Plumas Bancorp (PLBC) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are against December 31, 2021. Plumas Bancorp is a bank holding company whose subsidiary, Plumas Bank, serves primarily small and middle-market businesses and individuals in Northern California and Nevada. The July 2021 Feather River Bancorp acquisition added the Yuba City branch and expanded the bank's Northern California presence.
Key financial results
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $12.0 million | $10.5 million in Q1 2021 |
| Net income | $5.7 million; diluted EPS $0.97 | $4.4 million; diluted EPS $0.85 in Q1 2021 |
| Net interest margin | 3.21% | 3.86% in Q1 2021 |
| Return on average assets / equity | 1.42% / 17.6% | 1.55% / 17.7% in Q1 2021 |
| Total assets | $1.622 billion | $1.614 billion at December 31, 2021 |
| Net loans / gross loans | $830.2 million / $838.7 million | $829.4 million / $838.6 million at December 31, 2021 |
| Deposits | $1.468 billion | $1.439 billion at December 31, 2021 |
| Cash and cash equivalents | $389.0 million | $380.6 million at December 31, 2021 |
| Shareholders' equity | $123.1 million | $134.1 million at December 31, 2021 |
Net income rose about 29% year over year. Net interest income increased $1.5 million, non-interest income rose $1.3 million, and the loan-loss provision declined $75,000; higher non-interest expense of $1.4 million and taxes partly offset those gains. Total non-interest expense was $7.7 million, up 21.9% year over year. The filing does not provide a formal forward earnings or margin forecast.
Cash flow, funding, debt and capital
- Operating cash flow was $22.9 million, compared with $8.6 million in Q1 2021. Investing activities used $34.9 million; financing activities provided $20.4 million. Cash increased $8.4 million during the quarter.
- Deposits increased $28.7 million during the quarter; 51.3% were non-interest-bearing. The company reported no brokered deposits and no outstanding FHLB or correspondent-bank borrowings at March 31, 2022.
- Debt included $10.3 million of junior subordinated debentures. A new $15 million term-note facility, entered into in January, was undrawn at quarter-end; it matures in 2035 and carries a fixed 3.85% rate for its first five years, then a floating rate. The company reported compliance with its covenants.
- Plumas Bank's reported capital ratios exceeded the filing's well-capitalized thresholds: common equity Tier 1 and Tier 1 risk-based capital were each 14.8%, total risk-based capital was 16.0%, and the leverage ratio was 8.5%.
Material changes and notable items
- Growth in interest income reflected the larger post-acquisition balance sheet and higher average balances, including securities and interest-bearing deposits. Average loan balances increased $116 million year over year, but the average loan yield fell 50 basis points to 5.03%; reduced PPP fee income contributed to the decline. PPP loan-fee amortization was $0.6 million, down from $1.6 million.
- Net interest margin contracted 65 basis points year over year to 3.21%, despite higher net interest income. Management cited lower loan yields and reduced PPP fees; the filing also notes the Federal Reserve began raising rates during Q1.
- Gain on sale of loans increased to $1.7 million from $591,000. The bank sold $26.6 million of guaranteed SBA loans in Q1 2022 versus $8.3 million in Q1 2021; loans held for sale fell to $14.0 million from $31.3 million at year-end.
- Available-for-sale securities had $22.3 million of gross unrealized losses at March 31, versus $2.6 million at year-end. The company recorded a $16.0 million other comprehensive loss for the quarter, driving most of the decline in shareholders' equity. Management attributed the securities losses principally to market-rate changes, said the securities continued to pay as scheduled, and stated it did not intend to sell them or expect to be forced to sell before recovery.
- Gross loans were nearly unchanged from year-end. Commercial real estate loans increased $4.9 million and construction loans $4.1 million; PPP balances declined $15.9 million to $18.7 million.
- Other income included $90,000 of insurance proceeds for fire damage at the Greenville, California branch; repairs were ongoing. Q1 2021 professional expense included $163,000 of merger-related legal and investment-banking fees.
Credit quality, liquidity and risks
- The allowance for loan losses was $10.4 million, or 1.24% of gross loans, versus 1.23% at year-end. Q1 provision was $300,000; net charge-offs were $250,000, or 0.12% of average loans on an annualized basis.
- Nonaccrual loans were $4.7 million (0.56% of loans), down from $4.9 million at year-end. No loans were 90 days past due and still accruing. Nonperforming assets were $5.2 million, or 0.32% of assets.
- Real-estate-related and agricultural lending represented approximately 73% of the loan portfolio; commercial real estate alone was 50.5%. About 77% of loans were variable-rate, while 48% of variable-rate loans were at their rate floors.
- Liquidity sources include $389.0 million in cash and cash equivalents, securities, and available borrowing capacity. The bank could borrow up to $164.8 million from the FHLB based on current stock holdings, plus $80 million under unsecured correspondent-bank lines; none of these facilities was drawn at quarter-end. Management said available funding sources were adequate for foreseeable operations.
- Unfunded loan commitments were $163.1 million, including $29.7 million of construction commitments expected to fund within 12 months. Management noted that some commitments may expire undrawn. Ordinary-course legal proceedings were not expected to have a material adverse effect.
- The company is preparing to adopt CECL for fiscal years beginning after December 31, 2022. Management expects the standard to affect the reserve for credit losses but had not determined the extent of the impact.
- Disclosed risks include interest-rate and margin changes, regional economic and real-estate conditions, competition, inflation, regulatory changes, key-personnel loss, operational failures or fraud, and regional hazards such as fires, earthquakes and floods. The company reported no material changes to the risk factors in its 2021 annual report.
Most important facts for investors to verify
- Whether loan yields, deposit costs and repricing behavior support net interest margin as rates change, particularly given the large variable-rate portfolio and loans at rate floors.
- Whether gains on SBA loan sales and PPP-related income are repeatable, and how the remaining loans held for sale convert to future revenue and cash flow.
- The duration and recovery prospects of the available-for-sale securities losses, and the resulting effects on accumulated other comprehensive loss, equity and regulatory capital.
- Credit trends in commercial real estate, agricultural and construction exposures, including nonaccrual loans, criticized loan balances and the adequacy of the allowance.
- The eventual CECL adoption impact and funding needs if a material share of the $163.1 million in commitments is drawn.
- Execution and contribution of the Feather River acquisition, including integration costs and the performance of the Yuba City branch.