,065		$	1,513		$	(40	)	$	8,538

	Years Ended December 31,							Change during Year
	2022		2021			2020		2022		2021
	*(dollars in thousands)*
Interchange revenue	$	3,401	$	3,279		$	2,568	$	122	$	711
Gain on sale of loans, net		2,696		1,008			1,344		1,688		(336	)
Service charges on deposit accounts		2,464		2,349			2,323		115		26
Loan servicing fees		893		852			841		41		11
Earnings on bank owned life insurance policies		391		380			342		11		38
Gain on sale of building		-		-			218		-		(218	)
Loss on sale of investments		-		(209	)		-		209		(209	)
Other income		1,205		1,057			827		148		230
Total non-interest income	$	11,050	$	8,716		$	8,463	$	2,334	$	253