Plumas Bancorp — Q3 2022 Form 10-Q
Business context and reporting period. Plumas Bancorp is the holding company for Plumas Bank, a community bank serving Northern California, Nevada and nearby markets, with a focus on small and middle-market businesses and individuals. This unaudited filing covers the quarter and nine months ended September 30, 2022. Unless otherwise noted, amounts below are in U.S. dollars.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Interest income | $16.0 million | $13.9 million | $42.0 million | $34.8 million |
| Net interest income before loan-loss provision | $15.7 million | $13.6 million | $41.2 million | $34.0 million |
| Provision for loan losses | $0.3 million | $0.3 million | $1.0 million | $0.9 million |
| Non-interest income | $2.6 million | $2.0 million | $8.9 million | $6.2 million |
| Non-interest expense | $8.2 million | $6.6 million | $23.9 million | $18.2 million |
| Net income | $7.2 million | $6.6 million | $18.6 million | $15.5 million |
| Diluted earnings per share | $1.23 | $1.12 | $3.15 | $2.83 |
| Net interest margin | 4.00% | 3.83% | 3.60% | 3.70% |
Balance sheet, liquidity and capital at September 30, 2022
- Total assets were $1.653 billion, compared with $1.614 billion at December 31, 2021. Net loans were $849.7 million; gross loans were $858.0 million.
- Cash and cash equivalents were $334.1 million, down $46.5 million from year-end 2021. Available-for-sale securities were $383.2 million, up $77.3 million.
- Deposits totaled $1.511 billion, up $72.2 million from year-end. Non-interest-bearing deposits were $795.9 million, or 52.7% of deposits. The company reported no brokered deposits.
- Debt included $10.3 million of junior subordinated debentures and $13.0 million of repurchase agreements. There were no outstanding FHLB or correspondent-bank borrowings. A $15 million term-note facility was undrawn.
- Available borrowing capacity included up to $183.8 million from the FHLB based on existing stock holdings, plus $70 million of unsecured correspondent-bank lines.
- Shareholders’ equity was $106.5 million, down $27.6 million from year-end, primarily reflecting accumulated other comprehensive loss from securities valuation. The Bank’s common equity Tier 1 ratio was 14.8% and total risk-based capital ratio was 15.9%; management said the Bank exceeded well-capitalized thresholds.
Cash flow and credit quality
- For the first nine months, operating activities provided $50.4 million; investing activities used $162.2 million; and financing activities provided $65.3 million. Cash declined $46.5 million to $334.1 million.
- The allowance for loan losses was $10.9 million, or 1.27% of gross loans, versus $10.4 million and 1.23% at year-end. Nine-month net charge-offs were $432,000, or 0.07% of average loans on an annualized basis.
- Nonaccrual loans fell to $1.5 million from $4.9 million at year-end; there were no loans 90 days or more past due and still accruing. Nonperforming assets were $1.9 million, or 0.11% of assets.
- Special-mention loans increased to $7.5 million from $5.0 million at year-end, while substandard loans declined to $2.8 million from $5.5 million.
Material changes versus comparable periods
- Q3 net income rose $650,000 year over year; nine-month net income increased $3.1 million. Higher net interest income and non-interest income were partly offset by increased non-interest expenses.
- Rising market rates lifted Q3 net interest margin to 4.00% from 3.83%; the nine-month margin declined to 3.60% from 3.70%. Management attributed the year-to-date increase in net interest income to the Feather River acquisition, organic growth and higher rates. The prime rate rose 300 basis points from September 2021 to September 2022.
- Nine-month loan interest and fees included $1.2 million of PPP loan-fee amortization, down from $5.0 million a year earlier. PPP loans outstanding declined to about $1.2 million.
- Nine-month non-interest income increased $2.6 million, mainly from gains on SBA loan sales: $48.9 million of guaranteed loan portions were sold, compared with $7.4 million in the prior-year period. Loans held for sale declined to $434,000 from $31.3 million at year-end.
- Nine-month non-interest expense rose $5.7 million, including $4.0 million in salaries and benefits. Comparisons were affected by Employee Retention Credits recorded in 2021, including $1.2 million in Q3 2021, and by 2021 merger-related expenses.
- Unrealized AFS securities losses moved from a $1.7 million net gain at year-end 2021 to a $62.2 million net loss at September 30, 2022, principally due to higher market rates. The after-tax accumulated other comprehensive loss was $42.3 million. Management stated it did not intend, and did not expect to be required, to sell the securities before recovery; securities continued to pay as scheduled.
Outlook, risks and contingencies
- The filing gives no specific earnings or revenue guidance. Management said available funding sources, including borrowing facilities, were expected to provide adequate liquidity for the foreseeable future.
- Interest-rate sensitivity is material: approximately 79% of loans were variable rate, and about 23% of the portfolio was tied to prime. Management noted that 52% of variable-rate loans were at their floor rate at quarter-end.
- Commercial real estate was 53.3% of gross loans; real-estate-related lending, including specified agricultural and equity-line exposures, was 76%. The company also cited geographic concentration in northeastern California and northwestern Nevada, exposing it to regional economic, real-estate and catastrophe risks such as fires, floods and earthquakes.
- The company had $172.3 million of unfunded loan commitments, including $34.1 million of construction commitments expected to fund within twelve months. Many other commitments may expire undrawn and are not necessarily future cash needs.
- CECL adoption was scheduled for fiscal years beginning after December 31, 2022. Management expected the standard to affect credit-loss reserves but had not determined the extent.
- Management said ordinary-course legal proceedings were not expected to have a material adverse effect. It reported no material changes to the previously disclosed risk factors, no defaults upon senior securities, and effective disclosure controls as of September 30, 2022.
Important facts for investors to verify
- How higher rates affect deposit pricing, funding costs and net interest margin, particularly as customer balances and rates adjust.
- The magnitude and timing of CECL’s effect on the allowance, retained earnings and capital.
- Whether the large AFS unrealized loss remains manageable without securities sales and how it affects tangible capital and liquidity.
- Credit trends in commercial real estate, construction and agricultural lending, including the increase in special-mention loans.
- The sustainability of SBA loan-sale gains and expense levels after the 2021 ERC and merger-related comparison effects.