Plumas Bancorp — Q1 2019 Form 10-Q
Business context and reporting period
Plumas Bancorp is a California bank holding company whose subsidiary, Plumas Bank, serves individuals and small and middle-market businesses across Northern California and Nevada. The filing covers the three months ended March 31, 2019; income and cash-flow comparisons are year over year, while balance-sheet comparisons are with December 31, 2018. Figures below are in U.S. dollars; financial statement amounts are generally in millions.
Financial performance and condition
- Earnings: Net income was $3.82 million, up 16% from $3.28 million. Diluted EPS rose to $0.73 from $0.63. Annualized return on average assets was 1.87% versus 1.82%; return on average common equity was 22.2% versus 23.6%.
- Interest income and margin: Interest income increased 26% to $9.83 million. Net interest income before provision rose 24% to $9.39 million; net interest margin expanded 43 basis points to 4.95%. Loan interest income included $433,000 of prepayment fees; management said loan yield excluding these fees was 5.78%.
- Other income and expenses: Non-interest income declined 22% to $1.97 million, principally because gains on loan sales fell to $244,000 from $666,000 and the prior-year period included a $209,000 equity-security gain. Non-interest expense increased 4% to $5.68 million, including higher occupancy, compensation, and core deposit intangible amortization.
- Credit costs: The loan-loss provision doubled to $400,000. Net charge-offs were $291,000, or 0.25% of average loans on an annualized basis, compared with $247,000 and 0.20%. The allowance was $7.07 million, 1.23% of gross loans.
- Balance sheet: Assets totaled $831.4 million, up $7.0 million from year-end. Gross loans were $573.4 million, up $7.2 million; net loans were $569.8 million. Deposits rose $4.4 million to $730.9 million, including $312.1 million of non-interest-bearing deposits. Shareholders’ equity increased $5.8 million to $72.7 million.
- Liquidity and cash flow: Cash and cash equivalents were $44.8 million, down $1.9 million from year-end. Operating activities provided $6.9 million; investing activities used $9.1 million; financing activities provided $0.3 million. The company reported no FHLB or correspondent-bank borrowings outstanding and no brokered deposits. Available borrowing included up to $112.1 million from the FHLB based on existing stock holdings, plus $41 million of unsecured correspondent lines.
- Debt and capital: Junior subordinated debentures were $10.31 million; repurchase agreements were $8.91 million. The Bank reported a 12.4% common equity Tier 1 ratio, 12.4% Tier 1 risk-based ratio, 13.5% total risk-based capital ratio, and 9.7% leverage ratio. Management stated the Bank met capital requirements.
Material changes, outlook, and risks
- Higher net interest income reflected loan growth, improved loan yields, and a larger investment portfolio. Approximately 26% of loans were tied to prime; 73% of the loan portfolio was variable-rate, and one-third of variable-rate loans were at their floors.
- Management attributed some of the lower SBA loan originations and sales to the federal government shutdown, during which it could not provide SBA-guaranteed loans. Loan-sale proceeds were $6.0 million versus $11.9 million a year earlier.
- One borrower prepaid $11.6 million of loans during the quarter, generating the $433,000 in prepayment fees included in loan interest income. Management noted higher-cost Carson City deposits and expected some runoff as those accounts reprice.
- Asset quality indicators moved in mixed directions: nonaccrual loans rose to $1.46 million from $1.12 million at year-end; nonperforming assets increased to $2.71 million from $2.34 million. Special-mention and substandard loans also increased. There were no loans 90 days past due and still accruing, and no new troubled debt restructurings in the quarter.
- Commercial real estate represented 49.3% of gross loans; total real-estate-related loans, including agricultural loans, were 72%. The company highlighted exposure to regional real estate conditions and local catastrophes, as well as interest-rate, competitive, economic, regulatory, personnel, operational, and securities-market risks.
- Management said unrealized losses on available-for-sale securities were primarily related to market rates; securities continued to pay as scheduled, and management did not intend to sell them or expect forced sales before recovery. The after-tax accumulated unrealized loss narrowed to $186,000 from $2.02 million at year-end.
- The company adopted lease accounting on January 1, 2019, recording $565,000 of right-of-use assets and lease liabilities at adoption; the March 31 lease liability was $478,000. It was implementing the expected-credit-loss standard (CECL), expected to affect the credit-loss reserve, but had not determined the impact.
- No specific earnings guidance was provided. Management said available funding sources were expected to support foreseeable liquidity needs. After quarter-end, the Board declared a $0.23-per-share semiannual dividend, payable May 15, 2019. Management said ordinary-course legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether the strong margin and earnings growth persist after excluding the $433,000 loan prepayment fees, and how loan yields and funding costs respond to interest-rate changes.
- Whether SBA originations and loan-sale gains recover following the government shutdown, and whether Carson City deposits reprice or run off as management expects.
- Trends in nonaccrual, criticized, and impaired loans, charge-offs, and the allowance—particularly given the increase in nonperforming assets and the upcoming CECL transition.
- Commercial real estate concentration, regional economic and disaster exposure, and the quality of collateral supporting impaired loans and other real estate owned.
- Capital and liquidity after the declared dividend, including actual availability of borrowing facilities and the eventual effect of CECL on reserves and capital.