Plumas Bancorp (PLBC) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are primarily with 2019. Plumas Bancorp is the holding company for Plumas Bank, a community bank serving Northern California and Northern Nevada. The bank earns revenue mainly from loans, investment securities, deposit and loan fees, and sales of government-guaranteed loans.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Net interest income | $38.4 million | $37.6 million |
| Non-interest income | $8.5 million | $8.1 million |
| Net income | $14.5 million | $15.5 million |
| Diluted earnings per share | $2.77 | $2.97 |
| Net interest margin | 4.02% | 4.75% |
| Return on average assets / equity | 1.43% / 15.5% | 1.82% / 20.2% |
| Total assets | $1.112 billion | $865.2 million |
| Gross loans / net loans | $709.9 million / $700.8 million | $619.7 million / $616.0 million |
| Deposits | $974.0 million | $747.3 million |
| Shareholders’ equity | $100.2 million | $84.5 million |
| Cash and cash equivalents | $184.9 million | $46.9 million |
- Net interest income rose 2%, but net income fell 7%. Management attributed the decline primarily to pandemic-related credit provisioning and lower market interest rates. The average prime rate fell from 5.28% to 3.54%.
- Provision for loan losses increased to $3.2 million from $1.5 million. Allowance for loan losses rose to $9.9 million, or 1.39% of loans, from $7.2 million, or 1.17%.
- Operating cash flow was $24.6 million; investing cash flow was negative $114.4 million and financing cash flow was positive $227.7 million. Cash and cash equivalents increased by $138.0 million, chiefly reflecting deposit growth.
- Bank capital ratios at year-end included a 9.2% leverage ratio, 14.2% Tier 1 risk-based ratio and 15.4% total risk-based ratio. The filing states the Bank exceeded applicable well-capitalized thresholds.
Material changes and notable items
- Assets increased $246 million year over year. Deposits rose $227 million, while gross loans grew $90.2 million, or 15%. The loan increase included $69.5 million in commercial loans and $35.6 million in commercial real estate loans.
- Cash and cash equivalents rose substantially; the Bank held $143.7 million in interest-earning balances at the Federal Reserve at year-end. It reported no brokered deposits.
- Net interest margin declined 73 basis points, to 4.02%, as asset yields fell amid lower rates; lower funding costs partly offset the pressure. Average loan yield declined to 5.15% from 5.82%.
- Non-interest expense increased $922,000 to $23.7 million. Non-interest income increased $328,000, including a one-time $218,000 gain on sale of an administrative building and higher SBA loan-sale gains.
- The Company paid three quarterly dividends of $0.12 per share in 2020, totaling $0.36 per share, compared with $0.46 per share in 2019. No common shares were repurchased.
Outlook, risks and contingencies
- The filing gives no numerical earnings or growth guidance. Management said the pandemic’s ultimate effects were uncertain and could affect credit quality, loan demand, income, liquidity and asset values.
- COVID-19 support: At year-end, 113 loan forbearance agreements covered approximately $37.4 million in balances. The Bank originated 1,223 Paycheck Protection Program loans totaling $119.5 million; $70.7 million remained outstanding at year-end. During the fourth quarter, 493 loans totaling $48 million were forgiven. PPP loans carry SBA-guarantee and program-compliance risks.
- Credit concentration is a key risk: approximately 66% of the loan portfolio was real-estate-secured, and the business is concentrated in Northern California and Northern Nevada. Commercial real estate represented 49.7% of gross loans.
- Nonperforming loans were $2.5 million, or 0.36% of loans, versus $2.1 million, or 0.33%, in 2019. Net charge-offs declined to $516,000 from $1.2 million. Management increased pandemic and economic qualitative factors in its loan-loss estimate.
- Liquidity sources include deposits, cash, available-for-sale securities and borrowing capacity. The Bank had $5 million outstanding under its FHLB line and reported additional FHLB and correspondent-bank facilities. Unfunded loan commitments were $144.4 million, with $531,000 in letters of credit.
- The Company had $10.3 million of junior subordinated debentures and $13.9 million of repurchase agreements at year-end. Interest-rate swaps entered into in May 2020 fixed the rate on $10 million of debentures for a 10-year term.
- CECL was not yet adopted; the filing says implementation is expected to affect the reserve for credit losses, but the amount was not yet determined. The expected effective date for the Company was fiscal years beginning after December 31, 2022.
- Management reported effective internal control over financial reporting; the independent auditor issued an unqualified opinion on the financial statements. The audit identified the allowance for loan losses as a critical audit matter. The auditor did not attest to internal control effectiveness.
- Management said ordinary-course legal proceedings were not expected to have a material adverse effect. The filing also highlights competition, interest-rate exposure, cyber and vendor risks, natural disasters, regulatory requirements, and possible dividend limitations.
Most important facts for investors to verify
- Whether pandemic-related forbearance borrowers resumed payments and whether PPP forgiveness and SBA guarantees were processed without material exceptions.
- Whether the allowance for loan losses adequately reflects the concentrated real-estate exposure and the evolving local economic outlook.
- Whether the unusually large deposit and cash increases persist, and how excess liquidity is deployed without further margin deterioration.
- Whether lower net interest margin, higher operating costs, and reduced dividends affect future earnings and shareholder returns.
- The eventual CECL impact, available regulatory capital and liquidity after loan growth, and the terms and continued effectiveness of the interest-rate swaps.