v3.26.1
Note 19 - Business Combinations - Acquisition of Conerstone Community Bancorp
 12 Months Ended
Dec. 31, 2025
Notes to Financial Statements  
Business Combination [Text Block]

19.

BUSINESS COMBINATIONS - ACQUISITION OF CONERSTONE COMMUNITY BANCORP

 

On July 1, 2025, pursuant to a previously announced Agreement and Plan of Reorganization and Merger dated as of January 18, 2025 (the “Merger Agreement”) between the Company and Cornerstone Community Bancorp (“Cornerstone”), Cornerstone merged with and into the Company with the Company continuing as the surviving corporation (the “Merger”). Immediately after the Merger, Cornerstone Community Bank ("CCB") the wholly owned bank subsidiary of Cornerstone, merged with and into Plumas Bank, with Plumas Bank continuing as the surviving bank. 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’s geographic presence in existing and new markets in Northern California, (2) diversify and bring new expertise to Plumas’s lending business, and (3) strengthen the Company’s talent base.

 

Pursuant to the terms of the Merger Agreement, upon the completion of the Merger, each share of Cornerstone common stock outstanding immediately prior was converted into the right to receive 0.6608 shares of common stock of the Company and $9.75 cash, with cash paid in lieu of fractional shares. The total aggregate consideration delivered to holders of Cornerstone common stock in the Merger was 1,003,718 shares of Company common stock and $16.1 million cash. No contingent consideration was included as part of the purchase price for the acquisition of Cornerstone.  The Company also assumed options to purchase 35,000 shares of Cornerstone common stock representing, on an as-converted basis, options to purchase 30,803 shares of the Company’s common stock.  The value of the total deal consideration was approximately $61.3 million, which is based upon the average closing trading price of Plumas common stock for the 20 trading days ending on and including the second trading day prior to July 1, 2025, 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 $2.3 billion.

 

The transaction was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date in thousands:

 

Identifiable Assets:

 

( in thousands)

 

Cash and cash equivalents

 $51,916 

Investment Securities

  88,067 

Loans

  462,489 

Core deposit intangible

  11,610 

Bank premises and equipment

  12,567 

Bank owned life insurance

  16,399 

Other assets

  16,300 

Total identifiable assets acquired

 $659,348 
     

Liabilities:

    

Deposits:

    

Non-interest bearing

 $88,557 

Interest bearing

    

Savings accounts

  21,797 

Money market accounts

  334,289 

Time accounts

  136,239 

Total deposits

  580,882 
     

FHLB borrowings

  15,000 

Subordinated debentures

  11,623 

Other liabilities

  9,240 

Total liabilities assumed

 $616,745 
     

Net identifiable assets

 $42,603 

 

 

  

( in thousands)

 

Book value of net assets acquired from Cornerstone

 $41,727 
     

Fair value adjustments:

    

Loans (net of Cornerstone's deferred costs/fees and allowance)

  (9,152)

Bank premises and equipment

  (1,123)

Core deposit intangible asset

  11,610 

Subordinated debentures

  379 

Time Deposits

  (556)

Other

  (317)

Total purchase accounting adjustments

 $841 

Deferred tax asset (tax effect of purchase accounting adjustments at 29.56% plus tax on cash paid on termination of stock options)

  35 

Fair value of net identifiable assets acquired from Cornerstone

 $42,603 
     

Merger consideration (cash payments of $16.1 million and $45.2 million in stock)

  61,316 

Less: fair value of net assets acquired from Cornerstone

  (42,603)

Goodwill recognized

 $18,713 

 

As a result of the Acquisition, we recorded $18.7 million in goodwill, which represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. Goodwill mainly reflects expected value created through the combined operations of Plumas Bank and CCB and is not tax deductible. The core deposit intangible will be amortized over 10 years. The fair value of loans includes both credit and interest-related discounts.

 

The results of operations of Cornerstone have been included in the Company’s consolidated financial statements since the acquisition date. It is impracticable to disclose Cornerstone’s separate revenue and net income since the acquisition because its operations were fully integrated into the Company’s existing business structure immediately upon acquisition, and separate financial information is not maintained.

 

As part of the acquisition of Cornerstone on July 1, 2025, the Company acquired PCD loans.  At acquisition, the Company recorded PCD loans at their purchase price and simultaneously established an allowance for credit losses based on expected credit losses over the life of the loans. A reconciliation of the purchase price of the PCD loans to the par value of these loans follows:

 

Reconciliation of Purchase Price to Par Value (in thousands):

 

Par value of Acquired PCD Loans

$34,115

Less Credit Mark (ACL)

(315)

Less: Interest Mark (Non-Credit Discount)

(3,609)

Fair Value (Purchase Price)

$30,191

 

The fair value of PCD loans acquired in the Cornerstone acquisition was determined using a DCF model. Key inputs and assumptions included:

 

 

●

Expected cash flows based on contractual terms adjusted for estimated prepayments and defaults

 

●

Discount rates reflecting current market rates for similar loans, adjusted for credit risk

 

●

Loss expectations derived from historical performance and forward-looking economic forecasts

 

●

Segmentation by loan type (e.g., commercial, consumer, real estate) to reflect differing risk profiles

 

The resulting fair value represents the present value of expected future cash flows, net of credit losses, and includes a gross-up for the allowance for credit losses under ASC 326.

 

The following unaudited pro forma financial information presents the combined results of Plumas Bancorp and Cornerstone as if the acquisition had occurred on January 1, 2024, in thousands.  Acquisition expenses totaling $6.4 million, net of tax, are included in the year ended December 31, 2024, net income. These results are not necessarily indicative of future performance.

 

Period Ended

 

Net

Interest

Income

  

Net Income

 

Year Ended December 31, 2025

 $97,464  $37,220 

Year Ended December 31, 2024

 $95,452  $17,663 

 

Pro Forma Adjustments Included for the Year Ended December 31, 2024:

 

●

Amortization of acquired intangibles

 $2,197 

●

Accretion of discount on loans

 $1,717 

●

Accretion of premium on time deposits acquired

 $616 

●

Amortization of discount on subordinated debentures

 $154 

●

Income tax benefit of adjustments

 $5