Plumas Bancorp — 2017 Second-Quarter Form 10-Q
Business context and reporting period
Plumas Bancorp is a California bank holding company whose principal subsidiary, Plumas Bank, serves businesses and individuals in northeastern California and northwestern Nevada. The filing reports the quarter and six months ended June 30, 2017; income and cash-flow comparisons are with the corresponding 2016 periods. Balance-sheet comparisons are with December 31, 2016. Dollar amounts below are in millions unless otherwise noted.
Financial performance and position
| Metric | 2017 period/end | Comparable 2016 or prior date |
|---|---|---|
| Q2 net interest income, before provision | $6.875 | $5.830; +18% |
| Q2 net interest margin | 4.51% | 4.26% |
| Q2 net income; diluted EPS | $2.541; $0.49 | $1.837; $0.36 |
| Six-month net interest income, before provision | $13.382 | $11.568 |
| Six-month net interest margin | 4.41% | 4.23% |
| Six-month net income; diluted EPS | $4.605; $0.89 | $3.410; $0.67 |
| Total assets | $689.9 | $658.0 at Dec. 31, 2016 |
| Net loans; available-for-sale securities | $471.4; $112.3 | $456.6; $101.6 at Dec. 31, 2016 |
| Deposits; shareholders’ equity | $616.2; $52.9 | $582.4; $48.0 at Dec. 31, 2016 |
| Cash and cash equivalents | $68.9 | $62.6 at Dec. 31, 2016 |
- For the six months, interest income rose 15% to $13.9 million; non-interest income rose 19.5% to $4.4 million. Loan-sale gains were $1.314 million, up $422,000 year over year.
- Six-month non-interest expense increased 7.1% to $10.0 million, primarily due to higher salaries and employee benefits, up $625,000. The loan-loss provision was $400,000, unchanged from the first half of 2016.
- Annualized return on average assets was 1.40%, versus 1.15%; return on average equity was 18.3%, versus 15.3%, for the respective six-month periods.
- Six-month cash flows: operating activities provided $5.2 million; investing activities used $26.7 million; financing activities provided $27.7 million. Cash increased $6.2 million to $68.9 million.
- The Bank reported regulatory capital ratios of 11.8% common equity Tier 1, 11.8% Tier 1 risk-based, 13.0% total risk-based, and 9.2% Tier 1 leverage. Management stated the Bank met capital requirements.
Material changes and asset quality
- Loans grew $15.0 million from year-end, led by commercial real estate, agricultural, and construction lending. Commercial real estate was 49.7% of gross loans; real-estate-related lending, including agricultural loans secured by real estate, was about 73% of the portfolio.
- Deposits increased $33.8 million, including $21.7 million in non-interest-bearing deposits. Time deposits declined $3.2 million. The company reported no brokered deposits.
- The $2.375 million term-loan balance at year-end was repaid in April 2017, funded by a $4 million dividend from Plumas Bank. The company reported no balance on its line of credit at June 30. Junior subordinated debentures remained $10.310 million; repurchase agreements were $4.325 million.
- Allowance for loan losses was $6.855 million, or 1.44% of gross loans, versus $6.549 million, or 1.42%, at year-end. Six-month net charge-offs were $94,000, compared with $48,000 a year earlier.
- Nonaccrual loans rose to $2.910 million from $2.724 million; nonperforming assets were $3.754 million, or 0.54% of assets. No loans were 90 days or more past due and still accruing. Watch-rated loans increased to $4.9 million from $1.2 million at year-end.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings or growth guidance. Management said available funding sources, including borrowing capacity, should provide adequate liquidity for the foreseeable future, and considered the allowance adequate; both assessments are subject to economic and credit uncertainty.
- Liquidity sources include customer deposits, $68.9 million of cash and cash equivalents, securities, FHLB borrowing capacity, and unsecured correspondent-bank lines. Based on its FHLB stock holdings, the company could borrow up to $99.4 million; the stated total facility was $186 million. There were no FHLB or correspondent-bank borrowings outstanding at quarter-end.
- Variable-rate loans were approximately 75% of the portfolio; 43% of those variable-rate loans were at their respective floor rates. The company identified construction and land-development lending as higher risk. It also cited dependence on regional economies and real estate markets, and exposure to local disasters, competition, interest-rate changes, credit deterioration, regulation, and operational risks.
- Unfunded loan commitments were $93.6 million, including $10.075 million in construction commitments expected to fund within 12 months; standby letters of credit were $100,000. Management noted commitments may expire undrawn. Ordinary-course legal matters were not expected to have a material adverse effect.
- The company paid a $0.14-per-share semiannual dividend in May. Its remaining warrant was exercised cashlessly, resulting in 108,111 common shares issued. Available-for-sale securities had $354,000 of net unrealized losses, improved from $1.654 million at year-end; management attributed losses principally to market rates and did not consider the securities other-than-temporarily impaired.
- The company said adoption of the expected-credit-loss standard (CECL) is expected to affect its financial statements, particularly the credit-loss reserve, but the impact was still being evaluated. It also expected the new lease standard to put right-of-use assets and lease liabilities on the balance sheet; the extent was under evaluation.
Most important facts for investors to verify
- Whether loan growth, particularly commercial real estate and construction growth, is accompanied by stable credit performance and appropriate reserves; monitor nonaccrual, watch-rated, and past-due balances.
- Whether the improved earnings and net interest margin persist, given the contributions from loan growth, loan-sale gains, and changing interest rates.
- How deposit growth and mix evolve, and whether liquidity and borrowing capacity remain adequate as commitments fund.
- The eventual CECL reserve impact and the balance-sheet effect of lease-accounting adoption.
- Capital ratios, dividend capacity, and the effects of loan growth and shareholder distributions on capital.