Plumas Bancorp — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; balance-sheet comparisons are against December 31, 2016. Amounts below are in millions of dollars unless noted. Plumas Bancorp is a bank holding company whose Plumas Bank subsidiary serves businesses and individuals across Northern California and nearby areas, with lending offices in other Western states.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Interest income | $7.40 | $6.38 | $21.29 | $18.46 |
| Net interest income, before loan-loss provision | $7.15 | $6.13 | $20.53 | $17.69 |
| Net interest margin | 4.31% | 4.20% | 4.37% | 4.22% |
| Non-interest income | $2.18 | $1.99 | $6.61 | $5.70 |
| Non-interest expense | $5.13 | $4.71 | $15.11 | $14.02 |
| Net income | $2.45 | $1.96 | $7.05 | $5.37 |
| Diluted earnings per share | $0.47 | $0.39 | $1.36 | $1.06 |
- For the first nine months, net income rose 31% year over year. Management attributed the improvement mainly to higher net interest income and non-interest income, partly offset by increased operating expenses and taxes. Q3 net income rose about 25% year over year.
- At September 30, total assets were $731.0, up $73.1 from year-end 2016. Gross loans were $479.3, up $18.2; deposits were $649.9, up $67.5; and shareholders’ equity was $55.6, up $7.6.
- Cash and cash equivalents were $101.5 and available-for-sale securities were $116.5. Nine-month operating cash flow was $8.7; investing cash use was $35.6, principally reflecting loan growth and securities purchases; financing cash provided was $65.8, primarily from deposit growth.
- The Bank’s reported capital ratios were 12.0% common equity Tier 1, 9.0% Tier 1 leverage, 12.0% Tier 1 risk-based, and 13.2% total risk-based. Management said the Bank met capital adequacy requirements.
- The $2.4 term-loan balance at year-end was paid off in April 2017. The company still reported $10.3 of junior subordinated debentures and $8.7 of repurchase-agreement funding. No FHLB or correspondent-bank borrowings were outstanding at quarter-end.
Material changes and credit trends
- Loan growth was concentrated in commercial real estate, agricultural, auto, and construction lending. Commercial real estate was 49.4% of gross loans; real-estate-related lending, including agricultural loans secured by real estate, represented about 72% of the portfolio.
- Nonaccrual loans increased to $3.8 from $2.7 at year-end 2016; nonperforming loans rose to 0.79% of total loans from 0.59%. Nonperforming assets were $4.7, or 0.64% of assets, versus $3.5, or 0.53%.
- Watch-rated loans increased to $4.2 from $1.2, and substandard loans to $4.0 from $3.4. The allowance for loan losses was $6.8, or 1.42% of loans; nine-month net charge-offs were $0.33, compared with $0.20 in the prior-year period.
- Deposits grew mainly through non-interest-bearing demand, savings, money-market, and NOW accounts; time deposits declined $2.8. Non-interest-bearing deposits were 42.4% of total deposits. The company reported no brokered deposits.
- Unrealized losses on available-for-sale securities narrowed to $0.2 from $1.7 at year-end. Management attributed losses primarily to market-rate conditions, said securities were paying as scheduled, and did not expect to have to sell them before recovery.
Outlook, risks, and unusual items
- The filing provides no specific earnings or revenue guidance. Management said available funding sources, including cash, securities, deposits, and borrowing facilities, should provide adequate liquidity for the foreseeable future.
- Unfunded loan commitments were $107.7, including $23.2 of real-estate construction commitments expected to fund within twelve months; standby letters of credit were $0.5. Commitments may expire unused and are not necessarily future cash requirements.
- Management identified risks including competitive pressure, interest-rate changes and potential margin reduction, regional economic and real-estate conditions, credit deterioration, regulation, key-personnel loss, operational failures or fraud, securities markets, and regional disasters. The business is geographically concentrated in Northeastern California and Northwestern Nevada.
- Operating expenses included a $0.095 write-down, based on a recent appraisal, of the company’s largest other-real-estate-owned property. The filing reported ordinary-course legal matters but management did not expect them to materially affect the company.
- The company declared a $0.14-per-share semi-annual dividend in October 2017, payable November 15, 2017. It also said adoption of the expected-credit-loss standard (CECL) is expected to affect the financial statements, particularly the credit-loss reserve; the extent was still under evaluation.
Investor verification priorities
- Track nonaccrual, watch, and substandard loans, charge-offs, and reserve adequacy, especially in commercial real estate and construction lending.
- Assess whether deposit growth and the unusually high cash balance are sustainable and how they affect future net interest margin and loan deployment.
- Review the $107.7 of unfunded commitments, including construction exposures, alongside available liquidity and borrowing capacity.
- Monitor the $95,000 OREO write-down, remaining OREO properties, and subsequent collateral valuations or dispositions.
- Confirm the impact and implementation assumptions for CECL, and the continuing capacity for dividends under regulatory capital and earnings conditions.