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| PLBC > SEC Filings for PLBC > Form 10-Q on 7-May-2012 | All Recent SEC Filings |
7-May-2012
Quarterly Report
Certain matters discussed in this Quarterly Report are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Such risks and uncertainties include, among others, (1) significant
increases in competitive pressures in the financial services industry;
(2) changes in the interest rate environment resulting in reduced margins;
(3) general economic conditions, either nationally or regionally, maybe less
favorable than expected, resulting in, among other things, a deterioration in
credit quality; (4) changes in regulatory environment; (5) loss of key
personnel; (6) fluctuations in the real estate market; (7) changes in business
conditions and inflation; (8) operational risks including data processing
systems failures or fraud; and (9) changes in securities markets. Therefore, the
information set forth herein should be carefully considered when evaluating the
business prospects of Plumas Bancorp (the "Company").
When the Company uses in this Quarterly Report the words "anticipate", "estimate", "expect", "project", "intend", "commit", "believe" and similar expressions, the Company intends to identify forward-looking statements. Such statements are not guarantees of performance and are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. The future results and stockholder values of the Company may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company's ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
INTRODUCTION
The following discussion and analysis sets forth certain statistical information relating to the Company as of March 31, 2012 and December 31, 2011 and for the three month periods ended March 31, 2012 and 2011. This discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto included in Plumas Bancorp's Annual Report filed on Form 10-K for the year ended December 31, 2011.
Plumas Bancorp trades on The NASDAQ Capital Market under the ticker symbol "PLBC".
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no changes to the Company's critical accounting policies from those disclosed in the Company's 2011 Annual Report to Shareholders on Form 10-K.
This discussion should be read in conjunction with our unaudited condensed consolidated financial statements, including the notes thereto, appearing elsewhere in this report.
Earnings increased by $1 thousand from $223 thousand during the first quarter of 2011 to $224 thousand during the current quarter. This increase was related to a $1.1 million decline in the provision for loan losses mostly offset by declines in net interest income of $72 thousand and non-interest income of $576 thousand and increases in non-interest expense of $361 thousand and income tax expense of $90 thousand. The reduction in non-interest income was related to a decrease in gain on sale of investment securities of $114 thousand and a reduction in gain on sale of government guaranteed loans of $488 thousand. Both of these items were abnormally high during the first quarter of 2011. The increase in non-interest expense was related to an increase of $587 thousand in the provision for changes in the valuation of real estate acquired through foreclosure (OREO) valuation from a credit of $400 thousand in the first quarter of 2011 to expense of $187 thousand during the current quarter.
Net income allocable to common shareholders increased from $52 thousand during the first quarter of 2011 to $53 thousand during the current quarter. Earnings per share was $0.01 for both quarters. Income allocable to common shareholders is calculated by subtracting preferred stock dividends and accretion of the discount on preferred stock from net income.
Total assets at March 31, 2012 were $460 million, an increase of $4.9 million from $455 million at December 31, 2011. This increase included an increase of cash and due from banks of $5.6 million, partially offset by a decline of $0.7 million in OREO. Net loan balances increased slightly from $287.4 million at December 31, 2011 to $287.5 million at March 31, 2012 and investment securities declined slightly from $57.9 million at December 31, 2011 to $57.8 million at March 31, 2012.
Deposits increased by $7.5 million from $391 million at December 31, 2011 to $399 million at March 31, 2012. Interest bearing transaction accounts (NOW) accounts increased by $4.4 million, while savings and money market accounts increased by $6.2 million. Non-interest bearing demand deposits decreased by $1.2 million and time deposits declined by $1.9 million. Partially offsetting this increase in deposits was a decline of $3.0 million in repurchase agreements. Shareholders' equity increased by $0.4 million from $39.6 million at December 31, 2011 to $40.0 million at March 31, 2012.
The annualized return on average assets was 0.20% for the three months ended March 31, 2012 up slightly from 0.19% for the three months ended March 31, 2011. The annualized return on average common equity was 0.8% during both three month periods.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012
Net interest income before provision for loan losses. Net interest income, on a nontax-equivalent basis, was $4.1 million for the three months ended March 31, 2012, a decrease of $72 thousand, or 2%, from $4.2 million for the same period in 2011. The decrease in net interest income can primarily be attributed to a decrease in interest income related to a decline in average balance and yield on loans and investment securities. Interest expense decreased by $248 thousand related to a decline in rates paid on deposit accounts and a decline in time deposits. Net interest margin for the three months ended March 31, 2012 increased 10 basis points, or 3%, to 4.09%, up from 3.99% for the same period in 2011.
Interest income decreased $320 thousand, or 7%, to $4.4 million for the three months ended March 31, 2012, down from $4.8 million during the same period in 2011. Interest and fees on loans decreased $154 thousand to $4.2 million for the three months ended March 31, 2012 as compared to $4.4 million during the first quarter of 2011. The Company's average loan balances were $294 million for the three months ended March 31, 2012, down $15.1 million, or 5%, from $309 million for the same period in 2011. The decline in loan balances reflects the Company's efforts to reduce its exposure in certain loan categories such as construction and land development loans, the Company's continuing efforts to reduce its nonperforming and classified loan balances, as well as normal pay downs and prepayments, loan charge-offs and transfers to real estate acquired through foreclosure. The average rate earned on the Company's loan balances increased 4 basis points to 5.78% during the first three months of 2012 compared to 5.74% during the first three months of 2011. The increase in loan yield reflects a decrease in average nonperforming loan balances from $24.7 million during the first quarter of 2011 to $16.7 million during the current quarter. Interest income on investment securities decreased by $170 thousand as average balances declined by $11.3 million, from $67.8 million for the quarter ended March 31, 2011 to $56.5 million during the current quarter, and yield declined by 80 basis points. The decline in yield is primarily related to the replacement of matured and sold investment securities with new investments with market yields below those which they replaced.
Interest on time deposits declined by $234 thousand. Average time deposits declined by $34.7 million from $114.1 million during the three months ended March 31, 2011 to $79.4 million during the current quarter. The decrease in time deposits is primarily related to a promotional time deposit product we began offering in June, 2009 and continued to offer until April 30, 2010. These promotional time deposits have now fully matured. The average rate paid on these promotional deposits during 2011 was 2%. The average rate paid on time deposits decreased from 1.38% during the three months ended March 31, 2011 to 0.77% during the current quarter. This decrease primarily relates to a decline in market rates paid in the Company's service area and the maturity of the higher rate promotional deposits.
Interest expense on NOW accounts declined by $22 thousand. Rates paid on NOW accounts declined by 7 basis points from 0.22% during the quarter ended March 31, 2011 to 0.15% during the three months ended March 31, 2012 as we significantly lowered the rate paid on local public agencies NOW accounts. Although we lost deposits by lowering this rate as reflected in a decline in average NOW accounts of $14.3 million; we are focused on the profitability of the public agency accounts rather than growing public agency balances.
Interest expense on money market accounts decreased by $11 thousand related primarily to a decrease in rate paid on these accounts of 11 basis points from 0.34% during the 2011 quarter to 0.23% during the current quarter. This was primarily related to our money market sweep product which paid rates in excess of those offered on our other money market products. We no longer offer the money market sweep account having replaced it with a product that utilizes repurchase agreements during the third quarter of 2011. Interest expense on savings accounts increased by $7 thousand related to an increase in average balance from $55.4 million during the three months ended March 31, 2011 to $66.1 million during the current quarter.
Interest expense on repurchase agreements totaled $6 thousand during the three months ended March 31, 2012 and the average rate paid was 0.31%. Interest expense on junior subordinated debentures, which totaled $78 thousand an increase of $2 thousand from the first quarter of 2011, fluctuates with changes in the 3-month London Interbank Offered Rate (LIBOR) rate.
For the Three Months Ended March 31, 2012 For the Three Months Ended March 31, 2011
Average Balance Interest Yield/ Average Balance Interest Yield/
(in thousands) (in thousands) Rate (in thousands) (in thousands) Rate
Interest-earning assets:
Loans (1) (2) (3) $ 294,322 $ 4,228 5.78 % $ 309,402 $ 4,382 5.74 %
Investment securities (1) 56,513 185 1.32 % 67,855 355 2.12 %
Interest-bearing deposits 53,412 33 0.25 % 47,849 29 0.25 %
Total interest-earning assets 404,247 4,446 4.42 % 425,106 4,766 4.55 %
Cash and due from banks 12,992 12,782
Other assets 40,777 42,806
Total assets $ 458,016 $ 480,694
Interest-bearing liabilities:
NOW deposits $ 85,733 32 0.15 % $ 100,057 54 0.22 %
Money market deposits 41,132 24 0.23 % 42,101 35 0.34 %
Savings deposits 66,117 31 0.19 % 55,390 24 0.18 %
Time deposits 79,450 153 0.77 % 114,106 387 1.38 %
Total deposits 272,432 240 0.35 % 311,654 500 0.65 %
Repurchase agreements 7,685 6 0.31 % - - - %
Other interest-bearing liabilities 1,153 14 4.88 % 656 10 6.18 %
Junior subordinated debentures 10,310 78 3.04 % 10,310 76 2.99 %
Total interest-bearing liabilities 291,580 338 0.47 % 322,620 586 0.74 %
Non-interest bearing deposits 121,461 111,385
Other liabilities 4,809 8,290
Shareholders' equity 40,166 38,399
Total liabilities & equity $ 458,016 $ 480,694
Cost of funding interest-earning assets (4) 0.33 % 0.56 %
Net interest income and margin (5) $ 4,108 4.09 % $ 4,180 3.99 %
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(1) Not computed on a tax-equivalent basis.
(2) Average nonaccrual loan balances of $16.4 million for 2012 and $24.7 million for 2011 are included in average loan balances for computational purposes.
(3) Net loan (costs)/fees included in loan interest income for the three-month periods ended March 31, 2012 and 2011 were $(11,000) and $4,000, respectively.
(4) Total annualized interest expense divided by the average balance of total earning assets.
(5) Annualized net interest income divided by the average balance of total earning assets.
2012 over 2011 change in net interest income
for the three months ended March 31
(in thousands)
Volume (1) Rate (2) Mix (3) Total
Interest-earning assets:
Loans $ (215 ) $ 26 $ 35 $ (154 )
Investment securities (60 ) (136 ) 26 (170 )
Interest bearing deposits 4 - - 4
Total interest income (271 ) (110 ) 61 (320 )
Interest-bearing liabilities:
NOW deposits (8 ) (17 ) 3 (22 )
Money market deposits - (11 ) - (11 )
Savings deposits 5 2 - 7
Time deposits (119 ) (170 ) 55 (234 )
Repurchase agreements - - 6 6
Other 8 (2 ) (2 ) 4
Junior subordinated debentures - 2 - 2
Total interest expense (114 ) (196 ) 62 (248 )
Net interest income $ (157 ) $ 86 $ (1 ) $ (72 )
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(1) The volume change in net interest income represents the change in average balance multiplied by the previous year's rate.
(2) The rate change in net interest income represents the change in rate multiplied by the previous year's average balance.
(3) The mix change in net interest income represents the change in average balance multiplied by the change in rate.
Provision for loan losses. During the three months ended March 31, 2012 we recorded a provision for loan losses of $0.6 million, down $1.1 million from the $1.7 million provision recorded during the first quarter of 2011. The $1.7 million provision recorded for the three months ended March 31, 2011 primarily relates to a specific reserve required on one significant land development loan relationship. 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 collectibility 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 not less than quarterly 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.
Non-interest income. During the three months ended March 31, 2012 non-interest income decreased by $576 thousand to $1.4 million from $2.0 million during the quarter ended March 31, 2011. The largest component of this decrease was $488 thousand in gains on the sale of government guaranteed loans. Beginning in the first quarter of 2011, related to a change in SBA requirements guaranteed portions of SBA loans were no longer required to be sold with a 90 day premium recourse requirement. This resulted in recording gains on sales of loans of $722 thousand during the 2011 quarter representing loans sold during the quarter ended March 30, 2011 as well as loans sold during the fourth quarter of 2010. During the current quarter, proceeds from SBA loan sales totaled $4.2 million resulting in a gain on sale of $234 thousand. The remaining decrease in non-interest income was related to a decline in gains on sale of investment securities from $165 thousand during the three months ended March 31, 2011 to $51 thousand during the current quarter. During the 2011 quarter we received proceeds of $3.9 million from the sale of ten mortgage backed securities and during the current quarter proceeds of $4.5 million were received on the sale of three agency securities.
The following table describes the components of non-interest income for the three-month periods ended March 31, 2012 and 2011, in thousands:
For the Three Months
Ended March 31 Dollar Percentage
2012 2011 Change Change
Service charges on deposit accounts $ 872 $ 828 $ 44 5.3 %
Gain on sale of loans 234 722 (488 ) -67.6 %
Earnings on life insurance policies 85 93 (8 ) -8.6 %
Gain on sale of securities 51 165 (114 ) -69.1 %
Loan servicing income 45 54 (9 ) -16.7 %
Customer service fees 34 34 - - %
Other 106 107 (1 ) -0.9 %
Total non-interest income $ 1,427 $ 2,003 $ (576 ) -28.8 %
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Non-interest expense. During the three months ended March 31, 2012, total non-interest expense increased by $361 thousand, or 9%, to $4.6 million, up from $4.2 million for the comparable period in 2011. This increase in non-interest expense was primarily the result of an increase of $587 thousand in the provision for changes in valuation of OREO from a credit of $400 thousand during the three months ended March 31, 2011 to a provision of $187 thousand during the current quarter. This was partially offset by decreases in non-interest expense, the largest of which were $53 thousand in salaries and benefits, $47 thousand in occupancy and equipment, $114 thousand in FDIC insurance expense and $55 thousand in OREO expense.
OREO represents real property taken by the Bank either through foreclosure or through a deed in lieu thereof from the borrower. When other real estate is acquired, any excess of the Bank's recorded investment in the loan balance and accrued interest income over the estimated fair market value of the property less costs to sell is charged against the allowance for loan losses. A valuation allowance for losses on other real estate is maintained to provide for subsequent temporary declines in value. The allowance is established through a provision for losses on other real estate which is included in other expenses. Subsequent gains or losses on sales or write-downs resulting from permanent impairment are recorded in other income or expenses as incurred. The $187 thousand in OREO provision was related to a decline in the value of three properties based on appraisals received during March, 2012.
The Company continues to realize savings in salary and benefit cost including a $17 thousand decrease in salary expense, excluding commissions. Additionally commission expense, which relates to government-guaranteed lending personnel, decreased by $115 thousand consistent with the decline in government-guaranteed loan sales during the comparison periods. Primarily related to our new automobile lending product, deferred loan origination costs, which reduce salary and benefit expense, increased by $54 thousand. Partially offsetting these reductions in salary and benefit expense was an increase in stock compensation expense of $153 thousand from a credit of $86 thousand during the first quarter of 2011 to expense of $67 thousand during the current quarter. The credit in stock compensation expense during the 2011 quarter was related to a revision in the estimated forfeiture rate compared to the current quarter estimated forfeiture rate which resulted in an increase in compensation expense.
The following table describes the components of non-interest expense for the three-month periods ended March 31, 2012 and 2011, in thousands:
For the Three Months
Ended March 31 Dollar Percentage
. . .
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