Plumas Bancorp — Q1 2018 Form 10-Q
Business context and reporting period. Plumas Bancorp is a bank holding company whose subsidiary, Plumas Bank, serves businesses and individuals primarily in northeastern California and northwestern Nevada. This unaudited report covers the three months ended March 31, 2018; comparisons are with Q1 2017 for operating results and December 31, 2017 for balance-sheet amounts. Figures are in millions of dollars unless noted.
Financial performance and position
- Revenue and earnings: Net interest income before provision rose 16% to $7.553 million; total non-interest income increased 23.6% to $2.531 million. Net income was $3.280 million, up from $2.064 million. Diluted EPS increased to $0.63 from $0.40.
- Margins and returns: Net interest margin was 4.52%, versus 4.30%. Annualized return on average assets was 1.82% versus 1.26%; return on average common equity was 23.6% versus 16.9%.
- Expenses and taxes: Non-interest expense increased 7.2% to $5.449 million. The income tax provision was $1.155 million, or 26.0% of pretax income, compared with $1.207 million, or 36.9%, in Q1 2017.
- Assets and loans: Total assets were $736.8 million, down from $745.4 million at year-end. Net loans were $485.2 million, up $2.9 million; gross loans were $489.3 million. Commercial real estate represented 49.8% of gross loans.
- Deposits and liquidity: Deposits totaled $652.8 million, down $9.9 million from year-end. Cash and cash equivalents were $64.7 million, down $22.8 million. The company reported $2.893 million of operating cash flow, $14.557 million of cash used in investing, and $11.183 million used in financing during the quarter.
- Debt and funding: Junior subordinated debentures were $10.310 million; no note payable or FHLB/correspondent-bank advances were outstanding at quarter-end. Repurchase agreements were $8.675 million. Available borrowing included up to $99.4 million from the FHLB based on existing stock holdings, plus $41 million of unsecured correspondent-bank lines.
- Capital: Shareholders’ equity was $57.3 million, up $1.6 million from year-end. The Bank’s reported ratios included a 12.5% common equity Tier 1 ratio, 9.3% leverage ratio, and 13.7% total risk-based capital ratio; management said the Bank met capital adequacy requirements.
Material changes versus comparable periods
- Net income increased $1.216 million year over year, supported by $1.046 million higher net interest income before provision, $484,000 higher non-interest income, and lower income tax expense; higher non-interest expense partly offset gains.
- Loan interest income rose with higher average loan balances and yield. Average loans were $488.8 million versus $461.8 million, and average loan yield increased to 5.62% from 5.36%. Investment-securities interest income also increased with portfolio growth and higher yield.
- Non-interest income included a $209,000 gain from adopting a new accounting standard for certain equity securities. The company also recorded $666,000 in gains on loan sales, compared with $528,000.
- Available-for-sale securities increased to $148.2 million from $137.5 million. Their net unrealized loss recorded in accumulated other comprehensive income was $3.390 million at March 31, compared with $809,000 at year-end; this contributed to a $1.818 million quarterly other comprehensive loss.
- Asset quality improved in some measures: nonperforming loans fell to $1.018 million from $3.022 million at year-end, and nonperforming assets to $2.127 million from $4.401 million. Net charge-offs, however, increased to $247,000 from $6,000 in Q1 2017, primarily due to a commercial borrower bankruptcy.
Outlook, risks, contingencies and unusual items
- The filing provides no specific earnings or revenue guidance. Management said available funding sources were expected to provide adequate liquidity for foreseeable operations.
- Key disclosed risks include interest-rate changes that could reduce margins, regional economic and real-estate weakness, credit deterioration, competition, regulatory changes, operational failures or fraud, and natural disasters in the company’s concentrated service area.
- Real-estate-related loans, including agricultural loans secured by real estate, represented 72% of the loan portfolio. Construction and land-development lending was identified as higher risk and was 5.4% of loans. Approximately 75% of loans were variable rate; 39% of variable-rate loans were at their floors.
- Unfunded loan commitments were $108.8 million, including $16.1 million of construction commitments expected to fund within 12 months; standby letters of credit were $477,000. Commitments may expire undrawn. Management said ordinary-course legal proceedings were not expected to have a material adverse effect.
- Management identified CECL adoption as potentially affecting the credit-loss reserve; implementation was ongoing and the impact had not been quantified. The company said it was still evaluating aspects of the 2017 tax-law changes, but recorded no further adjustment in Q1.
- After quarter-end, the Board declared a $0.18-per-share semiannual cash dividend, approximately $0.9 million, payable May 15, 2018. Management reported effective disclosure controls and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether the increase in net interest margin and earnings is sustainable as funding costs and market interest rates change.
- Trends in nonperforming loans, special-mention loans, charge-offs, and the adequacy of the $6.622 million allowance for loan losses.
- Deposit stability and liquidity following the quarterly deposit and cash declines, including use and availability of borrowing facilities.
- Exposure to commercial real estate, construction lending, and the company’s regional economic and natural-disaster concentration.
- The eventual impact of CECL on the allowance and capital, and the effect of unrealized securities losses on equity and liquidity if securities must be sold.