##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2005
 or
 o
    
    Transaction report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission file number: 000-49883
 
 PLUMAS BANCORP
  California
(State or other jurisdiction of
incorporation or organization)
    
    75-2987096
(IRS Employer Identification No.)35 S. Lindan Avenue, Quincy, CA
(Address of principal executive offices)
    
    95971
(Zip Code)
 (530) 283-7305
 
 None.  Common Stock, no par value.
 
  o þ
  o þ
  þ o
 þ
  o þ o
  o þ




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##### 



TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    4Item 1A
    
    Risk Factors
    
    
    16Item 1B
    
    Unresolved Staff Comments
    
    
    19Item 2.
    
    Properties
    
    
    19Item 3.
    
    Legal Proceedings
    
    
    20Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20PART IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities (Item 703 of
S-K)
    
    
    20Item 6.
    
    Selected Financial Data
    
    
    22Item 7.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    23Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 8.
    
    Financial Statements and Supplementary Data
    
    
    42Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    43Item 9A.
    
    Controls and Procedures
    
    
    43Item 9B
    
    Other Information (required 8-K information not reported in an 8-K)
    
    
    45PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    45Item 11.
    
    Executive Compensation
    
    
    45Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    45Item 13.
    
    Certain Relationships and Related Transactions
    
    
    46Item 14.
    
    Principal Accountant Fees and Services
    
    
    46PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    46EXHIBIT 23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



PART I
 Forward-Looking Information
 This Annual Report on Form 10-K includes forward-looking statements and information is subject to
the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements (which involve Plumas Bancorps
(the Companys) plans, beliefs and goals, refer to estimates or use similar terms) involve
certain risks and uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks and uncertainties include, but are not limited to, the
following factors:
 
    
    Competitive pressure in the banking industry, competition in the markets the Company
operates in and changes in the regulatory environment
    
    Changes in the interest rate environment and volatility of rate sensitive deposits
    
    Declines in the health of the economy, nationally or regionally, which could reduce the
demand for loans or reduce the value of real estate collateral securing most of the
Companys loans
    
    Credit quality deterioration, which could cause an increase in the provision for loan
and lease losses
    
    Devaluation of fixed income securities
    
    Asset/liability matching risks and liquidity risks
    
    Loss of key personnel
    
    Operational interruptions including data processing systems failure and fraud
 The Company undertakes no obligation to revise or publicly release the results of any revision to
these forward-looking statements. For additional information concerning risks and uncertainties
related to the Company and its operations, please refer to Managements Discussion and Analysis of
Financial Condition and Results of Operations in Item 7 and other information in this Report.
 3




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##### Table of Contents



ITEM 1. BUSINESS
 General
 The Company Bank Holding Company Act
   www.plumasbank.com www.sec.gov
 The Bank.
  4
    Table of Contents            5




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Commitment to our Communities.
  Recent Developments.
 Trust Preferred Securities.
 6
    Table of Contents       Business Concentrations.
 Competition
  7




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Employees.
 Supervision and Regulation
 The Company.
   8




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The Bank.
  Capital Standards.
  9
    Table of Contents     RequirementFor the Bank toAdequately
    
    be Well
    
    Plumas
    
    PlumasCapitalized
    
    Capitalized
    
    Bank
    
    BancorpTotal risk-based capital ratio
    
    
    8.0
    %
    
    
    10.0
    %
    
    
    10.4
    %
    
    
    11.1
    %Tier 1 risk-based capital ratio
    
    
    4.0
    %
    
    
    6.0
    %
    
    
    9.6
    %
    
    
    10.3
    %Tier 1 leverage capital ratio
    
    
    4.0
    %
    
    
    5.0
    %
    
    
    7.8
    %
    
    
    8.5
    %
 Prompt Corrective Action.
  Premiums for Deposit Insurance.
 10
    Table of Contents      Federal Home Loan Bank System.
 
    
    a membership stock requirement with an initial cap of $25 million (100% of membership
asset value as defined), or
    
    an activity based stock requirement (based on percentage of outstanding advances).
   Federal Reserve System.
 Impact of Monetary Policies. 11
    Table of Contents    Extensions of Credit to Insiders and Transactions with Affiliates. Federal Reserve Act Regulation O
 
    
    a banks or bank holding companys executive officers, directors and principal
shareholders (i.e., in most cases, those persons who own, control or have power to vote
more than 10% of any class of voting securities),
    
    any company controlled by any such executive officer, director or shareholder, or
    
    any political or campaign committee controlled by such executive officer, director or
principal shareholder.
  Consumer Protection Laws and Regulations.
 Community Reinvestment Act
 Equal Credit Opportunity Act
 Truth in Lending Act
 Fair Housing Act 12
    Table of Contents    Home Mortgage Disclosure Act
 Right to Financial Privacy Act
 Real Estate Settlement Procedures Act
  Recent Legislation and Other Changes.
   
    
    increasing the asset-size threshold for a small bank to $1 billion. Small banks are
not subject to certain data collection and reporting requirements and are eligible for
evaluation under the small bank lending test.
    
    creating a new category of intermediate small banks for purposes of evaluation under
the CRA. Intermediate small banks are those with at least $250 million but less than $1
billion in assets.
 13




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##### Table of Contents




    
    The overall CRA rating for an intermediate small bank will be based both on the rating
from the small bank lending test and the rating from a new community development test.
    
    Revising the definition of community development to increase the number and kinds of
rural tracts in which bank activities are eligible for community development
consideration.
    
    Revising the regulation to address the impact on a banks CRA rating of evidence of
discrimination or other illegal credit practices.
     14




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##### Table of Contents



Recent Accounting Pronouncements
 Other-Than-Temporary Impairment
 The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
 The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments Recognition of Other-Than-Temporary Impairment upon the
Planned Sale of a Security Whose Cost Exceeds Fair Value Accounting for Certain Investments in Debt and Equity Securities
 15




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Share-Based Payments
 Share-Based
Payments
 Accounting Changes and Error Corrections
 Accounting Changes and Error
Corrections  a replacement of Accounting Principles Board (APB) Opinion No. 20, Accounting
Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements
 
 ITEM 1A. RISK FACTORS
 Our high concentration of real estate loans expose us to increased lending risks, especially in the
event of a recession or natural disaster.
 Deterioration of local economic conditions could hurt our profitability
 Our growth and expansion strategy may not prove to be successful and our market value and
profitability may suffer. 16
    Table of Contents    Loss of any of our executive officers or key personnel could be damaging to us.
 Our performance is subject to interest rate risk.
   17
    Table of Contents  We could experience loan losses which exceed our allowance for loan losses.
  We face strong competition which may adversely affect our operating results.
 
    
    larger national and regional banks in many of the communities we serve;
    
    finance companies, investment banking and brokerage firms, and insurance companies that
offer bank-like products;
    
    credit unions, which can offer highly competitive rates on loans and deposits because
they receive tax advantages not available to commercial banks; and
    
    technology-based financial institutions including large national and super-regional
banks offering on-line deposit, bill payment, and mortgage loan application services.
   18
    Table of Contents   ITEM 1. BUSINESS  General - Competition
 Our future growth may be hindered if we do not raise additional capital. ITEM 1. BUSINESS  Supervision and Regulation  Capital
Standards
 
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Owned Properties35 South Lindan Avenue
Quincy, California (1)
    
    32 Central Avenue
Quincy, California (1)
    
    336 West Main Street
Quincy, California120 North Pine Street
Portola, California
    
    121 Crescent Street
Greenville, California
    
    315 Birch Street
Westwood, California (2)43163 Highway 299E
Fall River Mills, California
    
    510 North Main Street
Alturas, California
    
    3000 Riverside Drive
Susanville, California255 Main Street
Chester, California
    
    8475 North Lake Boulevard
Kings Beach, California
    
    11638 Donner Pass Road
Truckee, California (3)Leased Properties11429 Donner Pass Road
Truckee, California
    
    243 North Lake Boulevard
Tahoe City, California
    
    604 Main Street
Loyalton, California12219 Business Park Drive
Truckee, California (1)
 
 (1)
    
    Non-branch administrative or credit administrative offices.(2)
    
    The Westwood branch is a mortgaged property with an outstanding balance of $72,000 at December
31, 2005.(3)
    
    New branch under construction, not currently in use.(4)
    
    Former branch office (from 2003 branch acquisition) not currently in use. 19
    Table of Contents  Year EndingDecember 31,2006
    
    $
    188,0002007
    
    
    127,0002008
    
    
    22,000Total
    
    $
    337,000
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
  Closing PricesQuarter
    
    Dividends
    
    High
    
    Low4th Quarter 2005
    
    $
    0.11
    
    
    $
    27.00
    
    
    $
    20.773rd Quarter 2005
    
    
    
    
    
    $
    26.07
    
    
    $
    17.342nd Quarter 2005
    
    $
    0.11
    
    
    $
    21.33
    
    
    $
    14.201st Quarter 2005
    
    
    
    
    
    $
    15.67
    
    
    $
    13.334th Quarter 2004
    
    $
    0.09
    
    
    $
    14.67
    
    
    $
    13.003rd Quarter 2004
    
    
    
    
    
    $
    13.33
    
    
    $
    12.232nd Quarter 2004
    
    $
    0.09
    
    
    $
    13.27
    
    
    $
    11.601st Quarter 2004
    
    
    
    
    
    $
    13.40
    
    
    $
    12.00
 20
    Table of Contents  Securities Authorized for Issuance under Equity Compensation Plans.
 Number of securities remainingavailable for future issuanceNumber of securities to
    
    Weighted-average
    
    under equity compensationbe issued upon exercise
    
    exercise price of
    
    plans (excluding securitiesPlan Category
    
    of outstanding options
    
    outstanding options
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    355,976
    
    
    $
    10.90
    
    
    
    617,781Equity compensation
plans not approved by
security holders
    
    None
    
    Not Applicable
    
    NoneTotal
    
    
    355,976
    
    
    $
    10.90
    
    
    
    617,781
  21
    Table of Contents  ITEM 6. SELECTED FINANCIAL DATA
  At or for the year ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(dollars in thousands except per share information)Statement of IncomeInterest income
    
    $
    25,497
    
    
    $
    20,110
    
    
    $
    18,549
    
    
    $
    18,389
    
    
    $
    19,149Interest expense
    
    
    4,793
    
    
    
    2,914
    
    
    
    3,013
    
    
    
    4,038
    
    
    
    6,373Net interest income
    
    
    20,704
    
    
    
    17,196
    
    
    
    15,536
    
    
    
    14,351
    
    
    
    12,776Provision for loan losses
    
    
    1,100
    
    
    
    750
    
    
    
    750
    
    
    
    825
    
    
    
    725Noninterest income
    
    
    4,653
    
    
    
    4,784
    
    
    
    3,639
    
    
    
    3,278
    
    
    
    2,854Noninterest expense
    
    
    17,129
    
    
    
    15,583
    
    
    
    13,126
    
    
    
    11,604
    
    
    
    10,480Provision for income taxes
    
    
    2,600
    
    
    
    2,001
    
    
    
    2,018
    
    
    
    2,046
    
    
    
    1,667Net income
    
    $
    4,528
    
    
    $
    3,646
    
    
    $
    3,281
    
    
    $
    3,154
    
    
    $
    2,758Balance sheet (end of period)Total assets
    
    $
    472,803
    
    
    $
    417,346
    
    
    $
    390,262
    
    
    $
    325,650
    
    
    $
    275,090Total loans
    
    $
    321,646
    
    
    $
    266,913
    
    
    $
    217,957
    
    
    $
    207,721
    
    
    $
    183,676Allowance for loan losses
    
    $
    3,256
    
    
    $
    2,722
    
    
    $
    2,524
    
    
    $
    2,431
    
    
    $
    2,113Total deposits
    
    $
    426,560
    
    
    $
    378,567
    
    
    $
    355,842
    
    
    $
    293,941
    
    
    $
    252,206Total shareholders equity
    
    $
    31,137
    
    
    $
    27,891
    
    
    $
    25,749
    
    
    $
    23,286
    
    
    $
    20,617Balance sheet (period average)Total assets
    
    $
    452,225
    
    
    $
    409,335
    
    
    $
    339,160
    
    
    $
    294,708
    
    
    $
    257,581Total loans
    
    $
    302,596
    
    
    $
    233,759
    
    
    $
    214,736
    
    
    $
    197,900
    
    
    $
    176,746Total deposits
    
    $
    403,818
    
    
    $
    373,267
    
    
    $
    304,840
    
    
    $
    268,773
    
    
    $
    235,840Total shareholders equity
    
    $
    29,548
    
    
    $
    26,829
    
    
    $
    24,558
    
    
    $
    22,184
    
    
    $
    19,423Capital ratiosLeverage ratio
    
    
    8.5
    %
    
    
    7.6
    %
    
    
    8.4
    %
    
    
    8.8
    %
    
    
    7.4
    %Tier 1 risk-based capital
    
    
    10.3
    %
    
    
    10.1
    %
    
    
    10.4
    %
    
    
    11.8
    %
    
    
    9.3
    %Total risk-based capital
    
    
    11.1
    %
    
    
    10.9
    %
    
    
    11.3
    %
    
    
    12.8
    %
    
    
    10.3
    %Asset quality ratiosNonperforming loans/total loans
    
    
    0.52
    %
    
    
    0.45
    %
    
    
    0.40
    %
    
    
    0.86
    %
    
    
    0.71
    %Nonperforming assets/total assets
    
    
    0.36
    %
    
    
    0.30
    %
    
    
    0.22
    %
    
    
    0.59
    %
    
    
    0.52
    %Allowance for loan losses/total loans
    
    
    1.01
    %
    
    
    1.03
    %
    
    
    1.18
    %
    
    
    1.19
    %
    
    
    1.17
    %Performance ratiosReturn on average assets
    
    
    1.00
    %
    
    
    0.89
    %
    
    
    0.97
    %
    
    
    1.07
    %
    
    
    1.07
    %Return on average equity
    
    
    15.2
    %
    
    
    13.5
    %
    
    
    13.3
    %
    
    
    14.2
    %
    
    
    14.2
    %Net interest margin
    
    
    5.06
    %
    
    
    4.77
    %
    
    
    5.20
    %
    
    
    5.48
    %
    
    
    5.57
    %Loans to Deposits
    
    
    75.4
    %
    
    
    70.5
    %
    
    
    61.3
    %
    
    
    70.7
    %
    
    
    72.8
    %Efficiency ratio
    
    
    67.6
    %
    
    
    70.9
    %
    
    
    68.5
    %
    
    
    65.8
    %
    
    
    67.1
    %Per share informationBasic earnings
    
    $
    0.92
    
    
    $
    0.75
    
    
    $
    0.68
    
    
    $
    0.66
    
    
    $
    0.58Diluted earnings
    
    $
    0.89
    
    
    $
    0.73
    
    
    $
    0.66
    
    
    $
    0.64
    
    
    $
    0.57Cash dividends
    
    $
    0.22
    
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.18
    
    
    $
    0.13Dividend payout ratio
    
    
    23.9
    %
    
    
    25.1
    %
    
    
    23.7
    %
    
    
    27.3
    %
    
    
    23.0
    %Book value
    
    $
    6.26
    
    
    $
    5.69
    
    
    $
    5.29
    
    
    $
    4.84
    
    
    $
    4.31Common shares outstanding at period end
    
    
    4,976,654
    
    
    
    4,901,197
    
    
    
    4,863,040
    
    
    
    4,813,975
    
    
    
    4,788,502
 22
    Table of Contents  ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 General
     Critical Accounting Policies
  Allowance for Loan Losses.
    23
    Table of Contents  Available for Sale Securities. Accounting for Certain Investments in Debt and Equity Securities
 Deferred Income Taxes.
 Impairment of Core Deposit Intangible. Goodwill and Other Intangible Assets Accounting for the Impairment or Disposal of
Long-Lived Assets,
 Stock-Based Compensation.
   Overview
  24
    Table of Contents  Results of Operations
 Net Interest Income before Provision for Loan Losses
  Year ended December 31,2005
    
    
    2004
    
    
    2003Interest
    
    
    Rates
    
    
    
    
    
    
    Interest
    
    
    Rates
    
    
    
    
    
    
    Interest
    
    
    RatesAverage
    
    
    income/
    
    
    earned
    
    
    Average
    
    
    income/
    
    
    earned
    
    
    Average
    
    
    income/
    
    
    earnedbalance
    
    
    expense
    
    
    / paid
    
    
    balance
    
    
    expense
    
    
    / paid
    
    
    balance
    
    
    expense
    
    
    / paid(dollars in thousands)AssetsFederal funds sold
    
    $
    5,930
    
    
    $
    218
    
    
    
    3.68
    %
    
    $
    12,729
    
    
    $
    163
    
    
    
    1.28
    %
    
    $
    11,276
    
    
    $
    116
    
    
    
    1.03
    %Investment securities(1)
    
    
    100,633
    
    
    
    3,324
    
    
    
    3.30
    
    
    
    113,684
    
    
    
    3,483
    
    
    
    3.06
    
    
    
    72,745
    
    
    
    2,221
    
    
    
    3.05Total loans (2)(3)
    
    
    302,596
    
    
    
    21,955
    
    
    
    7.26
    
    
    
    233,759
    
    
    
    16,464
    
    
    
    7.04
    
    
    
    214,736
    
    
    
    16,212
    
    
    
    7.55Total earning assets
    
    
    409,159
    
    
    
    25,497
    
    
    
    6.23
    %
    
    
    360,172
    
    
    
    20,110
    
    
    
    5.58
    %
    
    
    298,757
    
    
    
    18,549
    
    
    
    6.21
    %Cash and due from banks
    
    
    15,953
    
    
    
    
    
    
    
    
    
    
    
    23,813
    
    
    
    
    
    
    
    
    
    
    
    21,517Other assets
    
    
    27,357
    
    
    
    
    
    
    
    
    
    
    
    25,551
    
    
    
    
    
    
    
    
    
    
    
    19,077Total assets
    
    $
    452,469
    
    
    
    
    
    
    
    
    
    
    $
    409,536
    
    
    
    
    
    
    
    
    
    
    $
    339,351Liabilities and shareholders
equityInterest bearing demand deposits
    
    $
    48,577
    
    
    
    196
    
    
    
    0.40
    %
    
    $
    44,244
    
    
    
    58
    
    
    
    0.13
    %
    
    $
    35,668
    
    
    
    79
    
    
    
    0.22
    %Money market deposits
    
    
    64,025
    
    
    
    747
    
    
    
    1.17
    
    
    
    65,026
    
    
    
    490
    
    
    
    0.75
    
    
    
    58,814
    
    
    
    498
    
    
    
    0.85Savings deposits
    
    
    67,702
    
    
    
    445
    
    
    
    0.66
    
    
    
    64,472
    
    
    
    292
    
    
    
    0.45
    
    
    
    48,866
    
    
    
    310
    
    
    
    0.63Time deposits
    
    
    98,946
    
    
    
    2,704
    
    
    
    2.73
    
    
    
    93,684
    
    
    
    1,760
    
    
    
    1.88
    
    
    
    83,186
    
    
    
    1,816
    
    
    
    2.18Federal funds purchased
    
    
    6,921
    
    
    
    210
    
    
    
    3.03
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,028
    
    
    
    10
    
    
    
    0.97Trust preferred securities
    
    
    7,259
    
    
    
    479
    
    
    
    6.60
    
    
    
    6,186
    
    
    
    305
    
    
    
    4.93
    
    
    
    6,186
    
    
    
    288
    
    
    
    4.66Other
    
    
    245
    
    
    
    12
    
    
    
    4.90
    
    
    
    215
    
    
    
    9
    
    
    
    4.19
    
    
    
    189
    
    
    
    12
    
    
    
    6.35Total interest bearing liabilities
    
    
    293,675
    
    
    
    4,793
    
    
    
    1.63
    %
    
    
    273,827
    
    
    
    2,914
    
    
    
    1.06
    %
    
    
    233,937
    
    
    
    3,013
    
    
    
    1.29
    %Noninterest bearing demand deposits
    
    
    124,568
    
    
    
    
    
    
    
    
    
    
    
    105,841
    
    
    
    
    
    
    
    
    
    
    
    78,306Other liabilities
    
    
    4,434
    
    
    
    
    
    
    
    
    
    
    
    2,838
    
    
    
    
    
    
    
    
    
    
    
    2,359Shareholders equity
    
    
    29,792
    
    
    
    
    
    
    
    
    
    
    
    27,030
    
    
    
    
    
    
    
    
    
    
    
    24,749Total liabilities and
shareholders equity
    
    $
    452,469
    
    
    
    
    
    
    
    
    
    
    $
    409,536
    
    
    
    
    
    
    
    
    
    
    $
    339,351Net interest income
    
    
    
    
    
    $
    20,704
    
    
    
    
    
    
    
    
    
    
    $
    17,196
    
    
    
    
    
    
    
    
    
    
    $
    15,536Net interest spread(4)
    
    
    
    
    
    
    
    
    
    
    4.60
    %
    
    
    
    
    
    
    
    
    
    
    4.52
    %
    
    
    
    
    
    
    
    
    
    
    4.92
    %Net interest margin(5)
    
    
    
    
    
    
    
    
    
    
    5.06
    %
    
    
    
    
    
    
    
    
    
    
    4.77
    %
    
    
    
    
    
    
    
    
    
    
    5.20
    %
 25
    Table of Contents  (1)
    
    Interest income is reflected on an actual basis and is not computed on a tax-equivalent
basis.(2)
    
    Average nonaccrual loan balances of $1.3 million for 2005, $1.6 million for 2004 and $2.0
million for 2003 are included in average loan balances for computational purposes.(3)
    
    Loan origination fees and costs are included in interest income as adjustments of the loan
yields over the life of the loan using the interest method. Loan interest income includes net
loan costs of $21,000 for 2005 and net loan fees of $317,000 and $585,000 for 2004 and 2003,
respectively.(4)
    
    Net interest spread represents the average yield earned on interest-earning assets less the
average rate paid on interest-bearing liabilities.(5)
    
    Net interest margin is computed by dividing net interest income by total average earning
assets.  2005 compared to 2004
    
    2004 compared to 2003Increase (decrease) due to change in:
    
    Increase (decrease) due to change in:Average
    
    Average
    
    
    
    
    
    
    
    
    
    Average
    
    AverageVolume(1)
    
    Rate(2)
    
    Mix(3)
    
    Total
    
    Volume(1)
    
    Rate(2)
    
    Mix(3)
    
    Total(dollars in thousands)Interest-earning assets:Federal funds sold
    
    $
    (87
    )
    
    $
    305
    
    
    $
    (163
    )
    
    $
    55
    
    
    $
    15
    
    
    $
    28
    
    
    $
    4
    
    
    $
    47Investment securities
    
    
    (400
    )
    
    
    272
    
    
    
    (31
    )
    
    
    (159
    )
    
    
    1,250
    
    
    
    8
    
    
    
    4
    
    
    
    1,262Loans
    
    
    4,848
    
    
    
    497
    
    
    
    146
    
    
    
    5,491
    
    
    
    1,436
    
    
    
    (1,088
    )
    
    
    (96
    )
    
    
    252Total interest income
    
    
    4,361
    
    
    
    1,074
    
    
    
    (48
    )
    
    
    5,387
    
    
    
    2,701
    
    
    
    (1,052
    )
    
    
    (88
    )
    
    
    1,561Interest-bearing
liabilities:Interest bearing demand
deposits
    
    
    6
    
    
    
    120
    
    
    
    12
    
    
    
    138
    
    
    
    19
    
    
    
    (32
    )
    
    
    (8
    )
    
    
    (21
    )Money market deposits
    
    
    (8
    )
    
    
    269
    
    
    
    (4
    )
    
    
    257
    
    
    
    53
    
    
    
    (55
    )
    
    
    (6
    )
    
    
    (8
    )Savings deposits
    
    
    15
    
    
    
    132
    
    
    
    6
    
    
    
    153
    
    
    
    99
    
    
    
    (89
    )
    
    
    (28
    )
    
    
    (18
    )Time deposits
    
    
    99
    
    
    
    800
    
    
    
    45
    
    
    
    944
    
    
    
    229
    
    
    
    (253
    )
    
    
    (32
    )
    
    
    (56
    )Federal funds purchased
    
    
    
    
    
    
    
    
    
    
    210
    
    
    
    210
    
    
    
    (10
    )
    
    
    (10
    )
    
    
    10
    
    
    
    (10
    )Trust preferred securities
    
    
    53
    
    
    
    103
    
    
    
    18
    
    
    
    174
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    17Other borrowings
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    3
    
    
    
    1
    
    
    
    (4
    )
    
    
    
    
    
    
    (3
    )Total interest expense
    
    
    166
    
    
    
    1,426
    
    
    
    287
    
    
    
    1,879
    
    
    
    391
    
    
    
    (426
    )
    
    
    (64
    )
    
    
    (99
    )Net interest income
    
    $
    4,195
    
    
    $
    (352
    )
    
    $
    (335
    )
    
    $
    3,508
    
    
    $
    2,310
    
    
    $
    (626
    )
    
    $
    (24
    )
    
    $
    1,660
 
 (1)
    
    The volume change in net interest income represents the change in average balance divided by
the previous years rate.(2)
    
    The rate change in net interest income represents the change in rate divided by the previous
years average balance.(3)
    
    The mix change in net interest income represents the change in average balance multiplied by
the change in rate. 2005 compared to 2004.
  26
    Table of Contents  2004 compared to 2003.
   Provision for Loan Losses
   27
    Table of Contents  Non-Interest Income
  Years Ended December 31,
    
    Change during Year2005
    
    2004
    
    2003
    
    2005
    
    2004(dollars in thousands)Service charges on deposit
accounts
    
    $
    3,038
    
    
    $
    2,982
    
    
    $
    1,988
    
    
    $
    56
    
    
    $
    994Earnings on bank owned
life insurance policies
    
    
    355
    
    
    
    415
    
    
    
    313
    
    
    
    (60
    )
    
    
    102Merchant processing
    
    
    338
    
    
    
    263
    
    
    
    235
    
    
    
    75
    
    
    
    28Investment services
    
    
    189
    
    
    
    175
    
    
    
    134
    
    
    
    14
    
    
    
    41Mortgage loan commission
and servicing fees
    
    
    171
    
    
    
    184
    
    
    
    272
    
    
    
    (13
    )
    
    
    (88
    )Official check fees
    
    
    118
    
    
    
    62
    
    
    
    58
    
    
    
    56
    
    
    
    4Customer service fees
    
    
    111
    
    
    
    119
    
    
    
    96
    
    
    
    (8
    )
    
    
    23Federal Home Loan Bank
dividends
    
    
    82
    
    
    
    50
    
    
    
    22
    
    
    
    32
    
    
    
    28Safe deposit box and night
depository income
    
    
    69
    
    
    
    61
    
    
    
    55
    
    
    
    8
    
    
    
    6Printed check fee income
    
    
    43
    
    
    
    24
    
    
    
    (19
    )
    
    
    19
    
    
    
    43Other deposit account fees
    
    
    45
    
    
    
    33
    
    
    
    20
    
    
    
    12
    
    
    
    13(Loss) gain on sale of
investment securities, net
    
    
    (8
    )
    
    
    235
    
    
    
    328
    
    
    
    (243
    )
    
    
    (93
    )Gain on sale of loans, net
    
    
    45
    
    
    
    94
    
    
    
    67
    
    
    
    (49
    )
    
    
    27Other income
    
    
    57
    
    
    
    87
    
    
    
    70
    
    
    
    (30
    )
    
    
    17Total non-interest income
    
    $
    4,653
    
    
    $
    4,784
    
    
    $
    3,639
    
    
    $
    (131
    )
    
    $
    1,145
 2005 compared to 2004.
     28
    Table of Contents  2004 compared to 2003.
     Non-Interest Expense
  Years Ended December 31,
    
    Change during Year2005
    
    2004
    
    2003
    
    2005
    
    2004(dollars in thousands)Salaries and employee benefits
    
    $
    9,514
    
    
    $
    8,831
    
    
    $
    7,442
    
    
    $
    683
    
    
    $
    1,389Occupancy and equipment
    
    
    3,070
    
    
    
    2,713
    
    
    
    2,343
    
    
    
    357
    
    
    
    370Professional fees
    
    
    865
    
    
    
    596
    
    
    
    392
    
    
    
    269
    
    
    
    204Business development
    
    
    494
    
    
    
    389
    
    
    
    357
    
    
    
    105
    
    
    
    32Advertising and promotion
    
    
    467
    
    
    
    350
    
    
    
    288
    
    
    
    117
    
    
    
    62Telephone and data
communications
    
    
    366
    
    
    
    346
    
    
    
    357
    
    
    
    20
    
    
    
    (11
    )Armored car and courier
    
    
    337
    
    
    
    371
    
    
    
    342
    
    
    
    (34
    )
    
    
    29Stationery and supplies
    
    
    336
    
    
    
    292
    
    
    
    349
    
    
    
    44
    
    
    
    (57
    )Core deposit intangible
    
    
    301
    
    
    
    299
    
    
    
    161
    
    
    
    2
    
    
    
    138Director compensation and
Retirement
    
    
    288
    
    
    
    284
    
    
    
    196
    
    
    
    4
    
    
    
    88Outside service fees
    
    
    280
    
    
    
    236
    
    
    
    201
    
    
    
    44
    
    
    
    35Postage
    
    
    258
    
    
    
    261
    
    
    
    253
    
    
    
    (3
    )
    
    
    8Insurance
    
    
    206
    
    
    
    236
    
    
    
    164
    
    
    
    (30
    )
    
    
    72Loan expenses
    
    
    114
    
    
    
    191
    
    
    
    170
    
    
    
    (77
    )
    
    
    21Other operating expense
    
    
    233
    
    
    
    188
    
    
    
    111
    
    
    
    45
    
    
    
    77Total non-interest expense
    
    $
    17,129
    
    
    $
    15,583
    
    
    $
    13,126
    
    
    $
    1,546
    
    
    $
    2,457
 29
    Table of Contents  2005 compared to 2004.
    2004 compared to 2003.
     Financial Condition
 Loan Portfolio.
 30
    Table of Contents  At December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(dollars in thousands)Real estate  mortgage
    
    $
    110,686
    
    
    $
    102,125
    
    
    $
    67,532
    
    
    $
    66,039
    
    
    $
    50,865Real estate  construction
    
    
    56,370
    
    
    
    31,964
    
    
    
    26,194
    
    
    
    15,175
    
    
    
    13,705Commercial
    
    
    42,252
    
    
    
    42,689
    
    
    
    51,073
    
    
    
    52,432
    
    
    
    49,910Consumer
    
    
    81,320
    
    
    
    59,068
    
    
    
    46,621
    
    
    
    48,465
    
    
    
    47,280Agriculture
    
    
    31,018
    
    
    
    31,067
    
    
    
    26,537
    
    
    
    25,610
    
    
    
    21,916Total loans
    
    
    321,646
    
    
    
    266,913
    
    
    
    217,957
    
    
    
    207,721
    
    
    
    183,676Less:Deferred (costs) fees
    
    
    (766
    )
    
    
    260
    
    
    
    530
    
    
    
    601
    
    
    
    748Allowance for loan losses
    
    
    3,256
    
    
    
    2,762
    
    
    
    2,564
    
    
    
    2,471
    
    
    
    2,153Net loans
    
    $
    319,156
    
    
    $
    263,891
    
    
    $
    214,863
    
    
    $
    204,649
    
    
    $
    180,775
  Within
    
    After One
    
    AfterOne Year
    
    Through Five Years
    
    Five Years
    
    Total(dollars in thousands)Real estate  mortgage
    
    $
    47,015
    
    
    $
    51,116
    
    
    $
    12,555
    
    
    $
    110,686Real estate  construction
    
    
    45,605
    
    
    
    9,600
    
    
    
    1,165
    
    
    
    56,370Commercial
    
    
    30,247
    
    
    
    11,211
    
    
    
    794
    
    
    
    42,252Consumer
    
    
    35,713
    
    
    
    23,123
    
    
    
    22,484
    
    
    
    81,320Agriculture
    
    
    18,850
    
    
    
    11,755
    
    
    
    413
    
    
    
    31,018Total
    
    $
    177,430
    
    
    $
    106,805
    
    
    $
    37,411
    
    
    $
    321,646Loans maturing after one year with:Fixed interest rates
    
    
    
    
    
    $
    35,214
    
    
    $
    36,468
    
    
    $
    71,682Variable interest rates
    
    
    
    
    
    
    71,591
    
    
    
    943
    
    
    
    72,534Total
    
    
    
    
    
    $
    106,805
    
    
    $
    37,411
    
    
    $
    144,216
 31
    Table of Contents  Analysis of Asset Quality and Allowance for Loan Losses.
    
    
    specific allocation for problem graded loans (classified loans),
    
    general or formula allocation,
    
    and discretionary allocation based on loan portfolio segmentation.
  
    
    Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors
for            Impairment of a
Loan and
    
    SFAS 118, Accounting by Creditors for Impairment of a Loan  Income Recognition and
Disclosures.
  32
    Table of Contents  At December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(dollars in thousands)Balance at beginning of period
    
    $
    2,722
    
    
    $
    2,524
    
    
    $
    2,431
    
    
    $
    2,113
    
    
    $
    1,848Charge-offs:Commercial and agricultural
    
    
    297
    
    
    
    103
    
    
    
    295
    
    
    
    195
    
    
    
    215Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    13
    
    
    
    Real estate construction
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    Consumer
    
    
    442
    
    
    
    600
    
    
    
    520
    
    
    
    393
    
    
    
    345Total charge-offs
    
    
    739
    
    
    
    703
    
    
    
    847
    
    
    
    601
    
    
    
    560Recoveries:Commercial and agricultural
    
    
    21
    
    
    
    15
    
    
    
    45
    
    
    
    21
    
    
    
    15Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    152
    
    
    
    136
    
    
    
    145
    
    
    
    73
    
    
    
    85Total recoveries
    
    
    173
    
    
    
    151
    
    
    
    190
    
    
    
    94
    
    
    
    100Net charge-offs
    
    
    566
    
    
    
    552
    
    
    
    657
    
    
    
    507
    
    
    
    460Provision for loan losses
    
    
    1,100
    
    
    
    750
    
    
    
    750
    
    
    
    825
    
    
    
    725Balance at end of period
    
    $
    3,256
    
    
    $
    2,722
    
    
    $
    2,524
    
    
    $
    2,431
    
    
    $
    2,113Net charge-offs during the period to
average loans
    
    
    0.19
    %
    
    
    0.24
    %
    
    
    0.31
    %
    
    
    0.26
    %
    
    
    0.26
    %Allowance for loan losses to total loans
    
    
    1.01
    %
    
    
    1.03
    %
    
    
    1.18
    %
    
    
    1.19
    %
    
    
    1.17
    %
  33
    Table of Contents  At December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(dollars in thousands)Nonaccrual loans
    
    $
    1,661
    
    
    $
    1,171
    
    
    $
    847
    
    
    $
    1,711
    
    
    $
    1,203Loans past due 90 days or more and still
accruing
    
    
    
    
    
    
    36
    
    
    
    29
    
    
    
    75
    
    
    
    98Total nonperforming loans
    
    
    1,661
    
    
    
    1,207
    
    
    
    876
    
    
    
    1,786
    
    
    
    1,301Other real estate owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    122Other vehicles owned
    
    
    40
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    Total nonperforming assets
    
    $
    1,701
    
    
    $
    1,240
    
    
    $
    876
    
    
    $
    1,911
    
    
    $
    1,423Interest income forgone on nonaccrual loans
    
    $
    39
    
    
    $
    25
    
    
    $
    51
    
    
    $
    148
    
    
    $
    72Interest income recorded on a cash basis
on nonaccrual loans
    
    $
    16
    
    
    $
    63
    
    
    $
    143
    
    
    $
    29
    
    
    $
    1Nonperforming loans to total loans
    
    
    0.52
    %
    
    
    0.45
    %
    
    
    0.40
    %
    
    
    0.86
    %
    
    
    0.71
    %Nonperforming assets to total assets
    
    
    0.36
    %
    
    
    0.30
    %
    
    
    0.22
    %
    
    
    0.59
    %
    
    
    0.52
    %Allowance for loan losses to nonperforming
loans
    
    
    196
    %
    
    
    229
    %
    
    
    293
    %
    
    
    138
    %
    
    
    165
    %
   Investment Portfolio and Federal Funds Sold.
 34
    Table of Contents  December 31,2005
    
    2004
    
    2003Available-for-sale (fair value)
    
    (dollars in thousands)U.S. Treasuries
    
    $
    9,823
    
    
    $
    10,055
    
    
    $
    11,907U.S. Government agencies
    
    
    43,756
    
    
    
    57,083
    
    
    
    70,442Corporate debt securities
    
    
    9,231
    
    
    
    9,501
    
    
    
    10,983U.S. Government agency
mortgage-backed securities
    
    
    20,951
    
    
    
    20,640
    
    
    
    12,832Total
    
    $
    83,761
    
    
    $
    97,279
    
    
    $
    106,164
 December 31,2005
    
    2004
    
    2003Held-to-maturity (amortized cost)
    
    (dollars in thousands)U.S. Government agencies
    
    $
    6
    
    
    $
    507
    
    
    $
    512Corporate debt securities
    
    
    
    
    
    
    500
    
    
    
    1,502Municipal obligations
    
    
    14,077
    
    
    
    14,966
    
    
    
    7,705Total
    
    $
    14,083
    
    
    $
    15,973
    
    
    $
    9,719
 35
    Table of Contents  (dollars in thousands)
    
    Within One Year
    
    One to Five Years
    
    Five to Ten Years
    
    Over Ten Years
    
    TotalAvailable-for-sale(Fair Value)
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    YieldU.S. Treasuries
    
    $
    4,527
    
    
    
    2.18
    %
    
    $
    5,296
    
    
    
    2.91
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    9,823
    
    
    
    2.58
    %U.S. Government agencies
    
    
    13,882
    
    
    
    2.42
    %
    
    
    29,874
    
    
    
    3.15
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    43,756
    
    
    
    2.92
    %Corporate debt securities
    
    
    1,348
    
    
    
    2.55
    %
    
    
    7,883
    
    
    
    3.36
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    9,231
    
    
    
    3.25
    %U.S. Government agency
mortgage-backed
securities
    
    
    
    
    
    
    
    %
    
    
    5,084
    
    
    
    3.54
    %
    
    
    7,085
    
    
    
    3.92
    %
    
    
    8,782
    
    
    
    4.79
    %
    
    
    20,951
    
    
    
    4.19
    %Total
    
    $
    19,757
    
    
    
    2.38
    %
    
    $
    48,137
    
    
    
    3.20
    %
    
    $
    7,085
    
    
    
    3.92
    %
    
    $
    8,782
    
    
    
    4.79
    %
    
    $
    83,761
    
    
    
    3.23
    %Held-to-maturity
(Amortized Cost)U.S. Government agencies
    
    $
    
    
    
    
    
    %
    
    $
    6
    
    
    
    7.63
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    6
    
    
    
    7.63
    %Municipal obligations
    
    
    85
    
    
    
    6.06
    %
    
    
    1,579
    
    
    
    5.78
    %
    
    
    6,193
    
    
    
    5.34
    %
    
    
    6,220
    
    
    
    5.95
    %
    
    
    14,077
    
    
    
    5.66
    %Total
    
    $
    85
    
    
    
    6.06
    %
    
    $
    1,585
    
    
    
    5.79
    %
    
    $
    6,193
    
    
    
    5.34
    %
    
    $
    6,220
    
    
    
    5.95
    %
    
    $
    14,083
    
    
    
    5.67
    %
 36
    Table of Contents  Deposits.
   2005
    
    
    2004
    
    
    2003Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate %
    
    
    Balance
    
    
    Rate %
    
    
    Balance
    
    
    Rate %(dollars in thousands)Non-interest-bearing deposits
    
    $
    124,568
    
    
    
    
    
    
    $
    105,841
    
    
    
    
    
    
    $
    78,301Interest-bearing deposits:NOW accounts
    
    
    48,577
    
    
    
    0.40
    %
    
    
    44,244
    
    
    
    0.13
    %
    
    
    35,668
    
    
    
    0.22
    %Money market accounts
    
    
    64,025
    
    
    
    1.17
    %
    
    
    65,026
    
    
    
    0.75
    %
    
    
    58,814
    
    
    
    0.85
    %Savings
    
    
    67,702
    
    
    
    0.66
    %
    
    
    64,472
    
    
    
    0.45
    %
    
    
    48,866
    
    
    
    0.63
    %Time deposits
    
    
    93,946
    
    
    
    2.73
    %
    
    
    93,684
    
    
    
    1.88
    %
    
    
    83,186
    
    
    
    2.18
    %Total interest bearing deposits
    
    
    274,250
    
    
    
    1.49
    %
    
    
    267,426
    
    
    
    0.97
    %
    
    
    226,534
    
    
    
    1.19
    %Total deposits
    
    $
    398,818
    
    
    
    1.03
    %
    
    $
    373,267
    
    
    
    0.70
    %
    
    $
    304,835
    
    
    
    0.89
    %
  Amount(dollars in thousands)Remaining Maturity:Three months or less
    
    $
    14,285Over three months to six months
    
    
    5,944Over six months to 12 months
    
    
    5,759Over 12 months
    
    
    6,587Total
    
    $
    32,575
  37
    Table of Contents  Capital Resources
 Shareholders Equity.
 Capital Standards.
    December 31, 2005
    
    December 31,2004Amount
    
    Ratio
    
    Amount
    
    RatioTier 1 Leverage RatioPlumas Bancorp and Subsidiary
    
    $
    40,589
    
    
    
    8.5
    %
    
    $
    32,444
    
    
    
    7.6
    %Minimum regulatory requirement
    
    
    19,103
    
    
    
    4.0
    %
    
    
    17,120
    
    
    
    4.0
    %Plumas Bank
    
    
    37,611
    
    
    
    7.8
    %
    
    
    31,982
    
    
    
    7.5
    %Minimum requirement for
Well-Capitalized institution
    
    
    24,060
    
    
    
    5.0
    %
    
    
    21,400
    
    
    
    5.0
    %Minimum regulatory requirement
    
    
    19,248
    
    
    
    4.0
    %
    
    
    17,120
    
    
    
    4.0
    %Tier 1 Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    
    40,589
    
    
    
    10.3
    %
    
    
    32,444
    
    
    
    10.1
    %Minimum regulatory requirement
    
    
    15,780
    
    
    
    4.0
    %
    
    
    12,858
    
    
    
    4.0
    %Plumas Bank
    
    
    37,611
    
    
    
    9.6
    %
    
    
    31,982
    
    
    
    10.0
    %Minimum requirement for
Well-Capitalized institution
    
    
    23,635
    
    
    
    6.0
    %
    
    
    19,262
    
    
    
    6.0
    %Minimum regulatory requirement
    
    
    15,757
    
    
    
    4.0
    %
    
    
    12,841
    
    
    
    4.0
    %
 38
    Table of Contents  December 31, 2005
    
    December 31,2004Amount
    
    Ratio
    
    Amount
    
    RatioTotal Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    
    43,845
    
    
    
    11.1
    %
    
    
    35,206
    
    
    
    10.9
    %Minimum regulatory requirement
    
    
    31,560
    
    
    
    8.0
    %
    
    
    25,715
    
    
    
    8.0
    %Plumas Bank
    
    
    40,867
    
    
    
    10.4
    %
    
    
    34,744
    
    
    
    10.8
    %Minimum requirement for
Well-Capitalized institution
    
    
    39,392
    
    
    
    10.0
    %
    
    
    32,103
    
    
    
    10.0
    %Minimum regulatory requirement
    
    
    31,514
    
    
    
    8.0
    %
    
    
    25,682
    
    
    
    8.0
    %
  Off-Balance Sheet Arrangements
 Loan Commitments.
 Operating Leases.
  Contractual Obligations and Commitments
  Contractual Obligations Due by Period(dollars in thousands)
    
    Total
    
    Less than 1 year
    
    1 to 3 years
    
    3 to 5 years
    
    More than 5 yearsLong-term debt obligations:Junior subordinated
deferrable Interest
debentures
    
    $
    10,310
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10,310Operating lease obligations
    
    
    337
    
    
    
    188
    
    
    
    149
    
    
    
    
    
    
    
    Other long-term liabilities:Salary continuation
    
    
    2,626
    
    
    
    8
    
    
    
    18
    
    
    
    21
    
    
    
    2,040Branch mortgage
    
    
    72
    
    
    
    9
    
    
    
    20
    
    
    
    23
    
    
    
    20Total contractual liabilities
    
    $
    13,345
    
    
    $
    205
    
    
    $
    187
    
    
    $
    44
    
    
    $
    12,370
 39
    Table of Contents  Liquidity
    
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    40
    Table of Contents  Net Interest Income Simulation.
   December 31, 2005
    
    December 31, 2004Adjusted Net
    
    Percent
    
    Adjusted Net
    
    PercentInterest Income
    
    Change
    
    Interest Income
    
    ChangeChange in Rates
    
    (in thousands)
    
    From Base
    
    (in thousands)
    
    From BaseUp 300 basis points
    
    $
    27,408
    
    
    
    18.1
    %
    
    $
    25,844
    
    
    
    24.0
    %Up 200 basis points
    
    
    25,965
    
    
    
    11.9
    %
    
    
    24,032
    
    
    
    15.3
    %Up 100 basis points
    
    
    24,568
    
    
    
    5.9
    %
    
    
    22,304
    
    
    
    7.0
    %Base scenario
    
    
    23,206
    
    
    
    
    %
    
    
    20,836
    
    
    
    
    %Down 100 basis points
    
    
    21,855
    
    
    
    -5.8
    %
    
    
    20,221
    
    
    
    -2.9
    %Down 200 basis points
    
    
    20,536
    
    
    
    -11.5
    %
    
    
    19,074
    
    
    
    -8.5
    %Down 300 basis points
    
    
    19,233
    
    
    
    -17.1
    %
    
    
    17,682
    
    
    
    -15.1
    %
  41
    Table of Contents  Unaudited Quarterly Statement of Operations Data
 Q4
    
    Q3
    
    Q2
    
    Q1
    
    Q4
    
    Q3
    
    Q2
    
    Q12005
    
    2005
    
    2005
    
    2005
    
    2004
    
    2004
    
    2004
    
    2004(dollars in thousands)Net interest income
    
    $
    5,541
    
    
    $
    5,399
    
    
    $
    5,027
    
    
    $
    4,737
    
    
    $
    4,689
    
    
    $
    4,414
    
    
    $
    4,040
    
    
    $
    4,019Provision for loan losses
    
    
    200
    
    
    
    300
    
    
    
    300
    
    
    
    300
    
    
    
    150
    
    
    
    300
    
    
    
    150
    
    
    
    150Non-interest income
    
    
    1,235
    
    
    
    1,199
    
    
    
    1,110
    
    
    
    1,109
    
    
    
    1,172
    
    
    
    1,274
    
    
    
    1,342
    
    
    
    1,030Non-interest expense
    
    
    4,496
    
    
    
    4,307
    
    
    
    4,125
    
    
    
    4,201
    
    
    
    3,989
    
    
    
    3,920
    
    
    
    3,913
    
    
    
    3,761Income before income taxes
    
    
    2,080
    
    
    
    1,991
    
    
    
    1,712
    
    
    
    1,345
    
    
    
    1,722
    
    
    
    1,468
    
    
    
    1,319
    
    
    
    1,138Income taxes
    
    
    780
    
    
    
    743
    
    
    
    629
    
    
    
    448
    
    
    
    583
    
    
    
    537
    
    
    
    469
    
    
    
    412Net income
    
    $
    1,300
    
    
    $
    1,248
    
    
    $
    1,083
    
    
    $
    897
    
    
    $
    1,139
    
    
    $
    931
    
    
    $
    850
    
    
    $
    726Per share:Basic earnings per share
    
    $
    0.26
    
    
    $
    0.25
    
    
    $
    0.22
    
    
    $
    0.19
    
    
    $
    0.23
    
    
    $
    0.19
    
    
    $
    0.17
    
    
    $
    0.16Diluted earnings per share
    
    $
    0.25
    
    
    $
    0.24
    
    
    $
    0.22
    
    
    $
    0.18
    
    
    $
    0.23
    
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.15
 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  PageReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheet as of December 31, 2005 and 2004
    
    F-2Consolidated Statement of Income for the years ended December 31,
2005, 2004 and 2003
    
    F-3Consolidated Statement of Changes in Shareholders Equity for the
years ended December 31, 2005, 2004 and 2003
    
    F-5Consolidated Statement of Cash Flows for the years ended December 31,
2005, 2004 and 2003
    
    F-7Notes to Consolidated Financial Statements
    
    F-10
 42
    Table of Contents  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal
Control-Integrated Framework
  
 F-1
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEET
 December 31, 2005 and 2004
 2005
    
    
    2004ASSETSCash and due from banks
    
    $
    17,271,000
    
    
    $
    11,444,000Federal funds sold
    
    
    7,325,000Cash and cash equivalents
    
    
    24,596,000
    
    
    
    11,444,000Investment securities (Notes 3 and 7)
    
    
    97,844,000
    
    
    
    113,252,000Loans, less allowance for loan losses of $3,256,000
in 2005 and $2,722,000 in 2004 (Notes 4, 7, 9 and 13)
    
    
    319,156,000
    
    
    
    263,931,000Premises and equipment, net (Note 5)
    
    
    11,404,000
    
    
    
    9,793,000Intangible assets, net (Note 17)
    
    
    1,638,000
    
    
    
    1,939,000Bank owned life insurance (Note 14)
    
    
    8,930,000
    
    
    
    8,362,000Accrued interest receivable and other assets (Note 12)
    
    
    9,235,000
    
    
    
    8,665,000Total assets
    
    $
    472,803,000
    
    
    $
    417,386,000LIABILITIES AND
SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    129,734,000
    
    
    $
    108,556,000Interest bearing (Note 6)
    
    
    296,826,000
    
    
    
    270,011,000Total deposits
    
    
    426,560,000
    
    
    
    378,567,000Federal funds purchased (Note 7)
    
    
    
    
    
    
    1,035,000Accrued interest payable and other liabilities
    
    
    4,796,000
    
    
    
    3,707,000Junior subordinated deferrable interest debentures
(Note 8)
    
    
    10,310,000
    
    
    
    6,186,000Total liabilities
    
    
    441,666,000
    
    
    
    389,495,000Commitments and contingencies (Note 9)Shareholders equity (Note 10):Serial preferred stock  no par value; 10,000,000
shares authorized; none issued
    
    
    
    
    
    
    Common stock  no par value; 22,500,000 shares
authorized; issued and outstanding  4,976,654
shares in 2005 and 4,901,197 shares in 2004
    
    
    4,412,000
    
    
    
    4,013,000Retained earnings
    
    
    27,816,000
    
    
    
    24,370,000Accumulated other comprehensive loss
(Notes 3 and 15)
    
    
    (1,091,000
    )
    
    
    (492,000
    )Total shareholders equity
    
    
    31,137,000
    
    
    
    27,891,000Total liabilities and shareholders equity
    
    $
    472,803,000
    
    
    $
    417,386,000
 The accompanying notes are an integral
part of these consolidated financial statements.
 F-2
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 
 CONSOLIDATED STATEMENT OF INCOME
 For the Years Ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Interest income:Interest and fees on loans
    
    $
    21,955,000
    
    
    $
    16,464,000
    
    
    $
    16,212,000Interest on investment securities:Taxable
    
    
    2,787,000
    
    
    
    3,044,000
    
    
    
    2,074,000Exempt from Federal income taxes
    
    
    537,000
    
    
    
    439,000
    
    
    
    147,000Interest on Federal funds sold
    
    
    218,000
    
    
    
    163,000
    
    
    
    116,000Total interest income
    
    
    25,497,000
    
    
    
    20,110,000
    
    
    
    18,549,000Interest expense:Interest on deposits (Note 6)
    
    
    4,092,000
    
    
    
    2,600,000
    
    
    
    2,703,000Interest on short-term borrowings
(Note 7)
    
    
    222,000
    
    
    
    9,000
    
    
    
    22,000Interest on junior subordinated
deferrable interest debentures
(Note 8)
    
    
    479,000
    
    
    
    305,000
    
    
    
    288,000Total interest expense
    
    
    4,793,000
    
    
    
    2,914,000
    
    
    
    3,013,000Net interest income before
provision for loan losses
    
    
    20,704,000
    
    
    
    17,196,000
    
    
    
    15,536,000Provision for loan losses (Note 4)
    
    
    1,100,000
    
    
    
    750,000
    
    
    
    750,000Net interest income after
provision for loan losses
    
    
    19,604,000
    
    
    
    16,446,000
    
    
    
    14,786,000Non-interest income:Service charges
    
    
    3,038,000
    
    
    
    2,982,000
    
    
    
    1,988,000Gain on sale of loans
    
    
    45,000
    
    
    
    94,000
    
    
    
    67,000(Loss) gain on sale of available-for-
sale investment securities, net
(Notes 3 and 15)
    
    
    (8,000
    )
    
    
    235,000
    
    
    
    328,000Earnings on Bank owned life
insurance policies (Note 14)
    
    
    355,000
    
    
    
    415,000
    
    
    
    313,0000Other
    
    
    1,223,000
    
    
    
    1,058,000
    
    
    
    943,000Total non-interest income
    
    
    4,653,000
    
    
    
    4,784,000
    
    
    
    3,639,000
  F-3
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF INCOME   For the Years Ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Non-interest expenses:Salaries and employee benefits
(Notes 4 and 14)
    
    $
    9,514,000
    
    
    $
    8,831,000
    
    
    $
    7,442,000Occupancy and equipment
(Notes 5 and 9)
    
    
    3,070,000
    
    
    
    2,713,000
    
    
    
    2,343,000Other (Note 11)
    
    
    4,545,000
    
    
    
    4,039,000
    
    
    
    3,341,000Total non-interest expenses
    
    
    17,129,000
    
    
    
    15,583,000
    
    
    
    13,126,000Income before provision for
income taxes
    
    
    7,128,000
    
    
    
    5,647,000
    
    
    
    5,299,000Provision for income taxes (Note 12)
    
    
    2,600,000
    
    
    
    2,001,000
    
    
    
    2,018,000Net income
    
    $
    4,528,000
    
    
    $
    3,646,000
    
    
    $
    3,281,000Basic earnings per share (Note 10)
    
    $
    0.92
    
    
    $
    0.75
    
    
    $
    0.68Diluted earnings per share (Note 10)
    
    $
    0.89
    
    
    $
    0.73
    
    
    $
    0.66
 
 F-4
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 For the Years Ended December 31, 2005, 2004 and 2003
 AccumulatedOtherCommon Stock
    
    
    
    
    
    
    Comprehensive
    
    
    Total
    
    
    TotalRetained
    
    
    (Loss) Income
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Earnings
    
    
    (Net of Taxes)
    
    
    Equity
    
    
    IncomeBalance, January 1, 2003
    
    
    4,813,975
    
    
    $
    3,743,000
    
    
    $
    19,133,000
    
    
    $
    410,000
    
    
    $
    23,286,000Comprehensive income (Note 15):Net income
    
    
    
    
    
    
    
    
    
    
    3,281,000
    
    
    
    
    
    
    
    3,281,000
    
    
    $
    3,281,000Other comprehensive loss, net of tax:Net change in unrealized gains on
available-for-sale investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244,000
    )
    
    
    (244,000
    )
    
    
    (244,000
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,037,000Cash dividends  $0.16 per share
    
    
    
    
    
    
    
    
    
    
    (776,000
    )
    
    
    
    
    
    
    (776,000
    )Retirement of common stock in connection
with the exercise of stock options
(Note 10)
    
    
    (6,380
    )
    
    
    (74,000
    )
    
    
    
    
    
    
    
    
    
    
    (74,000
    )Stock options exercised and related tax
benefit (Note 10)
    
    
    55,445
    
    
    
    276,000
    
    
    
    
    
    
    
    
    
    
    
    276,000Balance, December 31, 2003
    
    
    4,863,040
    
    
    
    3,945,000
    
    
    
    21,638,000
    
    
    
    166,000
    
    
    
    25,749,000Comprehensive income (Note 15):Net income
    
    
    
    
    
    
    
    
    
    
    3,646,000
    
    
    
    
    
    
    
    3,646,000
    
    
    $
    3,646,000Other comprehensive loss, net of tax:Net change in unrealized gains (losses)
on available-for-sale investment
securities (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (658,000
    )
    
    
    (658,000
    )
    
    
    (658,000
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,988,000Cash dividends  $0.19 per share
    
    
    
    
    
    
    
    
    
    
    (914,000
    )
    
    
    
    
    
    
    (914,000
    )Retirement of common stock in connection
with the exercise of stock options
(Note 10)
    
    
    (13,461
    )
    
    
    (176,000
    )
    
    
    
    
    
    
    
    
    
    
    (176,000
    )Stock options exercised and related
tax benefit (Note 10)
    
    
    51,618
    
    
    
    244,000
    
    
    
    
    
    
    
    
    
    
    
    244,000Balance, December 31, 2004
    
    
    4,901,197
    
    
    
    4,013,000
    
    
    
    24,370,000
    
    
    
    (492,000
    )
    
    
    27,891,000
  F-5
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY   For the Years Ended December 31, 2005, 2004 and 2003
 AccumulatedOtherCommon Stock
    
    
    
    
    
    
    Comprehensive
    
    
    Total
    
    
    TotalRetained
    
    
    (Loss) Income
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Earnings
    
    
    (Net of Taxes)
    
    
    Equity
    
    
    IncomeBalance, December 31, 2004
    
    
    4,901,197
    
    
    $
    4,013,000
    
    
    $
    24,370,000
    
    
    $
    (492,000
    )
    
    $
    27,891,000Comprehensive income (Note 15):Net income
    
    
    
    
    
    
    
    
    
    
    4,528,000
    
    
    
    
    
    
    
    4,528,000
    
    
    $
    4,528,000Other comprehensive loss, net of tax:Net change in unrealized losses
on available-for-sale investment
securities (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (599,000
    )
    
    
    (599,000
    )
    
    
    (599,000
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,929,000Cash dividends  $0.22 per share
    
    
    
    
    
    
    
    
    
    
    (1,082,000
    )
    
    
    
    
    
    
    (1,082,000
    )Retirement of common stock in connection
with the exercise of stock options
(Note 10)
    
    
    (6,904
    )
    
    
    (105,000
    )
    
    
    
    
    
    
    
    
    
    
    (105,000
    )Stock options exercised and related
tax benefit (Note 10)
    
    
    82,608
    
    
    
    512,000
    
    
    
    
    
    
    
    
    
    
    
    512,000Fractional shares repurchased as a result
of three-for-two stock split
    
    
    (247
    )
    
    
    (8,000
    )
    
    
    
    
    
    
    
    
    
    
    (8,000
    )Balance, December 31, 2005
    
    
    4,976,654
    
    
    $
    4,412,000
    
    
    $
    27,816,000
    
    
    $
    (1,091,000
    )
    
    $
    31,137,000
 2005
    
    
    2004
    
    
    2003Disclosure of reclassification amount, net of taxes (Note 15):Unrealized holding losses arising during the year
    
    $
    (604,000
    )
    
    $
    (523,000
    )
    
    $
    (50,000
    )Reclassification adjustment for (losses) gains included in net income
    
    
    (5,000
    )
    
    
    135,000
    
    
    
    194,000Net unrealized losses on available-for-sale investment securities
    
    $
    (599,000
    )
    
    $
    (658,000
    )
    
    $
    (244,000
    )
 The accompanying notes are an integral
part of these consolidated financial statements.
 F-6
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 
 CONSOLIDATED STATEMENT OF CASH FLOWS
 For the Years Ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    4,528,000
    
    
    $
    3,646,000
    
    
    $
    3,281,000Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    1,100,000
    
    
    
    750,000
    
    
    
    750,000Change in deferred loan origination
costs/fees, net
    
    
    (1,026,000
    )
    
    
    (270,000
    )
    
    
    (71,000
    )Depreciation and amortization
    
    
    2,076,000
    
    
    
    1,625,000
    
    
    
    1,314,000Net loss (gain) on sale of available-for-sale
investment securities
    
    
    8,000
    
    
    
    (235,000
    )
    
    
    (328,000
    )Amortization of investment security
premiums
    
    
    633,000
    
    
    
    918,000
    
    
    
    1,200,000Accretion of investment security discounts
    
    
    (72,000
    )
    
    
    (87,000
    )
    
    
    (24,000
    )Net loss (gain) on sale of premises and
equipment
    
    
    2,000
    
    
    
    (4,000
    )
    
    
    3,000Net loss (gain) on sale of other real estate
    
    
    15,000
    
    
    
    (141,000
    )
    
    
    (71,000
    )Net loss on judgement receivable
    
    
    
    
    
    
    53,000Net loss on sale of other vehicles owned
    
    
    28,000
    
    
    
    22,000Writedown of other real estate to fair value
    
    
    
    
    
    
    18,000Net decrease in loans held for sale
    
    
    
    
    
    
    276,000
    
    
    
    1,196,000Earnings on bank owned life insurance
policies
    
    
    (355,000
    )
    
    
    (415,000
    )
    
    
    (313,000
    )Expenses on bank owned life insurance
policies
    
    
    68,000
    
    
    
    66,000
    
    
    
    35,000Increase in accrued interest receivable and
other assets
    
    
    (215,000
    )
    
    
    (217,000
    )
    
    
    (1,060,000
    )Increase in accrued interest payable and
other liabilities
    
    
    1,021,000
    
    
    
    2,217,000
    
    
    
    221,000Provision for deferred income taxes
    
    
    34,000
    
    
    
    82,000
    
    
    
    28,000Net cash provided by operating
activities
    
    
    7,845,000
    
    
    
    8,304,000
    
    
    
    6,161,000
  F-7
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF CASH FLOWS   For the Years Ended December 31, 2004, 2003 and 2002
 2005
    
    
    2004
    
    
    2003Cash flows from investing activities:Cash acquired in the purchase of selected
assets and liabilities of another bank
    
    
    
    
    
    
    
    
    
    $
    42,520,000Proceeds from matured and called available-
for-sale investment securities
    
    $
    16,000,000
    
    
    $
    2,355,000
    
    
    
    15,000,000Proceeds from matured and called held-to-
maturity investment securities
    
    
    1,801,000
    
    
    
    15,320,000
    
    
    
    6,237,000Proceeds from sale of available-for-sale
investment securities
    
    
    1,992,000
    
    
    
    36,309,000
    
    
    
    32,426,000Purchases of available-for-sale investment
securities
    
    
    (9,688,000
    )
    
    
    (47,147,000
    )
    
    
    (104,217,000
    )Purchases of held-to-maturity investment
securities
    
    
    
    
    
    
    (8,827,000
    )
    
    
    (6,174,000
    )Proceeds from principal repayments from
available-for-sale government-guaranteed
mortgage-backed securities
    
    
    3,572,000
    
    
    
    2,722,000
    
    
    
    695,000Proceeds from principal repayments from
held-to-maturity government-guaranteed
mortgage-backed securities
    
    
    143,000
    
    
    
    181,000
    
    
    
    322,000Net increase in loans
    
    
    (55,527,000
    )
    
    
    (49,745,000
    )
    
    
    (12,338,000
    )Proceeds from sale of other real estate
    
    
    284,000
    
    
    
    890,000
    
    
    
    370,000Proceeds from the sale of premises and
equipment
    
    
    6,000Purchases of premises and equipment
    
    
    (3,394,000
    )
    
    
    (809,000
    )
    
    
    (1,587,000
    )Purchase of bank owned life insurance
    
    
    (281,000
    )
    
    
    
    
    
    
    (3,170,000
    )Net cash used in investing activities
    
    
    (45,092,000
    )
    
    
    (48,751,000
    )
    
    
    (29,916,000
    )Cash flows from financing activities:Net increase in demand, interest-bearing and
savings deposits
    
    $
    43,443,000
    
    
    $
    21,535,000
    
    
    $
    19,114,000Net increase (decrease) in time deposits
    
    
    4,550,000
    
    
    
    1,190,000
    
    
    
    (2,677,000
    )Net decrease in the Federal funds purchased
    
    
    (1,035,000
    )Proceeds from exercise of stock options
    
    
    407,000
    
    
    
    68,000
    
    
    
    176,000Cash paid for fractional shares
    
    
    (8,000
    )Proceeds from the issuance of junior
subordinated deferrable interest
debentures
    
    
    4,124,000Payment of cash dividends
    
    
    (1,082,000
    )
    
    
    (914,000
    )
    
    
    (776,000
    )Net cash provided by financing activities
    
    
    50,399,000
    
    
    
    21,879,000
    
    
    
    15,837,000Increase (decrease) in cash and cash
equivalents
    
    
    13,152,000
    
    
    
    (18,568,000
    )
    
    
    (7,918,000
    )Cash and cash equivalents at beginning of year
    
    
    11,444,000
    
    
    
    30,012,000
    
    
    
    37,930,000Cash and cash equivalents at end of year
    
    $
    24,596,000
    
    
    $
    11,444,000
    
    
    $
    30,012,000
  F - 8
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF CASH FLOWS   For the Years Ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Supplemental disclosure of cash flow information:Cash paid during the year for:Interest expense
    
    $
    4,581,000
    
    
    $
    2,881,000
    
    
    $
    3,123,000Income taxes
    
    $
    2,805,000
    
    
    $
    1,612,000
    
    
    $
    2,052,000Non-cash investing activities:Real estate acquired through foreclosure
    
    
    
    
    
    $
    145,000
    
    
    $
    175,000Vehicles acquired through repossession
    
    $
    228,000
    
    
    $
    92,000Reclassification of loans to other assets
    
    
    
    
    
    
    
    
    
    $
    1,399,000Net change in unrealized (loss) gain on
available-for-sale investment securities
    
    $
    (1,019,000
    )
    
    $
    (1,122,000
    )
    
    $
    (415,000
    )Non-cash financing activities:Common stock retired in connection with the
with the exercise of stock options
    
    $
    105,000
    
    
    $
    176,000
    
    
    $
    74,000On November 17, 2003, the Company purchased
certain assets and liabilities of the Kings Beach,
Loyalton, Portola, Quincy and Truckee branches
from Placer Sierra Bank (Note 17):Deposits assumed
    
    
    
    
    
    
    
    
    
    $
    45,464,000Loans
    
    
    
    
    
    
    
    
    
    
    (129,000
    )Premises and equipment
    
    
    
    
    
    
    
    
    
    
    (552,000
    )Premium paid for deposits
    
    
    
    
    
    
    
    
    
    
    (1,709,000
    )Other assets
    
    
    
    
    
    
    
    
    
    
    (581,000
    )Other liabilities
    
    
    
    
    
    
    
    
    
    
    27,000Cash received
    
    
    
    
    
    
    
    
    
    $
    42,520,000
 The accompanying notes are an integral
part of these consolidated financial statements.
 F - 9
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    THE BUSINESS OF PLUMAS BANCORPOn January 17, 2002, Plumas Bancorp (the Company) was incorporated as a bank holding
company for the purpose of acquiring Plumas Bank (the Bank) in a one bank holding company
reorganization. This corporate structure gives the Company and the Bank greater flexibility
in terms of operation expansion and diversification. The reorganization was approved by the
Companys shareholders on May 29, 2002, and was consummated on June 21, 2002. The Company
formed Plumas Statutory Trust I (Trust I) for the sole purpose of issuing trust preferred
securities on September 26, 2002. The Company formed Plumas Statutory Trust II (Trust II)
for the sole purpose of issuing trust preferred securities on September 28, 2005.The Bank operates twelve branches in California, including branches in Alturas, Chester,
Fall River Mills, Greenville, Kings Beach, Loyalton, Portola, Quincy, Susanville, Tahoe
City, Truckee and Westwood. The Banks deposits are insured by the Federal Deposit
Insurance Corporation (FDIC) up to applicable legal limits. The Banks primary source of
revenue is generated from providing loans to customers who are predominately small and
middle market businesses and individuals residing in the surrounding areas.
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESConsolidation and Basis of PresentationThe consolidated financial statements include the accounts of the Company and the
consolidated accounts of its wholly-owned subsidiary, Plumas Bank. All significant
intercompany balances and transactions have been eliminated.Plumas Statutory Trust I and Trust II are not consolidated into the Companys consolidated
financial statements and, accordingly, are accounted for under the equity method. The
Companys investment in Trust I of $186,000 and Trust II of $124,000 are included in accrued
interest receivable and other assets on the consolidated balance sheet. The junior
subordinated deferrable interest debentures issued and guaranteed by the Company and held by
Trust I and Trust II are reflected as debt on the consolidated balance sheet.The accounting and reporting policies of Plumas Bancorp and subsidiary conform with
accounting principles generally accepted in the United States of America and prevailing
practices within the banking industry.ReclassificationsCertain reclassifications have been made to prior years balances to conform to
classifications used in 2005.Segment InformationManagement has determined that since all of the banking products and services offered by the
Company are available in each branch of the Bank, all branches are located within the same
economic environment and management does not allocate resources based on the performance of
different lending or transaction activities, it is appropriate to aggregate the Bank
branches and report them as a single operating segment. No customer accounts for more than
10 percent of revenues for the Company or the Bank.
 F - 10
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Stock SplitOn August 17, 2005 the Companys Board of Director approved a three-for-two stock split for
shareholders of record at the close of business on September 2, 2005 and effective on
September 16, 2005. All share and per share data in the consolidated financial statements
have been retroactively adjusted to give effect to the stock split.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.Cash and Cash EquivalentsFor the purpose of the statement of cash flows, cash and due from banks and Federal funds
sold are considered to be cash equivalents. Generally, Federal funds are sold for one day
periods. Cash held with other federally insured institutions in excess of FDIC limits as of
December 31, 2005 was $68,000.Investment SecuritiesInvestments are classified into one of the following categories:
 
    
    Available-for-sale securities reported at fair value, with unrealized gains
and losses excluded from earnings and reported, net of taxes, as accumulated other
comprehensive income (loss) within shareholders equity.
    
    Held-to-maturity securities, which management has the positive intent and
ability to hold, reported at amortized cost, adjusted for the accretion of discounts
and amortization of premiums.
 Management determines the appropriate classification of its investments at the time of
purchase and may only change the classification in certain limited circumstances. All
transfers between categories are accounted for at fair value. As of December 31, 2005 and
2004 the Company did not have any investment securities classified as trading.Gains or losses on the sale of securities are computed on the specific identification
method. Interest earned on investment securities is reported in interest income, net of
applicable adjustments for accretion of discounts and amortization of premiums.Investment securities are evaluated for impairment on at least a quarterly basis and more
frequently when economic or market conditions warrant such an evaluation to determine
whether a decline in their value is other than temporary. Management utilizes criteria such
as the magnitude and duration of the decline and the intent and ability of the Company to
retain its investment in the securities for a period of time sufficient to allow for an
anticipated recovery in fair value, in addition to the reasons underlying the
 F - 11
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Investment Securities (continued)decline, to determine whether the loss in value is other than temporary. The term other
than temporary is not intended to indicate that the decline is permanent, but indicates
that the prospects for a near-term recovery of value is not necessarily favorable, or that
there is a lack of evidence to support a realizable value equal to or greater than the
carrying value of the investment. Once a decline in value is determined to be other than
temporary, the value of the security is reduced and a corresponding charge to earnings is
recognized.Investment in Federal Home Loan Bank StockAs a member of the Federal Home Loan Bank System, the Bank is required to maintain an
investment in the capital stock of the Federal Home Loan Bank. The investment is carried at
cost. At December 31, 2005 and 2004, Federal Home Loan Bank stock totaled $2,000,000 and
$1,827,000, respectively. On the consolidated balance sheet, Federal Home Loan Bank stock
is included in accrued interest receivable and other assets.Loans Held for Sale, Loan Sales and ServicingThe Company accounts for the transfer and servicing of financial assets based on the
financial and servicing assets it controls and liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities when
extinguished.Servicing rights acquired through 1) a purchase or 2) the origination of loans which are
sold or securitized with servicing rights retained are recognized as separate assets or
liabilities. Servicing assets or liabilities are recorded at the difference between the
contractual servicing fees and adequate compensation for performing the servicing, and are
subsequently amortized in proportion to and over the period of the related net servicing
income or expense. Servicing assets are periodically evaluated for impairment. Fair values
are estimated using discounted cash flows based on current market interest rates. For
purposes of measuring impairment, servicing assets are stratified based on note rate and
term. The amount of impairment recognized, if any is the amount by which the servicing
assets for a stratum exceed their fair value.Government Guaranteed LoansIncluded in the portfolio are loans which are 75% to 90% guaranteed by the Small Business
Administration (SBA), US Department of Agriculture Rural Business Cooperative Service (RBS)
and Farm Services Agency (FSA). The guaranteed portion of these loans may be sold to a
third party, with the Bank retaining the unguaranteed portion. The Company generally
receives a premium in excess of the adjusted carrying value of the loan at the time of sale.
The Company may be required to refund a portion of the sales premium if the borrower
defaults or prepays within ninety days of the settlement date. At December 31, 2005, the
premiums and guaranteed portion of these sold loans subject to these recourse provisions
totaled $45,000 and $53,000, respectively.
 F - 12
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Loans Held for Sale, Loan Sales and Servicing (Continued)Government Guaranteed Loans(Continued)The Companys investment in the loan is allocated between the retained portion of the loan,
the servicing asset, the interest-only (IO) strip, and the sold portion of the loan based on
their relative fair values on the date the loan is sold. The gain on the sold portion of
the loan is recognized as income at the time of sale. The carrying value of the retained
portion of the loan is discounted based on the estimated value of a comparable
non-guaranteed loan. The servicing asset is recognized and amortized over the estimated
life of the related loan (see Note 4). Assets (accounted for as interest-only (IO) strips)
are recorded at the fair value of the difference between note rates and rates paid to
purchasers (the interest spread) and contractual servicing fees, if applicable. IO strips
are carried at fair value with gains or losses recorded as a component of shareholders
equity, similar to available-for-sale investment securities. Significant future prepayments
of these loans will result in the recognition of additional amortization of related
servicing assets and an adjustment to the carrying value of related IO strips.The Company serviced SBA and RBS government guaranteed loans for others totaling $4,251,000
and $3,001,000 as of December 31, 2005 and 2004, respectively.Mortgage LoansThe Company originates mortgage loans that are either held in the Companys loan portfolio
or sold in the secondary market. Loans held-for-sale are carried at the lower of cost or
market value. Market value is determined by the specific identification method as of the
balance sheet date or the date which the purchasers have committed to purchase the loans.
At the time the loan is sold, the related right to service the loan is either retained, with
the Bank earning future servicing income, or released in exchange for a one-time
servicing-released premium. Loans subsequently transferred to the loan portfolio are
transferred at the lower of cost or market value at the date of transfer. Any difference
between the carrying amount of the loan and its outstanding principal balance is recognized
as an adjustment to yield by the interest method. The Company did not have any loans held
for sale at December 31, 2005 or 2004.The Company may be required to refund a portion of the premiums and repurchase a portion of
the loans that are sold if the borrower defaults within one hundred and eighty days of the
settlement date. At December 31, 2005, there were no premiums on sold loans subject to
these recourse provisions.The Company serviced loans for the Federal National Mortgage Association (FNMA) totaling
$8,229,000 and $9,817,000 as of December 31, 2005 and 2004, respectively.Participation LoansThe Company also serviced loans which it has participated with other financial institutions
totaling $1,516,000 and $1,667,000 as of December 31, 2005 and 2004, respectively.
 F - 13
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)LoansLoans are stated at principal balances outstanding, except for loans transferred from loans
held for sale which are carried at the lower of principal balance or market value at the
date of transfer, adjusted for accretion of discounts. Interest is accrued daily based upon
outstanding loan balances. However, when, in the opinion of management, loans are
considered to be impaired and the future collectibility of interest and principal is in
serious doubt, loans are placed on nonaccrual status and the accrual of interest income is
suspended. Any interest accrued but unpaid is charged against income. Payments received
are applied to reduce principal to the extent necessary to ensure collection. Subsequent
payments on these loans, or payments received on nonaccrual loans for which the ultimate
collectibility of principal is not in doubt, are applied first to earned but unpaid interest
and then to principal.An impaired loan is measured based on the present value of expected future cash flows
discounted at the loans effective interest rate or, as a practical matter, at the loans
observable market price or the fair value of collateral if the loan is collateral dependent.
A loan is considered impaired when, based on current information and events, it is probable
that the Bank will be unable to collect all amounts due (including both principal and
interest) in accordance with the contractual terms of the loan agreement.Loan origination fees, commitment fees, direct loan origination costs and purchased premiums
and discounts on loans are deferred and recognized as an adjustment of yield, to be
amortized to interest income over the contractual term of the loan. The unamortized balance
of deferred fees and costs is reported as a component of net loans.The Company may acquire loans through a business combination or a purchase for which
differences may exist between the contractual cash flows and the cash flows expected to be
collected due, at least in part, to credit quality. When the Company acquires such loans,
the yield that may be accreted (accretable yield) is limited to the excess of the Companys
estimate of undiscounted cash flows expected to be collected over the Companys initial
investment in the loan. The excess of contractual cash flows over cash flows expected to be
collected may not be recognized as an adjustment to yield, loss, or a valuation allowance.
Subsequent increases in cash flows expected to be collected generally should be recognized
prospectively through adjustment of the loans yield over its remaining life. Decreases in
cash flows expected to be collected should be recognized as an impairment. The Company may
not carry over or create a valuation allowance in the initial accounting for loans
acquired under these circumstances. At December 31, 2005, there were no such loans being
accounted for under this policy.Allowance for Loan LossesThe allowance for loan losses is maintained to provide for losses related to impaired loans
and other losses that can be expected to occur in the normal course of business. The
determination of the allowance is based on estimates made by management, to include
consideration of the character of the loan portfolio, specifically identified problem loans,
potential losses inherent in the portfolio taken as a whole and economic conditions in the
Companys service area.
 F - 14
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Allowance for Loan Losses (continued)Classified loans and loans determined to be impaired are evaluated by management for
specific risk of loss. In addition, reserve factors are assigned to currently performing
loans based on managements assessment of the following for each identified loan type: (1)
inherent credit risk, (2) historical losses and, (3) where the Company has not experienced
losses, the loss experience of peer banks. These estimates are particularly susceptible to
changes in the economic environment and market conditions.The Banks Loan Committee reviews the adequacy of the allowance for loan losses at least
quarterly, to include consideration of the relative risks in the portfolio and current
economic conditions. The allowance is adjusted based on that review if, in managements
judgment, changes are warranted.The allowance is established through a provision for loan losses which is charged to
expense. Additions to the allowance are expected to maintain the adequacy of the total
allowance after credit losses and loan growth. The allowance for loan losses at December
31, 2005 and 2004, respectively, reflects managements estimate of possible losses in the
portfolio.Allowance for Losses Related to Undisbursed CommitmentsThe Company maintains a separate allowance for losses related to undisbursed loan
commitments. Management estimates the amount of probable losses by applying a loss reserve
factor to the unused portion of undisbursed lines of credit. The allowance totaled $40,000
at December 31, 2005 and 2004, respectively and is included in accrued interest payable and
other liabilities in the consolidated balance sheet.Other Real EstateThe Company had no other real estate holdings at December 31, 2005. Other real estate
holdings at December 31, 2004 included former Bank premises with a balance of $105,000. At
December 31, 2005 and 2004, the Company had no investment in real estate acquired in full or
partial settlement of loan obligations. When property is acquired, any excess of the Banks
recorded investment in the loan balance and accrued interest income over the estimated fair
market value of the property less costs to sell is charged against the allowance for loan
losses. A valuation allowance for losses on other real estate is maintained to provide for
temporary declines in value. The allowance is established through a provision for losses on
other real estate which is included in other expenses. Subsequent gains or losses on sales
or writedowns resulting from permanent impairment are recorded in other income or expenses
as incurred.
 F - 15
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Premises and EquipmentPremises and equipment are carried at cost. Depreciation is determined using the
straight-line method over the estimated useful lives of the related assets. The useful
lives of premises are estimated to be twenty to thirty years. The useful lives of
furniture, fixtures and equipment are estimated to be two to ten years. Leasehold
improvements are amortized over the life of the asset or the life of the related lease,
whichever is shorter. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts, and any resulting
gain or loss is recognized in income for the period. The cost of maintenance and repairs is
charged to expense as incurred. The Company evaluates premises and equipment for financial
impairment as events or changes in circumstances indicate that the carrying amount of such
assets may not be fully recoverable.Intangible AssetsIntangible assets consist of core deposit intangibles related to branch acquisitions and are
amortized using the straight-line method over ten years.Income TaxesThe Company files its income taxes on a consolidated basis with its subsidiary. The
allocation of income tax expense (benefit) represents each entitys proportionate share of
the consolidated provision for income taxes.Deferred tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. On the consolidated balance sheet, net deferred tax assets
are included in accrued interest receivable and other assets.Earnings Per ShareBasic earnings per share (EPS), which excludes dilution, is computed by dividing income
available to common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock, such as stock options, result in the issuance of
common stock which shares in the earnings of the Company. The treasury stock method has
been applied to determine the dilutive effect of stock options in computing diluted EPS.
 F - 16
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Stock-Based CompensationAt December 31, 2005, the Company had two stock-based compensation plans, the Plumas Bank
2001 and 1991 Stock Option Plans, which are described more fully in Note 10. The Company
accounts for these plans under the recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based
employee compensation cost is reflected in net income, as all options granted under these
plans had an exercise price equal to the market value of the underlying common stock on the
date of grant.Pro forma adjustments to the Companys consolidated net earnings and earnings per share are
disclosed during the years in which the options become vested. The following table
illustrates the effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based compensation.
 2005
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    4,528,000
    
    
    $
    3,646,000
    
    
    $
    3,281,000Deduct: Total stock-based compen-
sation expense determined under
the fair value based method for all
awards, net of related tax effects
    
    
    177,000
    
    
    
    144,000
    
    
    
    91,000Pro forma net income
    
    $
    4,351,000
    
    
    $
    3,502,000
    
    
    $
    3,190,000Basic earnings per share  as reported
    
    $
    .92
    
    
    $
    .75
    
    
    $
    .68Basic earnings per share  pro forma
    
    $
    .88
    
    
    $
    .72
    
    
    $
    .66Diluted earnings per share  as reported
    
    $
    .89
    
    
    $
    .73
    
    
    $
    .66Diluted earnings per share  pro forma
    
    $
    .86
    
    
    $
    .71
    
    
    $
    .64Weighted average fair value of options
granted during the year
    
    $
    4.77
    
    
    $
    5.09
    
    
    $
    5.30
 The fair value of each option was estimated on the date of grant using an option-pricing
model with the following assumptions:
 2005
    
    2004
    
    2003Dividend yield
    
    
    1.48
    %
    
    
    1.44
    %
    
    
    1.29
    %Expected volatility
    
    
    30.53
    %
    
    
    51.54
    %
    
    
    38.74
    %Risk-free interest rate
    
    
    4.14
    %
    
    
    3.46
    %
    
    
    3.07
    %Expected option life
    
    5 years
    
    5 years
    
    5 years
 F - 17
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Impact of New Financial Accounting StandardsOther-Than-Temporary ImpairmentIn March 2004, the Financial Accounting Standards Board (FASB) and Emerging Issues Task
Force (EITF) reached consensus on several issues being addressed in EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The
consensus provides guidance for evaluating whether an investment is other-than-temporarily
impaired and was effective for other-than-temporary impairment evaluations made in reporting
periods beginning after June 15, 2004. The disclosure provisions of EITF Issue No. 03-1
continue to be effective for the Companys consolidated financial statements for the year
ended December 31, 2005.On November 3, 2005, the FASB issued FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1,
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.
This FSP addresses the determination as to when an investment is considered impaired,
whether that impairment is other than temporary, and the measurement of an impairment loss.
This FSP also includes accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures about unrealized losses
that have not been recognized as other-than-temporary impairments. This FSP nullifies
certain requirements of EITF Issue No. 03-1, and supersedes EITF Topic No. D-44, Recognition
of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds
Fair Value. The guidance in this FSP amends FASB Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The FSP is effective for reporting periods
beginning after December 15, 2005. The Company does not anticipate any material impact to
its financial condition or results of operations as a result of the adoption of this
guidance.Share-Based PaymentsIn December 2004, the FASB issued Statement No. 123 (revised 2004) (FAS 123 (R)),
Share-Based Payments. FAS 123 (R) requires all entities to recognize compensation expense
in an amount equal to the fair value of share-based payments such as stock options granted
to employees. The Company may elect to adopt FAS 123 (R) using a modified prospective
method or modified retrospective method. Under the modified retrospective method, the
Company would restate previously issued financial statements, basing the compensation
expense on that previously reported in their pro forma disclosures required by FAS 123. The
modified prospective method would require the Company to record compensation expense for the
unvested portion of previously granted awards that remain outstanding at the date of
adoption as these awards continue to vest. FAS 123 (R) is effective for the first fiscal
year beginning after June 15, 2005. Management has elected to use the modified prospective
method and has completed its evaluation of the effect of FAS 123 (R), and believes that the
effect of its implementation will be consistent with the proforma disclosures noted above.
 F-18
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Impact of New Financial Accounting Standards (continued)Accounting Changes and Error CorrectionsOn June 7, 2005, the FASB issued Statement No. 154 (FAS 154), Accounting Changes and Error
Corrections  a replacement of Accounting Principles Board (APB) Opinion No. 20, Accounting
Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements.
Under the provisions of FAS 154, voluntary changes in accounting principles are applied
retrospectively to prior periods financial statements unless it would be impractical to do
so. FAS 154 supersedes APB Opinion No. 20, which required that most voluntary changes in
accounting principles be recognized by including in the current periods net income the
cumulative effect of the change. FAS 154 also makes a distinction between retrospective
application of a change in accounting principle and the restatement of financial
statements to reflect the correction of an error. The provisions of FAS 154 are effective
for accounting changes made in fiscal years beginning after December 15, 2005. Management
of the Company does not expect the adoption of this standard to have a material impact on
its financial position or results of operations.3.
    
    INVESTMENT SECURITIESThe amortized cost and estimated fair value of investment securities at December 31, 2005
and 2004 consisted of the following:Available-for-Sale
 2005Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Treasury securities
    
    $
    10,030,000
    
    
    
    
    
    
    $
    (207,000
    )
    
    $
    9,823,000U.S. Government agencies
    
    
    44,574,000
    
    
    $
    1,000
    
    
    
    (819,000
    )
    
    
    43,756,000U.S. Government agencies
collateralized by mortgage
obligations
    
    
    21,549,000
    
    
    
    12,000
    
    
    
    (610,000
    )
    
    
    20,951,000Corporate debt securities
    
    
    9,465,000
    
    
    
    
    
    
    
    (234,000
    )
    
    
    9,231,000$
    85,618,000
    
    
    $
    13,000
    
    
    $
    (1,870,000
    )
    
    $
    83,761,000
 Net unrealized losses on available-for-sale investment securities totaling $1,857,000
were recorded, net of $766,000 in tax benefits, as accumulated other comprehensive loss
within shareholders equity at December 31, 2005. Proceeds and gross realized losses from
the sale of available-for-sale investment securities for the year ended December 31, 2005
totaled $1,992,000 and $8,000, respectively.
 F-19
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    INVESTMENT SECURITIES(Continued)Available-for-Sale: (Continued)
 2004Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Treasury securities
    
    $
    10,161,000
    
    
    
    
    
    
    $
    (106,000
    )
    
    
    10,055,000U.S. Government agencies
    
    
    57,514,000
    
    
    $
    2,000
    
    
    
    (433,000
    )
    
    
    57,083,000U.S. Government agencies
collateralized by mortgage
obligations
    
    
    20,848,000
    
    
    
    8,000
    
    
    
    (216,000
    )
    
    
    20,640,000Corporate debt securities
    
    
    9,594,000
    
    
    
    
    
    
    
    (93,000
    )
    
    
    9,501,000$
    98,117,000
    
    
    $
    10,000
    
    
    $
    (848,000
    )
    
    $
    97,279,000
 Net unrealized losses on available-for-sale investment securities totaling $838,000
were recorded, net of $346,000 in tax benefits, as accumulated other comprehensive loss
within shareholders equity at December 31, 2004. Proceeds and gross realized gains from
the sale of available-for-sale investment securities for the year ended December 31, 2004
totaled $36,309,000 and $235,000, respectively. Proceeds and gross realized gains from the
sale of available-for-sale investment securities for the year ended December 31, 2003
totaled $32,426,000 and $328,000, respectively.Held-to-Maturity
 2005Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Government agencies
    
    $
    6,000
    
    
    
    
    
    
    
    
    
    
    $
    6,000Obligations of states and
political subdivisions
    
    
    14,077,000
    
    
    $
    48,000
    
    
    $
    (180,000
    )
    
    
    13,945,000$
    14,083,000
    
    
    $
    48,000
    
    
    $
    (180,000
    )
    
    $
    13,951,000
 F-20
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    INVESTMENT SECURITIES(Continued)Held-to-Maturity (Continued)
 2004Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Government agencies
    
    $
    507,000
    
    
    $
    2,000
    
    
    
    
    
    
    $
    509,000Obligations of states and
political subdivisions
    
    
    14,966,000
    
    
    
    169,000
    
    
    $
    (45,000
    )
    
    
    15,090,000Corporate debt securities
    
    
    500,000
    
    
    
    12,000
    
    
    
    
    
    
    
    512,000$
    15,973,000
    
    
    $
    183,000
    
    
    $
    (45,000
    )
    
    $
    16,111,000
 There were no sales or transfers of held-to-maturity investment securities during the
years ended December 31, 2005, 2004 and 2003.Investment securities with unrealized losses at December 31, 2005 are summarized and
classified according to the duration of the loss period as follows:
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesDebt securities:U.S. Treasury securities
    
    
    
    
    
    
    
    
    
    $
    9,823,000
    
    
    $
    207,000
    
    
    $
    9,823,000
    
    
    $
    207,000U.S. Government
agencies
    
    $
    6,330,000
    
    
    $
    38,000
    
    
    
    34,421,000
    
    
    
    781,000
    
    
    
    40,751,000
    
    
    
    819,000Obligations of states
and political subdi-
visions
    
    
    5,098,000
    
    
    
    49,000
    
    
    
    5,444,000
    
    
    
    131,000
    
    
    
    10,542,000
    
    
    
    180,000U.S. Government
agencies collateral-
ized by mortgage
obligations
    
    
    2,216,000
    
    
    
    19,000
    
    
    
    15,226,000
    
    
    
    591,000
    
    
    
    17,442,000
    
    
    
    610,000Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    9,231,000
    
    
    
    234,000
    
    
    
    9,231,000
    
    
    
    234,000$
    13,644,000
    
    
    $
    106,000
    
    
    $
    74,145,000
    
    
    $
    1,944,000
    
    
    $
    87,789,000
    
    
    $
    2,050,000
 At December 31, 2005, the Company held 140 investment securities of which 29 were in a
loss position for less than twelve months and 91 were in a loss position and had been in a
loss position for twelve months or more. Management periodically evaluates each investment
security for other than temporary impairment, relying primarily on industry analyst reports
and observation of market conditions and interest rate fluctuations. Management believes it
will be able to collect all amounts due according to the contractual terms of the underlying
investment securities and that the noted decline in fair value is considered temporary and
due only to interest rate fluctuations.
 F-21
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    INVESTMENT SECURITIES(Continued)The amortized cost and estimated fair value of investment securities at December 31, 2005 by
contractual maturity are shown below. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to call or prepay
obligations with or without call or prepayment penalties.
 Available-for-Sale
    
    
    Held-to-MaturityEstimated
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueWithin one year
    
    $
    19,930,000
    
    
    $
    19,757,000
    
    
    $
    85,000
    
    
    $
    86,000After one year through
five years
    
    
    44,139,000
    
    
    
    43,053,000
    
    
    
    1,579,000
    
    
    
    1,596,000After five years through
ten years
    
    
    
    
    
    
    
    
    
    
    6,193,000
    
    
    
    6,103,000After ten years through
fifteen years
    
    
    
    
    
    
    
    
    
    
    6,220,000
    
    
    
    6,160,00064,069,000
    
    
    
    62,810,000
    
    
    
    14,077,000
    
    
    
    13,945,000Investment securities
not due at a single
maturity date:Government-guar-
anteed mortgage-
backed securities
    
    
    21,549,000
    
    
    
    20,951,000SBA loan pools
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    6,000$
    85,618,000
    
    
    $
    83,761,000
    
    
    $
    14,083,000
    
    
    $
    13,951,000
 Investment securities with amortized costs totaling $38,678,000 and $35,050,000 and
estimated fair values totaling $37,975,000 and $35,072,000 at December 31, 2005 and 2004,
respectively, were pledged to secure public deposits and treasury, tax and loan accounts.
 F-22
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.
    
    LOANS AND THE ALLOWANCE FOR LOAN LOSSESOutstanding loans are summarized below:
 December 31,2005
    
    
    2004Commercial
    
    $
    42,252,000
    
    
    $
    42,689,000Agricultural
    
    
    31,018,000
    
    
    
    31,067,000Real estate  mortgage
    
    
    110,686,000
    
    
    
    102,125,000Real estate  construction and land
development
    
    
    56,370,000
    
    
    
    31,964,000Installment
    
    
    81,320,000
    
    
    
    59,068,000321,646,000
    
    
    
    266,913,000Deferred loan costs (fees), net
    
    
    766,000
    
    
    
    (260,000
    )Allowance for loan losses
    
    
    (3,256,000
    )
    
    
    (2,722,000
    )$
    319,156,000
    
    
    $
    263,931,000
 Changes in the allowance for loan losses were as follows:
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Balance, beginning of year
    
    $
    2,722,000
    
    
    $
    2,524,000
    
    
    $
    2,431,000Provision charged to operations
    
    
    1,100,000
    
    
    
    750,000
    
    
    
    750,000Losses charged to allowance
    
    
    (739,000
    )
    
    
    (703,000
    )
    
    
    (847,000
    )Recoveries
    
    
    173,000
    
    
    
    151,000
    
    
    
    190,000Balance, end of year
    
    $
    3,256,000
    
    
    $
    2,722,000
    
    
    $
    2,524,000
 The recorded investment in loans that were considered to be impaired totaled $1,661,000 and
$1,171,000 at December 31, 2005 and 2004, respectively. The related allowance for loan
losses for impaired loans was $137,000 and $121,000 at December 31, 2005 and 2004,
respectively. The average recorded investment in impaired loans for the years ended
December 31, 2005, 2004 and 2003 was $1,263,000, $1,582,000 and $2,034,000, respectively.
The Company recognized $16,000, $63,000 and $143,000 in interest income on a cash basis for
impaired loans during the years ended December 31, 2005, 2004 and 2003, respectively.
 F-23
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.
    
    LOANS AND THE ALLOWANCE FOR LOAN LOSSES(Continued)At December 31, 2005 and 2004, nonaccrual loans totaled $1,661,000 and $1,171,000,
respectively. Interest foregone on nonaccrual loans totaled $39,000, $25,000 and $51,000
for the years ended December 31, 2005, 2004 and 2003, respectively.Salaries and employee benefits totaling $1,197,000, $746,000 and $728,000 have been deferred
as loan origination costs during the years ended December 31, 2005, 2004 and 2003,
respectively.Sales and Servicing of Government-Guaranteed LoansA summary of the activity in government-guaranteed loans follows:
 Year Ended December 31,2005
    
    2004
    
    2003Loans originated
    
    $
    1,943,000
    
    
    $
    3,044,000
    
    
    $
    3,010,000Loans sold (guaranteed portion)
    
    
    979,000
    
    
    
    2,333,000Loans outstanding at year end
    
    
    5,986,000
    
    
    
    4,538,000
    
    
    
    6,773,000Premium received at sale
    
    
    45,000
    
    
    
    103,000Balance of servicing assets at
year end
    
    
    97,000
    
    
    
    106,000
    
    
    
    82,000Fair value of interest-only strips
at year end
    
    
    326,000
    
    
    
    356,000
    
    
    
    237,000
 There were no significant gains or losses recognized on the interest-only strips for the
years ended December 31, 2005, 2004 and 2003.5.
    
    PREMISES AND EQUIPMENTPremises and equipment consisted of the following:
 December 31,2005
    
    
    2004Land
    
    $
    1,882,000
    
    
    $
    1,349,000Premises
    
    
    7,073,000
    
    
    
    6,931,000Furniture, equipment and leasehold improvements
    
    
    7,934,000
    
    
    
    7,512,000Construction in progress
    
    
    1,880,000
    
    
    
    320,00018,769,000
    
    
    
    16,112,000Less accumulated depreciation
and amortization
    
    
    (7,365,000
    )
    
    
    (6,319,000
    )$
    11,404,000
    
    
    $
    9,793,000
 F-24
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5.
    
    PREMISES AND EQUIPMENT(Continued)Depreciation and amortization included in occupancy and equipment expense totaled
$1,775,000, $1,326,000 and $1,153,000 for the years ended December 31, 2005, 2004 and 2003,
respectively.6.
    
    INTEREST-BEARING DEPOSITSInterest-bearing deposits consisted of the following:
 December 31,2005
    
    
    2004NOW
    
    $
    69,889,000
    
    
    $
    45,439,000Money market
    
    
    62,214,000
    
    
    
    63,189,000Savings
    
    
    65,611,000
    
    
    
    66,821,000Time, $100,000 or more
    
    
    32,575,000
    
    
    
    28,361,000Other time
    
    
    66,537,000
    
    
    
    66,201,000$
    296,826,000
    
    
    $
    270,011,000
 Aggregate annual maturities of time deposits are as follows:
 Year EndingDecember 31,2006
    
    $
    77,143,0002007
    
    
    16,097,0002008
    
    
    2,937,0002009
    
    
    1,920,0002010
    
    
    896,000Thereafter
    
    
    119,000$
    99,112,000
 Interest expense recognized on interest-bearing deposits consisted of the following:
 Year Ended December 31,2005
    
    
    2004
    
    
    2003NOW
    
    $
    196,000
    
    
    $
    58,000
    
    
    $
    79,000Money market
    
    
    747,000
    
    
    
    490,000
    
    
    
    498,000Savings
    
    
    445,000
    
    
    
    292,000
    
    
    
    310,000Time, $100,000 or more
    
    
    809,000
    
    
    
    540,000
    
    
    
    507,000Other time
    
    
    1,895,000
    
    
    
    1,220,000
    
    
    
    1,309,000$
    4,092,000
    
    
    $
    2,600,000
    
    
    $
    2,703,000
 F-25
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 7.
    
    SHORT-TERM BORROWING ARRANGEMENTSThe Company has unsecured short-term borrowing arrangements with two of its correspondent
banks in the amounts of $10,000,000 and $5,000,000. The Company can also borrow up to
$77,506,000 from the Federal Home Loan Bank secured by commercial and residential mortgage
loans with carrying values totaling $127,068,000. In addition, the Bank has a reverse
repurchase agreement with a securities firm whereby all borrowings are fully secured by
investment securities. There were no short-term borrowings outstanding at December 31,
2005. Short-term borrowings at December 31, 2004 consisted of $1,035,000 in Federal funds
purchased which are normally purchased for one day periods.8.
    
    JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURESPlumas Statutory Trust I and II are Connecticut business trusts formed by the Company with
capital of $186,000 and $124,000, respectively, for the sole purpose of issuing trust
preferred securities fully and unconditionally guaranteed by the Company. Under applicable
regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1
capital is limited to twenty-five percent of the Companys Tier 1 capital on a pro forma
basis. At December 31, 2005, all of the trust preferred securities that have been issued
qualify as Tier 1 capital. During 2002, Plumas Statutory Trust I issued 6,000 Floating Rate
Capital Trust Pass-Through Securities (Trust Preferred Securities), with a liquidation
value of $1,000 per security, for gross proceeds of $6,000,000. During 2005, Plumas
Statutory Trust II issued 4,000 Trust Preferred Securities with a liquidation value of
$1,000 per security, for gross proceeds of $4,000,000. The entire proceeds were invested by
Trust I in the amount of $6,186,000 and Trust II in the amount of $4,124,000 in Floating
Rate Junior Subordinated Deferrable Interest Debentures (the Subordinated Debentures)
issued by the Company, with identical maturity, repricing and payment terms as the Trust
Preferred Securities. The Subordinated Debentures represent the sole assets of Trusts I and
II. Trust Is Subordinated Debentures mature on September 26, 2032, bear a current interest
rate of 7.36% (based on 3-month LIBOR plus 3.40%), with repricing and payments due
quarterly. Trust IIs Subordinated Debentures mature on September 28, 2035, bear a current
interest rate of 5.49% (based on 3-month LIBOR plus 1.48%), with repricing and payments due
quarterly. The Subordinated Debentures are redeemable by the Company, subject to receipt by
the Company of prior approval from the Federal Reserve Board of Governors, on any quarterly
anniversary date on or after the 5-year anniversary date of the issuance. The redemption
price is par plus accrued and unpaid interest, except in the case of redemption under a
special event which is defined in the debenture. The Trust Preferred Securities are subject
to mandatory redemption to the extent of any early redemption of the Subordinated Debentures
and upon maturity of the Subordinated Debentures on September 26, 2032 for Trust I and
September 28, 2035 for Trust II.Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on
the liquidation amount of $1,000 per security. The interest rate of the Trust Preferred
Securities issued by Trust I adjust on each quarterly anniversary date to equal the 3-month
LIBOR plus 3.40% provided, however, that prior to September 26, 2007, such annual rate does
not exceed 11.90%. The Trust Preferred Securities issued by Trust II adjust on each
quarterly anniversary date to equal the 3-month LIBOR plus 1.48%. Both
 F-26
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8.
    
    JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES(Continued)Trusts I and II have the option to defer payment of the distributions for a period of up to
five years, as long as the Company is not in default on the payment of interest on the
Subordinated Debentures. The Trust Preferred Securities were sold and issued in private
transactions pursuant to an exemption from registration under the Securities Act of 1933, as
amended. The Company has guaranteed, on a subordinated basis, distributions and other
payments due on the Trust Preferred Securities.Interest expense recognized by the Company for the years ended December 31, 2005, 2004 and
2003 related to the subordinated debentures was $479,000, $305,000 and $288,000,
respectively. The amount of deferred costs at December 31, 2005 and 2004 was $161,000 and
$167,000, respectively. The amortization of the deferred costs was $6,000 for each of the
years ended December 31, 2005, 2004 and 2003.
 9.
    
    COMMITMENTS AND CONTINGENCIESLeasesThe Company leases its Truckee, Tahoe City and Loyalton branch offices and administrative
office space in Truckee under noncancelable operating leases that expire in January 2007,
March 2008, June 2007 and April 2006, respectively. The Tahoe City and Truckee office
leases contain options to renew the leases for fifteen years and three years, respectively.
Future minimum lease payments are as follows:
 Year EndingDecember 31,2006
    
    $
    188,0002007
    
    
    127,0002008
    
    
    22,000$
    337,000
 Rental expense included in occupancy and equipment expense totaled $242,000, $264,000 and
$179,000 for the years ended December 31, 2005, 2004 and 2003, respectively.Financial Instruments With Off-Balance-Sheet RiskThe Company is a party to financial instruments with off-balance-sheet risk in the normal
course of business in order to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized on the consolidated balance sheet.The Companys exposure to credit loss in the event of nonperformance by the other party for
commitments to extend credit and letters of credit is represented by the contractual amount
of those instruments. The Company uses the same credit policies in making commitments and
letters of credit as it does for loans included on the consolidated balance sheet.
 F-27
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    COMMITMENTS AND CONTINGENCIES(Continued)Financial Instruments With Off-Balance-Sheet Risk (Continued)The following financial instruments represent off-balance-sheet credit risk:
 December 31,2005
    
    
    2004Commitments to extend credit
    
    $
    107,500,000
    
    
    $
    90,084,000Letters of credit
    
    $
    1,195,000
    
    
    $
    1,777,000
 Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since some
of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company evaluates each
customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on managements credit
evaluation of the borrower. Collateral held varies, but may include accounts receivable,
crops, inventory, equipment, income-producing commercial properties, farm land and
residential properties.Letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to customers. The fair
value of the liability related to these letters of credit, which represents the fees
received for issuing the guarantees, was not significant at December 31, 2005 and 2004. The
Company recognizes these fees as revenues over the term of the commitment or when the
commitment is used.At December 31, 2005, consumer loan commitments represent approximately 12% of total
commitments and are generally unsecured. Commercial and agricultural loan commitments
represent approximately 23% of total commitments and are generally secured by various assets
of the borrower. Real estate loan commitments represent the remaining 65% of total
commitments and are generally secured by property with a loan-to-value ratio not to exceed
80%. In addition, the majority of the Companys commitments have variable interest rates.Concentrations of Credit RiskThe Company grants real estate mortgage, real estate construction, commercial, agricultural
and consumer loans to customers throughout Plumas, Nevada, Placer, Lassen, Sierra, Shasta
and Modoc counties.
 F-28
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    COMMITMENTS AND CONTINGENCIES(Continued)Concentrations of Credit Risk (continued)Although the Company has a diversified loan portfolio, a substantial portion of its
portfolio is secured by commercial and residential real estate. However, personal and
business income represent the primary source of repayment for a majority of these loans.ContingenciesThe Company is subject to legal proceedings and claims which arise in the ordinary course of
business. In the opinion of management, the amount of ultimate liability with respect to
such actions will not materially affect the financial position or results of operations of
the Company.
 10.
    
    SHAREHOLDERS EQUITYDividend RestrictionsThe Companys ability to pay cash dividends is dependent on dividends paid to it by the Bank
and limited by California corporation law. Under California law, the holders of common
stock of the Company are entitled to receive dividends when and as declared by the Board of
Directors, out of funds legally available, subject to certain restrictions. The California
general corporation law prohibits the Company from paying dividends on its common stock
unless: (i) its retained earnings, immediately prior to the dividend payment, equals or
exceeds the amount of the dividend or (ii) immediately after giving effect to the dividend,
the sum of the Companys assets (exclusive of goodwill and deferred charges) would be at
least equal to 125% of its liabilities (not including deferred taxes, deferred income and
other deferred liabilities) and the current assets of the Company would be at least equal to
its current liabilities, or, if the average of its earnings before taxes on income and
before interest expense for the two preceding fiscal years was less than the average of its
interest expense for the two preceding fiscal years, at least equal to 125% of its current
liabilities.Dividends from the Bank to the Company are restricted under California law to the lesser of
the Banks retained earnings or the Banks net income for the latest three fiscal years,
less dividends previously declared during that period, or, with the approval of the
Department of Financial Institutions, to the greater of the retained earnings of the Bank,
the net income of the Bank for its last fiscal year, or the net income of the Bank for its
current fiscal year. As of December 31, 2005, the maximum amount available for dividend
distribution under this restriction was approximately $9,938,000. In addition the Companys
ability to pay dividends is subject to certain covenants contained in the indentures
relating to the Trust preferred Securities issued by the business trusts (see Note 8).
 F-29
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SHAREHOLDERS EQUITY(Continued)Earnings Per ShareA reconciliation of the numerators and denominators of the basic and diluted earnings per
share computations is as follows:
 WeightedAverageNumber ofNet
    
    
    Shares
    
    
    Per ShareFor the Year Ended
    
    Income
    
    
    Outstanding
    
    
    AmountDecember 31, 2005Basic earnings per share
    
    $
    4,528,000
    
    
    
    4,946,026
    
    
    $
    0.92Effect of dilutive stock options
    
    
    
    
    
    
    150,700Diluted earnings per share
    
    $
    4,528,000
    
    
    
    5,096,726
    
    
    $
    0.89December 31, 2004Basic earnings per share
    
    $
    3,646,000
    
    
    
    4,890,630
    
    
    $
    0.75Effect of dilutive stock options
    
    
    
    
    
    
    108,820Diluted earnings per share
    
    $
    3,646,000
    
    
    
    4,999,450
    
    
    $
    0.73December 31, 2003Basic earnings per share
    
    $
    3,281,000
    
    
    
    4,846,434
    
    
    $
    0.68Effect of dilutive stock options
    
    
    
    
    
    
    132,010Diluted earnings per share
    
    $
    3,281,000
    
    
    
    4,978,444
    
    
    $
    0.66
 Shares of common stock issuable under stock options for which the exercise prices were
greater than the average market prices were not included in the computation of diluted
earnings per share due to their antidilutive effect. For the year ending December 31, 2005,
all stock options were dilutive and therefore included in the computation of diluted
earnings per share. Stock options not included in the computation of diluted earnings per
share were 78,562 and 85,387 for the years ended December 31, 2004 and 2003, respectively.
 F-30
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SHAREHOLDERS EQUITY(Continued)Stock OptionsIn 2001 and 1991, the Company established Stock Option Plans for which 973,757 shares of
common stock remain reserved for issuance to employees and directors and 617,781 shares are
available for future grants under incentive and nonstatutory agreements as of December 31,
2005. The plans require that the option price may not be less than the fair market value of
the stock at the date the option is granted, and that the stock must be paid in full at the
time the option is exercised. Payment in full for the option price must be made in cash or
with Company common stock previously acquired by the optionee and held by the optionee for a
period of at least six months. The options expire on dates determined by the Board of
Directors, but not later than ten years from the date of grant. Upon grant, options vest
ratably over a three to five year period. A summary of the activity within the plans
follows:
 2005
    
    2004
    
    2003Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceIncentiveOptions outstanding,
beginning of year
    
    
    322,279
    
    
    
    9.94
    
    
    
    321,862
    
    
    
    8.43
    
    
    
    294,004
    
    
    $
    6.71Options granted
    
    
    7,500
    
    
    
    18.97
    
    
    
    57,112
    
    
    
    14.07
    
    
    
    76,200
    
    
    $
    12.83Options exercised
    
    
    (64,895
    )
    
    
    5.71
    
    
    
    (49,338
    )
    
    
    4.60
    
    
    
    (44,855
    )
    
    $
    4.42Options canceled
    
    
    (22,039
    )
    
    
    13.36
    
    
    
    (7,357
    )
    
    
    11.76
    
    
    
    (3,487
    )
    
    $
    10.75Options outstanding,
end of year
    
    
    242,845
    
    
    
    11.05
    
    
    
    322,279
    
    
    
    9.94
    
    
    
    321,862
    
    
    $
    8.43Options exercisable,
end of year
    
    
    137,729
    
    
    
    9.45
    
    
    
    157,354
    
    
    
    7.11
    
    
    
    171,307
    
    
    $
    5.46NonstatutoryOptions outstanding,
beginning of year
    
    
    137,790
    
    
    
    10.33
    
    
    
    114,757
    
    
    
    9.37
    
    
    
    100,035
    
    
    $
    7.52Options granted
    
    
    
    
    
    
    
    
    
    
    25,313
    
    
    
    14.19
    
    
    
    25,312
    
    
    $
    13.19Options exercised
    
    
    (17,713
    )
    
    
    7.58
    
    
    
    (2,280
    )
    
    
    4.96
    
    
    
    (10,590
    )
    
    $
    4.91Options canceled
    
    
    (6,946
    )
    
    
    12.94Options outstanding,
end of year
    
    
    113,131
    
    
    
    10.59
    
    
    
    137,790
    
    
    
    10.33
    
    
    
    114,757
    
    
    $
    9.37Options exercisable,
end of year
    
    
    70,386
    
    
    
    9.15
    
    
    
    67,852
    
    
    
    7.87
    
    
    
    51,945
    
    
    $
    6.50
 F-31
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SHAREHOLDERS EQUITY(Continued)Stock Options (Continued)A summary of options outstanding at December 31, 2005 follows:
 Number of
    
    
    WeightedOptions
    
    
    Average
    
    
    OptionsOutstanding
    
    
    Remaining
    
    
    ExercisableRange of
    
    December 31,
    
    
    Contractual
    
    
    December 31,Exercise Prices
    
    2005
    
    
    Life
    
    
    2005Incentive$ 4.96
    
    
    17,153
    
    
    2.9 years
    
    
    17,153$ 5.43
    
    
    10,500
    
    
    5.7 years
    
    
    10,500$ 5.52
    
    
    9,150
    
    
    2.7 years
    
    
    9,150$ 5.53
    
    
    11,250
    
    
    5.8 years
    
    
    11,250$10.75
    
    
    84,782
    
    
    6.9 years
    
    
    56,613$10.76
    
    
    7,949
    
    
    7.2 years
    
    
    2,775$12.34
    
    
    657
    
    
    7.5 years
    
    
    657$12.67
    
    
    3,000
    
    
    8.3 years
    
    
    600$13.19
    
    
    47,172
    
    
    8.0 years
    
    
    19,073$13.24
    
    
    862
    
    
    8.8 years
    
    
    172$14.19
    
    
    42,870
    
    
    9.0 years
    
    
    9,786$18.97
    
    
    7,500
    
    
    9.6 years242,845
    
    
    
    
    
    
    
    137,729Nonstatutory$ 4.96
    
    
    12,457
    
    
    2.9 years
    
    
    12,457$ 5.15
    
    
    8,437
    
    
    1.9 years
    
    
    8,437$ 5.53
    
    
    5,625
    
    
    5.8 years
    
    
    5,625$10.75
    
    
    42,183
    
    
    6.9 years
    
    
    30,933$13.19
    
    
    21,933
    
    
    8.0 years
    
    
    8,435$14.19
    
    
    22,496
    
    
    9.0 years
    
    
    4,499113,131
    
    
    
    
    
    
    
    70,386
 F-32
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SHAREHOLDERS EQUITY(Continued)Regulatory CapitalThe Company and the Bank are subject to certain regulatory capital requirements administered
by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance
Corporation (FDIC). Failure to meet these minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Companys consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative measures of the
Banks assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Companys and the Banks capital amounts and
classification are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.Quantitative measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to
risk-weighted assets and of Tier 1 capital to average assets. Each of these components is
defined in the regulations. Management believes that the Company and the Bank met all their
capital adequacy requirements as of December 31, 2005 and 2004.In addition, the most recent notification from the FDIC categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and
Tier 1 leverage ratios as set forth below. There are no conditions or events since that
notification that management believes have changed the Banks category.
 December 31,2005
    
    
    2004Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioLeverage RatioPlumas Bancorp and Subsidiary
    
    $
    40,589,000
    
    
    
    8.5
    %
    
    $
    32,444,000
    
    
    
    7.6
    %Minimum regulatory requirement
    
    $
    19,013,000
    
    
    
    4.0
    %
    
    $
    17,120,000
    
    
    
    4.0
    %Plumas Bank
    
    $
    37,611,000
    
    
    
    7.8
    %
    
    $
    31,982,000
    
    
    
    7.5
    %Minimum requirement for Well-Capitalized institution
    
    $
    24,060,000
    
    
    
    5.0
    %
    
    $
    21,400,000
    
    
    
    5.0
    %Minimum regulatory requirement
    
    $
    19,248,000
    
    
    
    4.0
    %
    
    $
    17,120,000
    
    
    
    4.0
    %
 F-33
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SHAREHOLDERS EQUITY(Continued)Regulatory Capital (Continued)
 December 31,2005
    
    2004Amount
    
    Ratio
    
    Amount
    
    RatioTier 1 Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    $
    40,589,000
    
    
    
    10.3
    %
    
    $
    32,444,000
    
    
    
    10.1
    %Minimum regulatory requirement
    
    $
    15,780,000
    
    
    
    4.0
    %
    
    $
    12,858,000
    
    
    
    4.0
    %Plumas Bank
    
    $
    37,611,000
    
    
    
    9.6
    %
    
    $
    31,982,000
    
    
    
    10.0
    %Minimum requirement for Well-
Capitalized institution
    
    $
    23,635,000
    
    
    
    6.0
    %
    
    $
    19,262,000
    
    
    
    6.0
    %Minimum regulatory requirement
    
    $
    15,757,000
    
    
    
    4.0
    %
    
    $
    12,841,000
    
    
    
    4.0
    %Total Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    $
    43,845,000
    
    
    
    11.1
    %
    
    $
    35,206,000
    
    
    
    10.9
    %Minimum regulatory requirement
    
    $
    31,560,000
    
    
    
    8.0
    %
    
    $
    25,715,000
    
    
    
    8.0
    %Plumas Bank
    
    $
    40,867,000
    
    
    
    10.4
    %
    
    $
    34,744,000
    
    
    
    10.8
    %Minimum requirement for Well-
Capitalized institution
    
    $
    39,392,000
    
    
    
    10.0
    %
    
    $
    32,103,000
    
    
    
    10.0
    %Minimum regulatory requirement
    
    $
    31,514,000
    
    
    
    8.0
    %
    
    $
    25,682,000
    
    
    
    8.0
    %
 11.
    
    OTHER EXPENSESOther expenses consisted of the following:
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Professional fees
    
    $
    865,000
    
    
    $
    596,000
    
    
    $
    392,000Business development
    
    
    494,000
    
    
    
    389,000
    
    
    
    357,000Advertising and promotion
    
    
    467,000
    
    
    
    350,000
    
    
    
    288,000Telephone and data communications
    
    
    366,000
    
    
    
    346,000
    
    
    
    357,000Stationery and supplies
    
    
    336,000
    
    
    
    292,000
    
    
    
    349,000Armored car and courier
    
    
    337,000
    
    
    
    371,000
    
    
    
    342,000Core deposit intangible amortization
    
    
    301,000
    
    
    
    299,000
    
    
    
    161,000Director compensation and retirement
    
    
    288,000
    
    
    
    284,000
    
    
    
    196,000Outside service fees
    
    
    280,000
    
    
    
    236,000
    
    
    
    201,000Postage
    
    
    258,000
    
    
    
    261,000
    
    
    
    253,000Insurance
    
    
    206,000
    
    
    
    236,000
    
    
    
    164,000Loan expenses
    
    
    114,000
    
    
    
    191,000
    
    
    
    170,000Other operating expenses
    
    
    233,000
    
    
    
    188,000
    
    
    
    111,000$
    4,545,000
    
    
    $
    4,039,000
    
    
    $
    3,341,000
 F-34
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12.
    
    INCOME TAXESThe provision for income taxes for the years ended December 31, 2005, 2004 and 2003
consisted of the following:
 Federal
    
    
    State
    
    
    Total2005Current
    
    $
    1,809,000
    
    
    $
    757,000
    
    
    $
    2,566,000Deferred
    
    
    44,000
    
    
    
    (10,000
    )
    
    
    34,000Provision for income taxes
    
    $
    1,853,000
    
    
    $
    747,000
    
    
    $
    2,600,0002004Current
    
    $
    1,378,000
    
    
    $
    541,000
    
    
    $
    1,919,000Deferred
    
    
    51,000
    
    
    
    31,000
    
    
    
    82,000Provision for income taxes
    
    $
    1,429,000
    
    
    $
    572,000
    
    
    $
    2,001,0002003Current
    
    $
    1,437,000
    
    
    $
    553,000
    
    
    $
    1,990,000Deferred
    
    
    19,000
    
    
    
    9,000
    
    
    
    28,000Provision for income taxes
    
    $
    1,456,000
    
    
    $
    562,000
    
    
    $
    2,018,000
  December 31,2005
    
    
    2004Deferred tax assets:Allowance for loan losses
    
    $
    1,149,000
    
    
    $
    986,000Future benefit of state income tax deduction
    
    
    172,000
    
    
    
    87,000Deferred compensation
    
    
    1,300,000
    
    
    
    1,006,000Core deposit premium
    
    
    210,000
    
    
    
    166,000Unrealized loss on available-for-sale
investment securities
    
    
    766,000
    
    
    
    346,000Other
    
    
    22,000
    
    
    
    40,000Total deferred tax assets
    
    
    3,619,000
    
    
    
    2,631,000
 F-35
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12.
    
    INCOME TAXES(Continued)
 December 31,2004
    
    
    2003Deferred tax liabilities:Prepaid costs
    
    $
    (126,000
    )
    
    $
    (160,000
    )Deferred loan costs
    
    
    (1,272,000
    )
    
    
    (786,000
    )Premises and equipment
    
    
    (576,000
    )
    
    
    (82,000
    )Other
    
    
    (76,000
    )Total deferred tax liabilities
    
    
    (2,050,000
    )
    
    
    (1,028,000
    )Net deferred tax assets
    
    $
    1,569,000
    
    
    $
    1,603,000
   2005
    
    2004
    
    2003Federal income tax, at statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State franchise tax, net of Federal tax effect
    
    
    6.9
    %
    
    
    6.7
    %
    
    
    6.8
    %Interest on obligations of states and political
subdivisions
    
    
    (2.8
    )%
    
    
    (3.2
    )%
    
    
    (1.2
    )%Net increase in cash surrender value of bank
owned life insurance
    
    
    (1.4
    )%
    
    
    (2.5
    )%
    
    
    (2.0
    )%Other
    
    
    (0.2
    )%
    
    
    0.5
    %
    
    
    0.5
    %Effective tax rate
    
    
    36.5
    %
    
    
    35.5
    %
    
    
    38.1
    %
 F-36
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13.
    
    RELATED PARTY TRANSACTIONSDuring the normal course of business, the Company enters into transactions with related
parties, including executive officers and directors. These transactions include borrowings
with substantially the same terms, including rates and collateral, as loans to unrelated
parties. The following is a summary of the aggregate activity involving related party
borrowers during 2005:
 Balance, January 1, 2005
    
    $
    1,863,000Disbursements
    
    
    4,467,000Amounts repaid
    
    
    (3,865,000
    )Balance, December 31, 2005
    
    $
    2,465,000Undisbursed commitments to related
parties, December 31, 2005
    
    $
    525,000
 14.
    
    EMPLOYEE BENEFIT PLANSProfit Sharing PlanThe Plumas Bank Profit Sharing Plan commenced April 1, 1988 and is available to employees
meeting certain service requirements. Under the Plan, employees are able to defer a
selected percentage of their annual compensation. Included under the Plans investment
options is the option to invest in Company stock. The Companys contribution consists of
the following:
 
    
    A contribution which matches the participants contribution, up to
a maximum of 3% of the employees compensation.
    
    An additional discretionary contribution.
  Salary Continuation and Retirement Agreements
  F-37
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 14.
    
    EMPLOYEE BENEFIT PLANS(Continued)Salary Continuation and Retirement Agreements (Continued)In connection with these agreements, the Bank purchased single premium life insurance
policies with cash surrender values totaling $8,930,000 and $8,362,000 at December 31, 2005
and 2004, respectively. Income earned on these policies, net of expenses, totaled $287,000,
$349,000 and $278,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
Income earned on these policies is not subject to Federal and State income tax.15.
    
    COMPREHENSIVE INCOMEComprehensive income is reported in addition to net income for all periods presented.
Comprehensive income is a more inclusive financial reporting methodology that includes
disclosure of other comprehensive income (loss) that historically has not been recognized in
the calculation of net income. The unrealized gains and losses on the Companys
available-for-sale investment securities are included in other comprehensive income (loss).
Total comprehensive income and the components of accumulated other comprehensive income
(loss) are presented in the consolidated statement of changes in shareholders equity.At December 31, 2005, 2004 and 2003, the Company held securities classified as
available-for-sale which had unrealized (losses) gains as follows:
 TaxBefore
    
    
    Benefit
    
    
    AfterTax
    
    
    (Expense)
    
    
    TaxFor the Year Ended December 31, 2005Other comprehensive loss:Unrealized holding losses
    
    $
    (1,027,000
    )
    
    $
    423,000
    
    
    $
    (604,000
    )Reclassification adjustment for losses
included in net income
    
    
    (8,000
    )
    
    
    3,000
    
    
    
    (5,000
    )Total other comprehensive
loss
    
    $
    (1,019,000
    )
    
    $
    420,000
    
    
    $
    (599,000
    )For the Year Ended December 31, 2004Other comprehensive loss:Unrealized holding losses
    
    $
    (885,000
    )
    
    $
    362,000
    
    
    $
    (523,000
    )Reclassification adjustment for gains
included in net income
    
    
    235,000
    
    
    
    (100,000
    )
    
    
    135,000Total other comprehensive
loss
    
    $
    (1,120,000
    )
    
    $
    462,000
    
    
    $
    (658,000
    )
 F-38
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15.
    
    COMPREHENSIVE INCOME(Continued)
 TaxBefore
    
    
    Benefit
    
    
    AfterTax
    
    
    (Expense)
    
    
    TaxFor the Year Ended December 31, 2003Other comprehensive loss:Unrealized holding losses
    
    $
    (87,000
    )
    
    $
    37,000
    
    
    $
    (50,000
    )Reclassification adjustment for gains
included in net income
    
    
    328,000
    
    
    
    (134,000
    )
    
    
    194,000Total other comprehensive loss
    
    $
    (415,000
    )
    
    $
    171,000
    
    
    $
    (244,000
    )
 16.
    
    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTSEstimated fair values are disclosed for financial instruments for which it is practicable to
estimate fair value. These estimates are made at a specific point in time based on relevant
market data and information about the financial instruments. These estimates do not reflect
any premium or discount that could result from offering the Companys entire holdings of a
particular financial instrument for sale at one time, nor do they attempt to estimate the
value of anticipated future business related to the instruments. In addition, the tax
ramifications related to the realization of unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any of these
estimates.Because no market exists for a significant portion of the Companys financial instruments,
fair value estimates are based on judgments regarding current economic conditions, risk
characteristics of various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could significantly
affect the fair values presented.The following methods and assumptions were used by management to estimate the fair value of
its financial instruments at December 31, 2005 and 2004:Cash and cash equivalents: For cash and cash equivalents, the carrying amount is
estimated to be fair value.Investment securities: For investment securities, fair values are based on quoted
market prices, where available. If quoted market prices are not available, fair values are
estimated using quoted market prices for similar securities and indications of value
provided by brokers.
 F-39
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16.
    
    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)Loans: For variable-rate loans that reprice frequently with no significant change
in credit risk, fair values are based on carrying values. Fair values of loans held for
sale are estimated using quoted market prices for similar loans. The fair values for other
loans are estimated using discounted cash flow analyses, using interest rates currently
being offered at each reporting date for loans with similar terms to borrowers of comparable
creditworthiness. The fair value of loans is adjusted for the allowance for loan losses.
The carrying amount of accrued interest receivable approximates its fair value.Bank owned life insurance: The fair values of bank owned life insurance policies
are based on current cash surrender values at each reporting date provided by the insurers.Deposits: The fair values for demand deposits are, by definition, equal to the
amount payable on demand at the reporting date represented by their carrying amount. Fair
values for fixed-rate certificates of deposit are estimated using a discounted cash flow
analysis using interest rates offered at each reporting date by the Bank for certificates
with similar remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.Junior subordinated deferrable interest debentures: The fair value of junior
subordinated deferrable interest debentures was determined based on the current market value
for like kind instruments of a similar maturity and structure.Commitments to extend credit and letters of credit: The fair value of commitments
are estimated using the fees currently charged to enter into similar agreements.
Commitments to extend credit are primarily for variable rate loans and letters of credit.
For these commitments, there is no significant difference between the committed amounts and
their fair values and therefore, is not included in the table below.The estimated fair values of the Companys financial instruments are as follows:
 December 31, 2005
    
    December 31, 2004Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    24,596,000
    
    
    $
    24,596,000
    
    
    $
    11,444,000
    
    
    $
    11,444,000Investment securities
    
    
    97,844,000
    
    
    
    97,712,000
    
    
    
    113,252,000
    
    
    
    113,390,000Loans
    
    
    319,156,000
    
    
    
    320,540,000
    
    
    
    263,931,000
    
    
    
    265,492,000Cash surrender value of life
insurance policies
    
    
    8,930,000
    
    
    
    8,930,000
    
    
    
    8,362,000
    
    
    
    8,362,000Accrued interest receivable
    
    
    2,673,000
    
    
    
    2,673,000
    
    
    
    2,451,000
    
    
    
    2,451,000Financial liabilities:Deposits
    
    $
    426,560,000
    
    
    $
    426,437,000
    
    
    $
    378,567,000
    
    
    $
    378,612,000Junior subordinated deferrable
interest debentures
    
    
    10,310,000
    
    
    
    10,310,000
    
    
    
    6,186,000
    
    
    
    6,186,000Accrued interest payable
    
    
    484,000
    
    
    
    484,000
    
    
    
    271,000
    
    
    
    271,000
 F-40
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.
    
    INTANGIBLE ASSETSDuring 2003, the Company acquired certain assets and liabilities of the Kings Beach,
Loyalton, Portola, Quincy and Truckee branches of Placer Sierra Bank. Upon acquisition,
premises and equipment were valued at fair value and a core deposit premium was recorded as
an intangible asset. This core deposit premium, along with core deposit premiums from
previous acquisitions, is amortized using the straight-line method over ten years.
Annually, the intangible asset is analyzed for impairment. At December 31, 2005, 2004 and
2003, no impairment of the intangible asset has been recognized in the consolidated
financial statements. Amortization expense totaled $301,000, $299,000 and $161,000 for the
years ended December 31, 2005, 2004 and 2003, respectively. Unamortized core deposit
premiums related to acquisitions totaled $1,638,000 and $1,939,000 at December 31, 2005 and
2004, respectively. The estimated intangible amortization is $301,000 for each year through
December 31, 2010.18.
    
    SUBSEQUENT EVENTOn March 3, 2006, the company purchased land in Quincy, California for $1,205,000 in
cash, to be utilized as a future administrative office location.
 F-41
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 19.
    
    PARENT ONLY CONDENSED FINANCIAL STATEMENTS
 CONDENSED BALANCE SHEET
 December 31, 2005 and 2004
 2005
    
    
    2004ASSETSCash and cash equivalents
    
    $
    2,409,000
    
    
    $
    8,000Investment in bank subsidiary
    
    
    38,158,000
    
    
    
    33,429,000Other assets
    
    
    896,000
    
    
    
    645,000Total assets
    
    $
    41,463,000
    
    
    $
    34,082,000LIABILITIES AND
SHAREHOLDERS EQUITYOther liabilities
    
    $
    16,000
    
    
    $
    5,000Junior subordinated deferrable interest debentures
    
    
    10,310,000
    
    
    
    6,186,000Total liabilities
    
    
    10,326,000
    
    
    
    6,191,000Shareholders equity:Common stock
    
    
    4,412,000
    
    
    
    4,013,000Retained earnings
    
    
    27,816,000
    
    
    
    24,370,000Accumulated other comprehensive loss
    
    
    (1,091,000
    )
    
    
    (492,000
    )Total shareholders equity
    
    
    31,137,000
    
    
    
    27,891,000Total liabilities and shareholders equity
    
    $
    41,463,000
    
    
    $
    34,082,000
 CONDENSED STATEMENT OF INCOME
 For the Years Ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Income:Dividends declared by bank subsidiary
    
    $
    840,000
    
    
    $
    1,250,000
    
    
    $
    812,000Earnings from investment in Plumas
Statutory Trusts I and II
    
    
    14,000
    
    
    
    9,000
    
    
    
    11,000Total income
    
    
    854,000
    
    
    
    1,259,000
    
    
    
    823,000Expenses:Interest on junior subordinated
deferrable interest debentures
    
    
    479,000
    
    
    
    305,000
    
    
    
    288,000Other expenses
    
    
    611,000
    
    
    
    335,000
    
    
    
    347,000Total expenses
    
    
    1,090,000
    
    
    
    640,000
    
    
    
    635,000(Loss) income before equity in
undistributed income of subsidiary
    
    
    (236,000
    )
    
    
    619,000
    
    
    
    188,000Equity in undistributed income of
subsidiary
    
    
    4,328,000
    
    
    
    2,771,000
    
    
    
    2,839,000Income before income taxes
    
    
    4,092,000
    
    
    
    3,390,000
    
    
    
    3,027,000Income tax benefit
    
    
    436,000
    
    
    
    256,000
    
    
    
    254,000Net income
    
    $
    4,528,000
    
    
    $
    3,646,000
    
    
    $
    3,281,000
 F-42
    Table of Contents  PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 19.
    
    PARENT ONLY CONDENSED FINANCIAL STATEMENTS(Continued)
 CONDENSED STATEMENT OF CASH FLOWS
 For the Years Ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    4,528,000
    
    
    $
    3,646,000
    
    
    $
    3,281,000Adjustments to reconcile net income to
net cash provided by operating activities:Undistributed net income of subsidiary
    
    
    (4,328,000
    )
    
    
    (2,771,000
    )
    
    
    (2,839,000
    )Increase in other assets
    
    
    (127,000
    )
    
    
    (106,000
    )
    
    
    (62,000
    )Increase (decrease) in other liabilities
    
    
    11,000
    
    
    
    (31,000
    )
    
    
    31,000Net cash provided by operating
activities
    
    
    84,000
    
    
    
    738,000
    
    
    
    411,000Cash flows from investing activities:Investment in bank subsidiary
    
    
    (1,000,000
    )
    
    
    
    
    
    
    (3,000,000
    )Investment in Plumas Statutory Trust II
    
    
    (124,000
    )Net cash used in investing activities
    
    
    (1,124,000
    )
    
    
    
    
    
    
    (3,000,000
    )Cash flows from financing activities:Proceeds from the issuance of junior sub-
ordinated deferrable interest debentures
    
    
    4,124,000Dividends paid
    
    
    (1,082,000
    )
    
    
    (914,000
    )
    
    
    (776,000
    )Proceeds from the exercise of stock
Options
    
    
    407,000
    
    
    
    68,000
    
    
    
    176,000Cash paid for fractional shares
    
    
    (8,000
    )Net cash provided by (used in)
financing activities
    
    
    3,441,000
    
    
    
    (846,000
    )
    
    
    (600,000
    )Increase (decrease) in cash and cash
equivalents
    
    
    2,401,000
    
    
    
    (108,000
    )
    
    
    (3,189,000
    )Cash and cash equivalents at beginning
of year
    
    
    8,000
    
    
    
    116,000
    
    
    
    3,305,000Cash and cash equivalents at end of year
    
    $
    2,409,000
    
    
    $
    8,000
    
    
    $
    116,000Non-cash investing activities:Net change in unrealized (loss) gain on
investment securities available-for-
sale
    
    $
    (1,019,000
    )
    
    $
    (1,122,000
    )
    
    $
    (415,000
    )
 F-43
    Table of Contents  ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
  REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    /s/ D. N. BIDDLEMr. Douglas N. BiddlePresident and Chief Executive Officer/s/ ANDREW RYBACKMr. Andrew J. RybackExecutive Vice President and Chief Financial Officer
    Table of Contents  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 Internal
ControlIntegrated Framework
    44
    Table of Contents  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    
 
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  45
    Table of Contents  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED MATTERS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 (a) Exhibits
  3.1
    
    Articles of Incorporation as amended of Registrant included as exhibit 3.1 to
the Registrants Form S-4, File No. 333-84534, which is incorporated by
reference herein.3.2
    
    Bylaws of Registrant included as exhibit 3.2 to the Registrants Form S-4, File
No. 333-84534, which is incorporated by reference herein.3.3
    
    Amendment of the Articles of Incorporation of Registrant dated November 1, 2002.3.4
    
    Amendment of the Articles of Incorporation of Registrant dated August 17, 2005.4
    
    Specimen form of certificate for Plumas Bancorp included as exhibit 4 to the
Registrants Form S-4, File No. 333-84534, which is incorporated by reference
herein.10.1
    
    Executive Salary Continuation Agreement of Andrew J. Ryback dated August 23,
2005, is included as Exhibit 10.1 to the Registrants 8-K filed on October 17,
2005, which is incorporated by this reference herein.10.2
    
    Split Dollar Agreement of Andrew J. Ryback dated August 23, 2005, is included
as Exhibit 10.2 to the Registrants 8-K filed on October 17, 2005, which is
incorporated by this reference herein.10.3
    
    Executive Salary Continuation Agreement as amended of William E. Elliott dated
October 13, 1993, is included as Exhibit 10.3 to the Registrants 10-QSB for
June 30, 2002, which is incorporated by this reference herein.10.4
    
    Split Dollar Agreements of William E. Elliott dated January 23, 2002, is
included as Exhibit 10.4 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.5
    
    Employment Agreement of Douglas N. Biddle dated January 1, 2006 is included as
Exhibit 10.5 to the Registrants 8-K filed on March 15, 2006, which is
incorporated by this reference herein.10.6
    
    Executive Salary Continuation Agreement as amended of Douglas N. Biddle dated
June 2, 1994, is included as Exhibit 10.6 to the Registrants 10-QSB for June
30, 2002, which is incorporated by this reference herein.10.7
    
    Split Dollar Agreements of Douglas N. Biddle dated January 24, 2002, is
included as Exhibit 10.7 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.9
    
    Executive Salary Continuation Agreement as amended of Dennis C. Irvine dated
June 2, 1994, is included as Exhibit 10.9 to the Registrants 10-QSB for June
30, 2002, which is incorporated by this reference herein.10.10
    
    Split Dollar Agreements of Dennis C. Irvine dated January 24, 2002, is included
as Exhibit 10.10 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.
 46
    Table of Contents  10.11
    
    First Amendment to Executive Salary Continuation Agreement of Robert T. Herr
dated September 15, 2004, is included as Exhibit 10.11 to the Registrants 8-K
filed on September 17, 2004, which is incorporated by this reference herein.10.13
    
    Deferred Fee Agreement as amended of Jerry V. Kehr dated August 19, 1998, is
included as Exhibit 10.13 to the Registrants 10-QSB for June 30, 2002, which
is incorporated by this reference herein.10.14
    
    Amended and Restated Director Retirement Agreement of Jerry V. Kehr dated April
28, 2000, is included as Exhibit 10.14 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.15
    
    Consulting Agreement of Jerry V. Kehr dated May 10, 2000, is included as
Exhibit 10.15 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.16
    
    Deferred Fee Agreement of Jerry V. Kehr dated December 21, 2005 is included as
Exhibit 10.16 to the Registrants 8-K filed on March 15, 2006, which is
incorporated by this reference herein.10.18
    
    Amended and Restated Director Retirement Agreement of Daniel E. West dated May
10, 2000, is included as Exhibit 10.18 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.19
    
    Consulting Agreement of Daniel E. West dated May 10, 2000, is included as
Exhibit 10.19 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.20
    
    Split Dollar Agreements of Robert T. Herr dated September 15, 2004, is included
as Exhibit 10.20 to the Registrants 8-K filed on September 17, 2004, which is
incorporated by this reference herein.10.21
    
    Amended and Restated Director Retirement Agreement of Alvin G. Blickenstaff
dated April 19, 2000, is included as Exhibit 10.21 to the Registrants 10-QSB
for June 30, 2002, which is incorporated by this reference herein.10.22
    
    Consulting Agreement of Alvin G. Blickenstaff dated May 8, 2000, is included as
Exhibit 10.22 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.24
    
    Amended and Restated Director Retirement Agreement of Gerald W. Fletcher dated
May 10, 2000, is included as Exhibit 10.24 to the Registrants 10-QSB for June
30, 2002, which is incorporated by this reference herein.10.25
    
    Consulting Agreement of Gerald W. Fletcher dated May 10, 2000, is included as
Exhibit 10.25 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.27
    
    Amended and Restated Director Retirement Agreement of Arthur C. Grohs dated May
9, 2000, is included as Exhibit 10.27 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.28
    
    Consulting Agreement of Arthur C. Grohs dated May 9, 2000, is included as
Exhibit 10.28 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.30
    
    Amended and Restated Director Retirement Agreement of Christine McArthur dated
May 12, 2000, is included as Exhibit 10.30 to the Registrants 10-QSB for June
30, 2002, which is incorporated by this reference herein.10.31
    
    Consulting Agreement of Christine McArthur dated May 12, 2000, is included as
Exhibit 10.31 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.33
    
    Amended and Restated Director Retirement Agreement of Terrance J. Reeson dated
April 19, 2000, is included as Exhibit 10.33 to the Registrants 10-QSB for
June 30, 2002, which is incorporated by this reference herein.10.34
    
    Consulting Agreement of Terrance J. Reeson dated May 10, 2000, is included as
Exhibit 10.34 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.39
    
    Deferred Fee Agreement of Thomas Watson dated March 3, 2001, is included as
Exhibit 10.39 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.40
    
    Form of Indemnification Agreement, is included as Exhibit 10.41 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this reference
herein.10.41
    
    2001 Stock Option Plan as amended is included as exhibit 99.1 of the Form S-8
filed July 23, 2002, File No. 333-96957.10.42
    
    1991 Stock Option Plan on Form S-8 filed August 19, 2002, File No. 333-98319.
 47
    Table of Contents  10.43
    
    Plumas Bank 401(k) Profit Sharing Plan as amended is included as exhibit 99.1
of the Form S-8 filed February 14, 2003, File No. 333-103229.10.44
    
    Executive Salary Continuation Agreement of Robert T. Herr dated June 4, 2002,
is included as Exhibit 10.44 to the Registrants 10-Q for March 31, 2003, which
is incorporated by this reference herein.10.46
    
    1991 Stock Option Plan as amended is included as Exhibit 10.46 to the
Registrants 10-Q for September 30, 2004, which is incorporated by this
reference herein.10.47
    
    Specimen form of Incentive Stock Option Agreement under the 1991 Stock Option
Plan is included as Exhibit 10.47 to the Registrants 10-Q for September 30,
2004, which is incorporated by this reference herein.10.48
    
    Specimen form of Non-Qualified Stock Option Agreement under the 1991 Stock
Option Plan is included as Exhibit 10.48 to the Registrants 10-Q for September
30, 2004, which is incorporated by this reference herein.10.59
    
    Director Retirement Agreement of Thomas Watson dated May 1, 2003, is included
as Exhibit 10.59 to the Registrants 10-Q for June 30, 2003, which is
incorporated by this reference herein.10.60
    
    Consulting Agreement of Thomas Watson dated May 1, 2003, is included as Exhibit
10.60 to the Registrants 10-Q for June 30, 2003, which is incorporated by this
reference herein.10.62
    
    Deferred Fee Agreement of Thomas Watson dated December 23, 2004, is included as
Exhibit 10.62 to the Registrants 8-K filed on January 6, 2005, which is
incorporated by this reference herein.10.63
    
    Deferred Fee Agreement of Jerry V. Kehr dated December 24, 2004, is included as
Exhibit 10.63 to the Registrants 8-K filed on January 6, 2005, which is
incorporated by this reference herein.11
    
    Computation of per share earnings appears in the attached 10-K under Item 8
Financial Statements  Plumas Bancorp and Subsidiary Notes to Consolidated
Financial Statements as Footnote 10  Shareholders Equity.13.01
    
    Form 10-Q for the quarterly period ended March 31, 2005.13.02
    
    Form 10-Q for the quarterly period ended June 30, 2005.13.03
    
    Form 10-Q for the quarterly period ended September 30, 2005.21.01
    
    Plumas Bank  California.21.02
    
    Plumas Statutory Trust I  Connecticut.21.03
    
    Plumas Statutory Trust II  Connecticut.23
    
    Independent Auditors Consent letter dated March 15, 2006.31.1
    
    Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated
March 13, 2006.31.2
    
    Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated
March 13, 2006.32.1
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
dated March 13, 2006.32.2
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
dated March 13, 2006.
 48
    Table of Contents  SIGNATURES
  PLUMAS BANCORP
   /s/ D. N. BIDDLEDouglas N. BiddlePresident/Chief Executive Officer/s/ ANDREW RYBACKAndrew J. RybackExecutive Vice President/Chief Financial Officer
 49
    Table of Contents  /s/ DANIEL E. WESTDaniel E. West, Director and Chairman of the Board
    
    Dated: March 15, 2006/s/ TERRANCE J. REESONTerrance J. Reeson, Director and Vice Chairman of
the Board
    
    Dated: March 15, 2006/s/ D. N. BIDDLEDouglas N. Biddle, Director
    
    Dated: March 15, 2006/s/ ALVIN G. BLICKENSTAFFAlvin G. Blickenstaff, Director
    
    Dated: March 15, 2006/s/ W. E. ELLIOTTWilliam E. Elliott, Director
    
    Dated: March 15, 2006/s/ GERALD W. FLETCHERGerald W. Fletcher, Director
    
    Dated: March 15, 2006/s/ JOHN FLOURNOYJohn Flournoy, Director
    
    Dated: March 15, 2006/s/ ARTHUR C. GROHSArthur C. Grohs, Director
    
    Dated: March 15, 2006/s/ JERRY V. KEHRJerry V. Kehr, Director
    
    Dated: March 15, 2006/s/ CHRISTINE MCARTHURChristine McArthur, Director
    
    Dated: March 15, 2006/s/ THOMAS WATSONThomas Watson, Director
    
    Dated: March 15, 2006
 50