Plumas Bancorp (PLBC) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. Plumas Bank operates primarily in Northern California and Nevada, serving small and middle-market businesses and individuals.
Financial performance and position
- Earnings: Net income was $6.3 million, down from $7.6 million in Q1 2023. Diluted EPS was $1.05 versus $1.28. Pre-tax income was $8.4 million.
- Net interest: Net interest income before credit-loss provision was $17.5 million, up from $17.1 million. Net interest margin edged down to 4.62% from 4.64%. Interest income rose to $20.0 million, while interest expense increased to $2.6 million from $0.6 million.
- Credit costs: Provision for credit losses was $0.8 million, compared with $1.5 million. The allowance for credit losses was $13.2 million, or 1.35% of loans.
- Other income and expenses: Non-interest income was $2.1 million versus $3.9 million; non-interest expense rose to $10.4 million from $9.2 million. Annualized return on average assets was 1.55% (1.93% in Q1 2023) and return on average equity was 16.4% (25.0%).
- Balance sheet: Total assets were $1.64 billion. Gross loans were $976.2 million, up $17.6 million from year-end; net loans were $966.1 million. Deposits were $1.30 billion, down $34.0 million. Cash and cash equivalents were $128.2 million, up $42.6 million.
- Funding and capital: Other borrowings increased to $120 million from $90 million; repurchase agreements were $19.3 million. Shareholders’ equity increased to $161.5 million from $147.3 million. The Bank’s reported capital ratios included a 16.1% common equity Tier 1 ratio, 11.0% leverage ratio, and 17.4% total risk-based capital ratio; the filing states the Bank exceeded well-capitalized thresholds.
- Cash flow: Operating activities provided $9.2 million, investing activities provided $42.3 million, and financing activities used $8.9 million. Cash increased by $42.6 million during the quarter.
Material changes and unusual items
- On February 14, 2024, the Bank completed the sale-leaseback of nine branch properties for approximately $25.7 million, recognizing a $19.9 million gain and recording right-of-use assets and lease liabilities. The related branch leases have an initial 15-year term; annual rent for the completed branch transaction is approximately $2.4 million, with annual increases of 2%.
- The $19.9 million building-sale gain was largely offset by a $19.8 million loss on sales of approximately $115 million of investment securities. The Bank reports that it purchased approximately $120 million of securities yielding 5.25% (tax-equivalent), compared with 2.24% on the securities sold. The net effect of these transactions and their future earnings contribution is not separately quantified.
- The sale of up to three non-branch properties, for an aggregate price of up to $7.9 million, had not closed by quarter-end; the closing date was extended to September 16, 2024. If completed, the filing indicates total annual rent for all properties would be approximately $3.1 million.
- Loan growth included commercial real estate and construction lending. Commercial real estate represented 57.7% of gross loans, and real-estate-related lending, including agricultural loans secured by real estate, represented 78% of the portfolio.
Management commentary, risks, and contingencies
- Management attributed higher loan and securities interest income to market rates, loan growth, and the portfolio restructuring. Higher deposit costs and borrowings partly offset these gains. About 76% of loans were variable rate; approximately 19% were tied to prime, most repricing within one to three months of a prime-rate change.
- Deposits continued to decline, which management associated with customers seeking higher rates and drawing down balances. Non-interest-bearing deposits were 51% of total deposits. Estimated uninsured deposits were $400 million, including $94 million of collateralized deposits; the Bank reported no brokered deposits.
- Nonaccrual loans rose to $5.6 million from $4.8 million at year-end; nonperforming assets were $6.0 million, or 0.37% of assets. Special-mention loans rose to $10.6 million from $9.3 million, while substandard loans declined to $21.4 million from $21.7 million. Net charge-offs were $0.6 million, or 0.25% of average loans annualized.
- Unfunded loan commitments were $165.6 million, including $31.1 million of construction commitments expected to fund within 12 months. Management states many commitments may expire undrawn. The reserve for unfunded commitments was $0.7 million.
- Liquidity sources include cash, securities, a $237 million FHLB borrowing capacity, and $70 million in unsecured correspondent-bank lines; there were no FHLB or correspondent-bank borrowings outstanding at quarter-end. The Bank had $105 million outstanding under the Bank Term Funding Program, bearing 4.85% and due January 17, 2025.
- Management cited exposure to interest-rate changes, regional economic and real-estate conditions, credit quality, competition, regulation, inflation, operational risks, and regional disasters. It said ordinary-course legal proceedings were not expected to have a material adverse effect, and reported no material changes to the risk factors in its 2023 Form 10-K. No specific earnings guidance was provided.
Important facts for investors to verify
- Whether the securities repositioning improves recurring net interest income enough to offset the realized $19.8 million loss, higher funding costs, and sale-leaseback rent expense.
- Deposit trends, deposit pricing, uninsured-deposit composition, and the Bank’s continued reliance on $105 million of BTFP borrowings.
- Credit performance in commercial real estate and agricultural lending, including changes in nonaccrual, special-mention, and substandard loans, and the adequacy of the allowance.
- Completion and economics of the planned non-branch property sale, including the final lease obligations.
- The persistence of securities-related unrealized losses: $33.2 million before tax at March 31, 2024, with accumulated other comprehensive loss of $23.4 million after tax.