Business context and reporting period
Plumas Bancorp’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2021. The company is a community bank holding company serving primarily small and middle-market businesses and individuals in Northern California and Nevada. Unless otherwise stated, financial amounts below are in millions of dollars.
On July 1, 2021, after quarter-end, Plumas completed its acquisition of Feather River Bancorp. The approximately $23.4 million consideration comprised about $4.7 million cash and 598,129 Plumas shares. The acquired company had approximately $195 million in assets, $158 million in net loans and $177 million in deposits; purchase accounting was still underway.
Financial performance and condition
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income, before provision | $9.93 | $9.15 | $20.41 | $18.37 |
| Provision for loan losses | $0.25 | $1.25 | $0.63 | $2.00 |
| Non-interest income | $1.88 | $1.92 | $4.23 | $4.15 |
| Non-interest expense | $5.33 | $5.43 | $11.62 | $11.57 |
| Net income | $4.49 | $3.19 | $8.93 | $6.50 |
| Diluted EPS | $0.85 | $0.61 | $1.69 | $1.24 |
| Net interest margin | 3.40% | 4.01% | 3.62% | 4.27% |
- Quarterly net income increased 41%; first-half net income increased 37%. Lower loan-loss provision and higher net interest income were key contributors. Annualized return on average assets was 1.45% for Q2 and 1.50% for the first half; return on average equity was 17.2% and 17.4%, respectively.
- At June 30, total assets were $1,267.9, up $156.4 from year-end 2020. Net loans were $725.1, investment securities $248.8, and cash and cash equivalents $244.5.
- Deposits rose to $1,131.8 from $974.0 at year-end. Non-interest-bearing deposits were $601.7, or 53.2% of deposits. Shareholders’ equity was $106.8, versus $100.2 at year-end.
- Six-month operating cash flow was $3.1, compared with $17.1 in 2020; investing cash outflow was $91.3 and financing inflow was $147.7. Cash increased $59.5 to $244.5, supported mainly by deposit growth. Cash-flow results include substantial investment-security purchases and loan activity.
- There were no FHLB advances outstanding at June 30; $10.3 of junior subordinated debentures remained. The company also had $10.1 in repurchase agreements. Available liquidity included FHLB borrowing capacity and unsecured correspondent-bank lines; management stated available funding was adequate for foreseeable operations.
- The Bank’s reported capital ratios exceeded well-capitalized thresholds: common equity Tier 1 and Tier 1 risk-based capital were each 14.9%, total risk-based capital was 16.2%, and leverage was 9.0%.
Material changes, outlook, and risks
- Net interest income grew, but margins contracted year over year: Q2 margin fell 61 basis points and first-half margin fell 65 basis points. Lower market rates and lower yields on securities and cash contributed; growth in average earning assets and PPP fee amortization supported interest income.
- PPP loans were $88.2 outstanding at June 30, out of $197 million funded since the program began; borrowers had received more than $108 million in forgiveness. Management expected PPP balances to decline as additional forgiveness is approved.
- Q2 and first-half salary expense benefited from a $1.1 million Employee Retention Credit recorded as a reduction of compensation expense. Merger-related costs included $415,000 in first-half professional fees and $51,000 in outside services. These items affect period-to-period expense comparisons.
- Credit indicators weakened: nonaccrual loans increased to $6.8 from $2.5 at year-end; nonperforming assets rose to $7.3 from $3.0. Management attributed much of the increase to three loans totaling $5.1 that had been on COVID-related deferral; it described them as adequately secured. Special-mention loans rose to $12.3 from $3.1 and substandard loans to $6.9 from $1.8. The allowance was $10.1, or 1.38% of gross loans.
- At June 30, $1.3 of loans remained on COVID-related deferral; two additional loans totaling $3.3 were placed on deferral in July and had been placed on nonaccrual in June. The filing said management expected full repayment through collateral foreclosure or resumed payments.
- Unfunded loan commitments were $133.5, including $31.9 in real-estate construction commitments expected to fund within 12 months; standby letters of credit were $0.2. Commitments may not all be drawn.
- The company had not adopted CECL. Adoption was expected after December 31, 2022 for this smaller reporting company; management expected an effect on credit-loss reserves but had not quantified it. Management also cited risks including interest-rate and margin changes, regional economic and real-estate conditions, credit quality, competition, regulation, key-personnel loss, operational failures or fraud, and securities-market changes. No formal earnings guidance was provided.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. It reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Track nonaccrual, special-mention and substandard loans, particularly the previously deferred credits, and assess collateral, repayment progress and subsequent charge-offs.
- Review the acquired Feather River assets and liabilities’ final fair values, goodwill and intangibles, integration costs, and the impact of 598,129 merger shares on ownership and per-share results.
- Assess whether deposit growth and elevated cash balances persist, and how loan deployment, securities purchases and borrowing capacity affect liquidity and returns.
- Separate recurring earnings from PPP fee amortization, the Employee Retention Credit and merger expenses; monitor margin trends as rates and PPP balances change.
- Monitor CECL implementation and any resulting reserve increase, along with the company’s substantial real-estate-related lending exposure and unfunded commitments.