Plumas Bancorp — Q2 2020 Form 10-Q
Business context and reporting period. Plumas Bancorp is the holding company for Plumas Bank, a community bank serving Northern California and Nevada. This unaudited filing covers the quarter and six months ended June 30, 2020; balance-sheet comparisons are with December 31, 2019. Unless noted, amounts below are in millions.
Financial performance and condition
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net interest income, before provision | $9.15 | $9.16 | $18.37 | $18.55 |
| Provision for loan losses | $1.25 | $0.20 | $2.00 | $0.60 |
| Non-interest income | $1.92 | $2.01 | $4.15 | $3.98 |
| Non-interest expense | $5.43 | $5.74 | $11.57 | $11.43 |
| Net income | $3.19 | $3.81 | $6.50 | $7.63 |
| Diluted earnings per share | $0.61 | $0.73 | $1.24 | $1.46 |
- Margins and returns: Net interest margin was 4.01% in Q2, versus 4.73% a year earlier; for the first half it was 4.27%, versus 4.84%. Management cited lower market rates, including Federal Reserve rate cuts, as a key pressure. Annualized return on assets and equity were 1.31% and 14.0% for Q2, respectively, compared with 1.83% and 20.6% a year earlier.
- Balance sheet at June 30: Assets were $1,036.9, up $171.7 from year-end. Gross loans were $741.8 (net loans $732.2), up $122.0; deposits were $904.0, up $156.7. Cash and cash equivalents were $107.2, compared with $46.9 at year-end; available-for-sale securities were $153.7, versus $159.3. Shareholders’ equity was $92.9, up from $84.5.
- Cash flow for the first half: Operating activities provided $17.1; investing activities used $117.2, principally reflecting $126.1 of net loan growth; financing activities provided $160.4, mainly from deposit growth and $10.0 of FHLB advances. Cash increased $60.3 to $107.2.
- Debt and liquidity: The balance sheet included $10.0 of FHLB advances, $10.4 of repurchase agreements and $10.3 of junior subordinated debentures. The company reported $10.0 of FHLB borrowing at June 30, at a zero interest rate, with maturities in November 2020 and May 2021. It also described FHLB and correspondent-bank borrowing capacity; management said available funding sources should provide adequate liquidity. The filing’s narrative is inconsistent about whether FHLB advances were outstanding at June 30; verify this disclosure.
- Capital: Plumas Bank reported a 13.9% common equity Tier 1 ratio, 13.9% Tier 1 risk-based ratio, 15.2% total risk-based ratio and 9.9% leverage ratio; each exceeded the filing’s stated well-capitalized thresholds.
Material changes and notable items
- Net income declined $0.63 in Q2 and $1.13 for the first half, driven chiefly by higher loan-loss provisions. The first-half provision rose $1.4 year over year; management added a pandemic-related qualitative allowance factor and increased its economic-condition factor.
- Loan growth was substantially associated with the Paycheck Protection Program (PPP): the bank had funded 1,089 PPP loans with remaining principal of approximately $116.2 at June 30. PPP loans represented about 16% of the loan portfolio. Management expected a significant decline in these balances during the second half of 2020 as borrowers sought forgiveness.
- The bank had 416 COVID-19 forbearance agreements covering approximately $104.4 of loans, allowing payment deferrals of up to six months. Qualified modifications could be exempt from troubled-debt-restructuring classification under applicable CARES Act provisions and regulatory guidance.
- Nonperforming loans were $2.28, or 0.31% of total loans, versus $2.05 at year-end; nonperforming assets were $3.00, or 0.29% of assets. The allowance for loan losses was $8.84, or 1.19% of total loans; excluding PPP loans, management reported coverage of 1.41%. There were no loans 90 days or more past due and still accruing.
- Q2 non-interest income included a one-time $0.218 gain on sale of an administrative building. First-half non-interest income also benefited from that gain and higher gains on SBA loan sales; reduced service charges partly reflected lower business activity and temporary waivers of certain pandemic-related NSF fees. The bank said it stopped waiving those fees solely for pandemic-related reasons beginning in Q3.
- On May 26, the company entered into two interest-rate swaps to effectively fix the rate on its $10.0 of subordinated debentures; the swaps had a ten-year maturity. The filing reported a $0.097 liability fair value.
Outlook, risks and contingencies
The company provided no numerical earnings or revenue guidance. Management said the pandemic’s financial effects remained uncertain and could adversely affect net interest income, credit quality, provisions, non-interest income and liquidity. Identified risks include borrower delinquencies and collateral-value declines, regional real-estate and economic conditions, reduced interest margins, operational and vendor disruption, and possible dividend pressure. The bank also warned of PPP compliance, litigation, reputational and SBA-guaranty risks, including potential loss of SBA coverage if the agency finds origination or servicing deficiencies.
Loan commitments totaled $117.3, including $16.4 for real-estate construction expected to fund within twelve months; the filing cautions that commitments may expire undrawn. Management stated that ordinary-course legal proceedings were not expected to have a material adverse effect. The bank was above regulatory well-capitalized thresholds and reported compliance with covenants on its note payable.
Key facts for investors to verify
- Progress and timing of PPP forgiveness, related fee recognition, and any SBA review or guaranty exposure.
- Performance of the 416 forborne loans as deferrals expire, and whether the allowance adequately reflects pandemic and regional economic risks.
- The filing’s conflicting statements on whether the $10.0 FHLB advance was outstanding at June 30, 2020.
- Whether deposit growth and elevated cash balances persist as PPP proceeds are forgiven or spent, and how loan growth and funding needs evolve.
- Further changes in net interest margin, credit provisions, and capital or dividend plans; the filing states that CECL adoption is delayed for the company until fiscal years beginning after December 31, 2022, and that its eventual reserve impact remains under evaluation.