Plumas Bancorp Reports Operating Results (10-Q)
PLUMAS BANCORP is a bank holding company of Plumas Bank. The Company's principal subsidiary is the Bank and the Company exists for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. The other subsidiaries of the Company are Plumas Statutory Trust I and Plumas Statutory Trust II. Plumas Bancorp has a market cap of $21.49 million; its shares were traded at around $4.5 with a P/E ratio of 8.82 and P/S ratio of 0.7. Highlight of Business Operations:The Company recorded a net loss of $5.65 million or ($1.28) per share for the nine months ended September 30, 2009, down from net income of $1.66 million or $0.34 per share for the nine months ended September 30, 2008. This decline in earnings resulted from a decline in net interest income of $946 thousand, an increase in the provision for loan losses of $9.6 million, and an increase in non-interest expense of $2.09 million. These items were partially offset by an increase of $259 thousand in non-interest income and a $5.08 million decrease in tax provision. The increase in the loan loss provision includes the effect of an increase in net loan charges-offs from $1.0 million during the nine months ended September 30, 2008 to $10.2 million during the current nine month period and reflects our evaluation of the required level of the allowance for loan losses necessary in the current economic environment. The increase in non-interest expense includes increases of $722 thousand in FDIC assessments and an increase of $848 thousand in the provision for OREO losses. Non-interest income during the 2008 period was adversely affected by a $415 thousand impairment charge on an investment security. Related to the reduction in pre-tax earnings the provision (benefit) for income taxes declined by $5.08 million from expense of $822 thousand during the nine months ended September 30, 2008 to a benefit of $4.26 million during the current nine month period.
Total assets increased from $457.2 million at December 31, 2008 to $502.6 million at September 30, 2009. Increases of $16.4 million in cash and due from banks, $37.4 million in investment securities, $11.3 million in real estate and vehicles acquired through foreclosure and $3.5 million in other assets was partially offset by a $23.2 million decline in net loans. Primarily related to an increase in deposits from public agencies, deposits increased by $52.4 million to $423.9 million and related to the issuance of $11.9 million in preferred stock under the governments Capital Purchase Program (CPP), shareholders equity increased by $6.2 million. Funds generated from the increase in deposits and the preferred stock issuance were utilized to fund the increase in investments and cash and to reduce short-term borrowings. Short-term borrowings declined by $14 million from $34 million at December 31, 2008 to $20 million at September 30, 2009.
Interest income decreased $2.5 million or 13%, to $17.1 million for the nine months ended September 30, 2009 primarily as a result of a decline in loan yield. Interest and fees on loans decreased $2.6 million to $15.6 million for the nine months ended September 30, 2009 as compared to $18.2 million during the first nine months of 2008. The average rate earned on the Companys loan balances decreased 109 basis points to 5.77% during the first nine months of 2009 compared to 6.86% during the first nine months of 2008. The decline in loan yield reflects a large decline in market interest rates as illustrated by a decline in the prime interest rate from 7.25% at January 1, 2008 to 3.25% at September 30, 2009. Additionally, our nonperforming loans have significantly increased during the comparison periods. While nonperforming loans are included in the average balance of loans, the vast majority of these loans are not accruing interest. The result is a decrease in loan yield and a decrease in net interest margin. Partially offsetting the decline in yield was a 2% increase in the average balance of loans outstanding from $354 million for the nine month period ended September 30, 2008 to $360 million for the nine months ended September 30, 2009. The Company experienced a $70 thousand increase in interest income on investment securities as a 43 basis point decline in yields from 4.03% during the 2008 period to 3.60% during the current nine month period was offset by an $8.5 million increase in the average balance of investment securities.
Interest expense on NOW accounts increased by $32 thousand related to an increase in the average balance of these accounts of $19.6 million, partially offset by a decline in the average rate paid from 0.81% during the 2008 period to 0.69% in the current nine month period. See FINANCIAL CONDITION Deposits for addition information related to the increase in NOW accounts. Interest expense on money market accounts increased by $43 thousand related to both an increase in average balance and an increase in the average rate paid. The rate paid on these accounts increased by 5 basis points from 0.79% during the nine months ended September 30, 2008 to 0.84% during the nine months ended September 30, 2009. The increase in rate and average balance is associated with the introduction of a new corporate sweep product which offers a tiered rate structure that rewards customers with a higher rate for maintaining larger balances. Interest on savings accounts declined by $56 thousand related to a decline in rate paid of 17 basis points. Interest on short-term borrowings decreased by $118 thousand as a decline in the rate paid on these borrowings of 196 basis points from 2.26% to 0.30% was partially offset by a $14.7 million increase in average balance. Interest expense paid on junior subordinated debentures, which fluctuates with changes in the 3-month London Interbank Offered Rate (LIBOR) rate, decreased by $179 thousand as a result of a decrease in the LIBOR rate.
The Company recorded $11.3 million in provision for loan losses for the nine months ended September 30, 2009, an increase of $9.6 million from the $1.7 million recorded during the nine months ended September 30, 2008. The Company has experienced a higher level of net loan charge-offs and nonperforming loans related to the significant economic slow down affecting California and Nevada. In response, the Company has increased its level of allowance for loan losses to total loans from 1.37% at September 30, 2008 to 1.97% at December 31, 2008 and to 2.43% at September 30, 2009. The allowance for loan losses has increased from $4.9 million at September 30, 2008 to $7.2 million at December 31, 2008 and $8.4 million at September 30, 2009. Net charge-offs as an annualized percentage of average loans increased from 0.38% during the first nine months of 2008 to 3.77% during the nine months ended September 30, 2009. Net charge-offs totaled $10.2 million during the first nine months of 2009 compared to $1.0 million during the nine months ended September 30, 2008. Nonperforming loans increased from $3.8 million at September 30, 2008 to $17.2 million at September 30, 2009.
Reductions in non-interest income include a $114 thousand decline in service charge income related to a decline in overdraft income, an $83 thousand decline in dividends received from the Federal Home Loan Bank of San Francisco (FHLB), a $69 thousand decline in official check fees and a decline of $38 thousand in investment services income. The FHLB did not pay a dividend during the first two quarters of 2009, but paid a dividend of $4 thousand during the third quarter of 2009. This compares to dividends totaling $87 thousand paid during the first nine months of 2008. Official checks fees represent fees paid by a third party processor for the processing of our cashier and expense checks. These fees are indexed to the federal funds rate and the decrease in income from this item is primarily related to the decline in the federal funds rate. Additionally, during mid 2008 the processor changed the fee structure further reducing fees that we earn under this relationship. We attribute the decline in investment services income primarily to economic factors.
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