Plumas Bancorp — Q3 2015 Form 10-Q
Business context and period. Plumas Bancorp is a California bank holding company whose subsidiary, Plumas Bank, operates 11 branches and lending offices in California, Nevada and Oregon. Its lending focuses on small and middle-market businesses and individuals. This unaudited report covers the quarter and nine months ended September 30, 2015; balance-sheet comparisons are with December 31, 2014. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net interest income, before loan-loss provision | $5.53 | $4.87 | $15.83 | $14.19 |
| Provision for loan losses | $0.30 | $0.30 | $0.90 | $0.75 |
| Non-interest income | $2.05 | $1.90 | $5.91 | $5.48 |
| Non-interest expense | $4.66 | $4.29 | $13.99 | $13.31 |
| Net income | $1.60 | $1.33 | $4.17 | $3.39 |
| Diluted EPS | $0.32 | $0.27 | $0.82 | $0.68 |
| Net interest margin | 4.08% | 4.01% | 4.13% | 4.01% |
- Balance sheet at September 30: Assets were $606.9 million, up from $538.9 million at year-end 2014. Net loans were $386.8 million, versus $366.8 million; deposits were $538.8 million, versus $467.9 million. Shareholders’ equity was $41.2 million, versus $36.5 million.
- Liquidity and cash flow: Cash and equivalents reached $94.0 million, up $48.4 million from year-end. For the first nine months, operating cash flow was $6.5 million, investing cash outflow was $21.3 million, and financing cash flow was $63.2 million. Deposit growth was the main source of financing inflow.
- Credit quality: The allowance for loan losses was $5.9 million, or 1.51% of gross loans, compared with $5.45 million, or 1.47%, at year-end. Nine-month net charge-offs were $0.43 million, down from $1.02 million in the comparable 2014 period. Nonperforming loans fell to $5.02 million from $6.63 million; nonperforming assets were $7.34 million, or 1.21% of assets, versus $10.23 million, or 1.90%.
- Debt and capital: The company repaid its $7.5 million subordinated debenture in April, using $4 million of additional note borrowing and a $4 million bank dividend. The note payable stood at $5 million at quarter-end. The bank’s September capital ratios included a 12.6% common equity Tier 1 ratio, 9.3% leverage ratio and 13.9% total risk-based capital ratio; management said the bank met capital requirements.
Changes, outlook and risks
- Nine-month net income rose $0.78 million year over year. Higher net interest income (+$1.63 million) and non-interest income (+$0.44 million) were partly offset by increased provision (+$0.15 million), operating expense (+$0.68 million) and taxes (+$0.46 million). Loan growth and lower interest expense following the debenture payoff supported results; loan yield declined amid local pricing competition.
- Non-interest income benefited from $1.59 million in gains on SBA loan sales, up $0.51 million year over year, and an $88,000 one-time FHLB special dividend. Service-charge income declined. Expenses included higher salaries, commissions and professional fees. A $0.2 million reduction in an OREO valuation allowance was partly offset by declines in other OREO values.
- The bank acquired a Redding branch on July 31, 2015, adding approximately $10 million of deposits and no loans. A new Reno branch was expected to open in December 2015; the company had purchased its building and budgeted approximately $1.4 million for remodeling and related equipment.
- Management provided no earnings or financial forecast. It expected automobile-loan growth to level off as new originations are increasingly offset by paydowns. Management said available liquidity sources should support operations in the foreseeable future.
- Risks identified include competition, interest-rate and margin changes, regional economic and real-estate conditions, credit deterioration, regulation, key-personnel loss, operational failures or fraud, and securities-market changes. About 74% of loans were real-estate related; approximately 71% were variable-rate, with 43% of variable-rate loans at their floors. Construction and land-development lending was identified as higher risk.
- Unfunded loan commitments were $81.7 million, including $7.1 million of construction commitments expected to fund within 12 months; these commitments do not necessarily represent future cash needs. Management said ordinary-course legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether loan growth, credit quality and reserve adequacy remain sustainable, particularly in commercial real estate and other regional property exposures.
- Whether SBA loan-sale gains and the special FHLB dividend are recurring; also monitor ongoing salary, commission and professional-fee growth.
- The terms and repayment performance of the $5 million term loan established October 1, 2015, and the availability and use of its $2.5 million line of credit.
- Execution, costs and contribution from the Reno branch and Redding acquisition, and the development of the company’s elevated cash balance.
- Interest-rate sensitivity, including variable-rate loans at contractual floors, and the effect of deposit growth and mix on future margins.