Plumas Bancorp — Q3 2021 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2021; balance-sheet comparisons are to December 31, 2020. Plumas Bancorp is a bank holding company whose subsidiary, Plumas Bank, serves businesses and individuals across Northern California and Nevada. Figures below are in millions of dollars unless stated otherwise.
On July 1, 2021, Plumas acquired Feather River Bancorp and its Bank of Feather River subsidiary for approximately $23.4 million in cash and stock. The acquisition added about $160.4 million of loans and $176.7 million of deposits at fair value, and $5.5 million of goodwill. Management said the deal expands Northern California presence, adds agricultural-lending expertise, and strengthens the talent base.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income, before provision | $13.55 | $9.54 | $33.96 | $27.90 |
| Provision for loan losses | $0.25 | $0.80 | $0.88 | $2.80 |
| Non-interest income | $2.00 | $2.16 | $6.23 | $6.31 |
| Non-interest expense | $6.60 | $5.80 | $18.23 | $17.37 |
| Net income | $6.58 | $3.69 | $15.51 | $10.19 |
| Diluted EPS | $1.12 | $0.71 | $2.83 | $1.95 |
- Net income increased 78% in Q3 and 52% for the nine-month period. Annualized return on average assets was 1.71% in Q3 and 1.58% year to date; return on average equity was 19.6% and 18.3%, respectively.
- Net interest margin was 3.83% in Q3, up from 3.73% a year earlier, but 3.70% for the nine months, down from 4.07%. Growth in average balances and PPP fee amortization supported interest income; management noted that excluding PPP effects, loan yields declined year over year.
- At September 30, total assets were $1,571.5, net loans $828.6, loans held for sale $28.4, available-for-sale securities $275.1, and cash and cash equivalents $373.0. Since year-end 2020, assets increased $459.9, deposits rose $430.5 to $1,404.4, and net loans rose $128.5.
- Equity was $129.5, up from $100.2 at year-end. The Bank’s reported capital ratios included a 14.1% common equity Tier 1 ratio, 8.6% Tier 1 leverage ratio, and 15.3% total risk-based capital ratio; the filing says the Bank exceeded well-capitalized thresholds.
- Cash flows for the first nine months: operating activities used $9.5, investing activities used $48.7, and financing activities provided $246.3. Cash increased $188.1 to $373.0, with deposit growth a major funding source.
- Interest-bearing debt included $10.3 of junior subordinated debentures and $13.5 of repurchase agreements. No FHLB advances or correspondent-bank borrowings were outstanding at quarter-end; the $5.0 FHLB advance outstanding at year-end was repaid. The company also reported no borrowing under its $15 million line of credit.
Material changes versus comparable periods
- Q3 net interest income rose $4.0 and year-to-date net interest income rose $6.1, reflecting balance growth, the acquisition, and PPP loan-fee amortization. Year-to-date PPP fees, net of costs, were $5.0, including the effects of loan forgiveness.
- Credit-loss provision declined by $0.55 in Q3 and $1.93 year to date versus 2020. Net charge-offs were $0.47 for the nine months, compared with $0.44 a year earlier.
- Non-interest expense rose 13.7% in Q3 and 4.9% year to date. The year-to-date increase included acquisition-related professional and outside-service costs, plus operating costs for the Yuba City branch. An Employee Retention Credit reduced salary and benefit expense by $2.3 year to date, including $1.2 in Q3.
- Available-for-sale securities increased $95.4 from year-end. Accumulated other comprehensive income fell to $1.8 from $4.7, with a $2.9 year-to-date other comprehensive loss, principally reflecting unrealized securities valuation changes.
- Common shares outstanding rose to 5.81 million from 5.18 million at year-end, largely reflecting 598,020 shares issued in the acquisition.
Outlook, risks, contingencies, and unusual items
- The filing gives no formal earnings or margin guidance. Management expected to sell some of the $28.4 million of loans held for sale in Q4 2021, with most sales expected in 2022.
- COVID-related loan deferrals totaled $3.7 at September 30. PPP loan principal remaining was $60.0. Management cited potential effects of COVID-19, interest-rate changes, economic conditions, credit quality, real estate markets, competition, regulation, personnel, operational failures or fraud, and securities markets.
- Nonaccrual loans rose to $4.9 from $2.5 at year-end; nonperforming assets were $5.5, or 0.35% of assets, compared with $3.0, or 0.27%. The filing attributed much of the nonaccrual increase to two loans totaling $3.3 that had been on COVID-related deferral; management said they were adequately secured. Past-due loans 30–89 days increased to $4.9 from $1.2.
- The allowance for loan losses was $10.3, or 1.23% of gross loans, versus $9.9, or 1.40% at year-end; excluding acquired loans recorded at fair value, the ratio would have been 1.46%. Management considered the allowance appropriate but cautioned that losses and economic conditions are uncertain.
- CECL implementation is underway, with a model consultant engaged. Management expects the standard, effective for the company for fiscal years beginning after December 31, 2022, to affect the credit-loss reserve, but the amount remains under evaluation.
- Off-balance-sheet commitments included $164.7 of unfunded loan commitments, including $45.3 of real estate construction commitments expected to fund within 12 months, and $0.45 of standby letters of credit. Management noted commitments may expire undrawn. Ordinary-course legal proceedings were not expected to have a material adverse effect.
- Available liquidity included $373.0 in cash, marketable securities, and borrowing facilities. The company cited up to $164.8 of current FHLB borrowing capacity based on stock held, plus $80.0 in correspondent-bank lines. Management said available funding was adequate for foreseeable needs.
Important facts for investors to verify
- How much of earnings growth is sustainable after acquisition effects, PPP fee amortization and forgiveness, and the $2.3 Employee Retention Credit benefit?
- Whether credit quality stabilizes: monitor nonaccrual and past-due loans, substandard loans, acquired-credit exposures, and reserve adequacy.
- Integration and performance of the Feather River acquisition, including realization of expected benefits and any further acquisition-related costs.
- Realized proceeds and timing for the $28.4 million loan-sale portfolio, and the effect on future fee income.
- The eventual CECL transition impact on reserves and capital, which the filing does not quantify.
- Interest-rate sensitivity, securities valuation changes, liquidity and deposit trends, and the concentration of lending in real estate-related exposures, which were 69% of the loan portfolio.