Plumas Bancorp — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2011. Plumas Bancorp is a California bank holding company whose subsidiary, Plumas Bank, operates 11 branches in California. Unless otherwise noted, amounts below are in millions of dollars.
Financial results and condition
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net interest income, before loan-loss provision | $4.189 | $4.328 | $8.370 | $8.784 |
| Provision for loan losses | $0.600 | $0.900 | $2.300 | $2.400 |
| Non-interest income | $2.035 | $2.965 | $4.062 | $4.752 |
| Non-interest expense | $5.548 | $5.452 | $9.795 | $10.162 |
| Net income | $0.101 | $0.576 | $0.325 | $0.710 |
| Net income (loss) available to common shareholders | $(0.070) | $0.405 | $(0.017) | $0.368 |
| Basic and diluted EPS | $(0.01) | $0.08 | $0.00 | $0.08 |
Q2 net interest margin was 4.12%, versus 4.17% a year earlier; the first-half margin was 4.06%, versus 4.24%. Annualized first-half return on average assets was 0.14%, versus 0.28%; return on average common equity was (0.1)%, versus 2.7%.
- At June 30, assets were $453.7 million, down from $484.5 million at December 31, 2010. Loans, net of allowance, were $296.2 million; investment securities were $45.7 million; cash and cash equivalents were $62.3 million.
- Deposits were $396.5 million, down $28.3 million from year-end. Shareholders’ equity was $39.0 million. Junior subordinated debentures were $10.3 million; the filing reports no other borrowings outstanding at quarter-end.
- First-half operating cash flow was $1.0 million, investing cash flow was $25.0 million, and financing cash flow was $(28.3) million. Cash declined $2.3 million to $62.3 million.
Changes and credit quality
- First-half net income fell $0.385 million year over year, chiefly because 2010 included a one-time $1.435 million merchant-processing portfolio sale gain. First-half gain on loan sales rose $0.898 million, partly offsetting that comparison. Q2 non-interest income declined $0.930 million year over year for the same one-time gain comparison.
- Net interest income declined as loan balances and yields fell; lower deposit and borrowing costs partly offset the reduction. First-half interest income fell $1.127 million while interest expense fell $0.713 million.
- Gross loans were $303.1 million, down from $314.2 million at year-end. Nonperforming loans were approximately $21.0 million, down from $25.4 million; nonaccrual loans were $20.855 million. Loans 30–89 days past due increased to $5.1 million from $2.9 million.
- The allowance for loan losses was $7.267 million, or 2.40% of loans, versus $7.324 million and 2.33% at year-end. First-half net charge-offs were $2.357 million. Construction and land-development loans declined to $24.6 million from $31.2 million, but this remains a higher-risk category.
- Foreclosed real estate and vehicles were $6.7 million, down from $8.9 million. The Bank sold its largest OREO property for $4.3 million and recorded a $0.684 million loss; management said the sale reduced nonperforming assets. Nonperforming assets were 6.11% of total assets, versus 7.15% at year-end.
- Real-estate-related lending represented about 82% of the loan portfolio. The Bank’s lending concentration in northeastern California and northwestern Nevada exposes it to local real-estate conditions and regional natural-disaster risks.
Outlook, regulation, risks and unusual items
- A March 2011 FDIC and California DFI Consent Order requires the Bank to reach a 10% leverage ratio and at least a 13% total risk-based capital ratio, and to reduce classified assets on specified deadlines. At June 30, the Bank’s leverage ratio was 9.6% and total risk-based capital ratio was 14.5%. Management expected to meet the leverage target by year-end through retained earnings and reducing higher-rate deposits, without new capital.
- A July 28, 2011 Federal Reserve agreement, entered after quarter-end, requires prior written approval for specified dividends, distributions, debt actions and stock transactions, and requires a holding-company cash sources-and-uses plan. The FDIC/DFI order also restricts cash dividends to the holding company without prior approval.
- At the FRB’s request, the company had deferred preferred-stock dividends and interest on trust-preferred-related subordinated debentures. At June 30, preferred dividends in arrears were $0.747 million and subordinated-debt interest arrears were $0.389 million, each representing five quarterly payments. Preferred dividends are cumulative; the filing notes potential board representation rights after six unpaid quarters.
- Management estimated 2011 net charge-offs could range from $3.5 million to $5.5 million, while cautioning that real-estate-market uncertainty and charge-off volatility could change the outcome. Management considered the allowance adequate but warned actual losses could exceed it.
- Management anticipated adding to securities during the following six months. No common cash dividend was anticipated in 2011. About $18 million of promotional time deposits were expected to mature through Q3 2011. Management considered available liquidity sources adequate, including cash, securities and secured borrowing capacity; current borrowing capacity at existing FHLB stock levels was stated as $44.566 million.
- Other disclosed risks include interest-rate and margin pressure, economic and real-estate weakness, competition, regulatory change, operational failures or fraud, and dependence on local economies. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Progress toward the Consent Order’s 10% leverage target and classified-asset reduction deadlines, and compliance with the subsequent Federal Reserve agreement.
- Whether nonperforming loans, past-due loans and OREO continue to improve, and whether charge-offs stay within management’s $3.5–$5.5 million 2011 estimate.
- Whether earnings can improve as loan balances and yields remain pressured and one-time or asset-sale gains affect comparisons.
- Deposit retention and liquidity as promotional time deposits mature, alongside the continuing preferred-dividend and subordinated-interest arrears.