Plumas Bancorp — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Plumas Bancorp is a California bank holding company; its subsidiary, Plumas Bank, operates primarily in northeastern California and northwestern Nevada and lends mainly to businesses and individuals.
Financial results and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net interest income, before loan-loss provision | $5.317 million | $4.738 million | $10.294 million | $9.320 million |
| Net income | $1.355 million | $1.125 million | $2.570 million | $2.067 million |
| Diluted EPS | $0.27 | $0.23 | $0.51 | $0.42 |
| Net interest margin | 4.26% | 4.04% | 4.16% | 4.02% |
- For Q2, net income increased 20%; net interest income rose 12%. Loan growth and lower interest expense helped, while non-interest income declined and expenses increased.
- For the first half, net income rose $503,000, or approximately 24%. Net interest income increased $974,000; non-interest income rose $285,000. Higher loan-loss provision, operating expenses and taxes partly offset those gains.
- At June 30, total assets were $557.6 million, up $18.7 million from year-end 2014. Net loans were $388.8 million, up $22.0 million; gross loans were $392.6 million. Commercial real estate represented 44.4% of gross loans.
- Deposits were $493.4 million, up $25.5 million since year-end. Non-interest-bearing deposits were $190.9 million. Cash and cash equivalents were $41.3 million, down $4.2 million.
- Shareholders’ equity was $39.0 million, compared with $36.5 million at year-end. The Bank’s June 30 capital ratios included a 12.3% common equity Tier 1 ratio, 9.6% leverage ratio and 13.5% total risk-based capital ratio; management said the Bank met capital requirements.
- Six-month operating cash flow was a use of $335,000, versus $4.8 million provided in the prior-year period. Investing activities used $20.2 million, principally reflecting loan growth and securities activity; financing activities provided $16.3 million, mainly from deposit growth and borrowings. Cash ended the period at $41.3 million.
Material changes and credit quality
- Average loans grew approximately 10% year over year in the first half, lifting loan interest income. Average loan yield declined 11 basis points to 5.37%, which management attributed partly to local pricing competition. Net interest margin improved as loans grew as a share of earning assets and funding costs fell.
- The company repaid its $7.5 million subordinated debenture on April 16, 2015. It borrowed $4.0 million under its bank note and used a $3.5 million dividend from Plumas Bank for the repayment. The note balance was $5.0 million at June 30, bears prime plus 0.75% and matures October 24, 2015.
- Nonperforming loans declined to $5.1 million from $6.6 million at year-end; nonperforming assets fell to $8.1 million from $10.2 million. The allowance for loan losses was $5.8 million, or 1.47% of gross loans. First-half net charge-offs were $271,000, down from $609,000 in 2014.
- Loans 30–89 days past due increased to $2.6 million from $1.6 million, largely due to a $1.5 million loan that was 30 days past due at quarter-end; the regular payment was received July 1. Management cautioned that performing substandard loans could deteriorate.
- Real-estate-related loans were approximately 73% of the portfolio. Construction and land development loans, identified by management as higher risk, were 6.8%. About 71% of loans were variable-rate, and 44% of those variable-rate loans were at their rate floors.
Outlook, risks and unusual items
- No numerical earnings or growth guidance was provided. Management said available funding sources, including borrowing capacity, should provide adequate liquidity for the foreseeable future.
- The Bank expected to open its new Reno branch in Q4 2015. It purchased the building for $1.05 million and budgeted approximately $1 million for remodeling, furniture, fixtures and equipment.
- The Redding branch acquisition closed July 31, 2015, after the reporting date. It added approximately $10 million in deposits and no loans; the Bank consolidated its existing Redding branch into the acquired location.
- Q2 non-interest income included an $88,000 one-time special dividend from the Federal Home Loan Bank. First-half loan-sale gains increased to $974,000 from $776,000, while Q2 loan-sale gains declined year over year. Interpret reported earnings with these items and SBA loan-sale activity in mind.
- Risks identified include local economic and real-estate conditions, loan credit deterioration, competitive pressure on loan pricing, interest-rate changes and margin sensitivity, regulatory changes, operational and technology risks, and regional catastrophes. Management stated that ordinary-course legal proceedings were not expected to have a material adverse effect.
- Unfunded loan commitments were $81.9 million, including $9.85 million of construction commitments expected to fund within twelve months; commitments may expire undrawn. The company reported no outstanding FHLB or correspondent-bank line borrowings at quarter-end.
Important facts for investors to verify
- Whether the Reno branch opened as planned and whether actual remodeling and operating costs matched the budget.
- The Redding acquisition’s subsequent deposit retention, integration costs and contribution to results.
- Subsequent performance of past-due, nonaccrual and substandard loans, and whether the allowance remains adequate as the portfolio grows.
- Whether loan pricing pressure, rate floors and changes in funding costs affect future net interest margin.
- Repayment or refinancing of the $5.0 million note due October 2015, and the ongoing cost and terms of remaining debt.
- How earnings trend excluding the one-time FHLB dividend and considering the variability of SBA loan-sale gains.