Plumas Bancorp — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Plumas Bancorp is a bank holding company whose subsidiary, Plumas Bank, serves individuals and businesses primarily in northeastern California and northwestern Nevada. Amounts below are in millions except per-share data and ratios.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Interest income | $9.620 | $8.294 | $19.446 | $16.112 |
| Net interest income before loan-loss provision | $9.159 | $8.013 | $18.545 | $15.566 |
| Provision for loan losses | $0.200 | $0.300 | $0.600 | $0.500 |
| Non-interest income | $2.011 | $2.225 | $3.976 | $4.757 |
| Non-interest expense | $5.743 | $5.229 | $11.427 | $10.679 |
| Net income | $3.810 | $3.445 | $7.628 | $6.725 |
| Diluted EPS | $0.73 | $0.66 | $1.46 | $1.29 |
| Net interest margin | 4.73% | 4.75% | 4.84% | 4.63% |
- Q2 net income rose about 11% year over year; six-month net income rose about 13%. Six-month annualized return on average assets was 1.85%, unchanged from 2018; return on average equity was 21.4%, down from 23.6%.
- Six-month net interest income increased $2.979 million, chiefly as average loans grew 16% to $576.1 million and loan interest income increased. The average loan yield rose to 5.91% from 5.70%.
- Six-month non-interest income fell 16.4%, primarily because gains on SBA loan sales declined $0.724 million. Management cited the first-quarter government shutdown, which interrupted SBA-guaranteed lending, and intense pricing competition. Six-month SBA loan sale proceeds were $10.8 million versus $22.2 million.
- Six-month non-interest expense increased 7% to $11.427 million; management attributed much of the increase to the Carson City branch, personnel, occupancy and equipment, and amortization of the acquired core deposit intangible. The branch accounted for $0.488 million of six-month expense.
Financial position, liquidity and capital
- At June 30, 2019, total assets were $839.3 million, up $14.9 million from year-end 2018. Net loans were $588.6 million, up $26.1 million; available-for-sale securities were $173.7 million, up $2.2 million; and cash and cash equivalents were $33.7 million, down $12.9 million.
- Deposits increased $10.6 million to $737.2 million. Non-interest-bearing deposits were $318.3 million (43.2% of deposits). Shareholders’ equity increased $10.1 million to $77.0 million, including $3.5 million of other comprehensive income from securities valuation changes; the company paid a $0.23-per-share semiannual dividend.
- Six-month cash flows were $8.2 million provided by operations, $25.5 million used in investing, and $4.4 million provided by financing. Cash declined $12.9 million to $33.7 million. Investing outflows included $27.2 million of net loan growth; financing included a $17.9 million increase in demand, interest-bearing and savings deposits, offset partly by time-deposit runoff and lower repurchase-agreement balances.
- Interest-bearing debt included $10.3 million of junior subordinated debentures; repurchase agreements were $7.9 million. There were no borrowings outstanding under FHLB or correspondent-bank lines. The bank reported borrowing capacity of up to $130.2 million from the FHLB based on its existing stock holdings, and unsecured correspondent lines totaling $41 million.
- Plumas Bank’s reported capital ratios were 12.5% common equity Tier 1, 10.0% Tier 1 leverage, 12.5% Tier 1 risk-based and 13.6% total risk-based. Management said the Bank met capital adequacy requirements.
Material changes, outlook and risks
- Gross loans increased 4.6% from year-end, led by commercial real estate, auto and agricultural lending. Commercial real estate was 48.3% of gross loans; management reported that real-estate-related lending, including agricultural loans secured by real estate, represented 71% of the portfolio. Approximately 74% of loans were variable-rate.
- Credit indicators weakened from year-end: nonaccrual loans increased to $2.349 million from $1.117 million; nonperforming assets rose to $3.519 million from $2.340 million; special-mention loans increased to $8.4 million from $4.3 million; and substandard loans increased to $2.0 million from $0.741 million. No loans were 90 days past due and still accruing. The allowance was $7.058 million, or 1.19% of gross loans, versus 1.23% at year-end. Management considered it appropriate but cautioned that losses could exceed the allowance.
- Management was implementing the expected-credit-loss standard (CECL), had purchased calculation software and expected an initial allowance estimate before September 30, 2019. It expected CECL to affect the financial statements, particularly the credit-loss reserve, but had not determined the amount. A proposed effective-date delay for smaller reporting companies was not yet final.
- No earnings or balance-sheet guidance was provided. Management said available funding sources should provide adequate liquidity for the foreseeable future. It noted that Carson City deposit rates were higher than in other markets and expected some runoff as accounts reprice.
- Disclosed risks include competition, interest-rate changes and margin pressure, economic or real-estate weakness and resulting credit deterioration, regulatory changes, key-personnel loss, operational failures or fraud, and regional natural disasters. The company’s geographic concentration increases exposure to events such as fires, floods and earthquakes. Management said ordinary-course legal proceedings were not expected to have a material adverse effect; loan commitments were $110.4 million and standby letters of credit were $0.431 million.
- The filing reports adoption of the new lease standard on January 1, 2019, recording $0.565 million of right-of-use assets and lease liabilities at adoption. At quarter-end, both balances were $0.394 million.
Important facts for investors to verify
- Whether the increase in nonaccrual, special-mention and substandard loans continues, and whether charge-offs or reserve needs rise.
- How the CECL implementation changes the allowance and retained earnings, including the final effective date applicable to the company.
- Whether loan growth, deposit mix and funding costs support net interest income and margin as Carson City deposits reprice.
- Whether SBA loan originations and sale gains recover after the government shutdown and amid continued pricing competition.
- How much of the $110.4 million in commitments funds, particularly the $22.0 million in real-estate construction commitments expected to fund within 12 months, and the resulting liquidity and credit exposure.