Plumas Bancorp — Q1 2013 Form 10-Q
Reporting period: Unaudited quarter ended March 31, 2013; comparisons are generally with Q1 2012 for earnings and cash flows, and December 31, 2012 for balance-sheet items. Plumas Bank operates 11 California branches and serves businesses and individuals, primarily in northeastern California and northwestern Nevada.
Financial performance and condition
| Metric | Q1 2013 / March 31, 2013 | Comparison |
|---|---|---|
| Interest income | $4.594 million | $4.446 million in Q1 2012 |
| Net interest income, before provision | $4.329 million; net interest margin 4.15% | $4.108 million; 4.09% in Q1 2012 |
| Provision for loan losses | $700,000 | $600,000 in Q1 2012 |
| Non-interest income | $1.700 million | $1.427 million in Q1 2012 |
| Non-interest expense | $4.375 million | $4.585 million in Q1 2012 |
| Net income | $616,000; $445,000 available to common shareholders; diluted EPS $0.09 | $224,000; $53,000 available to common shareholders; diluted EPS $0.01 in Q1 2012 |
| Returns | Annualized ROAA 0.53%; return on average common equity 5.9% | 0.20% and 0.8%, respectively, in Q1 2012 |
| Total assets | $477.981 million | $477.802 million at December 31, 2012 |
| Loans, net of allowance | $308.436 million | $310.271 million at December 31, 2012 |
| Deposits | $412.232 million | $411.562 million at December 31, 2012 |
| Cash and cash equivalents | $47.762 million | $44.675 million at December 31, 2012 |
| Shareholders’ equity | $42.307 million | $41.850 million at December 31, 2012 |
Net cash provided by operating activities was $3.710 million, versus $1.868 million in Q1 2012. Investing activities used $1.317 million and financing activities provided $694,000. Cash increased $3.087 million during the quarter. The filing reports $10.310 million of junior subordinated debentures at quarter-end; a separate $7.5 million subordinated debt issuance occurred in April, after the reporting date.
At March 31, the Bank’s Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 10.6%, 14.1% and 15.4%, respectively. The filing states these exceed applicable well-capitalized thresholds. It reports FHLB borrowing capacity of up to $99.896 million, subject to additional stock purchases for full availability, and an unused $6 million unsecured Federal Funds line. No FHLB borrowings were outstanding.
Changes, credit quality and notable items
- Net income rose $392,000 year over year. Management attributed the improvement to higher net interest income and non-interest income and lower operating expense, partly offset by a higher loan-loss provision and income tax expense.
- Loan-sale gains increased to $521,000 from $234,000, reflecting $7.7 million of SBA loan-sale proceeds versus $4.2 million a year earlier. The company sold no investment securities in Q1 2013; Q1 2012 included a $51,000 securities gain.
- Loan yield declined to 5.61% from 5.78%, which management linked to rate competition. Lower deposit rates and reduced average time deposits helped reduce deposit interest expense by $85,000.
- Gross loans were $313.160 million, down from $315.057 million at year-end. Construction and land-development loans were $16.811 million, or 5.4% of loans; management identifies this as a higher-risk category.
- The allowance for loan losses was $5.777 million, or 1.84% of loans. Q1 net charge-offs were $609,000, and the $700,000 provision primarily reflected a reserve for one land-development loan relationship.
- Nonperforming loans were $14.2 million, up from $13.7 million at year-end; nonaccrual loans fell to $13.0 million from $13.7 million. Loans 90 days or more past due and still accruing were $1.258 million, including a loan management said was well secured and in collection. Nonperforming assets were 4.09% of total assets.
- Impaired loans totaled $16.864 million, and troubled debt restructurings totaled $12.149 million. Other real estate owned was $5.293 million across 39 properties. Management considers the allowance appropriate but cautions that estimates and future charge-offs are uncertain.
- Deposits increased only $670,000 overall, while non-interest-bearing demand deposits declined $10.2 million and time deposits fell $3.1 million; savings and money-market balances increased. Management cited seasonality and customers’ movement toward more liquid deposit types.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management says available funding sources are expected to provide adequate liquidity for foreseeable operations. Results for the quarter are not necessarily indicative of future results.
The Bank’s FDIC and California regulator informal agreement was terminated effective January 24, 2013. The separate Federal Reserve agreement remained in effect at March 31; it restricted certain dividends, debt and security transactions. The filing says the Federal Reserve permitted payment of past-due and current trust-preferred interest in March, and the company received notice that the agreement was terminated on April 19, 2013.
As a subsequent event, the U.S. Treasury auctioned its 11,949 Series A preferred shares in April. Plumas Bancorp repurchased 7,000 shares at an approximately 7% discount to face value plus related outstanding dividends; private investors held the remaining 4,949 shares. The repurchase was funded through a subsidiary dividend and $7.5 million of new subordinated debt bearing 7.5% interest, with an eight-year term and a warrant for up to 300,000 common shares at $5.25 per share. As of the filing date, preferred-dividend arrears on the remaining shares were $0.7 million, representing 12 quarterly payments. The debt agreement includes restrictions and creditor rights in the event of default.
Other risks cited include regional economic and real-estate conditions, credit deterioration, interest-rate and margin pressure, competition, regulatory changes, operational failures or fraud, and geographic exposure to disasters. Loan commitments were $83.298 million at quarter-end, including $7.824 million of construction commitments expected to fund within 12 months; many commitments may expire undrawn. Management says ordinary-course legal proceedings are not expected to have a material adverse effect.
Important facts for investors to verify
- Whether credit performance improves: nonperforming loans, past-due accruing loans, impaired and restructured loans, construction exposures, and subsequent charge-offs.
- Whether earnings are repeatable, given the contribution from SBA loan-sale gains and the continuing pressure on loan yields and interest margins.
- The final effects of the April preferred-stock repurchase and new subordinated debt, including interest costs, warrant dilution, dividend arrears and any debt restrictions.
- Deposit mix and liquidity trends, and the availability and conditions of borrowing capacity if loan commitments are drawn.
- Capital ratios and regulatory status following termination of the Federal Reserve agreement, including any continuing supervisory expectations.