Plumas Bancorp — Q1 2020 Form 10-Q
Business context and reporting period. Plumas Bancorp is a California bank holding company whose subsidiary, Plumas Bank, serves businesses and individuals across northeastern California and northwestern Nevada. The unaudited quarter ended March 31, 2020; income and cash-flow comparisons are to Q1 2019, and balance-sheet comparisons are to December 31, 2019. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Key financial metrics
| Metric | Q1 2020 / March 31, 2020 | Comparison |
|---|---|---|
| Total assets | $879.6 million | $865.2 million at Dec. 31, 2019 |
| Loans, net of allowance | $619.5 million | $616.0 million at Dec. 31, 2019 |
| Total deposits | $762.9 million | $747.3 million at Dec. 31, 2019 |
| Net interest income, before provision | $9.22 million | $9.39 million in Q1 2019 |
| Net interest margin | 4.57% | 4.95% in Q1 2019 |
| Net income / diluted EPS | $3.32 million / $0.63 | $3.82 million / $0.73 in Q1 2019 |
| Provision for loan losses | $0.75 million | $0.40 million in Q1 2019 |
| Operating cash flow | $7.14 million | $6.91 million in Q1 2019 |
| Cash and cash equivalents | $58.1 million | $46.9 million at Dec. 31, 2019 |
| Shareholders’ equity | $90.2 million | $84.5 million at Dec. 31, 2019 |
Material changes and operating performance
- Net income declined $0.50 million, or about 13%, year over year. Higher noninterest income and lower income-tax expense were more than offset by lower net interest income, a larger loan-loss provision, and higher operating expenses.
- Interest income fell $0.23 million as market rates and yields on loans and securities declined. Average loans increased, but loan yield fell to 5.55% from 6.09%; net interest margin contracted 38 basis points.
- Noninterest income rose $0.26 million to $2.23 million, mainly reflecting a $0.22 million increase in gains on SBA loan sales. Noninterest expense rose $0.45 million to $6.14 million, including higher salaries and employee benefits and outside-service costs.
- Gross loans increased $4.0 million from year-end. Commercial real estate loans rose $15.3 million, partly offset by an $11.5 million reduction in construction and land-development loans. Commercial real estate was 53.3% of gross loans; management reported that real-estate-related lending, including specified related categories, represented 71% of the portfolio.
- Deposits increased $15.6 million, including growth in noninterest-bearing and savings/money-market balances. Repurchase agreements declined to $8.4 million from $16.0 million. Shareholders’ equity increased primarily through earnings and higher unrealized gains on available-for-sale securities.
Credit, debt, liquidity and capital
- The allowance for loan losses rose to $7.80 million, or 1.25% of total loans, from $7.24 million, or 1.17%, at year-end. Management added a pandemic-related qualitative factor and increased its economic-conditions factor. Q1 net charge-offs were $0.19 million.
- Nonaccrual loans were $2.31 million, up from $2.05 million at year-end; nonperforming assets were $3.08 million, or 0.35% of total assets. No loans were 90 days or more past due and still accruing.
- Cash and available-for-sale securities totaled approximately $217.3 million at quarter-end. The company reported no outstanding FHLB or correspondent-bank borrowings. Available borrowing capacity included up to $130.2 million from the FHLB based on its then-current stock holdings, plus $41 million of unsecured correspondent-bank lines.
- Junior subordinated debentures were $10.31 million. Bank regulatory capital ratios at March 31 included a 13.6% common equity Tier 1 ratio, 10.8% leverage ratio, and 14.8% total risk-based capital ratio; each exceeded the filing’s stated “well-capitalized” threshold. The holding company qualifies for an exemption from consolidated Basel III capital rules.
- Unfunded loan commitments were $104.5 million at March 31, including $7.1 million of construction commitments expected to fund within 12 months. Management noted that some commitments may expire undrawn.
Outlook, risks and unusual items
- The filing gives no quantitative earnings or revenue guidance. Management said COVID-19’s full impact was uncertain and could adversely affect net interest income, credit quality, loan-loss provisions, noninterest income, collateral values, liquidity and results of operations.
- After quarter-end, the bank reported 357 COVID-related forbearance agreements as of April 30, covering approximately $90 million of loans and allowing deferrals of up to six months. By April 30 it had funded 365 Paycheck Protection Program loans totaling more than $60 million and had approved a further $51 million expected to fund in May. The filing also reports $60.5 million of PPP loans funded during April.
- The company’s smaller-reporting-company status delayed CECL adoption to fiscal years beginning after December 31, 2022. Management expected the standard to affect the credit-loss reserve but had not determined the extent.
- Management identified risks from regional economic weakness, interest-rate changes, loan defaults and real-estate values, competition, regulation, operational disruptions, and reliance on key personnel and third-party services. The company’s geographic concentration also exposes it to regional disasters, including earthquakes, fires and floods.
- Ordinary-course legal proceedings were not expected by management to have a material adverse effect. The company reported no material changes to its stated risk factors other than COVID-19-related risks.
Important facts for investors to verify
- Whether borrower forbearances and PPP lending change loan performance, fee income, funding needs or credit losses in subsequent quarters.
- Whether the pandemic-related reserve factors prove adequate as borrower conditions and collateral values evolve.
- Whether lower interest rates continue to pressure net interest margin, loan yields and earnings.
- Trends in commercial real-estate exposure, nonaccrual loans, criticized loans and the allowance for loan losses.
- Capital and liquidity levels, including actual availability and use of borrowing facilities; the filing states that available sources were expected to provide adequate liquidity.