Plumas Bancorp — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018; comparisons are primarily with 2017. Plumas Bancorp is a California bank holding company whose principal subsidiary, Plumas Bank, operates in Northern California and Nevada.
Financial results and position
| Metric | 2018 | 2017 |
|---|---|---|
| Total interest and noninterest income | $43.2 million | $37.2 million |
| Net interest income | $33.1 million | $27.9 million |
| Provision for loan losses | $1.0 million | $0.6 million |
| Income before taxes | $19.1 million | $15.5 million |
| Net income | $14.0 million | $8.2 million |
| Diluted earnings per share | $2.68 | $1.58 |
| Total assets | $824.4 million | $745.4 million |
| Gross loans | $566.2 million | $486.6 million |
| Deposits | $726.6 million | $662.7 million |
| Shareholders’ equity | $66.9 million | $55.7 million |
- Net income rose 71%; pretax income increased 23%. Net interest income grew 18%, supported by loan growth and higher yields. Net interest margin was 4.70%, up from 4.35%; return on average assets was 1.83% versus 1.18%, and the efficiency ratio improved to 52.0% from 55.5%.
- Noninterest income increased to $8.9 million from $8.3 million. Noninterest expense rose to $21.8 million from $20.1 million, including higher compensation, professional fees and other operating costs.
- Net cash provided by operating activities was $15.6 million; investing activities used $121.9 million and financing activities provided $65.4 million. Cash and cash equivalents declined $40.9 million to $46.7 million, primarily alongside loan growth and investment purchases.
- At year-end, loans were 77.9% of deposits, compared with 73.4% in 2017. The Bank reported no brokered deposits or borrowings outstanding under its FHLB and correspondent-bank facilities. FHLB borrowing capacity was $112.1 million based on existing stock holdings; additional stock would be needed to access the stated $207 million maximum. Management said available funding sources would meet foreseeable liquidity needs.
- Debt included $10.3 million of junior subordinated debentures and $13.1 million of repurchase agreements. A renewed $5 million parent-company line of credit had no borrowings outstanding.
- The Bank’s year-end capital ratios were 11.8% common equity Tier 1, 11.8% Tier 1 risk-based, 13.0% total risk-based and 9.3% leverage. The filing states the Bank exceeded well-capitalized thresholds.
Material changes and asset quality
- Loans grew 16%, with increases in commercial real estate, auto, construction and agricultural lending. Commercial real estate was 48.0% of gross loans; approximately 71% of the portfolio was real-estate-secured.
- Deposits increased 10%, including $45.6 million acquired with the Carson City branch in October 2018. The acquisition added $1.8 million of loans and $1.1 million of intangible assets.
- Nonperforming assets fell to $2.3 million, or 0.28% of assets, from $4.4 million, or 0.59%. Nonperforming loans declined to $1.1 million from $3.0 million; the 2017 past-due loans still accruing were collected during 2018. Special-mention loans nevertheless increased to $4.3 million from $0.6 million.
- Net charge-offs rose to $711,000 from $480,000, largely due to auto loans. The allowance for loan losses was $7.0 million, or 1.23% of loans, down from 1.37%. Management considered the allowance adequate, while noting estimates are uncertain.
- Available-for-sale securities totaled $171.5 million. Unrealized losses were $3.2 million pretax ($2.0 million net of tax in accumulated other comprehensive loss), compared with $1.3 million pretax in 2017. Management attributed the losses principally to market rates and did not consider the securities other-than-temporarily impaired.
Outlook, risks and unusual items
- The filing provides no specific earnings, growth or margin guidance. Management described growth in lending and deposits, while emphasizing local economic conditions, interest rates and credit quality as important influences on results.
- 2017 net income included a $1.4 million one-time deferred-tax-asset revaluation after the federal corporate tax rate reduction. The effective tax rate was 26.8% in 2018 versus 47.2% in 2017; the 2017 rate was also affected by that revaluation. This makes year-over-year net income growth larger than pretax income growth.
- 2018 noninterest income included a $209,000 gain associated with adopting a new equity-security accounting standard. Salaries and benefits, professional fees and other expense increased; professional fees included Carson City acquisition and compliance-related costs. Other expense also included costs associated with terminating the Tahoe City branch lease.
- Credit and concentration risks include exposure to local real estate markets, agricultural conditions and borrower repayment capacity. The company also identifies interest-rate, liquidity, competition, natural-disaster, cybersecurity/vendor, regulatory and key-personnel risks. Approximately 28% of loans were tied to prime or an equivalent index; the junior subordinated debentures have floating rates.
- Unfunded loan commitments were $126.9 million and letters of credit were $417,000 at year-end. A third-party municipality’s litigation involving a borrower could adversely affect the Bank’s collateral position; management did not expect ordinary-course legal proceedings to materially affect the company overall.
- CECL was expected to take effect for the company in 2020. Management was evaluating its impact and could not determine the eventual reserve or financial-statement effect. The company expected adoption of the lease standard in 2019 to result in approximately $565,000 of right-of-use assets and lease liabilities.
Important facts for investors to verify
- Whether loan growth and net interest margin remain strong as rates, deposit pricing and competition change.
- Trends in auto-loan charge-offs, special-mention credits, real-estate collateral values and the allowance relative to portfolio growth.
- How Carson City deposits perform and whether higher-cost acquired accounts run off or reprice.
- The effect of CECL adoption on reserves, earnings and regulatory capital, and the impact of securities valuation changes on equity.
- Capital, liquidity and dividend capacity, including restrictions on Bank-to-parent distributions and access to secured borrowing facilities.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor reported effective internal control as of December 31, 2018.