PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP AND SUBSIDIARY 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 

(in thousands, except shares)

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Continued on next page.

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

(Continued)

See notes to unaudited condensed consolidated financial statements.  

PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. THE BUSINESS OF PLUMAS BANCORP

During 2002, Plumas Bancorp (the "Company") was incorporated as a bank holding company for the purpose of acquiring Plumas Bank (the "Bank") in a one bank holding company reorganization. This corporate structure gives the Company and the Bank greater flexibility in terms of operation, expansion and diversification. The Company formed Plumas Statutory Trust I ("Trust I") for the sole purpose of issuing trust preferred securities on September 26, 2002. The Company formed Plumas Statutory Trust II ("Trust II") for the sole purpose of issuing trust preferred securities on September 28, 2005. In March 2023 the Trusts were dissolved. Plumas Bancorp's Principal Executive Office is located in Reno, Nevada.

The Bank operates twelvethirteen branches in California, including branches in Alturas, Chester, Chico, Fall River Mills, Greenville, Kings Beach, Portola, Quincy, Redding, Susanville, Tahoe City,  Truckee and Yuba City. The Bank's Yuba Citynewest branch was acquired upon the acquisition of Feather River Bancorp onopened in July 1, 2021.April 2023 and is located in Chico, California. The Bank’s administrative headquarters are in Quincy, California. In December 2015 the Bank opened a branch in Reno, Nevada, its first branch outside of California, and in 2018 the Bank purchased a branch located in Carson City, Nevada. In addition, the Bank operates a lending office specializing in government-guaranteed lending in Auburn, California, and a commercial/agricultural lending officesoffice in Chico, California and Klamath Falls, Oregon. The Bank's primary source of revenue is generated from providing loans to customers who are predominately small and middle market businesses and individuals residing in the surrounding areas.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation and Basis of Presentation

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

Plumas Statutory Trust I and Trust II are not consolidated into the Company's consolidated financial statements and, accordingly, are accounted for under the equity method. The Company's investment in Trust I of $371,000$374,000 and Trust II of $186,000$188,000 are included in accrued interest receivable and other assets on the consolidated balance sheet. sheet at December 31, 2022. The junior subordinated deferrable interest debentures issued and guaranteed by the Company and held by Trust I and Trust II are reflected as debt on the consolidated balance sheet.sheet at December 31, 2022.  In March 2023 the Company redeemed the debentures and the Trusts were dissolved.

The accounting and reporting policies of Plumas Bancorp and subsidiary conform with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position at SeptemberJune 30, 20222023 and the results of its operations and its cash flows for the three and ninesix-month periods. Our condensed consolidated balance sheet at December 31, 20212022 is derived from audited financial statements.

The unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. Accordingly, certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 20212022 Annual Report to Shareholders on Form 10-K. The results of operations for the three and ninesix-month periods ended SeptemberJune 30, 20222023, may not necessarily be indicative of future operating results. In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the periods reported. Actual results could differ significantly from those estimates.

Segment Information

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

RevenueAllowance for Credit Losses - Loans

The allowance for credit losses (ACL) is a valuation account that is deducted from Contractsthe loan's amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the recorded loan balance is confirmed as uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with Customersthe original contract or modified terms, if appropriate.

Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company identified and accumulated loan cohort historical loss data beginning with the first quarter of 2004 and through the current period. In situations where the Company's actual loss history was not statistically relevant, the loss history of peers, defined as financial institutions with assets greater than seven hundred and fifty million and less than three billion, were utilized to create a minimum loss rate.  In its loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to changes in environmental conditions, such as California unemployment rates, California Housing Prices, California gross domestic product, California Retail Trade Earnings and Wall Street Journal Prime Rate.

A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. The ACL on collateral dependent loans is measured using the amortized cost basis of the financial asset less the fair value of the underlying collateral, adjusted for costs to sell when applicable.  If the value of underlying collateral is determined to be less than the recorded amount of the loan, a specific reserve for that loan is recorded. If the Company determines that the loss represented by the specific reserve is uncollectable it records a charge-off for the uncollectable portion.

The Company records revenue from contractshas identified the following portfolio segments to evaluate and measure the allowance for credit loss:

Commercial: Primarily based on the cash flow of the borrower, and secondarily on the underlying collateral provided by the borrower. A borrower's cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Most often, collateral includes accounts receivable, inventory, or equipment. Collateral securing these loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. Actual and forecast changes in California gross domestic product paired with customers in accordanceCalifornia unemployment are believed to be corollary to losses associated with Accounting Standards Codification Topic 606, “Revenue from Contractsthese credits.

Agricultural: Loans secured by farmland represent unique risks that are associated with Customers” (“Topic 606”). Under Topic 606,the Company must identifyoperation of an agricultural business. The valuation of farmland can vary greatly over time based on the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction priceproperty's access to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue hasresources including but not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

Most of the Company’s revenue-generating transactions are not subjectlimited to ASC 606, including revenue generated from financial instruments, such as the Company’s loanswater, crop prices, foreign exchange rates, government regulation or restrictions, and investment securities. The Company has evaluated the nature of ongoing capital investment needed to maintain the quality of the property. Loans secured by crop production, and livestock are especially vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Real estate - residential: The most significant drivers of potential loss within the Company's residential real estate portfolio relate to general, regional, or individual changes in economic conditions and their effect on employment and borrowers cash flow. Risk in this portfolio is best measured by changes in borrower credit score and loan-to-value. Loss estimates are based on economic outlook and its contracts with customerseffects on employment and determined that further disaggregationthe value of revenue from contracts with customers into more granular categories beyond what is presentedhomes and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.

Real estate - commercial: These credits are primarily susceptible to changes in the Condensed Consolidated Statementsfinancial condition of Income wasthe business operated by the property owner. This may be driven by changes in, among other things, industry challenges, factors unique to the operating geography of the borrower, change in the individual fortunes of the business owner, general economic conditions and changes in business cycles. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven more by general economic conditions, the underlying collateral may have devalued more and thus result in larger losses in the event of default. The terms on these loans at origination typically have maturities from ten to twenty-five years with amortization periods from five to thirty years.

Construction: While secured by real estate, construction loans represent a greater level of risk than term real estate loans due to the nature of the additional risks associated with not necessary.only the completion of construction within an estimated time period and budget, but also the need to either sell the building or reach a level of stabilized occupancy sufficient to generate the cash flows necessary to support debt service and operating costs. The Company generally fully satisfies itsseeks to mitigate the additional risks associated with construction lending by requiring borrowers to comply with lower loan to value ratios and additional covenants as well as strong tertiary support of guarantors. The loss forecasting model applies the historical rate of loss for similar loans over the expected construction life of the asset as adjusted for macroeconomic factors.

Home equity lines of credit (HELOC): Similar to residential real estate term loans, HELOC performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed, charged either on a periodic basis oris also primarily driven by borrower cash flows based on activity. Because performance obligationsemployment status. However, HELOCs carry additional risks associated with the fact that most of these loans are satisfiedsecured by a deed of trust in a position that is junior to the primary lien holder. Furthermore, the risk that as servicesthe borrower's financial strength deteriorates, the outstanding balance on these credit lines may increase as they may only be canceled by the Company if certain limited criteria are rendered andmet. In addition to the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determinationallowance for credit losses maintained as a percent of the amountoutstanding loan balance, the Company maintains additional reserves for the unfunded portion of the HELOC.

Automobile: Automobile loans are susceptible to three primary risks: non-payment due to income loss, over-extension of credit and, timingwhen the borrower is unable to pay, shortfall in collateral value, if any. Typically, non-payment is due to loss of revenue from contractsjob and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors.

Other: Other loans primarily consist of consumer loans which are similar in nature to automobile loans and overdrafts.

Unfunded commitments: The estimated credit losses associated with customers.these unfunded lending commitments are calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default. The reserve for unfunded commitments is maintained on the balance sheet in other liabilities.

Reclassification

Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation.  Reclassifications had no effect on prior year net income or shareholders' equity.

Loans Held for SaleAccounting Standards Adopted in 2023

Included in the loan portfolio are loans which are 75% to 90% guaranteed by the Small Business Administration (SBA), US Department of Agriculture Rural Business-Cooperative Service (RBS) and Farm Service Agency (FSA). The guaranteed portion of these loansOn may be sold to a third party, with the Bank retaining the unguaranteed portion. The Company can receive a premium in excess of the adjusted carrying value of the loan at the time of sale.

As of September 30, 2022 and December 31, 2021January 1, 2023, the Company had $434 thousand and $31.3 million, respectively in SBA government guaranteed loans held for sale. Loans held for sale are recorded at the lower of cost or fair value and therefore may be reported at fair value on a non-recurring basis. The fair values for loans held for sale are based on either observable transactions of similar instruments or formally committed loan sale prices.

Goodwill and Other Intangible Assets

Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill acquired in a purchase business combination and determined to have an indefinite useful life is not amortized, but is tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.  Core deposit intangible represents estimated future benefit of deposits related to an acquisition and is booked separately from the related deposits and is evaluated periodically for impairment. The core deposit intangible asset is amortized on an accelerated method over its estimated useful life of ten years.

Pending Accounting Pronouncements

In June 2016, the FASB issuedadopted ASUNo. 2016-13,03 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No.2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model,Instruments, which replaces the incurred loss methodology. This is referred to as the current expected credit loss (“CECL”) model, will apply to: (1)(CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets subjectmeasured at amortized costs, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit lossesexposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases. In addition, ASC 326 made changes to the accounting for available for sale debt securities. 

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and (2) certain off-balance sheet credit exposures. This includes, but isResults for the reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the Standard, management did not limited to, loans, leases, held-to- maturity securities, loan commitments, and financial guarantees.reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. 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 thatremaining noncredit discount (based on the lossesadjusted amortized costs basis) will be accreted into interest income at the effective interest rate as of adoption. The Company recognized as allowances rather than reductionsan increase in the amortized costACL for loans totaling $529,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $156,000 in taxes.  Additionally, the Company recognized an increase in the reserve for unfunded commitments of $257,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $76,000 in taxes.

On January 1, 2023, the Company adopted ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the securities. Effects of Reference Rate Reform on Financial Reporting.  The ASU also simplifies the accounting modelprovides optional expedients and exceptions 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 forapplying GAAP to loan and lease losses. On agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with October 16, 2019, no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. In December 2022,the FASB approved a proposal to changeissued ASU 2022-06,Reference Rate Reform (Topic 848): Deferral of the effectiveSunset Date of Topic 848. The ASU 2022-06 deferred the sunset date of ASU No.2020-201604-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities, delaying the effective date to fiscal years beginning after December 31, 2022,2024. including interim periodsOnce elected for a Topic or an Industry Subtopic within those fiscal periods. Asthe Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The adoption of the ASU provisions did not have a significant impact on the Company’s consolidated financial statements as the Company is a smaller reporting companyhas an insignificant number of financial instruments applicable to this ASU.

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and hasVintage Disclosures. The ASU eliminates the recognition and measurement guidance for troubled debt restructurings and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. This ASU also requires enhanced disclosure for loans that have been charged off.  The adoption of the ASU provisions did not adopted provisions of the standard early, the delay is applicable to the Company. The Company has begun its implementation efforts by establishing an implementation team chaired byhave a significant impact on the Company’s Chief Credit Officer and composed of members of the Company’s credit administration and accounting departments. We have purchased software to support the CECL calculation of the allowance for loan losses under ASU No.2016-13. During the second quarter of 2021 we engaged a consultant to perform a model validation of our CECL model and to assist us in documenting all aspects of the CECL model. The Company’s preliminary evaluation indicates the provisions of ASU No.2016-13 are expected to impact the Company’s Consolidated Financial Statements, in particular the level of the reserve for credit losses. However, the Company continues to evaluate the extent of the potential impact.consolidated financial statements.

3.   INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost and estimated fair value of investment securities at SeptemberJune 30, 20222023 and December 31, 20212022 consisted of the following, in thousands:

Unrealized losses on available-for-sale investment securities totaling $62,156,000$54,474,000 were recorded, net of $18,373,000$16,102,000 in tax benefit, as accumulated other comprehensive loss within shareholders' equity at SeptemberJune 30, 20222023.  No securities were sold during the ninesix months ended SeptemberJune 30, 20222023.

Unrealized gainslosses on available-for-sale investment securities totaling $1,666,000$54,183,000 were recorded, net of $493,000$16,017,000 in tax expense, as accumulated other comprehensive income within shareholders' equity at December 31, 20212022. No securities were sold during the ninesix months ended SeptemberJune 30, 20212022.

There were no transfers of available-for-sale investment securities during the ninesix months ended SeptemberJune 30, 20222023 and twelve months ended December 31, 20212022. There were no securities classified as held-to-maturity at SeptemberJune 30, 20222023 or December 31, 20212022.

Investment securities with unrealized losses at SeptemberJune 30, 20222023 and December 31, 20212022 are summarized and classified according to the duration of the loss period as follows, in thousands:

At SeptemberJune 30, 2022,2023, the Company held 373412 securities of which 312131 were in a loss position for less than twelve months and 61249 were in a loss position for twelve months or more. Of the 373412 securities 3 are U.S. Treasury securities, 110124 are U.S. Government-sponsored agencies collateralized by residential mortgage obligations, 3345 were U.S. Government agencies collateralized by commercial mortgage obligations and 227240 were obligations of states and political subdivisions. The unrealized losses relate principally to market rate conditions. All of the securities continue to pay as scheduled. When analyzingFor available-for sale debt securities in an issuer’s financial condition, management considersunrealized loss position, the length of time and extent to which the market value has been less than cost; the historical and implied volatility of the security; the financial condition of the issuer of the security; and the Company’s intent and ability to hold the security to recovery. As ofCompany September 30, 2022, management does notfirst have the intentassesses whether it intends to sell, these securities, nor does it believeor it is more likely than not that it will be required to sell these securitiesthe security before the recovery of its amortized costcosts basis.  Based on the Company’s evaluationIf either of the above and other relevant factors,criteria regarding intent or requirement to sell is met, the Company doessecurity's amortized cost basis is written down to fair value through income.  At notJune 30, 2023, believeneither of the criteria regarding intent or requirement to sell was met for any of securities that are in an unrealized loss position as of September 30, 2022 are other than temporarily impaired.position.

The amortized cost and estimated fair value of investment in debt securities at SeptemberJune 30, 20222023 by contractual maturity are shown below, in thousands.

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

Investment securities with amortized costs totaling $156,024,000$302,590,000 and $134,749,000$189,358,000 and estimated fair values totaling $132,998,000$267,514,000 and $134,791,000$166,728,000 at SeptemberJune 30, 20222023 and December 31, 20212022, respectively, were pledged to secure deposits, repurchase agreements and repurchase agreements.Federal Reserve Bank borrowings. 

4. LOANS AND THE ALLOWANCE FOR LOANCREDIT LOSSES

Outstanding loans are summarized below, in thousands:

To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various econometrics, including California unemployment rates, California Housing Prices, California gross domestic product, California Retail Trade Earnings and Wall Street Journal Prime Rate. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. At both January 1, 2023, the adoption and implementation date of ASC Topic 326, and June 30, 2023, the Company utilized a reasonable and supportable forecast period of approximately four quarters and obtained the forecast data from publicly available sources. The Company also considered the impact of portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, and other risk factors that might influence its loss estimation process. Management believes that the allowance for credit losses at June 30, 2023 appropriately reflected expected credit losses inherent in the loan portfolio at that date.

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company's policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans are individually evaluated for reserves. As of June 30, 2023 the Bank's nonaccrual loans comprised the entire population of loans individually evaluated.  The Company's policy is that nonaccrual loans also represent the subset of loans where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loans should be categorized as collateral dependent. 

The implementation of CECL also impacted the Company's ACL on unfunded loan commitments, as the ACL now represents expected credit losses over the contractual life of commitments not identified as unconditionally cancellable by the Company.  The Reserve for Unfunded Commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment.  The funding rate represents management's estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. Under CECL the ACL on unfunded loan commitments remains in Other Liabilities while any related provision expense is included in the provision for credit loss expense.

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

The recorded investment in impaired loans totaled $1,354,000 and $4,857,000 at September 30, 2022 and December 31, 2021, respectively. The Company had specific allowances for loan losses of $21,000 on impaired loans of $169,000 at September 30, 2022 as compared to specific allowances for loan losses of $28,000 on impaired loans of $273,000 at December 31, 2021. The balance of impaired loans in which no specific reserves were required totaled $1,185,000 and $4,584,000 at September 30, 2022 and December 31, 2021, respectively. The average recorded investment in impaired loans for the nine months ended September 30, 2022 and September 30, 2021 was $1,369,000 and $2,610,000, respectively. The Company recognized  $16,000 and $14,000 in interest income for impaired loans during the three months ended September 30, 2022 and 2021, respectively. The Company recognized  $46,000 and $45,000 in interest income for impaired loans during the nine months ended September 30, 2022 and 2021, respectively. No interest was recognized on nonaccrual loans accounted on a cash basis during the nine months ended September 30, 2022 and 2021.

Included in impaired loans are troubled debt restructurings. The Company evaluates loan extensions or modifications in accordance with FASB ASC 340-10 with respect to the classification of the loan as a TDR. Under ASC 340-10, if the Company grants a loan extension or modification to a borrower experiencing financial difficulties for other than an insignificant period of time that includes a below–market interest rate, principal forgiveness, payment forbearance or other concession intended to minimize the economic loss to the Company, the loan extension or loan modification is classified as a TDR. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal then due and payable, management measures any impairment on the restructured loan in the same manner as for impaired loans as noted above. To determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

The carrying value of troubled debt restructurings at September 30, 2022 and December 31, 2021 was $881,000 and $897,000, respectively. The Company has allocated  $21,000 and $28,000 of specific reserves on loans to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2022 and December 31, 2021. The Company has not committed to lend additional amounts on loans classified as troubled debt restructurings at September 30, 2022 and December 31, 2021.

There were no troubled debt restructurings that occurred during the nine months ending September 30, 2022 or September 30, 2021. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2022 and 2021, respectively.

Salaries and employee benefits totaling $769,000$509,000 and $866,000$875,000 have been deferred as loan origination costs during the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Salaries and employee benefits totaling $2,706,000$1,071,000 and $2,379,000$1,937,000 have been deferred as loan origination costs during the ninesix months ended SeptemberJune 30, 20222023 and 20212022,, respectively.

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

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

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

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

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

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

Purchased Credit Impaired Loans (PCI):

Upon the acquisition of Feather River BancorpFor other loans, which are primarily consumer loans and automobile loans the Company acquired loans, for which there was, at acquisition, evidence of deterioration ofevaluates credit quality since originationbased on the aging status of the loan and it was probable, at acquisition, that all contractually required payments would not be collected.  The carrying amount of those loans at September 30, 2022 and December 31, 2021 was $304,000 and $496,000, respectively.  The carrying amount at September 30, 2022 reflects an outstanding balance of $324,000 net of an unaccretable discount of $20,000. The carrying amount at December 31, 2021 reflects an outstanding  balance of  $517,000 net of an unaccretable discount of $21,000.    

Accretable yield, or income expected to be collected, is as follows:          

¹ Represents the accretable difference that is relieved when a loan exits the PCI population due to payoff, full charge-off, or transfer to repossessed assets, etc.by payment activity.  

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