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PLBC > SEC Filings for PLBC > Form 10-Q on 10-May-2013All Recent SEC Filings

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Form 10-Q for PLUMAS BANCORP


10-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2013 and December 31, 2012 and for the three month periods ended March 31, 2013 and 2012. 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, 2012.

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 2012 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.


OVERVIEW

Earnings increased by $392 thousand from $224 thousand during the first quarter of 2012 to $616 thousand during the current quarter. Earnings benefited from both growth in revenue and a decline in non-interest expense. Net interest income increased by $221 thousand and non-interest income grew by $273 thousand. Non-interest expense declined by $210 thousand. Partially offsetting these positive variances were an increase in provision for loan losses of $100 thousand and an increase in income tax expense of $212 thousand.

Net income allocable to common shareholders increased from $53 thousand during the first quarter of 2012 to $445 thousand during the current quarter. Earnings per share increased to $0.09 during the three months ended March 31, 2013 compared to $0.01 during the first quarter of 2012. 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, 2013 were $478 million, an increase of $179 thousand from December 31, 2012. This increase included an increase in cash and cash equivalents of $3.1 million partially offset by declines in investment securities, loans and other assets. Net loan balances declined by $1.9 million from $310.3 million at December 31, 2012 to $308.4 million at March 31, 2013 and investment securities declined slightly from $81.0 million at December 31, 2012 to $80.4 million at March 31, 2013.

Deposits totaled $412.2 million at March 31, 2013, an increase of $670 thousand from December 31, 2012. Interest bearing transaction accounts (NOW) accounts increased by $3.1 million, while savings and money market accounts increased by $10.9 million. Non-interest bearing demand deposits decreased by $10.2 million and time deposits declined by $3.1 million. Shareholders' equity increased by $0.4 million from $41.9 million at December 31, 2012 to $42.3 million at March 31, 2013.

The annualized return on average assets was 0.53% for the three months ended March 31, 2013 up from 0.20% for the three months ended March 31, 2012. The annualized return on average common equity increased from 0.8% during the first quarter of 2012 to 5.9% during the current quarter.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2013

Net interest income before provision for loan losses. Net interest income, on a nontax-equivalent basis, was $4.3 million for the three months ended March 31, 2013, an increase of $221 thousand, or 5%, from $4.1 million for the same period in 2012. The increase in net interest income includes both an increase in interest income and a decline in interest expense. Interest income, benefiting from an increase in the average balance of both loans and investments, increased by $148 thousand. Interest expense decreased by $73 thousand mostly related to a decline in rate paid and average balance in time deposits. Net interest margin for the three months ended March 31, 2013 increased 6 basis points, or 1%, to 4.15%, up from 4.09% for the same period in 2012.

Interest income increased by $148 thousand, or 3%, to $4.6 million for the three months ended March 31, 2013, up from $4.4 million during the same period in 2012. Interest and fees on loans increased $88 thousand to $4.3 million for the three months ended March 31, 2013 as compared to $4.2 million during the first quarter of 2012. The Company's average loan balances were $312 million for the three months ended March 31, 2013, up $17.6 million, or 6%, from $294 million for the same period in 2012. The Company is focused on growing loan balances through a balanced and diversified approach. The increase in loan balances during the twelve month period ended March 31, 2013 includes growth in the Company's automobile, SBA and commercial real estate loan portfolios. The average rate earned on the Company's loan balances decreased 17 basis points to 5.61% during the first three months of 2013 compared to 5.78% during the first three months of 2012. The decrease in loan yield reflects increased rate competition in the Company's service area. Interest income on investment securities increased by $71 thousand as average balances increased by $23.9 million, from $56.5 million for the quarter ended March 31, 2012 to $80.4 million during the current quarter. Yield on investment securities declined by 3 basis points from 1.32% during the first quarter of 2012 to 1.29% during the current quarter. Related to a decline in interest earning cash balances, other interest income declined by $11 thousand to $22 thousand for the three months ended March 31, 2013.


Interest expense on deposits decreased by $85 thousand, or 35%, to $155 thousand for the three months ended March 31, 2013, down from $240 thousand during the 2012 quarter. This decrease primarily relates to decreases in the average balance and rate paid on time deposits.

Interest on time deposits declined by $74 thousand. Average time deposits declined by $10.5 million from $79.4 million during the three months ended March 31, 2012 to $68.9 million during the current quarter. We attribute much of the reduction in time to the unusually low interest rate environment as we have seen a movement out of time into more liquid deposit types. The average rate paid on time deposits decreased from 0.77% during the three months ended March 31, 2012 to 0.46% 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 higher rate deposits.

Interest expense on NOW accounts declined by $9 thousand. Rates paid on NOW accounts declined by 4 basis points from 0.15% during the quarter ended March 31, 2012 to 0.11% during the three months ended March 31, 2013 related to a decline in market rates.

Interest expense on money market accounts decreased by $5 thousand related to a decrease in rate paid on these accounts of 6 basis points from 0.23% during the 2012 quarter to 0.17% during the current quarter. Interest expense on savings accounts increased by $3 thousand related to an increase in average balance from $66.1 million during the three months ended March 31, 2012 to $74.9 million during the current quarter.

Interest expense on all other interest-bearing liabilities, which mostly consist of repurchase agreements and junior subordinated debentures, increased by $12 thousand from $98 thousand during the first quarter of 2012 to $110 thousand during the three months ended March 31, 2012. This increase in mostly related to an increase in the average rate paid on these liabilities.


The following table presents for the three-month periods indicated the distribution of consolidated average assets, liabilities and shareholders' equity. It also presents the amounts of interest income from interest-earning assets and the resultant annualized yields, as well as the amounts of interest expense on interest-bearing liabilities and the resultant cost expressed in both dollars and annualized rate percentages. Average balances are based on daily averages. Nonaccrual loans are included in the calculation of average loans while nonaccrued interest thereon is excluded from the computation of yields earned:

                                                          For the Three Months Ended March 31, 2013                            For the Three Months Ended March 31, 2012
                                                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)                               $        311,957        $           4,316                5.61 %      $        294,322        $           4,228                5.78 %
Investment securities (1)                                 80,378                      256                1.29 %                56,513                      185                1.32 %
Interest-bearing deposits                                 30,264                       22                0.29 %                53,412                       33                0.25 %

Total interest-earning assets                            422,599                    4,594                4.41 %               404,247                    4,446                4.42 %

Cash and due from banks                                   13,862                                                               12,992
Other assets                                              37,237                                                               40,777

Total assets                                    $        473,698                                                     $        458,016

Interest-bearing liabilities:
NOW deposits                                    $         83,247                       23                0.11 %      $         85,733                       32                0.15 %
Money market deposits                                     45,334                       19                0.17 %                41,132                       24                0.23 %
Savings deposits                                          74,919                       34                0.18 %                66,117                       31                0.19 %
Time deposits                                             68,913                       79                0.46 %                79,450                      153                0.77 %

Total deposits                                           272,413                      155                0.23 %               272,432                      240                0.35 %
Other interest-bearing liabilities                         8,264                       27               1.33  %                 8,838                       20               0.91  %
Junior subordinated debentures                            10,310                       83                3.26 %                10,310                       78                3.04 %

Total interest-bearing liabilities                       290,987                      265                0.37 %               291,580                      338                0.47 %

Non-interest bearing deposits                            133,952                                                              121,461
Other liabilities                                          6,365                                                                4,809
Shareholders' equity                                      42,394                                                               40,166

Total liabilities & equity                      $        473,698                                                     $        458,016

Cost of funding interest-earning assets (4)                                                              0.26 %                                                               0.33 %
Net interest income and margin (5)                                      $           4,329                4.15 %                              $           4,108                4.09 %

(1) Not computed on a tax-equivalent basis.

(2) Average nonaccrual loan balances of $13.6 million for 2013 and $16.4 million for 2012 are included in average loan balances for computational purposes.

(3) Net costs included in loan interest income for the three-month periods ended March 31, 2013 and 2012 were $55,000 and $11,000, 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.


The following table sets forth changes in interest income and interest expense for the three-month periods 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:

                                        2013 over 2012 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                            $       251         $     (121 )       $    (42 )    $   88
Investment securities                     77                 (3 )             (3 )        71
Interest bearing deposits               (14  )                6               (3 )       (11 )

Total interest income                    314               (118 )            (48 )       148

Interest-bearing liabilities:
NOW deposits                              (1 )               (8 )             -           (9 )
Money market deposits                      2                 (7 )             -           (5 )
Savings deposits                           4                 (1 )             -            3
Time deposits                            (20 )              (61 )              7         (74 )
Other                                     (1 )                9               (1 )         7
Junior subordinated debentures            -                   5               -            5

Total interest expense                   (16 )              (63 )              6         (73 )

Net interest income              $       330         $      (55 )       $    (54 )    $  221

(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, 2013 we recorded a provision for loan losses of $0.7 million, up $0.1 million from the $0.6 million provision recorded during the first quarter of 2012. The $0.7 million provision recorded for the three months ended March 31, 2013 primarily relates to a reserve for one 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 probable incurred 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 probable incurred losses in the loan 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, 2013 non-interest income increased by $273 thousand to $1.7 million up from $1.4 million during the quarter ended March 31, 2012. The largest component of this increase was $287 thousand in gains on the sale of government guaranteed loans. During the current quarter, proceeds from SBA loan sales totaled $7.7 million resulting in a gain on sale of $521 thousand. This compares to proceeds of $4.2 million and gain on sale of $234 thousand during the first quarter of 2012. Loans originated for sale were $4.6 million and $3.3 million during the three months ended March 31, 2013 and 2012, respectively. The largest decrease in non-interest income was related to a decline in gain on sale of securities. The Company elected not to sell investment securities during the three months ending March 31, 2013. During the three months ended March 31, 2012, the Company sold three available-for-sale securities for total proceeds of $4,471,000, which resulted in the recognition of a $51,000 gain on sale.


The following table describes the components of non-interest income for the three-month periods ended March 31, 2013 and 2012, in thousands:

                                               For the Three Months
                                                  Ended March 31             Dollar        Percentage
                                                2013            2012         Change          Change
Service charges on deposit accounts          $       876       $   872      $      4               0.5 %
Gain on sale of loans                                521           234           287             122.6 %
Earnings on life insurance policies                   91            85             6               7.1 %
Loan servicing income                                 52            39            13              33.3 %
Customer service fees                                 43            34             9              26.5 %
Gain on sale of securities                            -             51           (51 )          -100.0 %
Other                                                117           112             5               4.5 %

Total non-interest income                    $     1,700       $ 1,427      $    273              19.1 %

Non-interest expense. During the three months ended March 31, 2013, total non-interest expense declined by $210 thousand, or 5%, to $4.4 million, down from $4.6 million for the comparable period in 2012. The Company experienced declines in several categories of non-interest expense the largest of which were $99 thousand in salary and benefit expense, $73 thousand in the provision from changes in valuation of OREO and $47 thousands in postage. The largest increase in non-interest expense was $91 thousand in outside service fees.

The Company continues to realize savings in salary and benefit cost including a $10 thousand decrease in salary expense, excluding commissions. Stock compensation expense decreased by $57 thousand from $66 thousand during the first quarter of 2012 to $9 thousand during the current quarter. During the first quarter of 2012 we had an adjustment to the estimated forfeiture rate resulting in an increase in stock compensation; no adjustment was required during the current quarter. The largest reduction in salary and benefits was related to an increase in deferred loan origination costs totaling $99 thousand. We attribute this increase in deferred loan origination costs to an increase in lending activity. These items were partially offset by an increase in commission expense of $80 thousand, which relates to government-guaranteed lending personnel, related to the increase in SBA loan sales.

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 $114 thousand in OREO provision in 2013 was mostly related to a $105 thousand decline in value on one land development property based on an appraisal received during the current quarter. The $187 thousand in OREO provision in 2012 was related to a decline in the value of three properties based on appraisals received during the first quarter of 2012.

The $47 thousand decline in postage expense is related to outsourcing the mailing and processing of statements and notices beginning in June, 2012.

The increase in outside service costs was related to the outsourcing of our statement processing operations and an increase in costs related to monitoring and maintaining our ATMs. During 2012 the Bank modernized its ATM network by purchasing new ATM machines which have the ability to accept currency and checks and provide an imaged receipt. While these ATMs provide a significant increase in functionality, they are also more expensive to operate and maintain.


The following table describes the components of non-interest expense for the three-month periods ended March 31, 2013 and 2012, in thousands:

                                                 For the Three Months
                                                    Ended March 31            Dollar         Percentage
                                                  2013            2012        Change           Change
Salaries and employee benefits                 $     2,219       $ 2,318      $   (99 )             -4.3 %
Occupancy and equipment                                757           758           (1 )             -0.1 %
Outside service fees                                   410           319           91               28.5 %
Professional fees                                      197           227          (30 )            -13.2 %
FDIC insurance                                         133           162          (29 )            -17.9 %
Provision from changes in valuation of OREO            114           187          (73 )            -39.0 %
Telephone and data communication                        68            84          (16 )            -19.0 %
Business development                                    63            54            9               16.7 %
Advertising and shareholder relations                   61            61           -                  -  %
Armored car and courier                                 55            56           (1 )             -1.8 %
Director compensation and retirement                    55            54            1                1.9 %
Loan and collection expenses                            51            62          (11 )            -17.7 %
OREO expense                                            48            18           30              166.7 %
Deposit premium amortization                            44            43            1                2.3 %
Stationery and supplies                                 28            41          (13 )            -31.7 %
Insurance expense                                       27            28           (1 )             -3.6 %
Postage                                                 13            60          (47 )            -78.3 %
Other                                                   32            53          (21 )            -39.6 %

Total non-interest expense                     $     4,375       $ 4,585      $  (210 )             -4.6 %

Provision for income taxes. The Company recorded an income tax provision of $338 thousand, or 35.4% of pre-tax income for the three months ended March 31, 2013. This compares to an income tax provision of $126 thousand or 36.0% of pre-tax income during the first three months of 2012. The percentages for 2013 and 2012 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal loan income decrease taxable income.

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 bases. 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 . . .

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