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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-KSB

|  |  |                                                                               
|- |  | ------------------------------------------------------------------------------
|x |  | Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934

For the fiscal year ended December 31, 2002

or

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|p |  | Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Commission file number: 000-49883



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PLUMAS BANCORP

(Exact name of Registrant as specified in its charter)


|                                                                          |  |                                             
|------------------------------------------------------------------------- |  | --------------------------------------------
|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)                            

Registrants telephone number, including area code: (530) 283-7305



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Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value.



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Check whether the issuer: (1) filed all reports required to be filed under
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to the filing requirements for the past 90 days. Yes x No
p





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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB p

For the year ending December 31, 2002, the Registrants revenues were
$21,667,000.

As of
March 24, 2003, the aggregate market value of the voting and
non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was sold, or the average bid and asked prices
of such common equity, as of a specified date within the past 60 days:
$52,916,000, based on a value of $16.42 per share

As of
March 24, 2003 there were 3,222,636 shares outstanding of the
Registrants common stock.

Documents Incorporated by Reference

Portions of the Companys Definitive Proxy Statement for the 2003 Annual
Shareholders Meeting to be filed with the Securities and Exchange Commission
pursuant to Regulation 14 A are incorporated by reference in Part III, Items
9-11.

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|                            |                                                                                                                         |  |  |  |  |  |  | 
|--------------------------- | ----------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Forward-Looking Information
|PART I                     
|                            | Item 1. Description of Business                                                                                        
|                            | Item 2. Description of Properties                                                                                      
|                            | Item 3. Legal Proceedings                                                                                              
|                            | Item 4. Submission of Matters to a Vote of Security Holders                                                            
|PART II                    
|                            | Item 5. Market for Common Equity and Related Stockholder Matters                                                       
|                            | Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations                          
|                            | Item 7. Financial Statements                                                                                           
|                            | Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                           
|                            | PART III                                                                                                               
|                            | Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
|                            | Item 10. Executive Compensation                                                                                        
|                            | Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                
|                            | Item 12. Certain Relationships and Related Transactions                                                                
|                            | Item 13. Exhibits and Reports on Form 8-KSB                                                                            
|                            | Item 14. Controls and Procedures                                                                                       
|SIGNATURES                 
|EXHIBIT 23.01              



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TABLE OF CONTENTS

|                            |                                                                                                                  |     
|--------------------------- | ---------------------------------------------------------------------------------------------------------------- | ----
|                            |                                                                                                                  | Page
|PART I                      |                                                                                                                 
|Forward-Looking Information | 4                                                                                                               
|Item 1.                     | Description of Business                                                                                          | 5   
|Item 2.                     | Description of Property                                                                                          | 13  
|Item 3.                     | Legal Proceedings                                                                                                | 14  
|Item 4.                     | Submission of Matters to a Vote of Securities Holders                                                            | 14  
|PART II                     |                                                                                                                 
|Item 5.                     | Market for Common Equity and Related Stockholder Matters                                                         | 15  
|Item 6.                     | Managements Discussion and Analysis of Financial Condition and Results of
 Operations                           | 16  
|Item 7.                     | Financial Statements                                                                                             | 37  
|Item 8.                     | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             | 38  
|PART
III                    |                                                                                                                 
|Item 9.                     | Directors, Executive Officers, Promoters and Control Persons; Compliance With
 Section 16(a) of the Exchange Act | 38  
|Item 10.                    | Executive Compensation                                                                                           | 38  
|Item 11.                    | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   | 38  
|Item 12.                    | Certain Relationships and Related Transactions                                                                   | 39  
|Item 13.                    | Exhibits and Reports on Form 8-K                                                                                 | 39  
|Item 14.                    | Controls and Procedures                                                                                          | 42  

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Forward-Looking Information

This Annual Report on Form 10-KSB includes forward-looking information
which is subject to the safe harbor created by the Securities Act of 1933 and
Securities Exchange Act of 1934. These forward-looking statements (which
involve the 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 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 losses                                                                                              
|
| |  |  | Changes in the securities markets                                                                                                                                                        
|
| |  |  | Asset/Liability matching risks and liquidity risks                                                                                                                                       
|
| |  |  | Loss of key personnel                                                                                                                                                                    
|
| |  |  | Operational risks including data processing systems failures or 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 6 and other information in this
Report.

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PART I




Item 1. Description of Business

General.Plumas Bancorp (the Company) was incorporated under the laws
of the State of California on January 17, 2002. The Company was organized
pursuant to a plan of reorganization for the purpose of becoming the parent
corporation of Plumas Bank (the Bank), and on June 21, 2002, the
reorganization was effected and shares of the Company common stock were issued
to the shareholders of Plumas Bank in exchange for the like number of common
shares held by Plumas Banks shareholders. The Company has two subsidiaries,
Plumas Bank and Plumas Statutory Trust I, a nonbank trust subsidiary organized
on September 26, 2002 for the sole purpose of issuing trust preferred
securities. This trust subsidiary is discussed in the section titled Trust
Preferred Securities. The Company is a registered bank holding company under
the Bank Holding Company Act. The Company conducts its operations at 35 S.
Lindan Avenue, Quincy, Ca. 95971. The Companys Internet address is the same
as its subsidiary Banks, www.plumasbank.com.

Plumas Bank was incorporated as a banking corporation under the laws of
the State of California on July 30, 1980 and commenced operations as a
California state-chartered bank on December 13, 1980. Plumas Bank is an
insured bank under the Federal Deposit Insurance Act and is not a member of the
Federal Reserve System. Plumas Banks head office is located at 35 S. Lindan
Avenue, Quincy, California. Plumas Bank does not have any subsidiaries.

Banking Services.The Company is a locally owned and operated bank
holding company, and its primary service area is the Northeastern Californias
Plumas, Lassen, Modoc, Shasta, and Nevada counties. The Company through its
subsidiary Plumas Bank, maintains nine full service branches in the communities
of Quincy, Portola, Greenville, Westwood, Truckee, Fall River Mills, Alturas,
Susanville and Chester. The Bank is in the process of opening a new full
service branch in the community of Tahoe City. In addition, the Company
maintains fourteen automated teller machines (ATMs) tied in with major
statewide and national networks. The Companys primary business is servicing
the banking needs of these communities and its marketing strategy stresses its
local ownership and commitment to serve the banking needs of individuals living
and working in the Companys primary service areas and local businesses,
including retail, professional and real estate-related activities, in those
service areas.

The Company offers a broad range of services to individuals and businesses
in its primary service areas with an emphasis upon efficiency and personalized
attention. The Company offers a full line of consumer services and also offers
specialized services to small businesses, middle market companies and
professional firms. The Company offers personal and business checking and
savings accounts (including individual interest-bearing negotiable orders of
withdrawal, money market accounts and/or accounts combining checking and
savings accounts with automatic transfer), IRA accounts, time certificates of
deposit and direct deposit of social security, pension and payroll checks and
internet banking. The Company also provides commercial, construction,
inventory, automobile, home improvement, real estate, commercial real estate,
single family mortgage, agricultural, Small Business Administration, office
equipment, leasehold improvement, installment and credit card loans (as well as
overdraft protection lines of credit), issues drafts and standby letters of
credit, sells travelers checks (issued by an independent entity), extends
special considerations to senior citizens and offers other customary commercial
banking services.

Other special services and products include both personal and business
checking products, business cash management products and mortgage products and
services.

Business Concentrations.No individual or single group of related
accounts is considered material in relation to the Banks assets or deposits,
or in relation to the overall business of the Company. However, at December
31, 2002 approximately 51.7% of the Companys total loan portfolio consisted of
real estate-related loans, including real estate mortgage loans, real estate
construction loans, consumer

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equity lines of credit, and agricultural loans secured by real estate.
Moreover, the business activities of the Company currently are focused in the
California counties of Plumas, Lassen, Modoc, Shasta, and Nevada.
Consequently, the results of operations and financial condition of the Company
are dependent upon the general trends in these California economies and, in
particular, the residential and commercial real estate markets. In addition,
the concentration of the Companys operations in these areas of California
exposes it to greater risk than other banking companies with a wider geographic
base in the event of catastrophes, such as earthquakes, fires and floods in
these regions in California.

Competition. The banking business in California generally is highly
competitive with respect to both loans and deposits, and is dominated by major
banks with many offices operating over a wide geographic area. The Bank
competes for deposits and loans principally with other commercial banks,
savings and loan associations, finance companies, money market funds, credit
unions and other financial institutions, including a number that are much
larger than Plumas Bank. As of December 31, 2002 there were 19 banking
offices, including 11 offices of 4 major chain banks, operating within Plumas
Banks primary market areas in the Plumas, Lassen, Nevada, Modoc, Shasta and
Sierra counties. As of June 30, 2002, the Federal Deposit Insurance
Corporation estimated the Companys market share of insured deposits within the
communities it serves to be: Quincy 60%, Chester 71%, Fall River Mills 42%,
Portola 40%, Alturas 34%, Susanville 28%, Truckee 8% and both the communities
of Greenville and Westwood 100%.

There has been increased competition for deposit and loan business over
the last several years as a result of deregulation. Many of the major
commercial banks operating in Plumas Banks market areas offer certain
services, such as trust and international banking services, which Plumas Bank
does not offer directly. Additionally, banks with larger capitalization have
larger lending limits and are thereby able to serve larger customers.

In addition to competition from insured depository institutions, principal
competitors for deposits and loans have been mortgage brokerage companies,
insurance companies, brokerage houses, credit card companies and even retail
establishments offering investment vehicles such as mutual funds, annuities and
money market funds, as well as traditional bank-like services such as check
access to money market funds, or cash advances on credit card accounts. Also,
other entities (both public and private) seeking to raise capital through the
issuance and sale of debt or equity securities also represent a source of
competition for the Bank with respect to acquisition of deposits.

In order to compete with the other financial institutions in its principal
marketing area, Plumas Bank relies principally upon local promotional
activities, extended hours and specialized services, personal contacts by its
officers, directors and employees, and other relationships within its
community. For customers whose loan demands exceed the Banks lending limit,
the Bank attempts to arrange for such loans on a participation basis with other
community banks. The Bank also assists customers requiring other services not
offered by the Plumas Bank in obtaining such services from its correspondent
banks.

Employees.At December 31, 2002, the Company and its subsidiaries
employed 170 persons. On a full-time equivalent basis, the Company employed
148 persons. The Company believes its employee relations are excellent.

Supervision and Regulation.The Company is a bank holding company within
the meaning of the Bank Holding Company Act of 1956, as amended, and is
registered as such with and is subject to the supervision of the Board of
Governors of the Federal Reserve System (the FRB). Generally, a bank holding
company is required to obtain the approval of the FRB before it may acquire all
or substantially all of the assets of any bank, or ownership or control of the
voting shares of any bank if, after giving effect to such acquisition of
shares, the bank holding company would own or control more than 5% of the
voting shares of such bank. The FRBs approval is also required for the merger
or consolidation of bank holding companies.

The Company is required to file reports with the FRB and provide such
additional information as the FRB may require. The FRB also has the authority
to examine the Company and each of its subsidiaries,

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as well as any
arrangements between the Company and any of its subsidiaries, with the cost of
any such examination to be borne by the Company.

Banking subsidiaries of bank holding companies are also subject to certain
restrictions imposed by federal law in dealings with their holding companies
and other affiliates. Subject to certain restrictions set forth in the Federal
Reserve Act, a bank can loan or extend credit to an affiliate, purchase or
invest in the securities of an affiliate, purchase assets from an affiliate, or
issue a guarantee, acceptance, or letter of credit on behalf of an affiliate,
provided that the aggregate amount of the above transactions of the bank and
its subsidiaries does not exceed 10 percent of the capital stock and surplus of
the bank on a per affiliate basis or 20 percent of the capital stock and
surplus of the bank on an aggregate affiliate basis. In addition, such
transactions must be on terms and conditions that are consistent with safe and
sound banking practices and, in particular, a bank and its subsidiaries
generally may not purchase from an affiliate a low-quality asset, as defined in
the Federal Reserve Act. Such restrictions also prevent a bank holding company
and its other affiliates from borrowing from a banking subsidiary of the bank
holding company unless the loans are secured by marketable collateral of
designated amounts. Further, the Company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension
of credit, sale or lease of property or furnishing of services.

A bank holding company is generally prohibited from engaging in or
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company engaged in nonbanking activities. One of the principal
exceptions to the prohibition is for activities found by the FRB by order or
regulation to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. In making these determinations, the FRB
considers whether the performance of such activities by a bank holding company
would offer advantages to the public which outweigh possible adverse effects.

Federal Reserve Regulation Y sets out those activities which are regarded
as closely related to banking or managing or controlling banks, and thus, are
permissible activities that may be engaged in by bank holding companies subject
to approval in individual cases by the FRB. There has been litigation
challenging the validity of certain activities authorized by the FRB for bank
holding companies, and the FRB has various regulations in this regard still
under consideration. The future scope of permitted activities is uncertain.

Plumas Bank is subject to primary supervision, examination and regulation
by the Federal Deposit Insurance Corporation (the FDIC), the California
Department of Financial Institutions (DFI) and is subject to applicable
regulations of the FRB. Plumas Banks deposits are insured by the FDIC to
applicable limits. As a consequence of the extensive regulation of commercial
banking activities in California and the United States, banks are particularly
susceptible to changes in California and federal legislation and regulations,
which may have the effect of increasing the cost of doing business, limiting
permissible activities or increasing competition.

Various other requirements and restrictions under the laws of the United
States and the State of California affect the operations of Plumas Bank.
Federal and California statutes and regulations relate to many aspects of the
banks operations, including reserves against deposits, interest rates payable
on deposits, loans, investments, mergers and acquisitions, borrowings,
dividends, branching, capital requirements and disclosure obligations to
depositors and borrowers. California law presently permits a bank to locate a
branch office in any locality in the state. Additionally, California law
exempts banks from California usury laws.

Impact of Monetary Policies.The earnings and growth of the Company are
subject to the influence of domestic and foreign economic conditions, including
inflation, recession and unemployment. The earnings of the Company are
affected not only by general economic conditions but also by the monetary and
fiscal policies of the United States and federal agencies, particularly the
Federal Reserve. The Federal Reserve can and does implement national monetary
policy, such as seeking to curb inflation and combat recession, by its open market operations in United State
Government securities and by its control of the discount rates applicable to
borrowings by banks from the Federal Reserve System. The

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actions of the
Federal Reserve in these areas influence the growth of bank loans, investments
and deposits and affect the interest rates charged on loans and paid on
deposits. As demonstrated over the past several years by the Federal Reserves
actions regarding interest rates, its policies have had a significant effect on
the operating results of commercial banks and are expected to continue to do so
in the future. The nature and timing of any future changes in monetary
policies are not predictable.

Recent and Proposed Legislation.The operations of the Company are
subject to extensive regulation by federal, state and local governmental
authorities and are subject to the various laws and judicial and administrative
decisions imposing requirements and restrictions on part or all of its
operations. The Company believes that it is in substantial compliance in all
material respects with applicable federal, state and local laws, rules and
regulations. Because the business of the Company and its subsidiaries are
highly regulated, the laws, rules and regulations applicable to each of them
are subject to regular modification and change.

From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks and other financial institutions are
frequently made in Congress, in the California legislature and before various
bank regulatory agencies. Certain of the potentially significant changes which
have been enacted recently and others, which are currently under consideration
by Congress or various regulatory agencies, are discussed below.

The terrorist attacks in September, 2001, have impacted the financial
services industry and have already led to federal legislation that attempts to
address certain issues involving financial institutions. The International
Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (USA
Patriot Act) was signed into law on October 26, 2001. The USA Patriot Act
which became effective July 23, 2002, places particular focus on account
relationships between banks and accounts maintained for foreign persons and
financial institutions and gives the Secretary of the Treasury significant new
authority to detect and combat financial crime.

Among its other provisions, USA Patriot Act requires each financial
institution to: (i) establish an anti-money laundering program; (ii) establish
due diligence policies, procedures and controls with respect to its private
banking accounts and correspondent banking accounts involving foreign
individuals and certain foreign banks; and (iii) avoid establishing,
maintaining, administering, or managing correspondent accounts in the United
States for, or on behalf of, a foreign bank that does not have a physical
presence in any country. In addition, USA Patriot Act contains a provision
encouraging cooperation among financial institutions, regulatory authorities
and law enforcement authorities with respect to individuals, entities and
organizations engaged in, or reasonably suspected of engaging in, terrorist
acts or money laundering activities. USA Patriot Act expands the circumstances
under which funds in a bank account may be forfeited and requires applicable
financial institutions to respond under certain circumstances to requests for
information from federal banking agencies within 120 hours. USA Patriot Act
also amends the Bank Holding Company Act and the Bank Merger Act to require the
federal banking agencies to consider the effectiveness of a financial
institutions anti-money laundering activities when reviewing an application
under these acts.

Additional USA Patriot Act regulations have been adopted in 2002 to
implement minimum standards to verify customer identity, to encourage
cooperation among financial institutions, federal banking agencies, and law
enforcement authorities regarding possible money laundering or terrorist
activities, to prohibit the anonymous use of concentration accounts, and to
require all covered financial institutions to maintain a Bank Secrecy Act
compliance program.

The Company has developed appropriate policies and procedures to meet its
responsibilities regarding the applicable provisions of the USA Patriot Act.

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The Gramm-Leach-Bliley Act, signed into law on November 12, 1999, is the
result of a decade of debate in the Congress regarding a fundamental
reformation of the nations financial system. The law is subdivided into seven
titles, by functional area. Title I acts to facilitate affiliations among
banks, insurance companies and securities firms. Title II narrows the
exemptions from the securities laws previously enjoyed by banks, requires the
Federal Reserve and the SEC to work together to draft rules governing certain
securities activities of banks and creates a new, voluntary investment bank
holding company. Title III restates the proposition that the states are the
functional regulators for all insurance activities, including the insurance
activities of federally-chartered banks. The law bars the states from
prohibiting insurance activities by depository institutions. The law
encourages the states to develop uniform or reciprocal rules for the licensing
of insurance agents. Title IV prohibits the creation of additional unitary
thrift holding companies. Title V imposes significant requirements on
financial institutions related to the transfer of nonpublic personal
information. These provisions require each institution to develop and
distribute to accountholders an information disclosure policy, and require that
the policy allow customers to, and for the institution to, honor a customers
request to opt-out of the proposed transfer of specified nonpublic
information to third parties. Title VI reforms the Federal Home Loan Bank
system to allow broader access among depository institutions to the systems
advance programs, and to improve the corporate governance and capital
maintenance requirements for the system. Title VII addresses a multitude of
issues including disclosure of ATM surcharging practices, disclosure of
agreements among non-governmental entities and insured depository institutions
which donate to non-governmental entities regarding donations made in
connection with the Community Reinvestment Act, and disclosure by the recipient
non-governmental entities of how such funds are used. Additionally, the law
extends the period of time between Community Reinvestment Act examinations of
community banks.

The Company has developed appropriate policies and procedures to meet its
responsibilities regarding all provisions of the Gramm-Leach-Bliley Act.

It is impossible to predict what effect the enactment of certain of the
above-mentioned legislation will have on Plumas Bank and on the financial
institutions industry in general. Moreover, it is likely that other bills
affecting the business of banks may be introduced in the future by the United
States Congress or California legislature.

During July, 2002, President Bush signed into law the Sarbanes-Oxley Act
of 2002. The purpose of the Sarbanes-Oxley Act is to protect investors by
improving the accuracy and reliability of corporate disclosures made pursuant
to the securities laws, and for other purposes.

The Sarbanes-Oxley Act amends the Securities Exchange Act of 1934 to
prohibit a registered public accounting firm from performing specified
non-audit services contemporaneously with a mandatory audit. The
Sarbanes-Oxley Act also vests the audit committee of an issuer with
responsibility for the appointment, compensation, and oversight of any
registered public accounting firm employed to perform audit services. It
requires each committee member to be a member of the board of directors of the
issuer, and to be otherwise independent. The Sarbanes-Oxley Act further
requires the chief executive officer and chief financial officer of an issuer
to make certain certifications as to each annual or quarterly report.

In addition, the Sarbanes-Oxley Act requires officers to forfeit certain
bonuses and profits under certain circumstances. Specifically, if an issuer is
required to prepare an accounting restatement due to the material noncompliance
of the issuer, as a result of misconduct, with any financial reporting
requirement under the securities laws, the chief executive officer and chief
financial officer of the issuer shall be required to reimburse the issuer for
(1) any bonus or other incentive-based or equity-based compensation received by
that person from the issuer during the 12-month period following the first
public issuance or filing with the Securities and Exchange Commission (SEC) of
the financial document embodying such financial reporting requirement; and (2)
any profits realized from the sale of securities of the issuer during that
12-month period.

The Sarbanes-Oxley Act also instructs the SEC to require by rule:

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| |  |  | disclosure of all material off-balance sheet transactions and
relationships that may have a material effect upon the financial
status of an issuer; and                                                     
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the presentation of pro forma financial information in a
manner that is not misleading, and which is reconcilable with the
financial condition of the issuer under generally accepted
accounting principles.

The Sarbanes-Oxley Act also prohibits insider transactions in the
companys stock during lock out periods of the companys pension plans, and any
profits on such insider transactions are to be disgorged. In addition, there
is a prohibition of company loans to its executives, except in certain
circumstances. The Sarbanes-Oxley Act also provides for mandated internal
control report and assessment with the annual report and an attestation and a
report on such report by the companys auditor. The SEC is also required to
issue a code of ethics for senior financial officers of the company. Further,
the Sarbanes-Oxley Act adds a criminal penalty of fines and imprisonment of up
to 10 years for securities fraud.

The FRB on October 31, 2002 approved a final Regulation W that
comprehensively implements sections 23A and 23B of the Federal Reserve Act.
Sections 23A and 23B and Regulation W restrict loans by a depository
institution to its affiliates, asset purchases by a depository institution from
its affiliates, and other transactions between a depository institution and its
affiliates. Regulation W unifies in one public document the Boards
interpretations of sections 23A and 23B. Regulation W will have an effective
date of April 1, 2003.

In December of 2001 and January of 2002, the Office of the Comptroller of
the Currency, FRB and the FDIC on the adopted final rules governing the
regulatory capital treatment of equity investments in nonfinancial companies
held by banks, bank holding companies and financial holding companies. The
final rules became effective on April 1, 2002. The new capital requirements
apply symmetrically to equity investments made by banks and their holding
companies in nonfinancial companies under the legal authorities specified in
the final rules. Among others, these include the merchant banking authority
granted by the Gramm-Leach-Bliley Act and the authority to invest in small
business investment companies (SBICs) granted by the Small Business Investment
Act. Covered equity investments will be subject to a series of marginal Tier 1
capital charges, with the size of the charge increasing as the organizations
level of concentration in equity investments increases. The highest marginal
charge specified in the final rules requires a 25 percent deduction from Tier 1
capital for covered investments that aggregate more than 25 percent of an
organizations Tier 1 capital. Equity investments through SBICs will be exempt
from the new charges to the extent such investments, in the aggregate, do not
exceed 15 percent of the banking organizations Tier 1 capital. The new
charges would not apply to individual investments made by banking organizations
prior to March 13, 2000. Grandfathered investments made by state banks under
section 24(f) of the Federal Deposit Insurance Act also are exempted from
coverage.

Other legislation which has been or may be proposed to the United States
Congress and the California Legislature and regulations which may be proposed
by the SEC, FRB, FDIC and the DFI may affect the business of the Company. It
cannot be predicted whether any pending or proposed legislation or regulations
will be adopted or the effect such legislation or regulations may have upon the
business or the Company.

Consumer Protection Laws and Regulations.The bank regulatory agencies
are focusing greater attention on compliance with consumer protection laws and
regulations. Examination and enforcement have become more intense in nature
and insured institutions have been advised to carefully monitor compliance with
such laws and regulations. The Company is subject to many federal consumer
protection statutes and regulations, some of which are discussed below.

The Community Reinvestment Act (CRA) is intended to encourage insured
depository institutions, while operating safely and soundly, to help meet the
credit needs of their communities. The CRA specifically directs the federal
regulatory agencies, in examining insured depository institutions, to assess a
banks record of helping meet the credit needs of its entire community,
including low and

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moderate-income neighborhoods, consistent with safe and sound banking
practices. The CRA further requires the agencies to take a financial
institutions record of meeting its community credit needs into account when
evaluating applications for, among other things, domestic branches, mergers or
acquisitions, or holding company formations. The agencies use the CRA
assessment factors in order to provide a rating to the financial institution.
The four point rating scale ranges from a high of outstanding to a low of
substantial noncompliance.

The Equal Credit Opportunity Act (ECOA) generally prohibits discrimination
in any credit transaction, whether for consumer or business purposes, on the
basis of race, color, religion, national origin, sex, marital status, age
(except in limited circumstances), receipt of income from public assistance
programs, or good faith exercise of any rights under the Consumer Credit
Protection Act. The Truth in Lending Act (TILA) is designed to ensure that
credit terms are disclosed in a meaningful way so that consumers may compare
credit terms more readily and knowledgeably. As a result of the TILA, all
creditors must use the same credit terminology to express rates and payments,
including but not limited to the annual percentage rate, the finance charge,
the amount financed, the total of payments and the payment schedule.

The Fair Housing Act (FH Act) regulates many practices, including making
it unlawful for any lender to discriminate in its housing-related lending
activities against any person because of race color, religion, national origin,
sex, handicap or familial status. The Home Mortgage Disclosure Act (HMDA), in
response to public concern over credit shortages in certain urban
neighborhoods, requires public disclosure of information that shows whether
financial institutions are serving the housing credit needs of the
neighborhoods and communities in which they are located. The HMDA also
includes a fair lending aspect that requires the collection and disclosure of
data about applicant and borrower characteristics as a way of identifying
possible discriminatory lending patterns and enforcing anti-discrimination
statutes.

The Right to Financial Privacy Act (RFPA) imposes a new requirement for
financial institutions to provide new privacy protections to consumers.
Financial institutions must provide disclosures to consumers of its privacy
policy, and state the rights of consumers to direct their financial institution
not to share their nonpublic personal information with third parties.

The Real Estate Settlement Procedures Act (RESPA) requires lenders to
provide borrowers with disclosures regarding the nature and cost of real estate
settlements. Also, RESPA prohibits certain abusive practices, such as
kickbacks, and places limitations on the amount of escrow accounts.

Penalties for noncompliance or violations under the above laws may include
fines, reimbursement and other penalties. Due to heightened regulatory concern
related to compliance with CRA, TILA, FH Act, ECOA, HMDA, RFPA and RESPA
generally, the Company may incur additional compliance costs or be required to
expend additional funds for investments in its local community.

Recent Accounting Pronouncements.In April 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
This Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor
Carriers. This Statement amends SFAS No. 13, Accounting for Leases, to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. This Statement is effective for fiscal
years beginning after May 15, 2002. Adoption of this statement is not expected
to have a material effect on the Companys consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with

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exit or disposal activities and nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). This Statement is effective for exit or disposal
activities initiated after December 31, 2002. Adoption of this statement is not
expected to have a material effect on the Companys consolidated financial
statements.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions.This statement, which addresses financial accounting
and reporting matters for the acquisition of all or part of a financial
institution, applies to all such transactions except those between two or more
mutual enterprises. This statement removes acquisitions of financial
institutions, other than transactions between two or more mutual enterprises,
from the scope of SFAS No. 72, Accounting for Certain Acquisitions of Banking
or Thrift Institutions,and related interpretations. This statement requires a
financial institution to apply SFAS No. 144 and evaluate long-term customer
relationship intangible assets (core deposit intangible) for impairment. Under
SFAS No. 72, a financial institution may have recorded an unidentifiable
intangible asset arising from a business combination. If certain criteria in
SFAS No. 147 are met, the amount of the unidentifiable intangible asset will be
reclassified to goodwill upon adoption of this Statement and any amortization
amounts that were incurred after the adoption of SFAS No. 142 must be reversed.
Reclassified goodwill would then be measured for impairment under the
provisions of SFAS No. 142. Provisions of this statement are applicable on or
after October 1, 2002. In managements opinion, the adoption of this Statement
did not have a material effect on the Companys consolidated financial position
or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosurean amendment of FASB Statement No. 123.
This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The transition guidance and
annual disclosure provisions of SFAS No. 148 are effective for fiscal years
ending after December 15, 2002. The interim disclosure provisions are
effective for financial reporting containing financial statements for interim
periods beginning after December 15, 2002. Because the Company accounts for
the compensation cost associated with its stock option plan under the intrinsic
value method, the alternative methods of transition will not apply to the
Company. The additional disclosure requirements of the statement are included
in these financial statements. In managements opinion, the adoption of this
Statement did not have a material impact on the Companys consolidated
financial position or results of operations.

Trust Preferred Securities.During the third quarter, the Company formed
a wholly owned Connecticut statutory business trust, Plumas Statutory Trust I
(the Trust). On September 26, 2002, the Company issued to the Trust Floating
Rate Junior Subordinated Deferrable Interest Debentures due 2032 (Debentures)
in the aggregate principal amount of $6,000,000. In exchange for these
debentures the Trust paid the Company $6,000,000. The Trust funded its
purchase of debentures by issuing $6,000,000 in floating rate capital
securities (capital securities), which were sold to a third party. These
capital securities qualify as Tier I capital under Federal Reserve Board
guidelines. The Debentures are the only asset of the Trust. The interest rate
and terms on both instruments are substantially the same. The rate is the
three month LIBOR (London Interbank Offered Rate) plus 3.40% not to exceed
11.9% adjustable quarterly. A portion of the proceeds ($2,500,000) from the
sale of the Debentures were used by the Company to inject capital into Plumas
Bank, the remaining proceeds are being held for the planned growth of the
Company.

The Debentures and capital securities accrue and pay distributions
quarterly based on the floating rate described above on the stated liquidation
value of $1,000 per security. The Company has entered into contractual
agreements which, taken collectively, fully and unconditionally guarantee
payment of: (1) accrued and unpaid distributions required to be paid on the
capital securities; (2) the redemption price

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with respect to any capital securities called for redemption by the Trust,
and (3) payments due upon voluntary or involuntary dissolution, winding up, or
liquidation of the Trust.

The capital securities are mandatorily redeemable upon maturity of the
Debentures on September 26, 2032, or upon earlier redemption as provided in
the indenture.

Other Information Concerning the Company.The Company holds no material
patents, trademarks, licenses, franchises or concessions. No expenditures were
made by the Company since inception on material research activities relating to
the development of services or the improvement of existing services. Based
upon present business activities, compliance with federal, state and local
provisions regulating discharge of materials into the environment will have no
material effects upon the capital expenditures, earnings and competitive
position of the Company.

Public Filings.On March 19, 2002 the Company filed a registration
statement on Form S-4EF with the Securities and Exchange Commission (SEC) to
register the common stock under the Securities Act of 1933. Subsequent to the
reorganization of the Company on June 21, 2002, the Company registered the
common stock of Plumas Bancorp under the Securities Exchange Act of 1934 as a
successor issuer on Form 8-A. Throughout 2002, the Company has regularly filed
current reports and quarterly reports on Forms 8-K and 10-QSB. The filings for
Plumas Bancorp may be obtained at the SEC website address: www.sec.gov.




Item 2. Description of Properties

The Company owns eight depository branches and leases one other depository
branch as well as four automated teller machine locations used in the normal
course of business throughout five counties in the Companys service area. In
addition, the Company owns two administrative buildings in Quincy California.

Owned Properties

| |  |                              |  |                         
| |  | ---------------------------- |  | ------------------------
| |  | 35 S. Lindan Avenue          |  | 32 Central Avenue       
| |  | Quincy, California (1)       |  | Quincy, California (1)  
| |  |                              |  |                         
| |  | 336 West Main Street         |  | 120 N. Pine Street      
| |  | Quincy, California           |  | Portola, California     
| |  |                              |  |                         
| |  | 121 Crescent Street          |  | 315 Birch Street        
| |  | Greenville, California       |  | Westwood, California (2)
| |  |                              |  |                         
| |  | 43163 Highway 299E           |  | 3000 Riverside Drive    
| |  | Fall River Mills, California |  | Susanville, California  
| |  |                              |  |                         
| |  | 255 Main Street              |  | 510 N. Main Street      
| |  | Chester, California          |  | Alturas, California (3) 

Leased Properties

|                                |  |                           
|------------------------------- |  | --------------------------
|11429 Donner Pass Road          |  | 7597 Highway 89           
|Truckee, California             |  | Graeagle, California (4)  
|                                |  |                           
|502 Main Street                 |  | 50 Grand Avenue           
|Lake Almanor, California (4)    |  | Susanville, California (4)
|                                |  |                           
|Peninsula Drive & Big Cove Road |  | 10059 Palisades Drive     
|Lake Almanor, California (4)    |  | Truckee, California (1)   

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---

|(1) |  | Non-branch administrative/lending offices.                                                                                                 
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Westwood branch is mortgaged with an outstanding balance of $94,000 at
December 31, 2002.                                                  
|   
|(3) |  | Alturas branch although owned has an underlying land lease which expires
in November 2005, with an option to renew the lease for ten years.
|   
|(4) |  | Non-branch stand-alone automated teller machine location.                                                                                  

There are no contingent rental payments. Total rental expenses under all
leases, including premises, totaled $85,000, $97,000 and $44,000, in 2002, 2001
and 2000 respectively. The expiration dates of the leases vary, with the first
such lease expiring during 2003 and the last such lease expiring during 2005.
The Company maintains insurance coverage on its premises, leaseholds and
equipment, including business interruption and record reconstruction coverage.
The branch properties and non-branch offices are adequate, suitable, in good
condition and have adequate parking facilities for customers and employees.
The Company and Bank are limited in their investments in real property under
Federal and state banking laws. Generally, investments in real property are
either for the Company and Bank use or are in real property and real property
interests in the ordinary course of the Banks business.




Item 3. Legal Proceedings

From time to time, the Company and/or its subsidiaries are a party to
claims and legal proceedings arising in the ordinary course of business. In
the opinion of the Companys management, the amount of ultimate liability with
respect to such proceedings will not have a material adverse effect on the
financial condition or results of operations of the Company taken as a whole.




Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to vote of the security holders during the
fourth quarter of the period covered by this report.

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PART II




Item 5. Market for Common Equity and Related Stockholder Matters

The Companys common stock is quoted on the Over-The-Counter (OTC)
Bulletin Board under the ticker symbol PLBC. As of December 31, 2002, there
were 3,209,396 shares of the Companys stock outstanding held by approximately
1,600 shareholders of record as of the same date. The following table shows
the high and low prices for the common stock, for each quarter as reported by
Yahoo Finance. The stock prices and per share cash dividends presented below
have been adjusted to reflect the three-for-two stock split issued in November
2002.

Plumas BancorpCommon Stock Sale Prices

|     |  |       |       |       |  |       |       |       |  |       |       |       |  |       |       |       |  |   |       |  |  |   |      |  |  |   |      |  |  |   |      | 
|---- |  | ----- | ----- | ----- |  | ----- | ----- | ----- |  | ----- | ----- | ----- |  | ----- | ----- | ----- |  | - | ----- |  |  | - | ---- |  |  | - | ---- |  |  | - | ---- | 
|     |  | Qtr 4 |       | Qtr 3 |  | Qtr 2 |       | Qtr 1 |  | Qtr 4 |       | Qtr 3 |  | Qtr 2 |       | Qtr 1
|     |  | 2002  |       | 2002  |  | 2002  |       | 2002  |  | 2001  |       | 2001  |  | 2001  |       | 2001 
|     |  |       |       |       |  |       |       |       |  |       |       |       |  |       |       |      
|High |  | $     | 17.00 |       |  | $     | 16.67 |       |  | $     | 15.00 |       |  | $     | 10.67 |       |  | $ | 10.00 |  |  | $ | 9.13 |  |  | $ | 8.17 |  |  | $ | 7.79 | 
|Low  |  |       | 14.83 |       |  |       | 13.83 |       |  |       | 9.80  |       |  |       | 9.33  |       |  |   | 7.43  |  |  |   | 7.50 |  |  |   | 7.00 |  |  |   | 6.37 | 

2002 Dividends.Prior to the Companys reorganization on June 21, 2002,
the Companys predecessor, Plumas Bank paid a $.22 per share cash dividend to
shareholders of record as of April 24, 2002. The cash dividend was paid on May
3, 2002 and totaled $703,000. After the re-organization the Company issued a
three-for-two stock split and paid a special $.05 per share cash dividend to
shareholders of record as of November 12, 2002. The cash dividend was paid on
shares outstanding following the three-for-two stock split on November 26, 2002
and totaled $162,000.

2001 Dividends.The Companys predecessor, Plumas Bank paid a $.20 per
share cash dividend to shareholders of record as of April 10, 2001. The cash
dividend was paid on April 24, 2001 and totaled $635,000.

Other Dividend Information.The Companys primary source of revenue to
pay dividends to its shareholders is dividends from Plumas Bank. The amount
and payment of dividends by the Company is set by the Companys Board of
Directors. Any further dividends will be decided based on a number of factors
including results of operations, general business conditions, capital
requirements, general financial conditions, and other factors deemed relevant
by the Board of Directors.

The California Financial Code restricts without the prior consent of the
Commissioner the total dividend payment of any California bank in any calendar
year to the lesser of (1) the banks retained earnings or (2) the banks net
income for its last three fiscal years, less distributions made to shareholders
during the same three-year period. At December 31, 2002, Plumas Bank had
$5,113,000 in retained earnings available for dividend payments to the Company.

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Item 6. Managements Discussion and Analysis of Financial Condition and
Results of Operations

Summary of Consolidated Financial Data and Performance Ratios

|                                    |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         |  |       |  
|----------------------------------- |  | -------------------------------------------- | ------- | --------------------------------------------- | ----- | ---- | ------- | ---- | ----- | ---- | ------- | ---- | ----- | - | ------- |  | ----- | - | ------- |  | ----- | -
|                                    |  |                                              |         | At or for the Year ended December 31,        
|                                    |  |                                              |         |                                              
|                                    |  |                                              |         | 2002                                          |       | 2001 |         | 2000 |       | 1999 |         | 1998
|                                    |  |                                              |         |                                               |       |      |         |      |       |      |         |     
|                                    |  |                                              |         | (dollars in thousands, except per share data)
|Statement
of Income:                |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         | 
|Interest income                     |  | $                                            | 18,252  |                                               |       | $    | 18,981  |      |       | $    | 18,279  |      |       | $ | 15,332  |  |       | $ | 14,168  | 
|Interest expense                    |  |                                              | 4,038   |                                               |       |      | 6,373   |      |       |      | 6,724   |      |       |   | 5,096   |  |       |   | 5,222   | 
|                                    |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         | 
|Net interest income                 |  |                                              | 14,214  |                                               |       |      | 12,608  |      |       |      | 11,555  |      |       |   | 10,236  |  |       |   | 8,946   | 
|                                    |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         | 
|Provision for loan losses           |  |                                              | 825     |                                               |       |      | 725     |      |       |      | 500     |      |       |   | 480     |  |       |   | 400     | 
|Non-interest income                 |  |                                              | 3,415   |                                               |       |      | 3,022   |      |       |      | 2,343   |      |       |   | 2,142   |  |       |   | 2,057   | 
|Non-interest expense                |  |                                              | 11,604  |                                               |       |      | 10,480  |      |       |      | 9,431   |      |       |   | 8,188   |  |       |   | 7,429   | 
|                                    |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         | 
|Income before income taxes          |  |                                              | 5,200   |                                               |       |      | 4,425   |      |       |      | 3,967   |      |       |   | 3,710   |  |       |   | 3,174   | 
|Provision for income taxes          |  |                                              | 2,046   |                                               |       |      | 1,667   |      |       |      | 1,404   |      |       |   | 1,442   |  |       |   | 1,170   | 
|                                    |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         | 
|Net income                          |  | $                                            | 3,154   |                                               |       | $    | 2,758   |      |       | $    | 2,563   |      |       | $ | 2,268   |  |       | $ | 2,004   | 
|                                    |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         | 
|Financial Ratios:                   |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         | 
|For the year:                       |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         | 
|                                    |  | Return on average assets                     |         |                                               | 1.07  | %    |         |      | 1.07  | %    |         |      | 1.12  | % |         |  | 1.10  | % |         |  | 1.06  | %
|                                    |  | Return on average equity                     |         |                                               | 14.22 |      |         |      | 14.20 |      |         |      | 14.90 |   |         |  | 14.09 |   |         |  | 13.94 |  
|                                    |  | Dividend payout ratio                        |         |                                               | 27.27 |      |         |      | 22.99 |      |         |      | 24.39 |   |         |  | 25.00 |   |         |  | 27.69 |  
|                                    |  | Average equity to average
assets ratio       |         |                                               | 7.53  |      |         |      | 7.54  |      |         |      | 7.49  |   |         |  | 7.78  |   |         |  | 7.59  |  
|                                    |  | Net interest margin                          |         |                                               | 5.43  |      |         |      | 5.50  |      |         |      | 5.84  |   |         |  | 5.53  |   |         |  | 5.40  |  
|                                    |  | Efficiency ratio                             |         |                                               | 65.82 |      |         |      | 67.05 |      |         |      | 67.86 |   |         |  | 66.15 |   |         |  | 67.52 |  
|At December 31:                     |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         | 
|                                    |  | Total capital to risk-adjusted
assets        |         |                                               | 12.85 | %    |         |      | 10.48 | %    |         |      | 10.09 | % |         |  | 10.92 | % |         |  | 10.38 | %
|                                    |  | Allowance for loan and lease
losses to loans |         |                                               | 1.19  |      |         |      | 1.17  |      |         |      | 1.15  |   |         |  | 1.25  |   |         |  | 1.33  |  
|                                    |  | Loans to deposits                            |         |                                               | 70.67 |      |         |      | 72.83 |      |         |      | 73.46 |   |         |  | 66.38 |   |         |  | 55.26 |  
|                                    |  | Non-performing assets to total
assets        |         |                                               | 0.59  |      |         |      | 0.52  |      |         |      | 0.34  |   |         |  | 0.58  |   |         |  | 0.73  |  
|                                    |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         |  |       |  
|Balance Sheet:                      |  |                                              |         |                                               |       |      |         |      |       |      |         |      |       |   |         |  |       |   |         | 
|Total assets                        |  | $                                            | 325,464 |                                               |       | $    | 275,090 |      |       | $    | 243,601 |      |       | $ | 212,315 |  |       | $ | 201,046 | 
|Total loans                         |  | $                                            | 207,721 |                                               |       | $    | 183,676 |      |       | $    | 164,004 |      |       | $ | 128,883 |  |       | $ | 102,173 | 
|Allowance for loan and lease
Losses |  | $                                            | 2,471   |                                               |       | $    | 2,153   |      |       | $    | 1,888   |      |       | $ | 1,608   |  |       | $ | 1,361   | 
|Total deposits                      |  | $                                            | 293,939 |                                               |       | $    | 252,206 |      |       | $    | 223,256 |      |       | $ | 194,163 |  |       | $ | 184,905 | 
|Total shareholders equity          |  | $                                            | 23,288  |                                               |       | $    | 20,617  |      |       | $    | 18,165  |      |       | $ | 16,813  |  |       | $ | 15,349  | 

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|                           |                |   |      |                                               |  |      |      |       |  |      |      |       |  |   |      |       |  |   |      |       |  | 
|-------------------------- | -------------- | - | ---- | --------------------------------------------- |  | ---- | ---- | ----- |  | ---- | ---- | ----- |  | - | ---- | ----- |  | - | ---- | ----- |  | 
|                           |                |   |      | At or for the Year ended December 31,        
|                           |                |   |      |                                              
|                           |                |   |      | 2002                                          |  | 2001 |      | 2000  |  | 1999 |      | 1998 
|                           |                |   |      |                                               |  |      |      |       |  |      |      |      
|                           |                |   |      | (dollars in thousands, except per share data)
|Share Data:                |                |   |      |                                               |  |      |      |       |  |      |      |       |  |   |      |       |  |   |      |      
|Common Shares Outstanding  |                |   |      |                                               |  |      |      |       |  |      |      |       |  |   |      |       |  |   |      |      
|                           | (in thousands) |   |      | 3,209                                         |  |      |      | 3,192 |  |      |      | 3,082 |  |   |      | 3,161 |  |   |      | 3,100 | 
|Book Value Per Share       |                | $ | 7.26 |                                               |  | $    | 6.46 |       |  | $    | 5.89 |       |  | $ | 5.32 |       |  | $ | 4.95 |      
|Basic Earnings Per Share   |                | $ | 0.99 |                                               |  | $    | 0.87 |       |  | $    | 0.82 |       |  | $ | 0.72 |       |  | $ | 0.65 |      
|Diluted Earnings Per Share |                | $ | 0.96 |                                               |  | $    | 0.86 |       |  | $    | 0.79 |       |  | $ | 0.67 |       |  | $ | 0.61 |      
|Cash Dividends Per Share   |                | $ | 0.27 |                                               |  | $    | 0.20 |       |  | $    | 0.20 |       |  | $ | 0.18 |       |  | $ | 0.18 |      

General.The Board of Directors and Management believe that the Company
plays an important role in the economic well being of the communities it
serves. Its subsidiary bank has a continuing responsibility to provide a wide
range of lending and deposit services to both individuals and businesses.
These services are tailored to meet the needs of the communities served by the
Company and Plumas Bank.

Various loan products are offered which promote home ownership and
affordable housing, fuel job growth and support community economic development.
Types of loans offered range from personal and commercial loans to real
estate, construction, agricultural, and mortgage loans. Banking decisions are
made locally with the goal of maintaining customer satisfaction.

Various deposit products are offered which are geared to provide both
individual and business customers with a wide range of choices. These products
include both high and low volume transaction accounts, savings and money market
products, certificate of deposit accounts with a wide range of maturities, and
IRA accounts including Roth and Educational IRAs.

The following discussion is designed to provide a better understanding of
significant trends related to the Companys financial condition, results of
operations, liquidity, capital resources and interest rate sensitivity. It
pertains to the Companys financial condition, changes in financial condition
and results of operations as of December 31, 2002 and 2001 and for each of the
three years in the period ended December 31, 2002. The discussion should be
read in conjunction with the Companys audited consolidated financial
statements and notes thereto and the other financial information appearing
elsewhere herein.

OVERVIEW

The Companys net income increased $396,000, or 14.4%, to $3,154,000 for
the year ended December 31, 2002 from $2,758,000 for the same period in 2001.
The primary contributors to the increase in net income for 2002 were a $1.6
million increase in net interest income before provision for loan losses and a
$393 thousand increase in non-interest income, partially offset by a $1.1
million increase in non-interest expenses, a $379 thousand increase in income
tax expense and a $100 thousand increase in the provision for loan losses.

Total assets at December 31, 2002 increased $50.4 million, or 18.3%, to
$325.5 million from $275.1 million at December 31, 2001. Growth in total
assets was primarily concentrated in the loan portfolio, which grew $24.0
million, or 13.1%, to $207.7 million during the same period. Additional asset
growth was the result of proceeds from the Companys issuance of $6 million in
trust preferred securities in September 2002. The growth in the loans was
primarily funded by growth in deposits. Deposits grew $41.7 million, or 16.5%,
to $293.9 million at December 31, 2002 from $252.2 million at December 31,
2001.

The return on average assets was 1.07% for both years ended December 31,
2002 and 2001. The return on average equity was 14.2% for both years ended
December 31, 2002 and 2001. The Companys continued growth offset the positive
affects of the Companys improved earnings resulting in no change in the return
on average asset and equity ratios.

17



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##### Table of Contents



RESULTS OF OPERATIONS

Net Interest Income before Provision for Loan Losses

2002 compared to 2001.Net interest income before provision for loan
losses is the difference between interest earned on assets and interest paid on
liabilities. Net interest income, on a nontax-equivalent basis, was $14.2
million for 2002, an increase of $1.6 million, or 12.7%, from $12.6 million for
2001. The increase in net interest income was attributed to declines in rates
paid on deposits combined with volume increases in average loan balances,

partially offset by declines in the yields on interest-earning assets. The
average loan balances were $197.9 million for 2002, up $21.2 million, or 12.0%,
from the $176.7 million for 2001. Offsetting the benefits of the increased
loan volume was the continuing impact of the 2001 falling interest rate
environment. The average loan yield was 8.04% for 2002, down 117 basis points,
or 12.7%, from the 9.21% for 2001.

Interest expense decreased $2.3 million, or 36.7%, to $4.0 million for
2002, down from $6.4 million for 2001. The decrease in interest expense was
primarily attributed to rate decreases for both time and money market deposits,
slightly offset by volume increases in deposits. The average rate paid on time
deposits was 3.12% for 2002, down 193 basis points, or 38.2%, from the 5.05%
paid for 2001. The average rate paid on money market deposits was 1.50% for
2002, down 156 basis points, or 51.0%, from the 3.06% paid for 2001. The
average money market deposit balances were $51.8 million for 2002, up $9.7
million, or 23.1%, from the $42.0 million for 2001.

Net interest margin is net interest income expressed as a percentage of
average interest-earning assets. The net interest margin for 2002 decreased 7
basis points to 5.43%, down from 5.50% for 2001. The adverse effects of the
2001 falling interest rate environment on the Companys interest-earning assets
offset the positive affects of the declining cost of funds and increasing loan
volumes and resulted in the slight decrease in the net interest margin when
comparing the periods of 2002 and 2001.

18



---



##### Table of Contents



The following table presents for the years indicated the distribution of
consolidated average assets, liabilities and shareholders equity. It also
presents the amounts of interest income from interest-earning assets and the
resultant yields expressed in both dollars and yield percentages, as well as,
the amounts of interest expense on interest-bearing liabilities and the
resultant cost expressed in both dollars and rates percentages. Nonaccrual
loans are included in the calculation of average loans while nonaccrued
interest thereon is excluded from the computation of yields earned:

|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      |      |  
|--------------------------------------- | ------------------------- | ---------------------------------- |  | --------------- |  | -------------- | ------ | ------- | ------- | --------------- |  | -------------- |  | ------ | ------ | ------ | ------ |  | ---- | ---- | ---- | - |  |  |  |  | ------ | ------- | ------- |  |  |  |  | - | ------ | ------ | ------ |  | ---- | ---- | ---- | -
|                                        |                           |                                    |  | 2002            |  | 2001          
|                                        |                           |                                    |  |                 |  |               
|                                        |                           |                                    |  | Average Balance |  | Interest       |        | Yield/  |         | Average Balance |  | Interest       |  | Yield/
|                                        |                           |                                    |  | (in thousands)  |  | (in thousands) |        | Rate    |         | (in thousands)  |  | (in thousands) |  | Rate  
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |       
|Interest-earning assets:                |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |     
|                                        | Loans (1) (2)             |                                    |  |                 |  |                | $      | 197,900 |         |                 |  |                |  |        | $      | 15,912 |        |  |      | 8.04 | %    |   |  |  |  |  | $      | 176,746 |         |  |  |  |  |   | $      | 16,286 |        |  |      | 9.21 | %   
|                                        | Investment securities (1) |                                    |  |                 |  |                |        | 46,628  |         |                 |  |                |  |        |        | 2,065  |        |  |      | 4.43 | %    |   |  |  |  |  |        | 42,725  |         |  |  |  |  |   |        | 2,374  |        |  |      | 5.56 | %   
|                                        | Federal funds sold        |                                    |  |                 |  |                |        | 17,465  |         |                 |  |                |  |        |        | 275    |        |  |      | 1.57 | %    |   |  |  |  |  |        | 9,729   |         |  |  |  |  |   |        | 321    |        |  |      | 3.30 | %   
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |     
|                                        |                           | Total earning assets               |  |                 |  |                |        |         | 261,993 |                 |  |                |  |        |        |        | 18,252 |  |      |      | 6.97 | % |  |  |  |  |        |         | 229,200 |  |  |  |  |   |        |        | 18,981 |  |      |      | 8.28 | %
|Cash and demand deposits with banks     |                           |                                    |  |                 |  |                | 16,201 |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  | 13,983 |         |         |  |  |  |  |   |        |        |        |  |      |     
|Other assets                            |                           |                                    |  |                 |  |                | 16,514 |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  | 14,398 |         |         |  |  |  |  |   |        |        |        |  |      |     
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |     
|                                        |                           | Total assets                       |  |                 |  |                |        | $       | 294,708 |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        | $       | 257,581 |  |  |  |  |   |        |        |        |  |      |      |      |  
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |     
|Interest-bearing liabilities:           |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |     
|                                        | NOW deposits              |                                    |  |                 |  |                | $      | 33,070  |         |                 |  |                |  |        |        | 114    |        |  |      | 0.34 | %    |   |  |  |  |  | $      | 28,131  |         |  |  |  |  |   |        | 195    |        |  |      | 0.69 | %   
|                                        | Money market deposits     |                                    |  |                 |  |                |        | 51,776  |         |                 |  |                |  |        |        | 775    |        |  |      | 1.50 | %    |   |  |  |  |  |        | 42,045  |         |  |  |  |  |   |        | 1,285  |        |  |      | 3.06 | %   
|                                        | Savings deposits          |                                    |  |                 |  |                |        | 39,094  |         |                 |  |                |  |        |        | 432    |        |  |      | 1.11 | %    |   |  |  |  |  |        | 32,753  |         |  |  |  |  |   |        | 581    |        |  |      | 1.77 | %   
|                                        | Time deposits             |                                    |  |                 |  |                |        | 84,195  |         |                 |  |                |  |        |        | 2,624  |        |  |      | 3.12 | %    |   |  |  |  |  |        | 85,307  |         |  |  |  |  |   |        | 4,307  |        |  |      | 5.05 | %   
|                                        | Other borrowings (3)      |                                    |  |                 |  |                |        | 1,617   |         |                 |  |                |  |        |        | 93     |        |  |      | 5.75 | %    |   |  |  |  |  |        | 51      |         |  |  |  |  |   |        | 5      |        |  |      | 9.80 | %   
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |     
|                                        |                           | Total interest-bearing liabilities |  |                 |  |                |        |         | 209,752 |                 |  |                |  |        |        |        | 4,038  |  |      |      | 1.93 | % |  |  |  |  |        |         | 188,287 |  |  |  |  |   |        |        | 6,373  |  |      |      | 3.38 | %
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |     
|Non-interest bearing deposits           |                           |                                    |  |                 |  |                | 60,638 |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  | 47,604 |         |         |  |  |  |  |   |        |        |        |  |      |     
|Other liabilities                       |                           |                                    |  |                 |  |                | 2,134  |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  | 2,267  |         |         |  |  |  |  |   |        |        |        |  |      |     
|Shareholders equity                    |                           |                                    |  |                 |  |                | 22,184 |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  | 19,423 |         |         |  |  |  |  |   |        |        |        |  |      |     
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |     
|                                        |                           | Total liabilities & equity         |  |                 |  |                |        | $       | 294,708 |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        | $       | 257,581 |  |  |  |  |   |        |        |        |  |      |      |      |  
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |     
|Cost of funding interest-earning assets |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  | 1.54 | %    |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  | 2.78 | %   
|Net interest income and margin          |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  | $      | 14,214 |        |        |  | 5.43 | %    |      |   |  |  |  |  |        |         |         |  |  |  |  | $ | 12,608 |        |        |  | 5.50 | %   
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |  |                |  |        |        |        |        |  |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |     



---

|(1) |  | Not computed on a tax-equivalent basis.                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Loan fees included in loan interest income for the years ended December
31, 2002 and 2001 amounted to $442 and $525, respectively.            
|   
|(3) |  | For the purpose of this schedule the interest expense related to the
Companys junior subordinated debentures is included in other borrowings.

The following table sets forth changes in interest income and interest
expense, for the years indicated and the amount of change attributable to
variances in volume, rates and the combination of volume and rates based on the
relative changes of volume and rates:

19



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##### Table of Contents



|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |      |      |   |       |        |        |  
|----------------------------- | --------------------- | ---------------------- | ----- | -------------------------------------------- | ----- | -------- | ------ | ------- | ------ | ----- | ---- | ---- | ---- | - | ----- | ------ | ------ | -
|                              |                       |                        |       | 2002 over 2001 change in net interest income
|                              |                       |                        |       |                                             
|                              |                       |                        |       | (in thousands)                              
|                              |                       |                        |       | Volume (1)                                   |       | Rate (2) |        | Mix (3) |        | Total
|                              |                       |                        |       |                                              |       |          |        |         |        |      
|Interest-earning assets:      |                       |                        |       |                                              |       |          |        |         |        |       |      |      |      |   |       |       
|Loans                         |                       | $                      | 1,949 |                                              |       | $        | (2,075 | )       |        | $     | (248 | )    |      | $ | (374  | )     
|Investment Securities         |                       |                        | 217   |                                              |       |          | (482   | )       |        |       | (44  | )    |      |   | (309  | )     
|Federal funds sold            |                       |                        | 255   |                                              |       |          | (168   | )       |        |       | (133 | )    |      |   | (46   | )     
|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |      |      |   |       |       
|                              |                       | Total interest income  |       |                                              | 2,421 |          |        |         | (2,725 | )     |      |      | (425 | ) |       |        | (729   | )
|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |      |      |   |       |       
|Interest-bearing liabilities: |                       |                        |       |                                              |       |          |        |         |        |       |      |      |      |   |       |       
|                              | NOW deposits          |                        |       | 34                                           |       |          |        | (98     | )      |       |      | (17  | )    |   |       | (81    | )     
|                              | Money market deposits |                        |       | 297                                          |       |          |        | (656    | )      |       |      | (152 | )    |   |       | (511   | )     
|                              | Savings deposits      |                        |       | 112                                          |       |          |        | (219    | )      |       |      | (42  | )    |   |       | (149   | )     
|                              | Time deposits         |                        |       | (56                                          | )     |          |        | (1,648  | )      |       |      | 21   |      |   |       | (1,683 | )     
|                              | Other borrowings      |                        |       | 154                                          |       |          |        | (2      | )      |       |      | (63  | )    |   |       | 89     |       
|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |      |      |   |       |       
|                              |                       | Total interest expense |       |                                              | 541   |          |        |         | (2,623 | )     |      |      | (253 | ) |       |        | (2,335 | )
|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |      |      |   |       |       
|Net interest income           |                       | $                      | 1,880 |                                              |       | $        | (102   | )       |        | $     | (172 | )    |      | $ | 1,606 |       
|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |      |      |   |       |       



---

|(1) |  | The volume change in net interest income represents the change in average
balance divided by the 2001 rate.     
|--- |  | ----------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The rate change in net interest income represents the change in rate
divided by the 2001 average balance.       
|   
|(3) |  | The mix change in net interest income represents the change in average
balance multiplied by the change in rate.

2001 compared to 2000.Net interest income, on a nontax-equivalent basis,
was $12.6 million for 2001, an increase of $1.1 million, or 9.1%, from $11.6
million for 2000. The increase in net interest income was attributed to volume
increases in the average loan balances combined with declines in rates paid on
the deposits, partially offset by declines in the yields on the
interest-earning assets and volume increases in the average interest-bearing
deposit balances. The average loan balances were $176.7 million for 2001, up
$35.2 million, or 24.9%, from the $141.6 million for 2000. Offsetting the
benefits of the increased loan volume was the impact of the 2001 falling
interest rate environment. The average loan yield was 9.21% for 2001, down 129
basis points, or 12.3%, from the 10.50% for 2000.

Interest expense decreased $351,000, or 5.2%, to $6.4 million for 2001,
down from $6.7 million for 2000. The decrease in interest expense was
primarily attributed to rate decreases for both money market, time and savings
deposits, somewhat offset by volume increases in time and money market
deposits. The average rate paid on money market deposits was 3.06% for 2001,
down 147 basis points, or 32.5%, from the 4.53% paid for 2000. The average
rate paid on time deposits was 5.05% for 2001, down 50 basis points, or 9.0%,
from the 5.55% paid for 2000. The average time deposit balances were $85.3
million for 2001, up $12.4 million, or 17.0%, from the $72.9 million for 2000.

The net interest margin for 2001 decreased 33 basis points to 5.50%, down
from 5.83% for 2000. The adverse effects of the 2001 falling interest rate
environment on the Companys interest-earning assets were not entirely offset
by the positive affects of the increasing loan volumes and declining cost of
funds. As a result, the net interest margin decreased when comparing the
periods of 2002 and 2001.

20



---



##### Table of Contents



The following table presents for the years indicated the distribution of
consolidated average assets, liabilities and shareholders equity. It also
presents the amounts of interest income from interest-earning assets and the
resultant yields expressed in both dollars and yield percentages, as well as,
the amounts of interest expense on interest-bearing liabilities and the
resultant cost expressed in both dollars and rates percentages. Nonaccrual
loans are included in the calculation of average loans while nonaccrued
interest thereon is excluded from the computation of yields earned:

|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |       |      |  
|--------------------------------------- | ------------------------- | ---------------------------------- |  | --------------- |  | -------------- | ------ | ------- | ------- | --------------- | ------ | -------------- | ------ | ----- | ---- | ---- | ---- | - |  |  |  |  | ------ | ------- | ------- |  |  |  |  | - | ------ | ------ | ------ |  | ---- | ----- | ---- | -
|                                        |                           |                                    |  | 2001            |  | 2000          
|                                        |                           |                                    |  |                 |  |               
|                                        |                           |                                    |  |                 |  |                |        | Yield   |         |                 |        |                |        | Yield
|                                        |                           |                                    |  | Average Balance |  | Interest       |        | /       |         | Average Balance |        | Interest       |        | /    
|                                        |                           |                                    |  | (in thousands)  |  | (in thousands) |        | Rate    |         | (in thousands)  |        | (in thousands) |        |       | Rate
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |      
|Interest-earning assets:                |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      
|                                        | Loans (1) (2)             |                                    |  |                 |  |                | $      | 176,746 |         |                 | $      | 16,286         |        |       |      | 9.21 | %    |   |  |  |  |  | $      | 141,562 |         |  |  |  |  |   | $      | 14,869 |        |  |      | 10.50 | %   
|                                        | Investment securities (1) |                                    |  |                 |  |                |        | 42,725  |         |                 |        | 2,374          |        |       |      | 5.56 | %    |   |  |  |  |  |        | 54,054  |         |  |  |  |  |   |        | 3,261  |        |  |      | 6.03  | %   
|                                        | Federal funds sold        |                                    |  |                 |  |                |        | 9,729   |         |                 |        | 321            |        |       |      | 3.30 | %    |   |  |  |  |  |        | 2,500   |         |  |  |  |  |   |        | 149    |        |  |      | 5.96  | %   
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      
|                                        |                           | Total earning assets               |  |                 |  |                |        |         | 229,200 |                 |        |                | 18,981 |       |      |      | 8.28 | % |  |  |  |  |        |         | 198,116 |  |  |  |  |   |        |        | 18,279 |  |      |       | 9.23 | %
|Cash and demand deposits with banks     |                           |                                    |  |                 |  |                | 13,983 |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  | 17,092 |         |         |  |  |  |  |   |        |        |        |  |      |      
|Other assets                            |                           |                                    |  |                 |  |                | 14,398 |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  | 14,300 |         |         |  |  |  |  |   |        |        |        |  |      |      
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      
|                                        |                           | Total assets                       |  |                 |  |                |        | $       | 257,581 |                 |        |                |        |       |      |      |      |   |  |  |  |  |        | $       | 229,508 |  |  |  |  |   |        |        |        |  |      |       |      |  
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      
|Interest-bearing liabilities:           |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      
|                                        | NOW deposits              |                                    |  |                 |  |                | $      | 28,131  |         |                 |        | 195            |        |       |      | 0.69 | %    |   |  |  |  |  | $      | 25,980  |         |  |  |  |  |   |        | 271    |        |  |      | 1.04  | %   
|                                        | Money market deposits     |                                    |  |                 |  |                |        | 42,045  |         |                 |        | 1,285          |        |       |      | 3.06 | %    |   |  |  |  |  |        | 36,540  |         |  |  |  |  |   |        | 1,654  |        |  |      | 4.53  | %   
|                                        | Savings deposits          |                                    |  |                 |  |                |        | 32,753  |         |                 |        | 581            |        |       |      | 1.77 | %    |   |  |  |  |  |        | 33,075  |         |  |  |  |  |   |        | 702    |        |  |      | 2.12  | %   
|                                        | Time deposits             |                                    |  |                 |  |                |        | 85,307  |         |                 |        | 4,307          |        |       |      | 5.05 | %    |   |  |  |  |  |        | 72,918  |         |  |  |  |  |   |        | 4,044  |        |  |      | 5.55  | %   
|                                        | Other borrowings (3)      |                                    |  |                 |  |                |        | 51      |         |                 |        | 5              |        |       |      | 9.80 | %    |   |  |  |  |  |        | 849     |         |  |  |  |  |   |        | 53     |        |  |      | 6.24  | %   
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      
|                                        |                           | Total interest-bearing liabilities |  |                 |  |                |        |         | 188,287 |                 |        |                | 6,373  |       |      |      | 3.38 | % |  |  |  |  |        |         | 169,362 |  |  |  |  |   |        |        | 6,724  |  |      |       | 3.97 | %
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      
|Non-interest bearing deposits           |                           |                                    |  |                 |  |                | 47,604 |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  | 41,281 |         |         |  |  |  |  |   |        |        |        |  |      |      
|Other liabilities                       |                           |                                    |  |                 |  |                | 2,267  |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  | 1,671  |         |         |  |  |  |  |   |        |        |        |  |      |      
|Shareholders equity                    |                           |                                    |  |                 |  |                | 19,423 |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  | 17,194 |         |         |  |  |  |  |   |        |        |        |  |      |      
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      
|                                        |                           | Total liabilities & equity         |  |                 |  |                |        | $       | 257,581 |                 |        |                |        |       |      |      |      |   |  |  |  |  |        | $       | 229,508 |  |  |  |  |   |        |        |        |  |      |       |      |  
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      
|Cost of funding interest-earning assets |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       | 2.78 | %    |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  | 3.39 | %    
|Net interest income and margin          |                           |                                    |  |                 |  |                |        |         |         | $               | 12,608 |                |        |       | 5.50 | %    |      |   |  |  |  |  |        |         |         |  |  |  |  | $ | 11,555 |        |        |  | 5.83 | %    
|                                        |                           |                                    |  |                 |  |                |        |         |         |                 |        |                |        |       |      |      |      |   |  |  |  |  |        |         |         |  |  |  |  |   |        |        |        |  |      |      



---

|(1) |  | Not computed on a tax-equivalent basis.                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Loan fees included in loan interest income for the years ended December
31, 2001 and 2000 amounted to $525 and $335, respectively.
|   
|(3) |  | For the purpose of this schedule the interest in the Companys junior
subordinated debentures is included in other borrowings.    

21



---



##### Table of Contents



The following table sets forth changes in interest income and interest
expense, for the years indicated and the amount of change attributable to
variances in volume, rates and the combination of volume and rates based on the
relative changes of volume and rates:

|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |     |      |   |       |      |      |  
|----------------------------- | --------------------- | ---------------------- | ----- | -------------------------------------------- | ----- | -------- | ------ | ------- | ------ | ----- | ---- | --- | ---- | - | ----- | ---- | ---- | -
|                              |                       |                        |       | 2001 over 2000 change in net interest income
|                              |                       |                        |       |                                             
|                              |                       |                        |       | (in thousands)                              
|                              |                       |                        |       | Volume (1)                                   |       | Rate (2) |        | Mix (3) |        | Total
|                              |                       |                        |       |                                              |       |          |        |         |        |      
|Interest-earning assets:      |                       |                        |       |                                              |       |          |        |         |        |       |      |     |      |   |       |     
|Loans                         |                       | $                      | 3,696 |                                              |       | $        | (1,825 | )       |        | $     | (454 | )   |      | $ | 1,417 |     
|Investment Securities         |                       |                        | (683  | )                                            |       |          | (258   | )       |        |       | 54   |     |      |   | (887  | )   
|Federal funds sold            |                       |                        | 431   |                                              |       |          | (67    | )       |        |       | (192 | )   |      |   | 172   |     
|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |     |      |   |       |     
|                              |                       | Total interest income  |       |                                              | 3,444 |          |        |         | (2,150 | )     |      |     | (592 | ) |       |      | 702  |  
|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |     |      |   |       |     
|Interest-bearing liabilities: |                       |                        |       |                                              |       |          |        |         |        |       |      |     |      |   |       |     
|                              | NOW deposits          |                        |       | 23                                           |       |          |        | (91     | )      |       |      | (8  | )    |   |       | (76  | )   
|                              | Money market deposits |                        |       | 249                                          |       |          |        | (537    | )      |       |      | (81 | )    |   |       | (369 | )   
|                              | Savings deposits      |                        |       | (7                                           | )     |          |        | (115    | )      |       |      | 1   |      |   |       | (121 | )   
|                              | Time deposits         |                        |       | 687                                          |       |          |        | (362    | )      |       |      | (62 | )    |   |       | 263  |     
|                              | Other borrowings      |                        |       | (50                                          | )     |          |        | 30      |        |       |      | (28 | )    |   |       | (48  | )   
|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |     |      |   |       |     
|                              |                       | Total interest expense |       |                                              | 902   |          |        |         | (1,075 | )     |      |     | (178 | ) |       |      | (351 | )
|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |     |      |   |       |     
|Net interest income           |                       | $                      | 2,542 |                                              |       | $        | (1,075 | )       |        | $     | (414 | )   |      | $ | 1,053 |     
|                              |                       |                        |       |                                              |       |          |        |         |        |       |      |     |      |   |       |     



---

|(1) |  | The volume change in net interest income represents the change in average
balance divided by the 2000 rate.     
|--- |  | ----------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The rate change in net interest income represents the change in rate
divided by the 2000 average balance.       
|   
|(3) |  | The mix change in net interest income represents the change in average
balance multiplied by the change in rate.

Provision for Loan Losses.The allowance for loan losses is maintained at
a level that management believes will be adequate to absorb inherent losses on
existing loans based on an evaluation of the collectibility of the loans and
prior loan loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrowers ability to pay. The allowance for loan losses is
based on estimates, and ultimate losses may vary from the current estimates.
These estimates are reviewed periodically and, as adjustments become necessary,
they are reported in earnings in the periods in which they become known. See
the sections titled Asset Quality and Analysis of Allowance for Loan Losses for
further discussion of loan quality trends and the provision for loan losses.

The Company recorded $825,000, $725,000 and $500,000 in provision for loan
losses for 2002, 2001 and 2000, respectively. The increase in the provision
for loan losses during these periods is primarily reflective of the increasing
loan volumes. The Company assesses its loan quality monthly to maintain an
adequate allowance for loan losses. Based on information currently available,
management believes that the allowance for loan losses is adequate to absorb
potential risks in the portfolio. However, no assurance can be given that the
Company may not sustain charge-offs which are in excess of the allowance in any
given period.

22



---



##### Table of Contents



Non-Interest Income

2002 compared to 2001.During 2002, total non-interest income increased
$393,000, or 13.0%, to $3.4 million, up from $3.0 million for 2001. The
increase in non-interest income is primarily due to increases in the number of
fee generating accounts, merchant processing income, alternative investment fee
income, gains on the sale of available-for-sale investment securities and
restructuring of the Banks service charge fee schedule in February 2002,
partially offset by reduced gains on the sale of loans and other real estate.

2001 compared to 2000.During 2001, total non-interest income increased
$679,000, or 29.0%, to $3.0 million, up from $2.3 million for 2000. The
increase in non-interest income is primarily due to increases in the number of
fee generating accounts, number of loans serviced, merchant processing income,
alternative investment fee income and gains on the sale of loans and
available-for-sale investment securities. The declining interest rate
environment in 2001 resulted in increased mortgage refinancing activities for
the Company as well as opportunities to sell loans and investment securities
with gains. Also during 2001 the Company began selling Small Business
Administration (SBA) loans that it had originated resulting in increases in
gains on sale of loans as well as increasing ongoing loan servicing income.

The following table describes the components of non-interest income for
the years ended December 31, 2002, 2001 and 2000.

|                                                  |  |                         |       |      |  |      |       |  |  |   |       |  
|------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | -
|                                                  |  | Year Ended December 31,
|                                                  |  |                        
|                                                  |  | 2002                    |       | 2001 |  | 2000
|                                                  |  |                         |       |      |  |     
|                                                  |  | (in thousands)         
|Service charges                                   |  | $                       | 1,905 |      |  | $    | 1,596 |  |  | $ | 1,457 |  
|Loan servicing                                    |  |                         | 318   |      |  |      | 302   |  |  |   | 211   |  
|Cash surrender value life
insurance earnings      |  |                         | 217   |      |  |      | 243   |  |  |   | 214   |  
|Gain on sale of loans, net                        |  |                         | 191   |      |  |      | 267   |  |  |   | 29    |  
|Gain (loss) on sale of
Investment securities, net |  |                         | 117   |      |  |      | 72    |  |  |   | (34   | )
|Merchant processing                               |  |                         | 205   |      |  |      | 149   |  |  |   | 97    |  
|Investment services                               |  |                         | 144   |      |  |      | 113   |  |  |   | 78    |  
|Other income                                      |  |                         | 318   |      |  |      | 280   |  |  |   | 291   |  
|                                                  |  |                         |       |      |  |      |       |  |  |   |       |  
|Total non-interest income                         |  | $                       | 3,415 |      |  | $    | 3,022 |  |  | $ | 2,343 |  
|                                                  |  |                         |       |      |  |      |       |  |  |   |       |  

Non-Interest Expense

2002 compared to 2001.During 2002, non-interest expense increased $1.1
million, or 10.7%, to $11.6 million, up from $10.5 million for 2001. The
increase in non-interest expense is primarily due to increased salary and
benefit costs, equipment depreciation expense and professional fees. The
increase to salary and benefits was the result of staffing additions to manage
the overall growth of the Company as well as higher health-care costs. The
increases to equipment expense were the result of, additional depreciation
expense resulting from the installation of an automated teller platform system
and enhancement to the Companys data processing systems. The increases to
professional fees related to the use of consultants for the enhancement of the
systems securing customer and Company information and legal costs incurred to
complete the merger and reorganization of Plumas Bank under the Holding
Company.

2001 compared to 2000.During 2001, non-interest expense increased $1.0
million, or 11.1%, to $10.5 million, up from $9.4 million for 2000. The
increase in non-interest expense was primarily due to
23Table of Contents

increased salary and benefit costs as well as occupancy and equipment
costs partially offset by declines in outsourced data processing fees and
director compensation. The Company experienced increases to a number of
non-interest expense components including salaries/benefits and
occupancy/equipment costs as a result of opening its Truckee branch in early
2001. Also during 2001, the Company experienced increases in salaries/benefits
and equipment costs, as a result of the Company absorbing a full years costs
related to the proof operation, which was brought in-house in the later part of
2000. However, as an offset to the increased proof operation expenses, were
significant reductions in outsourced data processing costs. In addition, there
were increases to salary and benefit costs resulting from staffing additions to
manage the overall growth of the Company. Decreases to director compensation
expense were the result of the Company having established retirement plans for
its directors, resulting in one-time expenditures during 2000.

The following table describes the components of other non-interest expense
for the years ended December 31, 2002, 2001 and 2000.

|                               |  |                         |        |      |  |      |        |  |  |   |       | 
|------------------------------ |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|                               |  | Year Ended December 31,
|                               |  |                        
|                               |  | 2002                    |        | 2001 |  | 2000
|                               |  |                         |        |      |  |     
|                               |  | (in thousands)         
|Salaries and employee benefits |  | $                       | 6,269  |      |  | $    | 5,867  |  |  | $ | 5,062 | 
|Occupancy and equipment        |  |                         | 1,794  |      |  |      | 1,525  |  |  |   | 1,137 | 
|Professional fees              |  |                         | 605    |      |  |      | 297    |  |  |   | 371   | 
|Business development           |  |                         | 371    |      |  |      | 330    |  |  |   | 243   | 
|Telephone                      |  |                         | 347    |      |  |      | 293    |  |  |   | 298   | 
|Stationery and supplies        |  |                         | 324    |      |  |      | 300    |  |  |   | 200   | 
|Armored car and courier        |  |                         | 318    |      |  |      | 354    |  |  |   | 237   | 
|Advertising and promotion      |  |                         | 260    |      |  |      | 237    |  |  |   | 214   | 
|Loan expenses                  |  |                         | 244    |      |  |      | 216    |  |  |   | 188   | 
|Director compensation          |  |                         | 228    |      |  |      | 216    |  |  |   | 419   | 
|Postage                        |  |                         | 184    |      |  |      | 201    |  |  |   | 163   | 
|Outsourced data processing     |  |                         | 68     |      |  |      | 72     |  |  |   | 377   | 
|Other income                   |  |                         | 592    |      |  |      | 572    |  |  |   | 522   | 
|                               |  |                         |        |      |  |      |        |  |  |   |       | 
|Total non-interest income      |  | $                       | 11,604 |      |  | $    | 10,480 |  |  | $ | 9,431 | 
|                               |  |                         |        |      |  |      |        |  |  |   |       | 

FINANCIAL CONDITION

Loan Portfolio.The Company continues to manage the mix of its loan
portfolio consistent with its identity as a community bank serving the
financing needs throughout various counties of Northeastern California.
Although the Company offers a broad array of financing options, it continues to
concentrate its focus on small to medium commercial businesses. These loans
offer diversification as to industries and types of businesses, thus limiting
material exposure in any industry concentrations. The Company offers both
fixed and floating rate loans and obtains collateral in the form of real
property, business and personal assets and deposit accounts, but looks to
business and personal cash flows as its primary source of repayment. Loans are
carried at face amount, less principal collected and the allowance for possible
loan losses. Interest on all loans is accrued monthly on a simple interest
basis.

The Companys largest historical lending categories are real estate
mortgage loans, commercial loans and consumer loans. These categories
accounted for approximately 39.1%, 25.2% and 23.3%, respectively of the
Companys total loan portfolio at December 31, 2002, and approximately 35.2%,
27.2%
24Table of Contents

and 25.7%, respectively of the Companys total loan portfolio at December
31, 2001. In addition, the Companys real estate-related loans, including real
estate mortgage loans, real estate construction loans, consumer equity lines of
credit, and agricultural loans secured by real estate comprised 51.7% of the
total loans portfolio at December 31, 2002. Moreover, the business activities
of the Company currently are focused in the California counties of Plumas,
Lassen, Modoc, Shasta, and Nevada. Consequently, the results of operations and
financial condition of the Company are dependent upon the general trends in
these California economies and, in particular, the residential and commercial
real estate markets. In addition, the concentration of the Companys
operations in these areas of California exposes it to greater risk than other
banking companies with a wider geographic base in the event of catastrophes,
such as earthquakes, fires and floods in these regions in California.

The rates of interest charged on variable rate loans are set at specific
increments in relation to the Companys published lending rate and vary as the
Companys lending rate changes. At December 31, 2002, approximately 62% of the
Companys loan portfolio was compromised of variable rate loans, and at
December 31, 2001, approximately 55% of the Companys loan portfolio was
compromised of variable interest rate loans.

While real estate mortgage, commercial and consumer lending remain the
foundation of the Companys historical loan mix, some changes in the mix have
occurred due to the changing economic environment and the resulting change in
demand for certain loan types. In addition, the Company remains committed to
the agricultural industry in Northeastern California and will continue to
pursue high quality agricultural loans as an important component of its overall
loan portfolio. Agricultural loans outstanding at December 31, 2002 increased
to $25.6 million, or 12.3% of the Companys total loan portfolio, from $21.9
million, or 11.9%, at December 31, 2001

The following table sets forth the amounts of loans outstanding by
category as of the dates indicated.

|                                         |             |   |                |         |      |   |        |         |      |   |        |         |  |   |        |         |  |   |        |         | 
|---------------------------------------- | ----------- | - | -------------- | ------- | ---- | - | ------ | ------- | ---- | - | ------ | ------- |  | - | ------ | ------- |  | - | ------ | ------- | 
|                                         |             |   | December 31,  
|                                         |             |   |               
|                                         |             |   | 2002           |         | 2001 |   | 2000   |         | 1999 |   | 1998  
|                                         |             |   |                |         |      |   |        |         |      |   |       
|                                         |             |   | (in thousands)
|Real estate mortgage                     |             | $ | 66,039         |         |      | $ | 50,865 |         |      | $ | 48,878 |         |  | $ | 41,879 |         |  | $ | 31,055 |        
|Real estate construction                 |             |   | 15,175         |         |      |   | 13,705 |         |      |   | 10,118 |         |  |   | 7,818  |         |  |   | 9,058  |        
|Commercial                               |             |   | 52,432         |         |      |   | 49,910 |         |      |   | 43,464 |         |  |   | 29,494 |         |  |   | 25,621 |        
|Consumer                                 |             |   | 48,465         |         |      |   | 47,280 |         |      |   | 43,793 |         |  |   | 34,715 |         |  |   | 28,852 |        
|Agriculture                              |             |   | 25,610         |         |      |   | 21,916 |         |      |   | 17,751 |         |  |   | 14,977 |         |  |   | 7,587  |        
|                                         |             |   |                |         |      |   |        |         |      |   |        |         |  |   |        |         |  |   |        |        
|                                         | Total loans |   |                | 207,721 |      |   |        | 183,676 |      |   |        | 164,004 |  |   |        | 128,883 |  |   |        | 102,173 | 
|Less deferred fees                       |             |   | (601           | )       |      |   | (748   | )       |      |   | (664   | )       |  |   | (490   | )       |  |   | (325   | )      
|Less allowance for loan
And lease losses |             |   | (2,471         | )       |      |   | (2,153 | )       |      |   | (1,888 | )       |  |   | (1,608 | )       |  |   | (1,361 | )      
|                                         |             |   |                |         |      |   |        |         |      |   |        |         |  |   |        |         |  |   |        |        
|                                         | Net loans   |   | $              | 204,649 |      |   | $      | 180,775 |      |   | $      | 161,452 |  |   | $      | 126,785 |  |   | $      | 100,487 | 
|                                         |             |   |                |         |      |   |        |         |      |   |        |         |  |   |        |         |  |   |        |        

The following table sets forth the maturity/repricing of gross loan
categories as of December 31, 2002. Also provided with respect to such loans
are the amounts due after one year, classified according to sensitivity to
changes in interest rates:

25



---



##### Table of Contents



|                                    |                         |       |        |                |                    |            |        |        |        |   |        |        |        |   |        |        |         | 
|----------------------------------- | ----------------------- | ----- | ------ | -------------- | ------------------ | ---------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------- | 
|                                    |                         |       |        | Within         | After One          | After      |        |       
|                                    |                         |       |        | One Year       | Through Five Years | Five Years | Total 
|                                    |                         |       |        |                |                    |            |       
|                                    |                         |       |        | (in thousands)
|Real estate  mortgage              |                         | $     | 15,806 |                |                    | $          | 30,236 |        |        | $ | 19,997 |        |        | $ | 66,039 |       
|Real estate  construction          |                         |       | 14,443 |                |                    |            | 314    |        |        |   | 418    |        |        |   | 15,175 |       
|Commercial                          |                         |       | 34,607 |                |                    |            | 14,942 |        |        |   | 2,883  |        |        |   | 52,432 |       
|Consumer                            |                         |       | 18,177 |                |                    |            | 21,494 |        |        |   | 8,794  |        |        |   | 48,465 |       
|Agriculture                         |                         |       | 16,746 |                |                    |            | 8,119  |        |        |   | 745    |        |        |   | 25,610 |       
|                                    |                         |       |        |                |                    |            |        |        |        |   |        |        |        |   |        |       
|                                    |                         | Total |        | $              | 99,779             |            |        | $      | 75,105 |   |        | $      | 32,837 |   |        | $      | 207,721 | 
|                                    |                         |       |        |                |                    |            |        |        |        |   |        |        |        |   |        |       
|Loans maturing after one year with: |                         |       |        |                |                    |            |        |        |        |   |        |        |        |   |        |       
|                                    | Fixed interest rates    |       |        |                |                    |            | $      | 38,377 |        |   | $      | 32,497 |        |   | $      | 70,874 |        
|                                    | Variable interest rates |       |        |                |                    |            |        | 36,728 |        |   |        | 340    |        |   |        | 37,068 |        
|                                    |                         |       |        |                |                    |            |        |        |        |   |        |        |        |   |        |       
|                                    |                         | Total |        |                |                    |            |        | $      | 75,105 |   |        | $      | 32,837 |   |        | $      | 107,942 | 
|                                    |                         |       |        |                |                    |            |        |        |        |   |        |        |        |   |        |       

Loan Commitments.In the normal course of business, there are various
commitments outstanding to extend credits that are not reflected in the
financial statements. 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. Annual review of commercial credit lines and ongoing monitoring of
outstanding balances reduces the risk of loss associated with these
commitments. As of December 31, 2002, the Company had $49.3 million in
unfunded loan commitments, of which, $29.6 million and $19.7 million
represented commitments to commercial and consumer customers, respectively. Of
the total unfunded commitments at December 31, 2002, $23.6 million were secured
by real estate, of which $12.8 was secured by commercial real estate and $10.8
was secured by residential real estate in the form of equity lines of credit.
The commercial loan commitments not secured by real estate primarily represent
business lines of credit, while the consumer loan commitments not secured by
real estate primarily represent revolving credit card lines.

Asset Quality.The Company attempts to minimize credit risk through its
underwriting and credit review policies. The Company credit review process
includes internally prepared credit reviews as well as contracting with an
outside firm to conduct annual credit reviews. The Board of Directors through
the loan committee, reviews the asset quality of new and problem loans on a
monthly basis and reports the findings to the full Board of Directors. In
managements opinion, this loan review system facilitates the early
identification of potential problem loans.

The Company places loans 90 days or more past due on nonaccrual status
unless the loan is well secured and in the process of collection. A loan is
considered to be in the process of collection if, based on a probable specific
event, it is expected that the loan will be repaid or brought current.
Generally, this collection period would not exceed 90 days. When a loan is
placed on nonaccrual status the Companys general policy is to reverse and
charge against current income previously accrued but unpaid interest. Interest
income on such loans is subsequently recognized only to the extent that cash is
received and future collection of principal is deemed by management to be
probable. Where the collectibility of the principal or interest on a loan is
considered to be doubtful by management, it is placed on nonaccrual status
prior to becoming 90 days delinquent.

The following table sets forth the amount of the Companys nonperforming
assets as of the dates indicated. None of the Companys loans were troubled
debt restructurings.

26



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##### Table of Contents



|                                                             |                            |   |              |       |      |   |                        |       |      |   |      |     |  |   |      |       |  |   |      |       | 
|------------------------------------------------------------ | -------------------------- | - | ------------ | ----- | ---- | - | ---------------------- | ----- | ---- | - | ---- | --- |  | - | ---- | ----- |  | - | ---- | ----- | 
|                                                             |                            |   | December 31,
|                                                             |                            |   |             
|                                                             |                            |   | 2002         |       | 2001 |   | 2000                   |       | 1999 |   | 1998
|                                                             |                            |   |              |       |      |   |                        |       |      |   |     
|                                                             |                            |   |              |       |      |   | (dollars in thousands) |       |      |   |     
|Nonaccrual loans                                             |                            | $ | 1,711        |       |      | $ | 1,203                  |       |      | $ | 522  |     |  | $ | 638  |       |  | $ | 828  |      
|Loans past due 90 days or
more and still accruing            |                            |   | 75           |       |      |   | 98                     |       |      |   | 3    |     |  |   | 5    |       |  |   | 12   |      
|                                                             |                            |   |              |       |      |   |                        |       |      |   |      |     |  |   |      |       |  |   |      |      
|                                                             | Total nonperforming loans  |   | $            | 1,786 |      |   | $                      | 1,301 |      |   | $    | 525 |  |   | $    | 643   |  |   | $    | 840   | 
|                                                             |                            |   |              |       |      |   |                        |       |      |   |      |     |  |   |      |       |  |   |      |      
|Other real estate owned                                      |                            |   | 125          |       |      |   | 122                    |       |      |   | 300  |     |  |   | 594  |       |  |   | 629  |      
|                                                             |                            |   |              |       |      |   |                        |       |      |   |      |     |  |   |      |       |  |   |      |      
|                                                             | Total nonperforming assets |   | $            | 1,911 |      |   | $                      | 1,423 |      |   | $    | 825 |  |   | $    | 1,237 |  |   | $    | 1,469 | 
|                                                             |                            |   |              |       |      |   |                        |       |      |   |      |     |  |   |      |       |  |   |      |      
|Interest income forgone on
nonaccrual loans                  |                            | $ | 148          |       |      | $ | 72                     |       |      | $ | 31   |     |  | $ | 49   |       |  | $ | 83   |      
|                                                             |                            |   |              |       |      |   |                        |       |      |   |      |     |  |   |      |       |  |   |      |      
|Interest income recorded on a
cash basis on nonaccrual loans |                            | $ | 29           |       |      | $ | 1                      |       |      | $ |     |     |  | $ | 5    |       |  | $ | 18   |      
|                                                             |                            |   |              |       |      |   |                        |       |      |   |      |     |  |   |      |       |  |   |      |      
|Nonperforming loans to total
Loans                           |                            |   | 0.86         | %     |      |   | 0.71                   | %     |      |   | 0.32 | %   |  |   | 0.50 | %     |  |   | 0.82 | %    
|Nonperforming assets to total
Assets                         |                            |   | 0.59         | %     |      |   | 0.52                   | %     |      |   | 0.34 | %   |  |   | 0.58 | %     |  |   | 0.73 | %    
|Allowance for loan and lease
losses to nonperforming loans   |                            |   | 138          | %     |      |   | 165                    | %     |      |   | 360  | %   |  |   | 250  | %     |  |   | 162  | %    

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The following table provides certain information for the years indicated
with respect to the Companys allowance for loan losses as well as charge-off
and recovery activity.

|                                                   |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |     | 
|-------------------------------------------------- | --------------------------- | - | ----------------------- | --- | ---- | - | ----- | --- | ---- | - | ----- | --- |  | - | ----- | --- |  | - | ----- | --- | 
|                                                   |                             |   | Year Ended December 31,
|                                                   |                             |   |                        
|                                                   |                             |   | 2002                    |     | 2001 |   | 2000  |     | 1999 |   | 1998 
|                                                   |                             |   |                         |     |      |   |       |     |      |   |      
|                                                   |                             |   | (dollars in thousands) 
|Balance at beginning of period                     |                             | $ | 2,153                   |     |      | $ | 1,888 |     |      | $ | 1,608 |     |  | $ | 1,361 |     |  | $ | 1,263 |    
|                                                   |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |    
|Charge-offs:                                       |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |    
|                                                   | Commercial and agricultural |   |                         | 195 |      |   |       | 215 |      |   |       | 80  |  |   |       | 108 |  |   |       | 107 | 
|                                                   | Real estate mortgage        |   |                         | 13  |      |   |       |    |      |   |       |    |  |   |       |    |  |   |       |    | 
|                                                   | Real estate construction    |   |                         |    |      |   |       |    |      |   |       |    |  |   |       |    |  |   |       |    | 
|                                                   | Consumer                    |   |                         | 393 |      |   |       | 345 |      |   |       | 250 |  |   |       | 227 |  |   |       | 241 | 
|                                                   |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |    
|Total charge-offs                                  |                             |   | 601                     |     |      |   | 560   |     |      |   | 330   |     |  |   | 335   |     |  |   | 348   |    
|                                                   |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |    
|Recoveries:                                        |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |    
|                                                   | Commercial and agricultural |   |                         | 21  |      |   |       | 15  |      |   |       | 17  |  |   |       | 42  |  |   |       | 8   | 
|                                                   | Real estate mortgage        |   |                         |    |      |   |       |    |      |   |       |    |  |   |       |    |  |   |       |    | 
|                                                   | Real estate construction    |   |                         |    |      |   |       |    |      |   |       |    |  |   |       |    |  |   |       |    | 
|                                                   | Consumer                    |   |                         | 73  |      |   |       | 85  |      |   |       | 93  |  |   |       | 60  |  |   |       | 38  | 
|                                                   |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |    
|Total recoveries                                   |                             |   | 94                      |     |      |   | 100   |     |      |   | 110   |     |  |   | 102   |     |  |   | 46    |    
|                                                   |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |    
|Net charge-offs                                    |                             |   | 507                     |     |      |   | 460   |     |      |   | 220   |     |  |   | 233   |     |  |   | 302   |    
|                                                   |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |    
|Provision for loan losses                          |                             |   | 825                     |     |      |   | 725   |     |      |   | 500   |     |  |   | 480   |     |  |   | 400   |    
|                                                   |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |    
|Balance at end of period                           |                             | $ | 2,471                   |     |      | $ | 2,153 |     |      | $ | 1,888 |     |  | $ | 1,608 |     |  | $ | 1,361 |    
|                                                   |                             |   |                         |     |      |   |       |     |      |   |       |     |  |   |       |     |  |   |       |    
|Net charge-offs during the period
to average loans |                             |   | 0.26                    | %   |      |   | 0.26  | %   |      |   | 0.16  | %   |  |   | 0.20  | %   |  |   | 0.32  | %  
|Allowance for loan losses to total
Loans           |                             |   | 1.19                    |     |      |   | 1.17  |     |      |   | 1.15  |     |  |   | 1.25  |     |  |   | 1.33  |    

Analysis of Allowance for Loan Losses.Net charge-offs during the year
ended December 31, 2002 totaled $507,000, or 0.24% of total loans, compared to
$460,000, or 0.25% of total loans, for the comparable period in 2001. The
allowance for loan losses stood at 1.19% of total loans as of December 31,
2002, versus 1.17% of total loans as of December 31, 2001.

The allowance for loan losses is established through charges to earnings
in the form of the provision for loan losses. Loan losses are charged to and
recoveries are credited to the allowance for loan losses. The provision for
loan losses is determined after considering various factors such as loan loss
experience, current economic conditions, maturity of the portfolio, size of the
portfolio, industry concentrations, borrower credit history, the existing
allowance for loan losses, independent loan reviews, current charges and
recoveries to the allowance for loan losses and the overall quality of the
portfolio as determined by management, regulatory agencies, and independent
credit review consultants retained by the Company.

The adequacy of the Companys allowance for loan losses is based on
specific and formula allocations to the Companys loan portfolio. Specific
allocations are made for identified problem or potential problem loans. The
specific allocations are increased or decreased through managements

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reevaluation of the status of the particular problem loans. Loans which
do not receive a specific allocation receive an allowance allocation based on a
formula represented by a percentage factor based on underlying collateral, type
of loan, historical charge-offs and general economic conditions which is
applied against the general portfolio segments.

It is the policy of management to make additions to the allowance for loan
losses so that it remains adequate to cover anticipated charge-offs and
management believes that the allowance at December 31, 2002 is adequate.
However, the determination of the amount of the allowance is judgmental and
subject to economic conditions which cannot be predicted with certainty.
Accordingly, the Company cannot predict whether charge-offs of loans in excess
of the allowance may be required in future periods.

The provision for loan and lease losses reflects an accrual sufficient to
cover projected probable charge-offs and the maintenance of the allowance at a
level deemed adequate to absorb potential future losses.

Investment Securities and Federal Funds Sold.Total investment securities
and Federal funds sold increased $10.8 million, or 16.5%, to $76.7 million as
of December 31, 2002, up from $65.8 million at December 31, 2001. The increase
is attributable to the Companys deposit growth, which outpaced the Companys
loan growth. Federal funds sold and proceeds from maturing short-term U.S.
Treasuries, direct obligations of U.S. agencies and longer-term corporate bonds
were used to fund the Companys continued loan growth.

The Companys investment in U.S. Treasury securities and direct obligations of
U.S. agencies increased to 87.3% of the investment portfolio, excluding Federal
funds sold, as of December 31, 2002, versus 72.1% at December 31, 2001. The
Companys investment in corporate bonds declined to 7.3% of the investment
portfolio as of December 31, 2002, versus 20.0% at December 31, 2001. The
remainder of the Companys investment portfolio consists of municipal
obligations and interest-bearing deposits with other financial institutions.

Investment Portfolio.The Company classifies its investment securities as
available for sale or held to maturity. Plumas Bancorps intent is to hold all
securities classified as held to maturity until maturity and management
believes that it has the ability to do so. Securities available for sale may
be sold to implement the Companys asset/liability management strategies and in
response to changes in interest rates, prepayment rates and similar factors.

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The following tables summarize the maturities of the
Companys securities at their carrying value and their weighted average
yields at December 31, 2002. Yields on tax-exempt municipal obligations have
been computed on a tax-equivalent basis.

|                         |  |                        |       |                   |  |                   |      |                |  |        |        |       |  |        |      |       |  |        |     |       |  |  |      |   |  |   |   |  |  |  |   |   |  |   |        |  |  |  |      |  
|------------------------ |  | ---------------------- | ----- | ----------------- |  | ----------------- | ---- | -------------- |  | ------ | ------ | ----- |  | ------ | ---- | ----- |  | ------ | --- | ----- |  |  | ---- | - |  | - | - |  |  |  | - | - |  | - | ------ |  |  |  | ---- | -
|                         |  | Within One Year        |       | One to Five Years |  | Five to Ten Years |      | Over Ten Years |  | Total 
|Available -for-sale      |  |                        |       |                   |  |                   |      |                |  |       
|(market value)           |  | Amount                 |       | Yield             |  | Amount            |      | Yield          |  | Amount |        | Yield |  | Amount |      | Yield |  | Amount |     | Yield
|                         |  |                        |       |                   |  |                   |      |                |  |        |        |       |  |        |      |       |  |        |     |      
|                         |  | (Dollars in Thousands)
|U.S. Treasury Securities |  | $                      | -     |                   |  |                   | -    | %              |  | $      | 8,654  |       |  |        | 3.54 | %     |  | $      | -   |       |  |  | -    | % |  | $ | - |  |  |  | - | % |  | $ | 8,654  |  |  |  | 3.54 | %
|U.S. Government Agencies |  |                        | 7,625 |                   |  |                   | 4.81 | %              |  |        | 33,594 |       |  |        | 2.55 | %     |  |        | 982 |       |  |  | 5.91 | % |  |   | - |  |  |  | - | % |  |   | 42,201 |  |  |  | 3.04 | %
|                         |  |                        |       |                   |  |                   |      |                |  |        |        |       |  |        |      |       |  |        |     |       |  |  |      |   |  |   |   |  |  |  |   |   |  |   |        |  |  |  |      |  
|Total                    |  | $                      | 7,625 |                   |  |                   | 4.81 | %              |  | $      | 42,248 |       |  |        | 2.75 | %     |  | $      | 982 |       |  |  | 5.91 | % |  | $ | - |  |  |  | - | % |  | $ | 50,855 |  |  |  | 3.12 | %
|                         |  |                        |       |                   |  |                   |      |                |  |        |        |       |  |        |      |       |  |        |     |       |  |  |      |   |  |   |   |  |  |  |   |   |  |   |        |  |  |  |      |  



|                          |  |                        |       |                   |  |                   |      |                |  |        |       |       |  |        |      |       |  |        |    |       |  |  |      |   |  |   |    |  |  |  |      |   |  |   |        |  |  |  |      |  
|------------------------- |  | ---------------------- | ----- | ----------------- |  | ----------------- | ---- | -------------- |  | ------ | ----- | ----- |  | ------ | ---- | ----- |  | ------ | -- | ----- |  |  | ---- | - |  | - | -- |  |  |  | ---- | - |  | - | ------ |  |  |  | ---- | -
|                          |  | Within One Year        |       | One to Five Years |  | Five to Ten Years |      | Over Ten Years |  | Total 
|Held-to-maturity          |  |                        |       |                   |  |                   |      |                |  |       
|(book value)              |  | Amount                 |       | Yield             |  | Amount            |      | Yield          |  | Amount |       | Yield |  | Amount |      | Yield |  | Amount |    | Yield
|                          |  |                        |       |                   |  |                   |      |                |  |        |       |       |  |        |      |       |  |        |    |      
|                          |  | (Dollars in Thousands)
|U.S. Government
Agencies  |  | $                      | 2,101 |                   |  |                   | 5.65 | %              |  | $      | 500   |       |  |        | 6.03 | %     |  | $      | 80 |       |  |  | 6.02 | % |  | $ | 72 |  |  |  | 6.25 | % |  | $ | 2,753  |  |  |  | 5.75 | %
|Municipal obligations     |  |                        | 75    |                   |  |                   | 6.14 | %              |  |        | 3,238 |       |  |        | 5.82 | %     |  |        | -  |       |  |  | -    | % |  |   | -  |  |  |  | -    | % |  |   | 3,313  |  |  |  | 5.83 | %
|Corporate debt
Securities |  |                        | 3,007 |                   |  |                   | 6.28 | %              |  |        | 1,508 |       |  |        | 6.14 | %     |  |        | -  |       |  |  | -    | % |  |   | -  |  |  |  | -    | % |  |   | 4,515  |  |  |  | 6.23 | %
|                          |  |                        |       |                   |  |                   |      |                |  |        |       |       |  |        |      |       |  |        |    |       |  |  |      |   |  |   |    |  |  |  |      |   |  |   |        |  |  |  |      |  
|Total                     |  | $                      | 5,183 |                   |  |                   | 6.02 | %              |  | $      | 5,246 |       |  |        | 5.93 | %     |  | $      | 80 |       |  |  | 6.02 | % |  | $ | 72 |  |  |  | 6.25 | % |  | $ | 10,581 |  |  |  | 5.98 | %
|                          |  |                        |       |                   |  |                   |      |                |  |        |       |       |  |        |      |       |  |        |    |       |  |  |      |   |  |   |    |  |  |  |      |   |  |   |        |  |  |  |      |  

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The following tables summarize the values of the Companys investment
securities held on the dates indicated:

|                          |  |                        |        |      |  |      |        |  |  |   |        | 
|------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|Available-for-sale        |  |                        |        |      |  |      |        |  |  |   |        | 
|(market value)            |  | 2002                   |        | 2001 |  | 2000
|                          |  |                        |        |      |  |     
|                          |  | (Dollars in thousands)
|U.S. Treasury securities  |  | $                      | 8,654  |      |  | $    | 14,968 |  |  | $ | 2,013  | 
|U.S. Government agencies  |  |                        | 42,201 |      |  |      | 10,008 |  |  |   | 14,925 | 
|Corporate debt securities |  |                        |       |      |  |      | 526    |  |  |   | 3,431  | 
|                          |  |                        |        |      |  |      |        |  |  |   |        | 
|Total                     |  | $                      | 50,855 |      |  | $    | 25,502 |  |  | $ | 20,369 | 
|                          |  |                        |        |      |  |      |        |  |  |   |        | 

|                          |  |                        |        |      |  |      |        |  |  |   |        | 
|------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|Held-to-maturity          |  |                        |        |      |  |      |        |  |  |   |        | 
|(book value)              |  | 2002                   |        | 2001 |  | 2000
|                          |  |                        |        |      |  |     
|                          |  | (Dollars in thousands)
|U.S. Treasury securities  |  | $                      |       |      |  | $    | 1,000  |  |  | $ | 1,000  | 
|U.S. Government agencies  |  |                        | 2,753  |      |  |      | 7,069  |  |  |   | 14,622 | 
|Municipal obligations     |  |                        | 3,313  |      |  |      | 3,089  |  |  |   | 2,991  | 
|Corporate debt securities |  |                        | 4,515  |      |  |      | 9,183  |  |  |   | 12,223 | 
|                          |  |                        |        |      |  |      |        |  |  |   |        | 
|Total                     |  | $                      | 10,581 |      |  | $    | 20,341 |  |  | $ | 30,836 | 
|                          |  |                        |        |      |  |      |        |  |  |   |        | 

Deposits.Total deposits were $293.9 million as of December 31, 2002, an
increase of $41.7 million, or 16.5%, from the December 31, 2001 balance of
$252.2 million. The Company continues to manage the mix of its deposits
consistent with its identity as a community bank serving the financial needs of
its customers. As of December 31, 2002, non-interest bearing demand deposits
and interest checking deposits increased slightly to 36.7% of total deposits
versus 34.1% at December 31, 2001. Money market and savings deposits also
increased to 35.1% of total deposits as of December 31, 2002 compared to 31.6%
as of December 31, 2001. Time deposits decreased to 28.2% of total deposits as
of December 31, 2002 compared to 34.3% at December 31, 2001.

Deposit Structure.Deposits represent the Banks primary source of funds.
Deposits are primarily core deposits in that they are demand, savings and time
deposits generated from local businesses and individuals. These sources are
considered to be relatively stable, long-term relationships thereby enhancing
steady growth of the deposit base without major fluctuations in overall deposit
balances. The Company experiences to a small degree some seasonality with the
slower growth period between November through April, and the higher growth
period May through October. In order to assist in meeting any funding demands,
the Company maintains unsecured borrowing arrangements with several
correspondent banks in addition to a secured borrowing arrangement with the
Federal Home Loan Bank for longer more permanent funding needs.

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The following chart sets forth the distribution of the Companys average
daily deposits for the periods indicated.

|                      |                      |  |                         |        |      |  |        |      |      |  |        |        |      |  |      |      |   |  |        |        |  |  |      |      |  
|--------------------- | -------------------- |  | ----------------------- | ------ | ---- |  | ------ | ---- | ---- |  | ------ | ------ | ---- |  | ---- | ---- | - |  | ------ | ------ |  |  | ---- | ---- | -
|                      |                      |  | Year Ended December 31,
|                      |                      |  |                        
|                      |                      |  | 2002                    |        | 2001 |  | 2000  
|                      |                      |  |                         |        |      |  |       
|                      |                      |  | Amount                  |        | Rate |  | Amount |      | Rate |  | Amount |        | Rate
|                      |                      |  |                         |        |      |  |        |      |      |  |        |        |     
|                      |                      |  | (dollars in thousands) 
|Transaction accounts: |                      |  |                         |        |      |  |        |      |      |  |        |        |      |  |      |      |   |  |        |        |  |  |      |     
|                      | Non-interest bearing |  | $                       | 60,638 |      |  |        |     |      |  | $      | 47,604 |      |  |      |     |   |  | $      | 41,281 |  |  |      |     |  
|                      | NOW deposits         |  |                         | 33,070 |      |  |        | 0.34 | %    |  |        | 28,131 |      |  |      | 0.69 | % |  |        | 25,980 |  |  |      | 1.04 | %
|                      | Money Market         |  |                         | 51,776 |      |  |        | 1.50 | %    |  |        | 42,045 |      |  |      | 3.06 | % |  |        | 36,540 |  |  |      | 4.53 | %
|                      | Savings              |  |                         | 39,094 |      |  |        | 1.11 | %    |  |        | 32,753 |      |  |      | 1.77 | % |  |        | 33,075 |  |  |      | 2.12 | %
|Time deposits         |                      |  | 84,195                  |        |      |  | 3.12   | %    |      |  | 85,307 |        |      |  | 5.05 | %    |   |  | 72,918 |        |  |  | 5.55 | %   

The Companys time deposits of $100,000 or more had the following schedule
of maturities at December 31, 2002:

|                    |                                 |       |   |                |        | 
|------------------- | ------------------------------- | ----- | - | -------------- | ------ | 
|                    |                                 |       |   | Amount        
|                    |                                 |       |   |               
|                    |                                 |       |   | (in thousands)
|Remaining Maturity: |                                 |       |   |               
|                    | Three months or less            |       | $ | 8,575          |       
|                    | Over three months to six months |       |   | 4,153          |       
|                    | Over six months to 12 months    |       |   | 6,097          |       
|                    | Over 12 months                  |       |   | 5,247          |       
|                    |                                 |       |   |                |       
|                    |                                 | Total |   | $              | 24,072 | 
|                    |                                 |       |   |                |       

Time deposits of $100,000 or more are generally from the Companys local
business and individual customer base. The potential impact on the Companys
liquidity from the withdrawal of these deposits is discussed in the Companys
asset and liability management committee, and is considered to be minimal.

CAPITAL RESOURCES

Shareholder Equity.Shareholders equity as of December 31, 2002
increased $2.7 million, or 13.0%, to $23.3 million from $20.6 million as of
December 31, 2001. This increase was primarily due to the retention of current
period earnings and an increase in the unrealized gains on available-for-sale
investment securities, partially offset by two cash dividends totaling $865,000
paid during 2002.
Plumas Bancorp is subject to various regulatory capital requirements
administered by federal banking agencies. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must
meet specific capital guidelines that involve quantitative measures of Plumas
Bancorps assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Companys capital amounts and
classifications are also subject to qualitative judgments by the regulators
regarding components, risk-weighting and other factors. Quantitative measures
established by regulation to ensure capital adequacy require Plumas Bancorp to
maintain minimum amounts and ratios of Total and Tier 1 capital (primarily
common stock and retained earnings less goodwill) to risk-weighted

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assets and of Tier 1 capital to average assets. Management believes as of
December 31, 2002, that both the Company and Bank exceed all capital adequacy
requirements to which they are subject.

At December 31, 2002, the Companys capital ratios were improved as a
result of the issuance of trust preferred securities totaling $6 million, which
are included for regulatory purposes in Tier 1 capital. In addition, the
Company used $2.5 million of the proceeds from the trust preferred securities
to inject additional capital into the Bank, thus also improving the Banks
capital ratios at December 31, 2002.

Capital Standards.The federal banking agencies have risk-based capital
adequacy guidelines intended to provide a measure of capital adequacy that
reflects the degree of risk associated with a banking organizations operations
for both transactions reported on the balance sheet as assets and transactions
such as letters of credit and recourse arrangements, which are recorded as off
balance sheet items. Under these guidelines, nominal dollar amounts of assets
and credit equivalent amounts of off balance sheet items are multiplied by one
of several risk adjustment percentages, which range from 0% for assets with low
credit risk, such as certain U.S. government securities, to 100% for assets
with relatively higher credit risk, such as certain loans.

As of December 31, 2002, the Companys and its subsidiary banks capital
ratios exceeded applicable regulatory requirements. The following tables
present the capital ratios for the Company and the Bank compared to the
standards for bank holding companies and well capitalized depository
institutions as of December 31, 2002 (amounts in thousands except percentage
amounts).

|                  |  |                |        |         |  |             |      |   |  |         |     |  
|----------------- |  | -------------- | ------ | ------- |  | ----------- | ---- | - |  | ------- | --- | -
|                  |  | Plumas Bancorp
|                  |  |               
|                  |  | Actual         |        |         |  |            
|                  |  |                |        | Minimum
|                  |  |                |        |         |  |             |      |   |  | Capital
|                  |  | Capital        |        | Ratio   |  | Requirement
|                  |  |                |        |         |  |            
|Leverage          |  | $              | 28,188 |         |  |             | 8.8  | % |  |         | 4.0 | %
|Tier 1 Risk-Based |  |                | 28,188 |         |  |             | 11.8 |   |  |         | 4.0 |  
|Total Risk-Based  |  |                | 30,656 |         |  |             | 12.8 |   |  |         | 8.0 |  

|                  |  |             |        |         |  |             |      |   |  |         |     |  
|----------------- |  | ----------- | ------ | ------- |  | ----------- | ---- | - |  | ------- | --- | -
|                  |  | Plumas
Bank
|                  |  |            
|                  |  | Actual      |        |         |  |            
|                  |  |             |        | Minimum
|                  |  |             |        |         |  |             |      |   |  | Capital
|                  |  | Capital     |        | Ratio   |  | Requirement
|                  |  |             |        |         |  |            
|Leverage          |  | $           | 24,621 |         |  |             | 7.7  | % |  |         | 4.0 | %
|Tier 1 Risk-Based |  |             | 24,621 |         |  |             | 7.7  |   |  |         | 4.0 |  
|Total Risk-Based  |  |             | 27,092 |         |  |             | 11.4 |   |  |         | 8.0 |  

The current and projected capital positions of the Company and the Bank
and the impact of capital plans and long-term strategies are reviewed regularly
by management. The Company policy is to maintain the Banks ratios above the
prescribed well-capitalized leverage, Tier 1 risk-based and total risk-based
capital ratios of 5%, 6% and 10%, respectively, at all times.

LIQUIDITY

The Company manages its liquidity to provide the ability to generate funds
to support asset growth, meet deposit withdrawals (both anticipated and
unanticipated), fund customers borrowing needs, satisfy maturity of short-term
borrowings and maintain reserve requirements. The Companys liquidity
needs are managed using assets or liabilities, or both. On the asset side,
in addition to Federal Funds sold,

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the Company maintains an investment
portfolio containing U.S. government securities and agency securities that are
classified as available-for-sale. On the liability side, liquidity needs are
managed by changing competitive offering rates on deposits products and the use
of established lines of credit from other financial institutions and the
Federal Home Loan Bank.

The Company has unsecured short-term borrowing agreements with two of its
correspondent banks in the amounts of $7.5 million and $5 million. In
addition, the Company can borrow up to $13.5 million from the Federal Home Loan
Bank secured by residential mortgage loans. There were no short-term
borrowings outstanding at December 31, 2002, 2001, 2000, 1999 and 1998.

Customer deposits are the Companys primary source of funds. Deposits grew
$41.7 million, or 16.5%, from the December 31, 2001 balance of $252.2 million.
Those funds are held in various forms with varying maturities. The Company
does not accept brokered deposits. The Companys securities portfolio, Federal
funds sold, and cash and due from banks serve as the primary sources of
liquidity, providing adequate funding for loans during periods of high loan
demand. During periods of decreased lending, funds obtained from the maturing
or sale of investments, loan payments, and new deposits are invested in
short-term earning assets, such as Federal funds sold and investment
securities, to serve as a source of funding for future loan growth. Management
believes that the Companys available sources of funds, including short-term
borrowings, will provide adequate liquidity for its operations in the
foreseeable future.

Quantitative & Qualitative Disclosure about Market Risk

Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates and prices such as interest rates, commodity
prices and equity prices. As a financial institution, the Companys market
risk arises primarily from interest rate risk exposure. Fluctuation in
interest rates will ultimately impact both the level of income and expense
recorded on a large portion of the Companys assets and liabilities, and the
market value of all interest earning assets and interest bearing liabilities,
other than those which possess a short term to maturity. Since virtually all
of the Companys interest earning assets and all of the Companys interest
bearing liabilities are located at the Bank level, virtually all of the
Companys interest rate risk exposure lies at the Bank level. As a result, all
significant interest rate risk management procedures are performed at the Bank
level. Based upon the nature of its operations, the Bank is not subject to
foreign currency exchange or commodity price risk. The Banks real estate loan
portfolio, concentrated primarily within northeastern California, is subject to
risks associated with the local economies.

The fundamental objective of the Banks management of its assets and
liabilities is to maximize the economic value of the Company while maintaining
adequate liquidity and an exposure to interest rate risk deemed by management
to be acceptable. Management believes an acceptable degree of exposure to
interest rate risk results from the management of assets and liabilities
through maturities, pricing and mix to attempt to neutralize the potential
impact of changes in market interest rates. The Banks profitability is
dependent to a large extent upon its net interest income which is the
difference between its interest income on interest-earning assets, such as
loans and securities, and its interest expense on interest-bearing liabilities,
such as deposits and borrowings. The Bank, like other financial institutions,
is subject to interest rate risk to the degree that its interest-earning assets
reprice differently than its interest-bearing liabilities. The Bank manages
its mix of assets and liabilities with the goals of limiting its exposure to
interest rate risk, ensuring adequate liquidity, and coordinating its sources
and uses of funds.

The Bank seeks to control its interest rate risk exposure in a manner that
will allow for adequate levels of earnings and capital over a range of possible
interest rate environments. The Bank has adopted formal policies and practices
to monitor and manage interest rate risk exposure. As part of this effort, the
Bank measures interest rate risk utilizing both an internal asset liability
management system as well as employing independent third party reviews to
confirm the reasonableness of the assumptions used to measure and report the
Banks interest rate risk, enabling management to make any adjustments
necessary.

Interest rate risk is managed by the Banks Asset Liability Committee
(ALCO), which includes members of senior management. The ALCO monitors
interest rate risk by analyzing the potential impact

34



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on the net interest income
from potential changes in interest rates and considers the impact of
alternative strategies or changes in balance sheet structure. The ALCO manages
the Banks balance sheet in part to maintain the potential impact on net
interest income within acceptable ranges despite changes in interest rates.
The Banks exposure to interest rate risk is reviewed on at least a quarterly
basis by ALCO.

Net Interest Income Simulation.In order to measure interest rate risk at
December 31, 2002, the Bank used a simulation model to project changes in net
interest income that result from forecasted changes in interest rates. This
analysis calculates the difference between net interest income forecasted using
a rising and falling interest rate scenario and net interest income forecast
using a base market interest rate derived from the current treasury yield
curve. The income simulation model includes various assumptions regarding the
repricing relationships for each of the Banks products. Many of the Banks
assets are floating rate loans, which are assumed to reprice immediately and to
the same extent as the change in market rates according to their contracted
index. Some loans and investment vehicles include the opportunity of
prepayment (imbedded options) and accordingly the simulation model uses
national indexes to estimate these prepayments and reinvest their proceeds at
current yields. The Banks non-term deposit products reprice more slowly,
usually changing less than the change in market rates and at the discretion of
the Bank.

This analysis indicates the impact of changes in net interest income for
the given set of rate changes and assumptions. It assumes the balance sheet
grows modestly but that its structure will remain similar to the structure at
year-end. It does not account for all factors that impact this analysis,
including changes by management to mitigate the impact of interest rate changes
or secondary impacts such as changes to the Banks credit risk profile as
interest rates change. Furthermore, loan prepayment rate estimates and spread
relationships change regularly. Interest rate changes create changes in actual
loan prepayment rates that will differ from the market estimates incorporated
in this analysis. Changes that vary significantly from the assumptions may
have significant effects on the Banks net interest income.

The following table reflects the Banks projected net interest income
sensitivity analysis as of December 31, 2002:

|                      |  |                     |        |           |  |  |        |  
|--------------------- |  | ------------------- | ------ | --------- |  |  | ------ | -
|                      |  | Sensitivity of     
|                      |  | Net Interest Income
|                      |  |                    
|                      |  | Adjusted Net        |        | Percent  
|                      |  | Interest Income     |        | Change   
|                      |  | (in thousands)      |        | From Base
|                      |  |                     |        |          
|Up 300 basis points   |  | $                   | 20,198 |           |  |  | 12.19  | %
|Up 200 basis points   |  |                     | 19,466 |           |  |  | 8.13   |  
|Up 100 basis points   |  |                     | 18,735 |           |  |  | 4.06   |  
|Base scenario         |  |                     | 18,003 |           |  |  |       |  
|Down 100 basis points |  |                     | 17,282 |           |  |  | -4.06  |  
|Down 200 basis points |  |                     | 16,540 |           |  |  | -8.13  |  
|Down 300 basis points |  |                     | 15,803 |           |  |  | -12.22 |  

For the rising and falling interest rate scenarios, the base market
interest rate forecast was increased or decreased, on an instantaneous and
sustained basis, by 100, 200 and 300 basis points. At December 31, 2002, the
Banks net interest income exposure related to these hypothetical changes in
market interest rate was within the current guidelines established by the Bank.

Gap analysis.Another way to measure the impact that future changes in
interest rates will have on net interest income is through a cumulative gap
measure. The gap represents the net position of assets and liabilities subject
to repricing in specified time periods.

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The following table depicts the Companys interest rate sensitive position
as of December 31, 2002. The table also sets forth the distribution of
repricing opportunities for the Companys earning assets and interest-bearing
liabilities, the interest rate sensitivity gap, the cumulative interest rate
sensitivity gap, the interest rate sensitivity gap ratio (i.e. earning assets
divided by interest-bearing liabilities) and the cumulative interest rate
sensitivity gap ratio. The interest rate relationships between the repricable
assets and the repricable liabilities are not necessarily constant and may be
affected by many factors, including the behavior of customers in response to
changes in interest rates. This table should, therefore, be used only as a

guide as to the possible effect changes in interest rates might have on the net
interest margins of the Company:

|                                               |  |              |         |            |  |             |         |                  |  |                |         |       |  |   |         |  |  |   |        |  |  |   |         | 
|---------------------------------------------- |  | ------------ | ------- | ---------- |  | ----------- | ------- | ---------------- |  | -------------- | ------- | ----- |  | - | ------- |  |  | - | ------ |  |  | - | ------- | 
|                                               |  |              |         |            |  | After Three |         |                  |  |                |         |       |  |   |         |  |  |   |        |  |  |  
|                                               |  |              |         |            |  | Months But  |         | After Six Months |  | After One Year |         |       |  |   |         |  |  |  
|                                               |  | Within       |         | Within Six |  | But Within  |         | But Within       |  | After Five     |         |       |  |  
|                                               |  | Three Months |         | Months     |  | One Year    |         | Five Years       |  | Years          |         | Total
|                                               |  |              |         |            |  |             |         |                  |  |                |         |      
|Earning assets:                                |  |              |         |            |  |             |         |                  |  |                |         |       |  |   |         |  |  |   |        |  |  |   |         | 
|Federal funds sold                             |  | $            | 15,265  |            |  | $           |        |                  |  | $              |        |       |  | $ |        |  |  | $ |       |  |  | $ | 15,265  | 
|Investment securities and other                |  |              | 2,504   |            |  |             | 5,711   |                  |  |                | 4,648   |       |  |   | 46,628  |  |  |   | 3,417  |  |  |   | 62,908  | 
|Loans                                          |  |              | 85,203  |            |  |             | 3,644   |                  |  |                | 10,932  |       |  |   | 75,105  |  |  |   | 32,837 |  |  |   | 207,721 | 
|                                               |  |              |         |            |  |             |         |                  |  |                |         |       |  |   |         |  |  |   |        |  |  |   |         | 
|Total earning assets                           |  |              | 102,972 |            |  |             | 9,355   |                  |  |                | 15,580  |       |  |   | 121,733 |  |  |   | 36,254 |  |  |   | 285,894 | 
|Interest-bearing liabilities:                  |  |              |         |            |  |             |         |                  |  |                |         |       |  |   |         |  |  |   |        |  |  |   |         | 
|Interest-bearing transaction
accounts          |  |              | 94,024  |            |  |             |        |                  |  |                |        |       |  |   |        |  |  |   |       |  |  |   | 94,024  | 
|Savings accounts                               |  |              | 43,367  |            |  |             |        |                  |  |                |        |       |  |   |        |  |  |   |       |  |  |   | 43,367  | 
|Time deposits                                  |  |              | 32,425  |            |  |             | 17,273  |                  |  |                | 18,020  |       |  |   | 15,184  |  |  |   | 94     |  |  |   | 82,996  | 
|Other borrowings                               |  |              | 6,000   |            |  |             |        |                  |  |                |        |       |  |   |        |  |  |   |       |  |  |   | 6,000   | 
|                                               |  |              |         |            |  |             |         |                  |  |                |         |       |  |   |         |  |  |   |        |  |  |   |         | 
|Total interest-bearing liabilities             |  |              | 175,816 |            |  |             | 17,273  |                  |  |                | 18,020  |       |  |   | 15,184  |  |  |   | 94     |  |  |   | 226,387 | 
|Interest rate sensitivity gap                  |  | $            | (72,844 | )          |  | $           | (7,918  | )                |  | $              | (2,440  | )     |  | $ | 106,549 |  |  | $ | 36,160 |  |  | $ | 59,507  | 
|Cumulative interest rate
sensitivity gap       |  | $            | (72,844 | )          |  | $           | (80,762 | )                |  | $              | (83,202 | )     |  | $ | 23,347  |  |  | $ | 59,507 |  |  | $ | 59,507  | 
|Interest rate sensitivity gap ratio            |  |              | 0.59    |            |  |             | 0.54    |                  |  |                | 0.86    |       |  |   | 8.02    |  |  |   | 385.68 |  |  |   | 1.26    | 
|Cumulative interest rate
sensitivity gap ratio |  |              | 0.59    |            |  |             | 0.58    |                  |  |                | 0.61    |       |  |   | 1.10    |  |  |   | 1.26   |  |  |   | 1.26    | 

The opportunity to reprice assets in the same dollar amounts and at the
same time as liabilities would minimize interest rate risk in any interest rate
environment. The difference between the amounts of assets and liabilities
repriced at the same time, or gap, represents the risk, or opportunity, in
repricing. In general, if more assets than liabilities are repriced at a given
time in a rising rate environment net interest income would improve while in a
declining rate environment net interest income would decline. If more
liabilities than assets were repriced under the same conditions the opposite
would result. The Company appears liability sensitive in the immediate to six
month area, and turns asset sensitive in the longer term.

Gap analysis has certain limitations. Measuring the volume of repricing
or maturing assets and liabilities does not always measure the full impact on
the Banks net interest income. Gap analysis does not account for rate caps on
products, dynamic changes such as increasing prepayment speeds as interest
rates decrease, basis risk, or the benefit of no-rate funding sources. The
relation between product rate repricing and market rate changes (basis risk) is
not the same for all products. The majority of interest-earning assets
generally reprice along with a movement in market rates, while non-term deposit
rates in general move more slowly and usually incorporate only a fraction of
the change in market rates. Deposit products such as interest-bearing
transaction accounts which consist of NOW and money market accounts as well as
savings accounts are classified as repricing within three months in the gap
analysis but behave more like long-term fixed rate funding sources. Both of
these factors tend to make the Banks actual behavior more asset sensitive than
is indicated in the gap analysis. Therefore, management uses income simulation
and net interest income rate shocks as its primary interest rate risk
management tools.

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Item 7. Financial Statements

Financial Statements.The following consolidated financial statements of
Plumas Bancorp and its subsidiaries, and independent auditors report included
in the Annual Report of Plumas Bancorp to its shareholders for the years ended
December 31, 2002, 2001 and 2000.

|                                                                                                               |  |     
|-------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                               |  | Page
|                                                                                                               |  |     
|Independent Auditors Reports                                                                                  |  | F-1 
|Consolidated Balance Sheet as of December 31, 2002 and 2001                                                    |  | F-2 
|Consolidated Statement of Income for the years ended December 31,
2002, 2001 and 2000                          |  | F-3 
|Consolidated Statement of Changes in Shareholders Equity for the
years ended December 31, 2002, 2001 and 2000 |  | F-5 
|Consolidated Statement of Cash Flows for the years ended December 31,
2002, 2001 and 2000                      |  | F-7 
|Notes to Consolidated Financial Statements                                                                     |  | F-10

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INDEPENDENT AUDITORS REPORT

The Shareholders and
   Board of Directors
Plumas Bancorp and Subsidiaries

We have audited the accompanying consolidated balance sheet of Plumas
Bancorp and subsidiaries (the Company) as of December 31, 2002 and 2001, and
the related consolidated statements of income, changes in shareholders equity
and cash flows for each of the years in the three-year period ended December
31, 2002. These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Plumas Bancorp and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

/s/  Perry-Smith, LLP
Sacramento, California
January 17, 2003

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
December 31, 2002 and 2001

|                                                                                                          |                                                                                                                                           |                            |                                      |             |             |      |             |             |             |  |  | 
|--------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------ | ----------- | ----------- | ---- | ----------- | ----------- | ----------- |  |  | 
|                                                                                                          |                                                                                                                                           |                            |                                      |             |             | 2002 |             | 2001       
|                                                                                                          |                                                                                                                                           |                            |                                      |             |             |      |             |            
|                                                                                                          |                                                                                                                                           |                            |                                      | ASSETS      |             |      |             |             |             |  |  | 
|Cash and due from banks                                                                                   |                                                                                                                                           | $                          | 22,665,000                           |             |             | $    | 10,088,000  |            
|Federal funds sold                                                                                        |                                                                                                                                           |                            | 15,265,000                           |             |             |      | 20,000,000  |            
|Loans held for sale                                                                                       |                                                                                                                                           |                            | 1,472,000                            |             |             |      | 649,000     |            
|Investment securities (market value of $61,807,000
in 2002 and $46,275,000 in 2001) (Notes 3 and 7)       |                                                                                                                                           |                            | 61,436,000                           |             |             |      | 45,843,000  |            
|Loans, less allowance for loan losses of $2,471,000
in 2002 and $2,153,000 in 2001 (Notes 4, 7, 9 and 13) |                                                                                                                                           |                            | 204,649,000                          |             |             |      | 180,775,000 |            
|Bank premises and equipment, net (Note 5)                                                                 |                                                                                                                                           |                            | 9,323,000                            |             |             |      | 8,133,000   |            
|Intangible assets, net                                                                                    |                                                                                                                                           |                            | 690,000                              |             |             |      | 825,000     |            
|Accrued interest receivable and other assets
(Notes 12 and 14)                                            |                                                                                                                                           |                            | 9,964,000                            |             |             |      | 8,777,000   |            
|                                                                                                          |                                                                                                                                           |                            |                                      |             |             |      |             |            
|                                                                                                          |                                                                                                                                           | $                          | 325,464,000                          |             |             | $    | 275,090,000 |            
|                                                                                                          |                                                                                                                                           |                            |                                      |             |             |      |             |            
|                                                                                                          |                                                                                                                                           |                            | LIABILITIES AND SHAREHOLDERS EQUITY |             |             |      |             |             |             |  | 
|Deposits:                                                                                                 |                                                                                                                                           |                            |                                      |             |             |      |             |            
|                                                                                                          | Non-interest bearing                                                                                                                      |                            | $                                    | 73,552,000  |             |      | $           | 53,543,000  |            
|                                                                                                          | Interest bearing (Note 6)                                                                                                                 |                            |                                      | 220,387,000 |             |      |             | 198,663,000 |            
|                                                                                                          |                                                                                                                                           |                            |                                      |             |             |      |             |            
|                                                                                                          |                                                                                                                                           | Total deposits             |                                      |             | 293,939,000 |      |             |             | 252,206,000 | 
|Accrued interest payable and other liabilities                                                            |                                                                                                                                           |                            | 2,237,000                            |             |             |      | 2,267,000   |            
|Mandatorily redeemable cumulative trust preferred
securities of subsidiary grantor trust (Note 8)         |                                                                                                                                           |                            | 6,000,000                            |             |             |      |             |            
|                                                                                                          |                                                                                                                                           |                            |                                      |             |             |      |             |            
|                                                                                                          |                                                                                                                                           | Total liabilities          |                                      |             | 302,176,000 |      |             |             | 254,473,000 | 
|                                                                                                          |                                                                                                                                           |                            |                                      |             |             |      |             |            
|Commitments 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; 15,000,000 shares
authorized; issued and outstanding  3,209,396
shares in 2002 and 3,192,335 shares in 2001 |                            |                                      | 3,743,000   |             |      |             | 2,347,000   |            
|                                                                                                          | Additional paid-in capital                                                                                                                |                            |                                      |             |             |      |             | 1,276,000   |            
|                                                                                                          | Retained earnings                                                                                                                         |                            |                                      | 19,135,000  |             |      |             | 16,846,000  |            
|                                                                                                          | Accumulated other comprehensive income
(Notes 3 and 15)                                                                                   |                            |                                      | 410,000     |             |      |             | 148,000     |            
|                                                                                                          |                                                                                                                                           |                            |                                      |             |             |      |             |            
|                                                                                                          |                                                                                                                                           | Total shareholders equity |                                      |             | 23,288,000  |      |             |             | 20,617,000  | 
|                                                                                                          |                                                                                                                                           |                            |                                      |             |             |      |             |            
|                                                                                                          |                                                                                                                                           | $                          | 325,464,000                          |             |             | $    | 275,090,000 |            
|                                                                                                          |                                                                                                                                           |                            |                                      |             |             |      |             |            

The accompanying notes are an integral part of these consolidated financial statements.

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31, 2002, 2001 and 2000

|                                   |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |            |           |            | 
|---------------------------------- | ----------------------------------------------------------------------------- | -------------------------------- | --------------------------------------------------- | ---------- | --------- | ---------- | ------- | ---------- | --------- | ---------- | ------- | ---------- | --------- | ---------- | 
|                                   |                                                                               |                                  |                                                     |            | 2002      |            | 2001    |            | 2000     
|                                   |                                                                               |                                  |                                                     |            |           |            |         |            |          
|Interest income:                   |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           
|                                   | Interest and fees on loans                                                    |                                  | $                                                   | 15,876,000 |           |            | $       | 16,217,000 |           |            | $       | 14,854,000 |          
|                                   | Interest on investment securities:                                            |                                  |                                                     |            |           |            |         |            |           |            |         |            |          
|                                   |                                                                               | Taxable                          |                                                     |            | 1,922,000 |            |         |            | 2,246,000 |            |         |            | 3,134,000 |           
|                                   |                                                                               | Exempt from Federal income taxes |                                                     |            | 143,000   |            |         |            | 128,000   |            |         |            | 127,000   |           
|                                   | Interest on Federal funds sold                                                |                                  |                                                     | 275,000    |           |            |         | 321,000    |           |            |         | 149,000    |          
|                                   | Interest on loans held for sale                                               |                                  |                                                     | 36,000     |           |            |         | 69,000     |           |            |         | 15,000     |          
|                                   |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           
|                                   |                                                                               |                                  | Total interest income                               |            |           | 18,252,000 |         |            |           | 18,981,000 |         |            |           | 18,279,000 | 
|                                   |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           
|Interest expense:                  |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           
|                                   | Interest on deposits (Note 6)                                                 |                                  |                                                     | 3,945,000  |           |            |         | 6,368,000  |           |            |         | 6,671,000  |          
|                                   | Interest on short-term borrowings
(Note 7)                                    |                                  |                                                     | 6,000      |           |            |         | 5,000      |           |            |         | 53,000     |          
|                                   | Interest on mandatorily redeemable
trust preferred securities (Note 8)        |                                  |                                                     | 87,000     |           |            |         |            |           |            |         |            |          
|                                   |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           
|                                   |                                                                               |                                  | Total interest expense                              |            |           | 4,038,000  |         |            |           | 6,373,000  |         |            |           | 6,724,000  | 
|                                   |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           
|                                   |                                                                               |                                  | Net interest income                                 |            |           | 14,214,000 |         |            |           | 12,608,000 |         |            |           | 11,555,000 | 
|Provision for loan losses (Note 4) |                                                                               |                                  | 825,000                                             |            |           |            | 725,000 |            |           |            | 500,000 |           
|                                   |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           
|                                   |                                                                               |                                  | Net interest income after
provision for loan losses |            |           | 13,389,000 |         |            |           | 11,883,000 |         |            |           | 11,055,000 | 
|                                   |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           
|Non-interest income:               |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           
|                                   | Service charges                                                               |                                  |                                                     | 1,905,000  |           |            |         | 1,596,000  |           |            |         | 1,457,000  |          
|                                   | Gain on sale of loans                                                         |                                  |                                                     | 191,000    |           |            |         | 267,000    |           |            |         | 29,000     |          
|                                   | Gain (loss) on sale of available-for-sale investment securities, net
(Note 3) |                                  |                                                     | 117,000    |           |            |         | 72,000     |           |            |         | (34,000    | )        
|                                   | Earnings on cash surrender value of
life insurance policies (Note 14)         |                                  |                                                     | 217,000    |           |            |         | 243,000    |           |            |         | 214,000    |          
|                                   | Other                                                                         |                                  |                                                     | 985,000    |           |            |         | 844,000    |           |            |         | 677,000    |          
|                                   |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           
|                                   |                                                                               |                                  | Total non-interest income                           |            |           | 3,415,000  |         |            |           | 3,022,000  |         |            |           | 2,343,000  | 
|                                   |                                                                               |                                  |                                                     |            |           |            |         |            |           |            |         |           

(Continued)

F-3



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME
(Continued)For the Years Ended December 31, 2002, 2001 and 2000

|                                     |                                                 |                            |           |           |            |      |           |           |            |   |           |           |           | 
|------------------------------------ | ----------------------------------------------- | -------------------------- | --------- | --------- | ---------- | ---- | --------- | --------- | ---------- | - | --------- | --------- | --------- | 
|                                     |                                                 |                            |           | 2002      |            | 2001 |           | 2000     
|                                     |                                                 |                            |           |           |            |      |           |          
|Other expenses:                      |                                                 |                            |           |           |            |      |           |           |            |   |           |          
|                                     | Salaries and employee benefits
(Notes 4 and 14) | $                          | 6,269,000 |           |            | $    | 5,867,000 |           |            | $ | 5,062,000 |          
|                                     | Occupancy and equipment
(Notes 5 and 9)         |                            |           | 1,794,000 |            |      |           | 1,525,000 |            |   |           | 1,137,000 |          
|                                     | Other (Note 11)                                 |                            |           | 3,541,000 |            |      |           | 3,088,000 |            |   |           | 3,232,000 |          
|                                     |                                                 |                            |           |           |            |      |           |           |            |   |           |          
|                                     |                                                 | Total other expenses       |           |           | 11,604,000 |      |           |           | 10,480,000 |   |           |           | 9,431,000 | 
|                                     |                                                 |                            |           |           |            |      |           |           |            |   |           |          
|                                     |                                                 | Income before income
taxes |           |           | 5,200,000  |      |           |           | 4,425,000  |   |           |           | 3,967,000 | 
|Income taxes (Note 12)               |                                                 |                            | 2,046,000 |           |            |      | 1,667,000 |           |            |   | 1,404,000 |          
|                                     |                                                 |                            |           |           |            |      |           |           |            |   |           |          
|                                     |                                                 | Net income                 |           | $         | 3,154,000  |      |           | $         | 2,758,000  |   |           | $         | 2,563,000 | 
|                                     |                                                 |                            |           |           |            |      |           |           |            |   |           |          
|Basic earnings per share (Note 10)   |                                                 | $                          | 0.99      |           |            | $    | 0.87      |           |            | $ | 0.82      |          
|                                     |                                                 |                            |           |           |            |      |           |           |            |   |           |          
|Diluted earnings per share (Note 10) |                                                 | $                          | 0.96      |           |            | $    | 0.86      |           |            | $ | 0.79      |          
|                                     |                                                 |                            |           |           |            |      |           |           |            |   |           |          

The accompanying notes are an integral
part of these consolidated financial statements.

F-4



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS EQUITY

For the Years Ended
December 31, 2002, 2001 and 2000

|                                                                                      |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |           |         |           | 
|------------------------------------------------------------------------------------- | --------------------------------------- | ------------------------------------------------------------- | -------------------------- | - | ------------ | - | ---------- | - | -------- | - | ------------- | - | ------------- | - | ------------- | --------- | ------ | - | -------- | - | ------- | - | ---------- | --------- | ------- |  | - | --------- | ------- | --------- | 
|                                                                                      |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   | Accumulated   |           |        |   |          |   |         |   |           
|                                                                                      |                                         |                                                               |                            |   | Common Stock |   | Additional |   |          |   |               |   | Other         |   |               |           |        |   |          |   |        
|                                                                                      |                                         |                                                               |                            |   |              |   | Paid-In    |   | Retained |   | Comprehensive |   | Shareholders' |   | Comprehensive
|                                                                                      |                                         |                                                               |                            |   | Shares       |   | Amount     |   | Capital  |   | Earnings      |   | (Loss) Income |   | Equity        |           | Income
|                                                                                      |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |       
|Balance, January 1, 2000                                                              |                                         |                                                               | 3,160,946                  |   |              | $ | 2,803,000  |   |          | $ | 1,491,000     |   |               | $ | 12,799,000    |           |        | $ | (280,000 | ) |         | $ | 16,813,000 |           |         |  |   |          
|Comprehensive income (Note 15):                                                       |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |  
|                                                                                      | Net income                              |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               | 2,563,000 |        |   |          |   |         |   |            | 2,563,000 |         |  | $ | 2,563,000 |        
|                                                                                      | Other comprehensive income, net
of tax: |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |           |        
|                                                                                      |                                         | Unrealized gains on available-for-
sale investment securities |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   | 266,000 |   |            |           | 266,000 |  |   |           | 266,000 |          
|                                                                                      |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |          
|                                                                                      |                                         |                                                               | Total comprehensive income |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |           | $       | 2,829,000 | 
|                                                                                      |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |          
|Cash dividend - $.20 per share                                                        |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   | (639,000      | )         |        |   |          |   |         |   | (639,000   | )         |         |  |   |          
|Repurchase and retirement of common
stock (Note 10)                                   |                                         |                                                               | (130,734                   | ) |              |   | (571,000   | ) |          |   | (381,000      | ) |               |   |               |           |        |   |          |   |         |   | (952,000   | )         |         |  |   |          
|Stock options exercised and related
tax benefit (Note 10)                             |                                         |                                                               | 52,245                     |   |              |   | 59,000     |   |          |   | 55,000        |   |               |   |               |           |        |   |          |   |         |   | 114,000    |           |         |  |   |          
|                                                                                      |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |          
|Balance, December 31, 2000                                                            |                                         |                                                               | 3,082,457                  |   |              |   | 2,291,000  |   |          |   | 1,165,000     |   |               |   | 14,723,000    |           |        |   | (14,000  | ) |         |   | 18,165,000 |           |         |  |   |          
|Comprehensive income (Note 15):                                                       |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |  
|                                                                                      | Net income                              |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               | 2,758,000 |        |   |          |   |         |   |            | 2,758,000 |         |  | $ | 2,758,000 |        
|                                                                                      | Other comprehensive income, net
of tax: |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |           |        
|                                                                                      |                                         | Unrealized gains on available-for-
sale investment securities |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   | 162,000 |   |            |           | 162,000 |  |   |           | 162,000 |          
|                                                                                      |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |          
|                                                                                      |                                         |                                                               | Total comprehensive income |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |           | $       | 2,920,000 | 
|                                                                                      |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |          
|Cash dividend - $.20 per share                                                        |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   | (635,000      | )         |        |   |          |   |         |   | (635,000   | )         |         |  |   |          
|Retirement of common stock in connection with the exercise of stock options
(Note 10) |                                         |                                                               | (22,425                    | ) |              |   | (97,000    | ) |          |   | (65,000       | ) |               |   |               |           |        |   |          |   |         |   | (162,000   | )         |         |  |   |          
|Stock options exercised and related
tax benefit (Note 10)                             |                                         |                                                               | 132,303                    |   |              |   | 153,000    |   |          |   | 176,000       |   |               |   |               |           |        |   |          |   |         |   | 329,000    |           |         |  |   |          
|                                                                                      |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |          
|Balance, December 31, 2001                                                            |                                         |                                                               | 3,192,335                  |   |              |   | 2,347,000  |   |          |   | 1,276,000     |   |               |   | 16,846,000    |           |        |   | 148,000  |   |         |   | 20,617,000 |           |         |  |   |          
|                                                                                      |                                         |                                                               |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |          |   |         |   |            |           |         |  |   |          

(Continued)

F-5



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(Continued)For the Years Ended December 31, 2002, 2001 and 2000

|                                                                              |                                         |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |         |  |         |   |            |           |         |  |   |           |         |           | 
|----------------------------------------------------------------------------- | --------------------------------------- | ---------------------------------------------------------------------- | -------------------------- | - | ------------ | - | ---------- | - | -------- | - | ------------- | - | ------------- | - | ------------- | --------- | ------ | - | ------- |  | ------- | - | ---------- | --------- | ------- |  | - | --------- | ------- | --------- | 
|                                                                              |                                         |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   | Accumulated   |           |        |   |         |  |         |   |           
|                                                                              |                                         |                                                                        |                            |   | Common Stock |   | Additional |   |          |   |               |   | Other         |   |               |           |        |   |         |  |        
|                                                                              |                                         |                                                                        |                            |   |              |   | Paid-In    |   | Retained |   | Comprehensive |   | Shareholders' |   | Comprehensive
|                                                                              |                                         |                                                                        |                            |   | Shares       |   | Amount     |   | Capital  |   | Earnings      |   | (Loss) Income |   | Equity        |           | Income
|                                                                              |                                         |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |       
|Balance, December 31, 2001                                                    |                                         |                                                                        | 3,192,335                  |   |              | $ | 2,347,000  |   |          | $ | 1,276,000     |   |               | $ | 16,846,000    |           |        | $ | 148,000 |  |         | $ | 20,617,000 |           |         |  |   |          
|Comprehensive income (Note 15):                                               |                                         |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |         |  |         |   |            |           |         |  |   |          
|                                                                              | Net income                              |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   |               | 3,154,000 |        |   |         |  |         |   |            | 3,154,000 |         |  | $ | 3,154,000 |        
|                                                                              | Other comprehensive income, net
of tax: |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |         |  |         |   |            |           |         |  |   |           |        
|                                                                              |                                         | Unrealized gains on available-for-
sale investment securities (Note 3) |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |         |  | 262,000 |   |            |           | 262,000 |  |   |           | 262,000 |          
|                                                                              |                                         |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |         |  |         |   |            |           |         |  |   |          
|                                                                              |                                         |                                                                        | Total comprehensive income |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |         |  |         |   |            |           |         |  |   |           | $       | 3,416,000 | 
|                                                                              |                                         |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |         |  |         |   |            |           |         |  |   |          
|Cash dividends - $.27 per share                                               |                                         |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   | (865,000      | )         |        |   |         |  |         |   | (865,000   | )         |         |  |   |          
|Stock options exercised and related tax benefit (Note 10)                     |                                         |                                                                        | 17,306                     |   |              |   | 108,000    |   |          |   | 16,000        |   |               |   |               |           |        |   |         |  |         |   | 124,000    |           |         |  |   |          
|Reorganization of Plumas Bank under
Plumas Bancorp  exchange of common stock |                                         |                                                                        |                            |   |              |   | 1,292,000  |   |          |   | (1,292,000    | ) |               |   |               |           |        |   |         |  |         |   |            |           |         |  |   |          
|Fractional shares repurchased as a result of three-for-two stock split        |                                         |                                                                        | (245                       | ) |              |   | (4,000     | ) |          |   |               |   |               |   |               |           |        |   |         |  |         |   | (4,000     | )         |         |  |   |          
|                                                                              |                                         |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |         |  |         |   |            |           |         |  |   |          
|Balance, December 31, 2002                                                    |                                         |                                                                        | 3,209,396                  |   |              | $ | 3,743,000  |   |          | $ |              |   |               | $ | 19,135,000    |           |        | $ | 410,000 |  |         | $ | 23,288,000 |           |         |  |   |          
|                                                                              |                                         |                                                                        |                            |   |              |   |            |   |          |   |               |   |               |   |               |           |        |   |         |  |         |   |            |           |         |  |   |          

|                                                               |                                                                             |  |      |         |      |  |      |         |  |  |   |         |  
|-------------------------------------------------------------- | --------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | -
|                                                               |                                                                             |  | 2002 |         | 2001 |  | 2000
|                                                               |                                                                             |  |      |         |      |  |     
|Disclosure of reclassification amount, net of taxes (Note 15): |                                                                             |  |      |         |      |  |      |         |  |  |   |        
|                                                               | Unrealized holding gains arising during the year                            |  | $    | 331,000 |      |  | $    | 204,000 |  |  | $ | 246,000 |  
|                                                               | Less: reclassification adjustment for gains (losses) included in net income |  |      | 69,000  |      |  |      | 42,000  |  |  |   | (20,000 | )
|                                                               |                                                                             |  |      |         |      |  |      |         |  |  |   |        
|                                                               | Net unrealized gains on available-for-sale investment securities            |  | $    | 262,000 |      |  | $    | 162,000 |  |  | $ | 266,000 |  
|                                                               |                                                                             |  |      |         |      |  |      |         |  |  |   |        



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | The accompanying notes are an integral
part of these consolidated financial statements.

F-6



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Years Ended December 31, 2002, 2001 and 2000

|                                      |                                                                                   |                                                                       |                                           |           |           |           |      |           |          |           |   |           |            |           | 
|------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------- | --------- | --------- | --------- | ---- | --------- | -------- | --------- | - | --------- | ---------- | --------- | 
|                                      |                                                                                   |                                                                       |                                           |           | 2002      |           | 2001 |           | 2000    
|                                      |                                                                                   |                                                                       |                                           |           |           |           |      |           |         
|Cash flows from operating activities: |                                                                                   |                                                                       |                                           |           |           |           |      |           |          |           |   |          
|                                      | Net income                                                                        |                                                                       | $                                         | 3,154,000 |           |           | $    | 2,758,000 |          |           | $ | 2,563,000 |           
|                                      | Adjustments to reconcile net
income to net cash provided
by operating activities: |                                                                       |                                           |           |           |           |      |           |          |           |   |           |           
|                                      |                                                                                   | Provision for loan losses                                             |                                           |           | 825,000   |           |      |           | 725,000  |           |   |           | 500,000    |          
|                                      |                                                                                   | (Decrease) increase in deferred loan
origination fees, net            |                                           |           | (147,000  | )         |      |           | 84,000   |           |   |           | 174,000    |          
|                                      |                                                                                   | Depreciation and amortization                                         |                                           |           | 1,060,000 |           |      |           | 884,000  |           |   |           | 761,000    |          
|                                      |                                                                                   | Net (gain) loss on sale of available-for-sale investment securities   |                                           |           | (117,000  | )         |      |           | (72,000  | )         |   |           | 34,000     |          
|                                      |                                                                                   | Amortization of investment
security premiums                          |                                           |           | 279,000   |           |      |           | 71,000   |           |   |           | 88,000     |          
|                                      |                                                                                   | Accretion of investment
security discounts                            |                                           |           | (71,000   | )         |      |           | (132,000 | )         |   |           | (34,000    | )        
|                                      |                                                                                   | Net loss (gain) on sale of premises
and equipment                     |                                           |           | 24,000    |           |      |           | 11,000   |           |   |           | (9,000     | )        
|                                      |                                                                                   | Net (gain) loss on sale of other real estate                          |                                           |           |           |           |      |           | (73,000  | )         |   |           | 24,000     |          
|                                      |                                                                                   | (Recovery) writedown of held-to-maturity
investment security          |                                           |           | (60,000   | )         |      |           | 60,000   |           |   |           |            |          
|                                      |                                                                                   | Writedown of other real estate to
market value                        |                                           |           | 13,000    |           |      |           | 9,000    |           |   |           | 28,000     |          
|                                      |                                                                                   | Net increase in loans held for sale                                   |                                           |           | (823,000  | )         |      |           | (407,000 | )         |   |           | (242,000   | )        
|                                      |                                                                                   | Increase in cash surrender value
of life insurance policies           |                                           |           | (183,000  | )         |      |           | (212,000 | )         |   |           | (184,000   | )        
|                                      |                                                                                   | (Increase) decrease in accrued
interest receivable and other assets   |                                           |           | (585,000  | )         |      |           | 274,000  |           |   |           | (1,024,000 | )        
|                                      |                                                                                   | (Decrease) increase in accrued
interest payable and other liabilities |                                           |           | (30,000   | )         |      |           | 87,000   |           |   |           | 842,000    |          
|                                      |                                                                                   | Deferred taxes                                                        |                                           |           | 31,000    |           |      |           | (101,000 | )         |   |           | (235,000   | )        
|                                      |                                                                                   |                                                                       |                                           |           |           |           |      |           |          |           |   |          
|                                      |                                                                                   |                                                                       | Net cash provided by
operating activities |           |           | 3,370,000 |      |           |          | 3,966,000 |   |           |            | 3,286,000 | 
|                                      |                                                                                   |                                                                       |                                           |           |           |           |      |           |          |           |   |          

(Continued)

F-7



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH
FLOWS(Continued)For the Years Ended December 31, 2002, 2001 and 2000



|                                      |                                                                                                             |                                       |   |             |             |      |   |             |             |   |   |             |             |  
|------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------------------------------------- | - | ----------- | ----------- | ---- | - | ----------- | ----------- | - | - | ----------- | ----------- | -
|                                      |                                                                                                             |                                       |   | 2002        |             | 2001 |   | 2000       
|                                      |                                                                                                             |                                       |   |             |             |      |   |            
|Cash flows from investing activities: |                                                                                                             |                                       |   |             |             |      |   |             |             |   |   |            
|                                      | Proceeds from matured and called
available-for-sale investment
securities                                   |                                       | $ | 16,996,000  |             |      | $ | 10,950,000  |             |   | $ | 1,200,000   |            
|                                      | Proceeds from matured and called
held-to-maturity investment
securities                                     |                                       |   | 8,056,000   |             |      |   | 10,195,000  |             |   |   | 4,299,000   |            
|                                      | Proceeds from sale of available-for-sale investment securities                                              |                                       |   | 4,639,000   |             |      |   | 5,003,000   |             |   |   | 3,970,000   |            
|                                      | Purchases of available-for-sale
investment securities                                                       |                                       |   | (47,400,000 | )           |      |   | (21,554,000 | )           |   |   | (978,000    | )          
|                                      | Purchases of held-to-maturity
investment securities                                                         |                                       |   | (687,000    | )           |      |   | (103,000    | )           |   |   |             |            
|                                      | Proceeds from principal repayments
from available-for-sale government-guaranteed mortgage-backed
securities |                                       |   | 796,000     |             |      |   | 917,000     |             |   |   | 399,000     |            
|                                      | Proceeds from principal repayments
from held-to-maturity government-guaranteed mortgage-backed
securities   |                                       |   | 2,422,000   |             |      |   | 303,000     |             |   |   | 139,000     |            
|                                      | Net increase in loans                                                                                       |                                       |   | (24,690,000 | )           |      |   | (20,172,000 | )           |   |   | (35,579,000 | )          
|                                      | Proceeds from sale of other real
estate                                                                     |                                       |   |             |             |      |   | 282,000     |             |   |   | 544,000     |            
|                                      | Proceeds from sale of premises
and equipment                                                                |                                       |   | 3,000       |             |      |   | 8,000       |             |   |   | 10,000      |            
|                                      | Purchases of premises and equipment                                                                         |                                       |   | (2,142,000  | )           |      |   | (1,685,000  | )           |   |   | (1,479,000  | )          
|                                      | Life insurance policy deposits                                                                              |                                       |   | (510,000    | )           |      |   |             |             |   |   | (1,426,000  | )          
|                                      |                                                                                                             |                                       |   |             |             |      |   |             |             |   |   |            
|                                      |                                                                                                             | Net cash used in investing
activities |   |             | (42,517,000 | )    |   |             | (15,856,000 | ) |   |             | (28,901,000 | )
|                                      |                                                                                                             |                                       |   |             |             |      |   |             |             |   |   |            

(Continued)

F-8



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Continued)For the Years Ended December 31, 2002, 2001 and
2000

|                                                  |                                                                           |                  |                                           |            |           |            |            |            |           |            |            |            |           |            | 
|------------------------------------------------- | ------------------------------------------------------------------------- | ---------------- | ----------------------------------------- | ---------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | 
|                                                  |                                                                           |                  |                                           |            | 2002      |            | 2001       |            | 2000     
|                                                  |                                                                           |                  |                                           |            |           |            |            |            |          
|Cash flows from financing activities:             |                                                                           |                  |                                           |            |           |            |            |            |           |            |            |           
|                                                  | Net increase in demand, interest-bearing and savings deposits             |                  | $                                         | 45,275,000 |           |            | $          | 24,649,000 |           |            | $          | 15,684,000 |          
|                                                  | Net (decrease) increase in time
deposits                                  |                  |                                           | (3,541,000 | )         |            |            | 4,301,000  |           |            |            | 13,410,000 |          
|                                                  | Proceeds from exercise of stock
options                                   |                  |                                           | 124,000    |           |            |            | 100,000    |           |            |            | 72,000     |          
|                                                  | Proceeds from the issuance of trust
preferred securities                  |                  |                                           | 6,000,000  |           |            |            |            |           |            |            |            |          
|                                                  | Cash paid to repurchase common
stock                                      |                  |                                           | (4,000     | )         |            |            |            |           |            |            | (926,000   | )        
|                                                  | Payment of cash dividends                                                 |                  |                                           | (865,000   | )         |            |            | (635,000   | )         |            |            | (639,000   | )        
|                                                  |                                                                           |                  |                                           |            |           |            |            |            |           |            |            |           
|                                                  |                                                                           |                  | Net cash provided by
financing activities |            |           | 46,989,000 |            |            |           | 28,415,000 |            |            |           | 27,601,000 | 
|                                                  |                                                                           |                  |                                           |            |           |            |            |            |           |            |            |           
|                                                  |                                                                           |                  | Increase in cash and
cash equivalents     |            |           | 7,842,000  |            |            |           | 16,525,000 |            |            |           | 1,986,000  | 
|Cash and cash equivalents at
beginning of year    |                                                                           |                  | 30,088,000                                |            |           |            | 13,563,000 |            |           |            | 11,577,000 |           
|                                                  |                                                                           |                  |                                           |            |           |            |            |            |           |            |            |           
|Cash and cash equivalents at
end of year          |                                                                           | $                | 37,930,000                                |            |           | $          | 30,088,000 |            |           | $          | 13,563,000 |           
|                                                  |                                                                           |                  |                                           |            |           |            |            |            |           |            |            |           
|Supplemental disclosure of cash
flow information: |                                                                           |                  |                                           |            |           |            |            |            |           |            |            |           
|                                                  | Cash paid during the year for:                                            |                  |                                           |            |           |            |            |            |           |            |            |            |          
|                                                  |                                                                           | Interest expense |                                           | $          | 4,272,000 |            |            | $          | 6,508,000 |            |            | $          | 6,421,000 |           
|                                                  |                                                                           | Income taxes     |                                           | $          | 2,079,000 |            |            | $          | 1,134,000 |            |            | $          | 1,883,000 |           
|Non-cash investing activities:                    |                                                                           |                  |                                           |            |           |            |            |            |           |            |            |           
|                                                  | Real estate acquired through
foreclosure                                  |                  | $                                         | 138,000    |           |            | $          | 40,000     |           |            | $          | 238,000    |          
|                                                  | Bank premises transferred to
other real estate                            |                  |                                           |            |           |            |            |            |           |            | $          | 77,000     |          
|                                                  | Net change in unrealized gain
on available-for-sale
investment securities |                  | $                                         | 446,000    |           |            | $          | 276,000    |           |            | $          | 452,000    |          
|Non-cash financing activities:                    |                                                                           |                  |                                           |            |           |            |            |            |           |            |            |           
|                                                  | Common stock retired in connection
with the exercise of stock options     |                  |                                           |            |           |            | $          | 162,000    |           |            | $          | 26,000     |          



The accompanying
notes are an integral


part of these
consolidated financial statements.


F-9



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|1. |  | THE BUSINESS OF PLUMAS BANCORP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On 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. The new 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 all required
regulatory approvals with respect to the reorganization were obtained.
The reorganization was consummated on June 21, 2002, subsequent to which
the Bank continued its operations as previously conducted, but as a
wholly owned subsidiary of the Company.
|  
|   |  | The Companys subsidiaries include the Bank and Plumas Statutory Trust I.
The Bank operates nine branches in California, including branches in
Alturas, Chester, Fall River Mills, Greenville, Portola, Quincy,
Susanville, 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.                                                                                                                              
|  
|   |  | On September 26, 2002, the Company formed a wholly-owned subsidiary,
Plumas Statutory Trust I, a Connecticut statutory business trust, for the
exclusive purpose of issuing trust preferred securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Consolidation and Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The consolidated financial statements include the accounts of the Company
and the consolidated accounts of its wholly-owned subsidiaries, Plumas
Bank and Plumas Statutory Trust I. All significant intercompany balances
and transactions have been eliminated. The accounting and reporting
policies of Plumas Bancorp and subsidiaries conform with accounting
principles generally accepted in the United States of America and
prevailing practices within the banking industry.                                                                                                                                                                                                             
|  
|   |  | Investment Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Investments 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.                           

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Investment Securities (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | 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. In addition, unrealized
losses that are other than temporary are recognized in earnings for all
investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Investment in Federal Home Loan Bank Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | As 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, 2002 and 2001,
Federal Home Loan Bank stock totaled $466,000 and $423,000, respectively.
On the balance sheet, Federal Home Loan Bank stock is included in
accrued interest receivable and other assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Loan Sales and Servicing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | 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 is the amount
by which the servicing assets for a stratum exceed their fair value.
|  
|   |  | Government Guaranteed Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Included 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 Bank generally receives
a premium in excess of the adjusted carrying value of the loan at the
time of sale. The Bank 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, 2002, no premium amounts were subject
to these recourse provisions.                                                                                                                                                                   

F-11



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Loan Sales and Servicing (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Government Guaranteed Loans(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The Bank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 amortized
over the estimated life of the related loan. 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 Bank serviced SBA and RBS government guaranteed loans for others
totaling $2,714,000 and $2,931,000 as of December 31, 2002 and 2001,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Mortgage Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The Bank originates mortgage loans that are either held in the Bank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 Bank 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, 2002, the premiums and sold loans subject to these recourse
provisions totaled $15,000 and $1,432,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The Bank serviced loans for the Federal National Mortgage Association
(FNMA) totaling $11,404,000 and $7,935,000 as of December 31, 2002 and
2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-12



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Loan Sales and Servicing (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Participation Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | The Bank also serviced loans which it has participated with other
financial institutions totaling $4,060,000 and $1,296,000 as of December
31, 2002 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Loans 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Allowance for Loan Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | The 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 Banks service area                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-13



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Allowance for Loan Losses (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Loans determined to be impaired or classified are individually 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 Bank has not experienced losses,
the loss experience of peer banks. Management also computes specific and
expected loss reserves for loan commitments. 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, 2002 and 2001,
respectively, reflects managements estimate of possible losses in the
portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Other Real Estate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Other real estate includes real estate acquired in full or partial
settlement of loan obligations and former Bank premises. 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 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. On the balance sheet, other real estate is
included in accrued interest receivable and other assets.
|  
|   |  | Bank Premises and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Bank premises 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.                                                                                         

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Intangible assets consist of core deposit intangibles related to branch
acquisitions which occurred in prior years and are amortized using the
straight-line method over ten years. Amortization expense totaled
$135,000 for each of the years in the three-year period ended December
31, 2002. The estimated aggregate annual amortization for each of the
five years beginning January 1, 2003 is $135,000.                                                                                                                                                                        
|  
|   |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The Company files its income taxes on a consolidated basis with its
subsidiaries. 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 balance sheet, net deferred tax assets
are included in accrued interest receivable and other assets.                                                                                                                                                                
|  
|   |  | Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | For 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, 2002 was $8,621,000.                                                                                                                                                                                                                                                                      
|  
|   |  | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Basic 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.                            
|  
|   |  | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | At December 31, 2002, the Company had two stock-based employee
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.

F-15



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Stock-Based Compensation (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | 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. With the assumption of the existing stock option plans by
the Company at the time of the reorganization, the vesting schedule for
all outstanding options was accelerated and the options became fully
vested in accordance with the stock option plans. 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 employee compensation.

|                                                                                                                                                |  |      |           |      |  |      |           |  |  |   |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                                                                                                                                |  | 2002 |           | 2001 |  | 2000
|                                                                                                                                                |  |      |           |      |  |     
|Net income, as reported                                                                                                                         |  | $    | 3,154,000 |      |  | $    | 2,758,000 |  |  | $ | 2,563,000 | 
|Deduct: Total stock-based employee
compensation expense determined
under the fair value based method for
all awards, net of related tax effects |  |      | 165,000   |      |  |      | 52,000    |  |  |   | 43,000    | 
|                                                                                                                                                |  |      |           |      |  |      |           |  |  |   |           | 
|Pro forma net income                                                                                                                            |  | $    | 2,989,000 |      |  | $    | 2,706,000 |  |  | $ | 2,520,000 | 
|                                                                                                                                                |  |      |           |      |  |      |           |  |  |   |           | 
|Basic earnings per share  as reported                                                                                                          |  | $    | .99       |      |  | $    | .87       |  |  | $ | .82       | 
|Basic earnings per share  pro forma                                                                                                            |  | $    | .93       |      |  | $    | .86       |  |  | $ | .81       | 
|Diluted earnings per share  as reported                                                                                                        |  | $    | .96       |      |  | $    | .86       |  |  | $ | .79       | 
|Diluted earnings per share  pro forma                                                                                                          |  | $    | .92       |      |  | $    | .85       |  |  | $ | .78       | 
|Weighted average fair value of options
granted during the year                                                                                  |  | $    | 4.72      |      |  | $    | 4.07      |  |  | $ | 4.20      | 



| |  | The fair value of each option was estimated on the date of grant using an
option-pricing model with the following assumptions:
| |  | ------------------------------------------------------------------------------------------------------------------------------

|                        |  |              |       |         |  |         |       |   |  |  |       |  
|----------------------- |  | ------------ | ----- | ------- |  | ------- | ----- | - |  |  | ----- | -
|                        |  | 2002         |       | 2001    |  | 2000   
|                        |  |              |       |         |  |        
|Dividend yield          |  |              | 1.67  | %       |  |         | 2.43  | % |  |  | 2.87  | %
|Expected volatility     |  |              | 27.38 | %       |  |         | 24.82 | % |  |  | 25.78 | %
|Risk-free interest rate |  |              | 3.01  | %       |  |         | 3.87  | % |  |  | 6.25  | %
|Expected option life    |  | 3 to 5 years |       | 5 years |  | 5 years



| |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The 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.

F-16



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Certain reclassifications have been made to prior years balances to
conform to classifications used in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Impact of New Financial Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | In April 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. This Statement
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of
Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements. This Statement also
rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers.
This Statement amends SFAS No. 13, Accounting for Leases, to eliminate
an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings,
or describe their applicability under changed conditions. This Statement
is effective for fiscal years beginning after May 15, 2002. Adoption of
this Statement is not expected to have a material effect on the Companys
consolidated financial statements.                                                                                                                                                                                                                                                                                                                      
|  
|   |  | In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in
a Restructuring). This Statement is effective for exit or disposal
activities initiated after December 31, 2002. Adoption of this Statement
is not expected to have a material effect on the Companys consolidated
financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions.This Statement, which addresses financial
accounting and reporting matters for the acquisition of all or part of a
financial institution, applies to all such transactions except those
between two or more mutual enterprises. This Statement removes
acquisitions of financial institutions, other than transactions between
two or more mutual enterprises, from the scope of SFAS No. 72, Accounting
for Certain Acquisitions of Banking or Thrift Institutions,and related
interpretations. This Statement requires a financial institution to
apply SFAS No. 144 and evaluate long-term customer relationship
intangible assets (core deposit intangibles) for impairment. Under SFAS
No. 72, a financial institution may have recorded an unidentifiable
intangible asset arising from a business combination. If certain
criteria in SFAS No. 147 are met, the amount of the unidentifiable
intangible asset will be reclassified to goodwill upon adoption of this
Statement and any amortization amounts that were incurred after the
adoption of SFAS No. 142 must be reversed. Reclassified goodwill would
then be measured for impairment under the provisions of SFAS No. 142.
Provisions of this Statement are applicable on or after October 1, 2002.
In managements opinion, the adoption of this Statement did not have a
material effect on the Companys consolidated financial position or
results of operations.

F-17



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Impact of New Financial Accounting Standards (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an amendment of
FASB Statement No.123. This Statement amends SFAS No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and
the effect of the method used on reported results. The transition
guidance and annual disclosure provisions of SFAS No. 148 are effective
for fiscal years ending after December 15, 2002. The interim disclosure
provisions are effective for financial reporting containing financial
statements for interim periods beginning after December 15, 2002.
Because the Company accounts for the compensation cost associated with
its stock option plan under the intrinsic value method, the alternative
methods of transition will not apply to the Company. The additional
disclosure requirements of the Statement are included in these financial
statements. In managements opinion, the adoption of this Statement did
not have a material impact on the Companys consolidated financial
position or results of operations.
|  
|3. |  | INVESTMENT SECURITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The amortized cost and estimated market value of investment securities at
December 31, 2002 and 2001 consisted of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Available-for-Sale:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                         |  |           |            |            |  |            |         |        |  |           |   |  |  |   |            | 
|------------------------ |  | --------- | ---------- | ---------- |  | ---------- | ------- | ------ |  | --------- | - |  |  | - | ---------- | 
|                         |  | 2002     
|                         |  |          
|                         |  |           |            |            |  | Gross      |         | Gross  |  | Estimated
|                         |  | Amortized |            | Unrealized |  | Unrealized |         | Market
|                         |  | Cost      |            | Gains      |  | Losses     |         | Value 
|                         |  |           |            |            |  |            |         |       
|U.S. Treasury
securities |  | $         | 8,355,000  |            |  | $          | 299,000 |        |  |           |   |  |  | $ | 8,654,000  | 
|U.S. Government
agencies |  |           | 41,802,000 |            |  |            | 399,000 |        |  |           |   |  |  |   | 42,201,000 | 
|                         |  |           |            |            |  |            |         |        |  |           |   |  |  |   |            | 
|                         |  | $         | 50,157,000 |            |  | $          | 698,000 |        |  | $         |  |  |  | $ | 50,855,000 | 
|                         |  |           |            |            |  |            |         |        |  |           |   |  |  |   |            | 



| |  | Net unrealized gains on available-for-sale investment securities totaling
$698,000 were recorded, net of $288,000 in tax liabilities, as
accumulated other comprehensive income within shareholders equity at
December 31, 2002. Proceeds and gross realized gains from the sale of
available-for-sale investment securities for the year ended December 31,
2002 totaled $4,639,000 and $117,000, respectively.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-18



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|3. |  | INVESTMENT SECURITIES(Continued)
|-- |  | --------------------------------
|  
|   |  | Available-for-Sale: (Continued) 

|                          |  |           |            |            |  |            |         |        |  |           |         |   |  |   |            | 
|------------------------- |  | --------- | ---------- | ---------- |  | ---------- | ------- | ------ |  | --------- | ------- | - |  | - | ---------- | 
|                          |  | 2001     
|                          |  |          
|                          |  |           |            |            |  | Gross      |         | Gross  |  | Estimated
|                          |  | Amortized |            | Unrealized |  | Unrealized |         | Market
|                          |  | Cost      |            | Gains      |  | Losses     |         | Value 
|                          |  |           |            |            |  |            |         |       
|U.S. Treasury
securities  |  | $         | 14,943,000 |            |  | $          | 31,000  |        |  | $         | (6,000  | ) |  | $ | 14,968,000 | 
|U.S. Government
agencies  |  |           | 9,773,000  |            |  |            | 235,000 |        |  |           |         |   |  |   | 10,008,000 | 
|Corporate debt
securities |  |           | 534,000    |            |  |            |         |        |  |           | (8,000  | ) |  |   | 526,000    | 
|                          |  |           |            |            |  |            |         |        |  |           |         |   |  |   |            | 
|                          |  | $         | 25,250,000 |            |  | $          | 266,000 |        |  | $         | (14,000 | ) |  | $ | 25,502,000 | 
|                          |  |           |            |            |  |            |         |        |  |           |         |   |  |   |            | 



| |  | Net unrealized gains on available-for-sale investment securities totaling
$252,000 were recorded, net of $104,000 in tax liabilities, as
accumulated other comprehensive income within shareholders equity at
December 31, 2001. Proceeds and gross realized gains from the sale of
available-for-sale investment securities for the year ended December 31,
2001 totaled $5,003,000 and $72,000, respectively. Proceeds and gross
realized losses from the sale of available-for-sale investment securities
for the year ended December 31, 2000 totaled $3,970,000 and $34,000,
respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Held-to-Maturity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                                  |  |           |            |            |  |            |         |        |  |   |   |  |  |   |            | 
|------------------------------------------------- |  | --------- | ---------- | ---------- |  | ---------- | ------- | ------ |  | - | - |  |  | - | ---------- | 
|                                                  |  | 2002     
|                                                  |  |          
|                                                  |  | Gross     |            | Gross      |  | Estimated  |         |        |  |  
|                                                  |  | Amortized |            | Unrealized |  | Unrealized |         | Market
|                                                  |  | Cost      |            | Gains      |  | Losses     |         | Value 
|                                                  |  |           |            |            |  |            |         |       
|U.S. Government
agencies                          |  | $         | 2,753,000  |            |  | $          | 73,000  |        |  |   |   |  |  | $ | 2,826,000  | 
|Obligations of states
and political sub-divisions |  |           | 3,313,000  |            |  |            | 172,000 |        |  |   |   |  |  |   | 3,485,000  | 
|Corporate debt
securities                         |  |           | 4,515,000  |            |  |            | 126,000 |        |  |   |   |  |  |   | 4,641,000  | 
|                                                  |  |           |            |            |  |            |         |        |  |   |   |  |  |   |            | 
|                                                  |  | $         | 10,581,000 |            |  | $          | 371,000 |        |  | $ |  |  |  | $ | 10,952,000 | 
|                                                  |  |           |            |            |  |            |         |        |  |   |   |  |  |   |            | 

F-19



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|3. |  | INVESTMENT SECURITIES(Continued)
|-- |  | --------------------------------
|  
|   |  | Held-to-Maturity: (Continued)   

|                                                  |  |           |            |            |  |            |         |        |  |   |         |   |  |   |            | 
|------------------------------------------------- |  | --------- | ---------- | ---------- |  | ---------- | ------- | ------ |  | - | ------- | - |  | - | ---------- | 
|                                                  |  | 2001     
|                                                  |  |          
|                                                  |  | Gross     |            | Gross      |  | Estimated  |         |        |  |  
|                                                  |  | Amortized |            | Unrealized |  | Unrealized |         | Market
|                                                  |  | Cost      |            | Gains      |  | Losses     |         | Value 
|                                                  |  |           |            |            |  |            |         |       
|U.S. Treasury
securities                          |  | $         | 1,000,000  |            |  | $          | 30,000  |        |  |   |         |   |  | $ | 1,030,000  | 
|U.S. Government
agencies                          |  |           | 7,069,000  |            |  |            | 179,000 |        |  |   |         |   |  |   | 7,248,000  | 
|Obligations of states
and political sub-divisions |  |           | 3,089,000  |            |  |            | 58,000  |        |  | $ | (10,000 | ) |  |   | 3,137,000  | 
|Corporate debt
securities                         |  |           | 9,183,000  |            |  |            | 196,000 |        |  |   | (21,000 | ) |  |   | 9,358,000  | 
|                                                  |  |           |            |            |  |            |         |        |  |   |         |   |  |   |            | 
|                                                  |  | $         | 20,341,000 |            |  | $          | 463,000 |        |  | $ | (31,000 | ) |  | $ | 20,773,000 | 
|                                                  |  |           |            |            |  |            |         |        |  |   |         |   |  |   |            | 



| |  | There were no sales or transfers of held-to-maturity investment
securities during the years ended December 31, 2002, 2001 and 2000.
However, a loss from the writedown of a held-to-maturity investment
security was recognized during the year ended December 31, 2001 totaling
$60,000. During the year ended December 31, 2002, this amount was
recovered.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The amortized cost and estimated market value of investment securities at
December 31, 2002 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-Maturity
|                                                         |                                                    |   |                    |         |                 
|                                                         |                                                    |   | Estimated          |         |                  |   |            |         | Estimated |   |            |         | 
|                                                         |                                                    |   | Amortized          |         | Market           |   | Amortized  |         | Market   
|                                                         |                                                    |   | Cost               |         | Value            |   | Cost       |         | Value    
|                                                         |                                                    |   |                    |         |                  |   |            |         |          
|Within one year                                          |                                                    | $ | 7,514,000          |         |                  | $ | 7,625,000  |         |           | $ | 5,184,000  |         |  | $ | 5,257,000  |        
|After one year
through five years                        |                                                    |   | 41,703,000         |         |                  |   | 42,248,000 |         |           |   | 5,245,000  |         |  |   | 5,542,000  |        
|                                                         |                                                    |   |                    |         |                  |   |            |         |           |   |            |         |  |   |            |        
|                                                         |                                                    |   | 49,217,000         |         |                  |   | 49,873,000 |         |           |   | 10,429,000 |         |  |   | 10,799,000 |        
|Investment securities
not due at a single
maturity date: |                                                    |   |                    |         |                  |   |            |         |           |   |            |         |  |   |            |        
|                                                         | Government-guar-anteed mortgage-
backed securities |   |                    | 940,000 |                  |   |            | 982,000 |           |   |            | 133,000 |  |   |            | 133,000 | 
|                                                         | SBA loan pools                                     |   |                    |         |                  |   |            |         |           |   |            | 19,000  |  |   |            | 20,000  | 
|                                                         |                                                    |   |                    |         |                  |   |            |         |           |   |            |         |  |   |            |        
|                                                         |                                                    | $ | 50,157,000         |         |                  | $ | 50,855,000 |         |           | $ | 10,581,000 |         |  | $ | 10,952,000 |        
|                                                         |                                                    |   |                    |         |                  |   |            |         |           |   |            |         |  |   |            |        

F-20



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|3. |  | INVESTMENT SECURITIES(Continued)                                                                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Investment securities with amortized costs totaling $19,923,000 and
$18,523,000 and estimated market values totaling $20,218,000 and
$19,008,000 were pledged to secure public deposits, treasury, tax and
loan accounts and short-term borrowing arrangements at December 31, 2002
and 2001, respectively (see Note 7).
|  
|4. |  | LOANS                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Outstanding loans are summarized below:                                                                                                                                                                                                                                                                                 

|                                                |  |              |  |  |  |      |             |      |  |   |             |   |  |  |  | 
|----------------------------------------------- |  | ------------ |  |  |  | ---- | ----------- | ---- |  | - | ----------- | - |  |  |  | 
|                                                |  | December 31,
|                                                |  |              |  |  |  |      |             |      |  |  
|                                                |  |              |  |  |  | 2002 |             | 2001 |  |   |             |  
|                                                |  |              |  |  |  |      |             |      |  |   |             |  
|Commercial                                      |  |              |  |  |  | $    | 52,432,000  |      |  | $ | 49,910,000  |  
|Agricultural                                    |  |              |  |  |  |      | 25,610,000  |      |  |   | 21,916,000  |  
|Real estate - mortgage                          |  |              |  |  |  |      | 66,039,000  |      |  |   | 50,865,000  |  
|Real estate  construction and land
development |  |              |  |  |  |      | 15,175,000  |      |  |   | 13,705,000  |  
|Installment                                     |  |              |  |  |  |      | 48,465,000  |      |  |   | 47,280,000  |  
|                                                |  |              |  |  |  |      |             |      |  |   |             |  
|                                                |  |              |  |  |  |      | 207,721,000 |      |  |   | 183,676,000 |  
|Deferred loan fees, net                         |  |              |  |  |  |      | (601,000    | )    |  |   | (748,000    | )
|Allowance for loan losses                       |  |              |  |  |  |      | (2,471,000  | )    |  |   | (2,153,000  | )
|                                                |  |              |  |  |  |      |             |      |  |   |             |  
|                                                |  |              |  |  |  | $    | 204,649,000 |      |  | $ | 180,775,000 |  
|                                                |  |              |  |  |  |      |             |      |  |   |             |  



| |  | Changes in the allowance for loan losses were as follows:
| |  | ---------------------------------------------------------

|                                |                      |  |                         |  |  |   |           |           |      |   |           |           |  |   |           |           |  |  |  |  | 
|------------------------------- | -------------------- |  | ----------------------- |  |  | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- |  |  |  |  | 
|                                |                      |  | Year Ended December 31,
|                                |                      |  |                         |  |  |   |           |           |      |   |          
|                                |                      |  |                         |  |  |   | 2002      |           | 2001 |   | 2000      |           |  |   |          
|                                |                      |  |                         |  |  |   |           |           |      |   |           |           |  |   |          
|Balance, beginning of year      |                      |  |                         |  |  | $ | 2,153,000 |           |      | $ | 1,888,000 |           |  | $ | 1,608,000 |          
|Provision charged to operations |                      |  |                         |  |  |   | 825,000   |           |      |   | 725,000   |           |  |   | 500,000   |          
|Losses charged to allowance     |                      |  |                         |  |  |   | (601,000  | )         |      |   | (560,000  | )         |  |   | (330,000  | )        
|Recoveries                      |                      |  |                         |  |  |   | 94,000    |           |      |   | 100,000   |           |  |   | 110,000   |          
|                                |                      |  |                         |  |  |   |           |           |      |   |           |           |  |   |           |          
|                                | Balance, end of year |  |                         |  |  |   | $         | 2,471,000 |      |   | $         | 2,153,000 |  |   | $         | 1,888,000 | 
|                                |                      |  |                         |  |  |   |           |           |      |   |           |           |  |   |           |          

F-21



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|4. |  | LOANS(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The recorded investment in loans that were considered to be impaired
totaled $1,459,000 and $604,000 at December 31, 2002 and 2001,
respectively. The related allowance for loan losses for impaired loans
was $228,000 and $45,000 at December 31, 2002 and 2001, respectively.
The average recorded investment in impaired loans for the years ended
December 31, 2002, 2001 and 2000 was $1,003,000, $197,000 and $60,000,
respectively. The Bank recognized $29,000 and $1,000 in interest income
on a cash basis for impaired loans during the years ended December 31,
2002 and 2001, respectively. There was no interest income recognized on
impaired loans during the year ended December 31, 2000.
|  
|   |  | At December 31, 2002 and 2001, nonaccrual loans totaled $1,711,000 and
$1,203,000, respectively. Interest foregone on nonaccrual loans totaled
$148,000, $72,000 and $31,000 for the years ended December 31, 2002, 2001
and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Salaries and employee benefits totaling $753,000, $397,000 and $318,000
have been deferred as loan origination costs during the years ended
December 31, 2002, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Sales and Servicing of Government-Guaranteed Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | A summary of the activity in government-guaranteed loans follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                               |  |                         |           |      |  |      |           |  |  |   |           | 
|---------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                               |  | Year Ended December 31,
|                                               |  |                        
|                                               |  | 2002                    |           | 2001 |  | 2000
|                                               |  |                         |           |      |  |     
|Loans originated                               |  | $                       | 3,401,000 |      |  | $    | 2,465,000 |  |  | $ | 1,895,000 | 
|Loans sold (guaranteed portion)                |  |                         | 889,000   |      |  |      | 4,157,000 |  |  |   |           | 
|Loans outstanding at year end                  |  |                         | 4,329,000 |      |  |      | 2,729,000 |  |  |   | 4,446,000 | 
|Premium received at sale                       |  |                         | 38,000    |      |  |      | 155,000   |  |  |   |           | 
|Balance of servicing assets at
year end        |  |                         | 91,000    |      |  |      | 85,000    |  |  |   |           | 
|Fair value of interest-only strips
at year end |  |                         | 263,000   |      |  |      | 225,000   |  |  |   |           | 



| |  | There were no significant gains or losses recognized on interest-only
strips for the years ended December 31, 2002, 2001 and 2000.
| |  | ----------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|5. |  | PREMISES AND EQUIPMENT                            
|-- |  | --------------------------------------------------
|  
|   |  | Premises and equipment consisted of the following:

|                                                |                                                |   |              |            |      |   |            |            |  
|----------------------------------------------- | ---------------------------------------------- | - | ------------ | ---------- | ---- | - | ---------- | ---------- | -
|                                                |                                                |   | December 31,
|                                                |                                                |   |             
|                                                |                                                |   | 2002         |            | 2001
|                                                |                                                |   |              |            |     
|Land                                            |                                                | $ | 981,000      |            |      | $ | 937,000    |           
|Premises                                        |                                                |   | 6,579,000    |            |      |   | 5,417,000  |           
|Furniture, equipment and leasehold improvements |                                                |   | 5,860,000    |            |      |   | 6,153,000  |           
|Construction in progress                        |                                                |   | 317,000      |            |      |   | 464,000    |           
|                                                |                                                |   |              |            |      |   |            |           
|                                                |                                                |   | 13,737,000   |            |      |   | 12,971,000 |           
|                                                | Less accumulated depreciation
and amortization |   |              | (4,414,000 | )    |   |            | (4,838,000 | )
|                                                |                                                |   |              |            |      |   |            |           
|                                                |                                                | $ | 9,323,000    |            |      | $ | 8,133,000  |           
|                                                |                                                |   |              |            |      |   |            |           



|   |  | Depreciation and amortization included in occupancy and equipment expense
totaled $925,000, $749,000 and $614,000 for the years ended December 31,
2002, 2001 and 2000, respectively.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|6. |  | INTEREST-BEARING DEPOSITS                                                                                                                                                            
|  
|   |  | Interest-bearing deposits consisted of the following:                                                                                                                                

|                       |  |              |  |  |  |      |             |      |  |   |             |  |  |  |  | 
|---------------------- |  | ------------ |  |  |  | ---- | ----------- | ---- |  | - | ----------- |  |  |  |  | 
|                       |  | December 31,
|                       |  |              |  |  |  |     
|                       |  |              |  |  |  | 2002 |             | 2001 |  |   |             | 
|                       |  |              |  |  |  |      |             |     
|Savings                |  |              |  |  |  | $    | 43,367,000  |      |  | $ | 35,222,000  | 
|Money market           |  |              |  |  |  |      | 59,802,000  |      |  |   | 44,446,000  | 
|NOW accounts           |  |              |  |  |  |      | 34,222,000  |      |  |   | 32,458,000  | 
|Time, $100,000 or more |  |              |  |  |  |      | 24,072,000  |      |  |   | 25,220,000  | 
|Other time             |  |              |  |  |  |      | 58,924,000  |      |  |   | 61,317,000  | 
|                       |  |              |  |  |  |      |             |      |  |   |             | 
|                       |  |              |  |  |  | $    | 220,387,000 |      |  | $ | 198,663,000 | 
|                       |  |              |  |  |  |      |             |      |  |   |             | 



| |  | Aggregate annual maturities of time deposits are as follows:
| |  | ------------------------------------------------------------

|             |  |   |            | 
|------------ |  | - | ---------- | 
|Year Ending  |  |   |            | 
|December 31, |  |   |            | 
|             |  |   |            | 
|2003         |  | $ | 70,661,000 | 
|2004         |  |   | 6,511,000  | 
|2005         |  |   | 3,600,000  | 
|2006         |  |   | 1,666,000  | 
|2007         |  |   | 506,000    | 
|Thereafter   |  |   | 52,000     | 
|             |  |   |            | 
|             |  | $ | 82,996,000 | 
|             |  |   |            | 

F-23



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|6. |  | INTEREST-BEARING DEPOSITS(Continued)                                                
|-- |  | ------------------------------------------------------------------------------------
|  
|   |  | Interest expense recognized on interest-bearing deposits consisted of the
following:

|                       |  |                         |           |      |  |      |           |  |  |   |           |  |  |  |  | 
|---------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  |  |  | 
|                       |  | Year Ended December 31,
|                       |  |                        
|                       |  | 2002                    |           | 2001 |  | 2000 |           |  |  |  
|                       |  |                         |           |      |  |      |           |  |  |  
|Savings                |  | $                       | 432,000   |      |  | $    | 581,000   |  |  | $ | 702,000   | 
|Money market           |  |                         | 775,000   |      |  |      | 1,285,000 |  |  |   | 1,654,000 | 
|NOW accounts           |  |                         | 114,000   |      |  |      | 195,000   |  |  |   | 271,000   | 
|Time, $100,000 or more |  |                         | 695,000   |      |  |      | 1,076,000 |  |  |   | 756,000   | 
|Other time             |  |                         | 1,929,000 |      |  |      | 3,231,000 |  |  |   | 3,288,000 | 
|                       |  |                         |           |      |  |      |           |  |  |   |           | 
|                       |  | $                       | 3,945,000 |      |  | $    | 6,368,000 |  |  | $ | 6,671,000 | 
|                       |  |                         |           |      |  |      |           |  |  |   |           | 



|7. |  | SHORT-TERM BORROWING ARRANGEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Bank has unsecured short-term borrowing agreements with two of its
correspondent banks in the amounts of $7,500,000 and $5,000,000. The
Bank can also borrow up to $13,500,000 from the Federal Home Loan Bank
secured by residential mortgage loans with amortized costs totaling
$24,090,000. 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, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|8. |  | MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED SECURITIES
OF SUBSIDIARY GRANTOR TRUST                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Plumas Statutory Trust I is a Connecticut business trust formed by the
Company for the sole purpose of issuing trust preferred securities fully
and unconditionally guaranteed by the Company. During the third quarter
of 2002, Plumas Statutory Trust I issued 6,000 Floating Rate Capital
Trust Pass-Through Securities (TRUPS), with a liquidation value of $1,000
per security, for gross proceeds of $6,000,000. The entire proceeds were
invested by Plumas Statutory Trust I in $6,000,000 of Floating Rate
Junior Subordinated Deferrable Interest Debentures (the Subordinated
Debentures) issued by the Company. The Subordinated Debentures bear the
same terms and interest rates as the TRUPS and represent the sole assets
of Plumas Statutory Trust I. The Subordinated Debentures mature on
September 26, 2032, bear an initial interest rate of 5.22% (based on
3-month LIBOR plus 3.40%), 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 Bank,
on any September 26, December 26, March 26 or June 26 on or after
September 26, 2007. 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 TRUPS 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.

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|8. |  | MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED SECURITIES
OF SUBSIDARY GRANTOR(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Holders of the TRUPS are entitled to a cumulative cash distribution on
the liquidation amount of $1,000 per security at an initial rate per
annum of 5.22%. For each successive period beginning on December 26,
March 26, June 26 and September 26 of each year, the rate will be
adjusted 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 distributions on the TRUPS are treated as interest expense in the
consolidated statement of income. The Company has 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 TRUPS issued in the offering were sold in
private transactions pursuant to an exemption registration under the
Securities Act of 1933, as amended. The Company has guaranteed, on a
subordinated basis, distributions and other payments due on the TRUPS.
|  
|   |  | The Subordinated Debentures and related trust investments in the
Subordinated Debentures have been eliminated in consolidation and the
TRUPS are reflected as outstanding in the accompanying consolidated
financial statements. Under applicable regulatory guidelines, all of the
TRUPS currently qualify as Tier 1 capital.                                                                                                                                                                                                                                               
|  
|9. |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | The Bank leases its Alturas branch office under a noncancelable operating
lease which expires in December 2005 and contains an option to renew the
lease for ten years. Future minimum lease payments are as follows:                                                                                                                                                                                                                                                                                                                                                        

|             |      |  |  |   |        | 
|------------ | ---- |  |  | - | ------ | 
|Year Ending  |      |  |  |  
|December 31, |      |  |  |  
|             |      |  |  |  
|             | 2003 |  |  | $ | 67,000 | 
|             | 2004 |  |  |   | 18,000 | 
|             | 2005 |  |  |   | 13,000 | 
|             |      |  |  |   |        | 
|             |      |  |  | $ | 98,000 | 
|             |      |  |  |   |        | 



| |  | Rental expense included in occupancy and equipment expense totaled
$85,000, $97,000 and $44,000 for the years ended December 31, 2002, 2001
and 2000, respectively.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|9. |  | COMMITMENTS AND CONTINGENCIES(Continued)                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Financial Instruments With Off-Balance-Sheet Risk                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The Bank 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 balance sheet.
|  
|   |  | The Bank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 Bank
uses the same credit policies in making commitments and letters of credit
as it does for loans included on the balance sheet.                                                         
|  
|   |  | The following financial instruments represent off-balance-sheet credit
risk:                                                                                                                                                                                                                                                                                                                              

|                             |  |  |  |  |  |              |            |      |  |   |            | 
|---------------------------- |  |  |  |  |  | ------------ | ---------- | ---- |  | - | ---------- | 
|                             |  |  |  |  |  | December 31,
|                             |  |  |  |  |  |             
|                             |  |  |  |  |  | 2002         |            | 2001
|                             |  |  |  |  |  |              |            |     
|Commitments to extend credit |  |  |  |  |  | $            | 49,267,000 |      |  | $ | 35,753,000 | 
|Letters of credit            |  |  |  |  |  | $            | 509,000    |      |  | $ | 279,000    | 



| |  | 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 Bank
evaluates each customers creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank 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 Bank 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | At December 31, 2002, consumer loan commitments represent approximately
18% of total commitments and are generally unsecured. Commercial loan
commitments represent approximately 34% of total commitments and are
generally secured by various assets of the borrower. Real estate loan
commitments represent the remaining 48% 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 Banks commitments have variable
interest rates.                                                                                                                                                                                                                                                                                                                       

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|9.  |  | COMMITMENTS AND CONTINGENCIES(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Significant Concentrations of Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Bank grants real estate mortgage, real estate construction,
commercial, agricultural and consumer loans to customers throughout
Plumas, Nevada, Placer, Lassen, Sierra, Shasta and Modoc counties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Although the Bank 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.                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The 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 EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Upon declaration by the Board of Directors of the Company, all
shareholders of record will be entitled to receive dividends. The
Companys ability to pay cash dividends is limited by state corporation
law and is dependent upon dividends paid to it by the Bank. In addition,
dividends from the Bank to the Company are restricted under California
law to the lesser of (1) the banks retained earnings or (2) the banks
net income for its last three fiscal years, less distributions made to
shareholders during the same three-year period. At December 31, 2002,
the Bank had $5,113,000 in retained earnings available for dividend
payments to the Company.
|   
|    |  | Stock Split                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | On October 25, 2002 the Companys Board of Directors approved a
three-for-two stock split to shareholders of record at the close of
business on November 12, 2002, effective November 26, 2002. All per
share, shares outstanding and stock option data in the consolidated
financial statements have been retroactively restated to reflect the
stock split.                                                                                                                                                                                                                                                                                                             

F-27



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|10. |  | SHAREHOLDERS EQUITY(Continued)                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Earnings Per Share                                                                                                         
|   
|    |  | A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is as follows:

|                                 |  |        |           |             |  |           |           |  |  |   |      | 
|-------------------------------- |  | ------ | --------- | ----------- |  | --------- | --------- |  |  | - | ---- | 
|                                 |  |        |           |             |  | Weighted  |           |  |  |  
|                                 |  |        |           |             |  | Average   |           |  |  |  
|                                 |  |        |           |             |  | Number of |           |  |  |  
|                                 |  | Net    |           | Shares      |  | Per Share
|For the Year Ended               |  | Income |           | Outstanding |  | Amount   
|                                 |  |        |           |             |  |          
|December 31, 2002                |  |        |           |             |  |           |           |  |  |   |      | 
|Basic earnings per share         |  | $      | 3,154,000 |             |  |           | 3,199,962 |  |  | $ | 0.99 | 
|                                 |  |        |           |             |  |           |           |  |  |   |      | 
|Effect of dilutive stock options |  |        |           |             |  |           | 70,635    |  |  |   |      | 
|                                 |  |        |           |             |  |           |           |  |  |   |      | 
|Diluted earnings per share       |  | $      | 3,154,000 |             |  |           | 3,270,597 |  |  | $ | 0.96 | 
|                                 |  |        |           |             |  |           |           |  |  |   |      | 
|December 31, 2001                |  |        |           |             |  |           |           |  |  |   |      | 
|Basic earnings per share         |  | $      | 2,758,000 |             |  |           | 3,163,977 |  |  | $ | 0.87 | 
|                                 |  |        |           |             |  |           |           |  |  |   |      | 
|Effect of dilutive stock options |  |        |           |             |  |           | 41,930    |  |  |   |      | 
|                                 |  |        |           |             |  |           |           |  |  |   |      | 
|Diluted earnings per share       |  | $      | 2,758,000 |             |  |           | 3,205,907 |  |  | $ | 0.86 | 
|                                 |  |        |           |             |  |           |           |  |  |   |      | 
|December 31, 2000                |  |        |           |             |  |           |           |  |  |   |      | 
|Basic earnings per share         |  | $      | 2,563,000 |             |  |           | 3,119,963 |  |  | $ | 0.82 | 
|                                 |  |        |           |             |  |           |           |  |  |   |      | 
|Effect of dilutive stock options |  |        |           |             |  |           | 115,719   |  |  |   |      | 
|                                 |  |        |           |             |  |           |           |  |  |   |      | 
|Diluted earnings per share       |  | $      | 2,563,000 |             |  |           | 3,235,682 |  |  | $ | 0.79 | 
|                                 |  |        |           |             |  |           |           |  |  |   |      | 



| |  | 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. Stock options not included in the computation of
diluted earnings per share were 100,575, 116,820 and 127,560 for the
years ended December 31, 2002, 2001 and 2000, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-28



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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|10. |  | SHAREHOLDERS EQUITY(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | In 2001 and 1991, the Company established Stock Option Plans for which
775,618 shares of common stock are reserved for issuance to employees and
directors under incentive and nonstatutory agreements as of December 31,
2002. 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:

|                                       |                   |  |         |         |       |   |          |       |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |      | 
|-------------------------------------- | ----------------- |  | ------- | ------- | ----- | - | -------- | ----- | ----- |  | ------- | ------- | -------- | - | ---- | ---- |  |  | -------- | ------- | - | - | ---- | ---- | 
|                                       |                   |  | 2002    |         | 2001  |   | 2000    
|                                       |                   |  |         |         |       |   |         
|                                       |                   |  |         |         |       |   | Weighted |       |       |  |         |         | Weighted |   |      |      |  |  | Weighted
|                                       |                   |  |         |         |       |   | Average  |       |       |  |         |         | Average  |   |      |      |  |  | Average 
|                                       |                   |  |         |         |       |   | Exercise |       |       |  |         |         | Exercise |   |      |      |  |  | Exercise
|                                       |                   |  | Shares  |         | Price |   | Shares   |       | Price |  | Shares  |         | Price   
|                                       |                   |  |         |         |       |   |          |       |       |  |         |         |         
|Incentive                              |                   |  |         |         |       |   |          |       |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     
|Options outstanding,
beginning of year |                   |  | 143,790 |         |       | $ | 6.91     |       |       |  | 218,397 |         |          | $ | 4.60 |      |  |  | 258,708  |         |   | $ | 4.11 |     
|                                       | Options granted   |  |         | 66,825  |       |   | $        | 16.13 |       |  |         | 20,250  |          |   | $    | 8.24 |  |  |          | 15,000  |   |   | $    | 6.96 | 
|                                       | Options exercised |  |         | (14,612 | )     |   | $        | 6.87  |       |  |         | (94,857 | )        |   | $    | 1.88 |  |  |          | (45,645 | ) |   | $    | 1.88 | 
|                                       | Options canceled  |  |         |         |       |   |          |       |       |  |         |         |          |   |      |      |  |  |          | (9,666  | ) |   | $    | 8.02 | 
|                                       |                   |  |         |         |       |   |          |       |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     
|Options outstanding,
end of year       |                   |  | 196,003 |         |       | $ | 10.06    |       |       |  | 143,790 |         |          | $ | 6.91 |      |  |  | 218,397  |         |   | $ | 4.60 |     
|                                       |                   |  |         |         |       |   |          |       |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     
|Options exercisable,
end of year       |                   |  | 129,178 |         |       | $ | 6.92     |       |       |  | 81,086  |         |          | $ | 6.32 |      |  |  | 155,768  |         |   | $ | 3.49 |     
|                                       |                   |  |         |         |       |   |          |       |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     
|Nonstatutory                           |                   |  |         |         |       |   |          |       |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     
|Options outstanding,
beginning of year |                   |  | 36,930  |         |       | $ | 7.52     |       |       |  | 72,570  |         |          | $ | 4.67 |      |  |  | 75,420   |         |   | $ | 4.31 |     
|                                       | Options granted   |  |         | 33,750  |       |   | $        | 16.13 |       |  |         | 3,750   |          |   | $    | 8.29 |  |  |          | 3,750   |   |   | $    | 7.00 | 
|                                       | Options exercised |  |         | (2,694  | )     |   | $        | 4.88  |       |  |         | (37,446 | )        |   | $    | 2.07 |  |  |          | (6,600  | ) |   | $    | 1.88 | 
|                                       | Options canceled  |  |         | (1,296  | )     |   | $        | 4.96  |       |  |         | (1,944  | )        |   | $    | 7.44 |  |  |          |         |   |   |      |      | 
|                                       |                   |  |         |         |       |   |          |       |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     
|Options outstanding,
end of year       |                   |  | 66,690  |         |       | $ | 11.28    |       |       |  | 36,930  |         |          | $ | 7.52 |      |  |  | 72,570   |         |   | $ | 4.67 |     
|                                       |                   |  |         |         |       |   |          |       |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     
|Options exercisable,
end of year       |                   |  | 32,940  |         |       | $ | 7.54     |       |       |  | 19,533  |         |          | $ | 7.48 |      |  |  | 50,343   |         |   | $ | 3.46 |     
|                                       |                   |  |         |         |       |   |          |       |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     

F-29



---



##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|10. |  | SHAREHOLDERS EQUITY(Continued)                               
|--- |  | --------------------------------------------------------------
|   
|    |  | Stock Options (Continued)                                     
|   
|    |  | A summary of options outstanding at December 31, 2002 follows:

|                |       |              |  |             |        |              |  |             |  |  |        |         |  | 
|--------------- | ----- | ------------ |  | ----------- | ------ | ------------ |  | ----------- |  |  | ------ | ------- |  | 
|                |       |              |  | Number of   |        | Weighted     |  |             |  | 
|                |       |              |  | Options     |        | Average      |  | Options    
|                |       |              |  | Outstanding |        | Remaining    |  | Exercisable
|Range of        |       | December 31, |  | Contractual |        | December 31,
|Exercise Prices |       | 2002         |  | Life        |        | 2002        
|                |       |              |  |             |        |             
|Incentive       |       |              |  |             |        |              |  |             |  |  |        |         | 
|$               | 4.09  |              |  |             | 22,680 |              |  | 2.0 years   |  |  | 22,680 |        
|$               | 5.37  |              |  |             | 6,000  |              |  | 3.3 years   |  |  | 6,000  |        
|$               | 6.75  |              |  |             | 6,000  |              |  | 7.9 years   |  |  | 6,000  |        
|$               | 7.17  |              |  |             | 3,000  |              |  | 7.5 years   |  |  | 3,000  |        
|$               | 7.44  |              |  |             | 59,698 |              |  | 5.9 years   |  |  | 59,698 |        
|$               | 8.15  |              |  |             | 7,500  |              |  | 8.8 years   |  |  | 7,500  |        
|$               | 8.28  |              |  |             | 11,550 |              |  | 5.7 years   |  |  | 11,550 |        
|$               | 8.29  |              |  |             | 12,750 |              |  | 8.8 years   |  |  | 12,750 |        
|$               | 16.13 |              |  |             | 66,825 |              |  | 9.9 years   |  |  | 0      |        
|                |       |              |  |             |        |              |  |             |  |  |        |         | 
|                |       |              |  | 196,003     |        |              |  |             |  |  |        | 129,178 | 
|                |       |              |  |             |        |              |  |             |  |  |        |         | 
|Nonstatutory    |       |              |  |             |        |              |  |             |  |  |        |         | 
|$               | 7.00  |              |  |             | 3,000  |              |  | 7.6 years   |  |  | 3,000  |        
|$               | 7.44  |              |  |             | 20,565 |              |  | 5.9 years   |  |  | 20,565 |        
|$               | 7.72  |              |  |             | 5,625  |              |  | 4.9 years   |  |  | 5,625  |        
|$               | 8.29  |              |  |             | 3,750  |              |  | 8.8 years   |  |  | 3,750  |        
|$               | 16.13 |              |  |             | 33,750 |              |  | 9.9 years   |  |  | 0      |        
|                |       |              |  |             |        |              |  |             |  |  |        |         | 
|                |       |              |  | 66,690      |        |              |  |             |  |  |        | 32,940  | 
|                |       |              |  |             |        |              |  |             |  |  |        |         | 



| |  | Common Stock Repurchase Program                                                                                                                                                                                               
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During 2000, the Board of Directors authorized the repurchase of up to
$1,500,000 of the Banks common stock over a one year period ending June
30, 2001. Repurchases were generally made in the open market at market
prices.

F-30



---



##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|10. |  | SHAREHOLDERS EQUITY(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Regulatory Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The 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, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | 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,
|                                                        |  |             
|                                                        |  | 2002         |            | 2001 
|                                                        |  |              |            |      
|                                                        |  | Amount       |            | Ratio |  |  |     |   |  | Amount |  | Ratio
|                                                        |  |              |            |       |  |  |     |   |  |        |  |      
|Leverage Ratio                                          |  |              |            |       |  |  |     |   |  |        |  |       |  |   |            |  |  |  |     |  
|Plumas Bancorp and Subsidiaries                         |  | $            | 28,188,000 |       |  |  | 8.8 | % |  |        |  |       |  |   |            |  |  |  |     |  
|Minimum regulatory requirement                          |  | $            | 11,967,000 |       |  |  | 4.0 | % |  |        |  |       |  |   |            |  |  |  |     |  
|Plumas Bank                                             |  | $            | 24,621,000 |       |  |  | 7.7 | % |  |        |  |       |  | $ | 19,644,000 |  |  |  | 7.4 | %
|Minimum requirement for Well-
Capitalized institution |  | $            | 16,089,000 |       |  |  | 5.0 | % |  |        |  |       |  | $ | 13,320,000 |  |  |  | 5.0 | %
|Minimum regulatory requirement                          |  | $            | 12,871,000 |       |  |  | 4.0 | % |  |        |  |       |  | $ | 10,656,000 |  |  |  | 4.0 | %

F-31



---



##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|10. |  | SHAREHOLDERS EQUITY(Continued)
|--- |  | -------------------------------
|   
|    |  | Regulatory Capital (Continued) 

|                                                        |  |              |            |       |  |  |      |   |  |        |  |       |  |   |            |  |  |  |      |  
|------------------------------------------------------- |  | ------------ | ---------- | ----- |  |  | ---- | - |  | ------ |  | ----- |  | - | ---------- |  |  |  | ---- | -
|                                                        |  | December 31,
|                                                        |  |             
|                                                        |  | 2002         |            | 2001 
|                                                        |  |              |            |      
|                                                        |  | Amount       |            | Ratio |  |  |      |   |  | Amount |  | Ratio
|                                                        |  |              |            |       |  |  |      |   |  |        |  |      
|Tier 1 Risk-Based Capital Ratio                         |  |              |            |       |  |  |      |   |  |        |  |       |  |   |            |  |  |  |      |  
|Plumas Bancorp and Subsidiaries                         |  | $            | 28,188,000 |       |  |  | 11.8 | % |  |        |  |       |  |   |            |  |  |  |      |  
|Minimum regulatory requirement                          |  | $            | 9,546,000  |       |  |  | 4.0  | % |  |        |  |       |  |   |            |  |  |  |      |  
|Plumas Bank                                             |  | $            | 24,621,000 |       |  |  | 7.7  | % |  |        |  |       |  | $ | 19,644,000 |  |  |  | 9.3  | %
|Minimum requirement for Well-
Capitalized institution |  | $            | 14,309,000 |       |  |  | 6.0  | % |  |        |  |       |  | $ | 12,637,000 |  |  |  | 6.0  | %
|Minimum regulatory requirement                          |  | $            | 9,539,000  |       |  |  | 4.0  | % |  |        |  |       |  | $ | 8,425,000  |  |  |  | 4.0  | %
|Total Risk-Based Capital Ratio                          |  |              |            |       |  |  |      |   |  |        |  |       |  |   |            |  |  |  |      |  
|Plumas Bancorp and Subsidiaries                         |  | $            | 30,656,000 |       |  |  | 12.8 | % |  |        |  |       |  |   |            |  |  |  |      |  
|Minimum regulatory requirement                          |  | $            | 19,093,000 |       |  |  | 8.0  | % |  |        |  |       |  |   |            |  |  |  |      |  
|Plumas Bank                                             |  | $            | 27,092,000 |       |  |  | 11.4 | % |  |        |  |       |  | $ | 21,797,000 |  |  |  | 10.3 | %
|Minimum requirement for Well-
Capitalized institution |  | $            | 23,848,000 |       |  |  | 10.0 | % |  |        |  |       |  | $ | 21,062,000 |  |  |  | 10.0 | %
|Minimum regulatory requirement                          |  | $            | 19,078,000 |       |  |  | 8.0  | % |  |        |  |       |  | $ | 16,849,000 |  |  |  | 8.0  | %



|11. |  | OTHER EXPENSES                            
|--- |  | ------------------------------------------
|   
|    |  | Other expenses consisted of the following:

|                                     |  |                         |           |      |  |      |           |  |  |   |           | 
|------------------------------------ |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2002                    |           | 2001 |  | 2000
|                                     |  |                         |           |      |  |     
|Professional fees                    |  | $                       | 605,000   |      |  | $    | 297,000   |  |  | $ | 371,000   | 
|Business development                 |  |                         | 371,000   |      |  |      | 330,000   |  |  |   | 243,000   | 
|Telephone                            |  |                         | 347,000   |      |  |      | 293,000   |  |  |   | 298,000   | 
|Stationery and supplies              |  |                         | 324,000   |      |  |      | 300,000   |  |  |   | 200,000   | 
|Armored car and courier              |  |                         | 318,000   |      |  |      | 354,000   |  |  |   | 237,000   | 
|Advertising and promotion            |  |                         | 260,000   |      |  |      | 237,000   |  |  |   | 214,000   | 
|Loan expenses                        |  |                         | 244,000   |      |  |      | 216,000   |  |  |   | 188,000   | 
|Director compensation and retirement |  |                         | 228,000   |      |  |      | 216,000   |  |  |   | 419,000   | 
|Postage                              |  |                         | 184,000   |      |  |      | 201,000   |  |  |   | 163,000   | 
|Outsourced data processing fees      |  |                         | 68,000    |      |  |      | 72,000    |  |  |   | 377,000   | 
|Other operating expenses             |  |                         | 592,000   |      |  |      | 572,000   |  |  |   | 522,000   | 
|                                     |  |                         |           |      |  |      |           |  |  |   |           | 
|                                     |  | $                       | 3,541,000 |      |  | $    | 3,088,000 |  |  | $ | 3,232,000 | 
|                                     |  |                         |           |      |  |      |           |  |  |   |           | 

F-32



---



##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|12. |  | INCOME TAXES                                                                                                   
|--- |  | ---------------------------------------------------------------------------------------------------------------
|   
|    |  | The provision for income taxes for the years ended December 31, 2002,
2001 and 2000 consisted of the following:

|         |                    |   |           |           |       |   |         |         |  |   |           |           | 
|-------- | ------------------ | - | --------- | --------- | ----- | - | ------- | ------- |  | - | --------- | --------- | 
|         |                    |   | Federal   |           | State |   | Total  
|         |                    |   |           |           |       |   |        
|2002     |                    |   |           |           |       |   |         |         |  |   |           |          
|Current  |                    | $ | 1,460,000 |           |       | $ | 555,000 |         |  | $ | 2,015,000 |          
|Deferred |                    |   | 21,000    |           |       |   | 10,000  |         |  |   | 31,000    |          
|         |                    |   |           |           |       |   |         |         |  |   |           |          
|         | Income tax expense |   | $         | 1,481,000 |       |   | $       | 565,000 |  |   | $         | 2,046,000 | 
|         |                    |   |           |           |       |   |         |         |  |   |           |          
|2001     |                    |   |           |           |       |   |         |         |  |   |           |          
|Current  |                    | $ | 1,259,000 |           |       | $ | 509,000 |         |  | $ | 1,768,000 |          
|Deferred |                    |   | (72,000   | )         |       |   | (29,000 | )       |  |   | (101,000  | )        
|         |                    |   |           |           |       |   |         |         |  |   |           |          
|         | Income tax expense |   | $         | 1,187,000 |       |   | $       | 480,000 |  |   | $         | 1,667,000 | 
|         |                    |   |           |           |       |   |         |         |  |   |           |          
|2000     |                    |   |           |           |       |   |         |         |  |   |           |          
|Current  |                    | $ | 1,179,000 |           |       | $ | 460,000 |         |  | $ | 1,639,000 |          
|Deferred |                    |   | (177,000  | )         |       |   | (58,000 | )       |  |   | (235,000  | )        
|         |                    |   |           |           |       |   |         |         |  |   |           |          
|         | Income tax expense |   | $         | 1,002,000 |       |   | $       | 402,000 |  |   | $         | 1,404,000 | 
|         |                    |   |           |           |       |   |         |         |  |   |           |          



| |  | Deferred tax assets (liabilities) consisted of the following:
| |  | -------------------------------------------------------------

|                          |                                                             |                                |   |              |           |      |   |          |           |  
|------------------------- | ----------------------------------------------------------- | ------------------------------ | - | ------------ | --------- | ---- | - | -------- | --------- | -
|                          |                                                             |                                |   | December 31,
|                          |                                                             |                                |   |             
|                          |                                                             |                                |   | 2002         |           | 2001
|                          |                                                             |                                |   |              |           |     
|Deferred tax assets:      |                                                             |                                |   |              |           |      |   |         
|                          | Allowance for loan losses                                   |                                | $ | 901,000      |           |      | $ | 809,000  |          
|                          | Future benefit of state income tax deduction                |                                |   | 179,000      |           |      |   | 158,000  |          
|                          | Deferred compensation                                       |                                |   | 597,000      |           |      |   | 488,000  |          
|                          | Deposit purchase premium                                    |                                |   | 98,000       |           |      |   | 78,000   |          
|                          | Other                                                       |                                |   | 94,000       |           |      |   | 95,000   |          
|                          |                                                             |                                |   |              |           |      |   |         
|                          |                                                             | Total deferred tax assets      |   |              | 1,869,000 |      |   |          | 1,628,000 |  
|                          |                                                             |                                |   |              |           |      |   |         
|Deferred tax liabilities: |                                                             |                                |   |              |           |      |   |         
|                          | Future liability of state deferred tax asset                |                                |   | (102,000     | )         |      |   | (106,000 | )        
|                          | Unrealized gain on available-for-sale
investment securities |                                |   | (288,000     | )         |      |   | (104,000 | )        
|                          | Bank premises and equipment                                 |                                |   | (456,000     | )         |      |   | (180,000 | )        
|                          |                                                             |                                |   |              |           |      |   |         
|                          |                                                             | Total deferred tax liabilities |   |              | (846,000  | )    |   |          | (390,000  | )
|                          |                                                             |                                |   |              |           |      |   |         
|                          |                                                             | Net deferred tax assets        |   | $            | 1,023,000 |      |   | $        | 1,238,000 |  
|                          |                                                             |                                |   |              |           |      |   |         

F-33



---



##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|12. |  | INCOME TAXES(Continued)                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The provision for income taxes differs from amounts computed by applying
the statutory Federal income tax rate to operating income before income
taxes. The items comprising these differences consisted of the
following:

|                                                                |                          |   |                         |           |      |  |      |  |        |  |      |      |  |  |  |  |  |  |        |  |        |   |           |           |        |  |      |      |  |   |           |           |  |  |      |      | 
|--------------------------------------------------------------- | ------------------------ | - | ----------------------- | --------- | ---- |  | ---- |  | ------ |  | ---- | ---- |  |  |  |  |  |  | ------ |  | ------ | - | --------- | --------- | ------ |  | ---- | ---- |  | - | --------- | --------- |  |  | ---- | ---- | 
|                                                                |                          |   | Year Ended December 31,
|                                                                |                          |   |                        
|                                                                |                          |   | 2002                    |           | 2001 |  | 2000
|                                                                |                          |   |                         |           |      |  |     
|                                                                |                          |   | Amount                  |           |      |  |      |  | Rate % |  |      |      |  |  |  |  |  |  | Amount |  | Rate % |   | Amount    |           | Rate %
|                                                                |                          |   |                         |           |      |  |      |  |        |  |      |      |  |  |  |  |  |  |        |  |        |   |           |           |       
|Federal income tax
expense, at statutory
rate                   |                          | $ | 1,768,000               |           |      |  |      |  |        |  | 34.0 |      |  |  |  |  |  |  |        |  |        | $ | 1,505,000 |           |        |  | 34.0 |      |  | $ | 1,349,000 |           |  |  | 34.0 |     
|State franchise tax, net
of Federal tax effect                  |                          |   | 339,000                 |           |      |  |      |  |        |  | 6.5  |      |  |  |  |  |  |  |        |  |        |   | 289,000   |           |        |  | 6.5  |      |  |   | 268,000   |           |  |  | 6.8  |     
|Interest on obligations
of states and political
subdivisions    |                          |   | (48,000                 | )         |      |  |      |  |        |  | (.9  | )    |  |  |  |  |  |  |        |  |        |   | (36,000   | )         |        |  | (.8  | )    |  |   | (120,000  | )         |  |  | (3.0 | )   
|Net increase in cash
surrender value of
officers life insurance |                          |   | (74,000                 | )         |      |  |      |  |        |  | (1.4 | )    |  |  |  |  |  |  |        |  |        |   | (83,000   | )         |        |  | (1.9 | )    |  |   | (62,000   | )         |  |  | (1.6 | )   
|Other                                                           |                          |   | 61,000                  |           |      |  |      |  |        |  | 1.1  |      |  |  |  |  |  |  |        |  |        |   | (8,000    | )         |        |  | (.1  | )    |  |   | (31,000   | )         |  |  | (.8  | )   
|                                                                |                          |   |                         |           |      |  |      |  |        |  |      |      |  |  |  |  |  |  |        |  |        |   |           |           |        |  |      |      |  |   |           |           |  |  |      |     
|                                                                | Total income
tax expense |   | $                       | 2,046,000 |      |  |      |  |        |  |      | 39.3 |  |  |  |  |  |  |        |  |        |   | $         | 1,667,000 |        |  |      | 37.7 |  |   | $         | 1,404,000 |  |  |      | 35.4 | 
|                                                                |                          |   |                         |           |      |  |      |  |        |  |      |      |  |  |  |  |  |  |        |  |        |   |           |           |        |  |      |      |  |   |           |           |  |  |      |     



|13. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During the normal course of business, the Bank enters into transactions
with related parties, including executive officers and directors. These
transactions include borrowings from the Bank 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 2002:

|                                                              |                |   |           |            |  
|------------------------------------------------------------- | -------------- | - | --------- | ---------- | -
|Balance, January 1, 2002                                      |                | $ | 3,294,000 |           
|                                                              | Disbursements  |   |           | 534,000    |  
|                                                              | Amounts repaid |   |           | (2,981,000 | )
|                                                              |                |   |           |           
|Balance, December 31, 2002                                    |                | $ | 847,000   |           
|                                                              |                |   |           |           
|Undisbursed commitments to related
parties, December 31, 2002 |                | $ | 106,000   |           
|                                                              |                |   |           |           

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PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|14. |  | EMPLOYEE BENEFIT PLANS                                                                                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Profit Sharing Plan                                                                                                                                                                                                                                                                  
|   
|    |  | The 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. 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.                                                                         



|    |  | During the years ended December 31, 2002, 2001 and 2000, the Companys
contribution totaled $135,000, $111,000 and $100,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Salary Continuation and Retirement Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | Salary continuation and retirement plans are in place for four key
executives and members of the Board of Directors. Under these plans, the
directors and executives will receive monthly payments for twelve to
fifteen years, respectively, after retirement. These benefits are
substantially equivalent to those available under split-dollar life
insurance policies purchased by the Bank on the lives of the directors
and executives. In addition, the estimated present value of these future
benefits is accrued over the period from the effective dates of the plans
until the participants expected retirement dates. The expense
recognized under these plans for the years ended December 31, 2002, 2001
and 2000 totaled $199,000, $199,000 and $460,000, respectively.
|   
|    |  | In connection with these plans, the Bank purchased single premium life
insurance policies with cash surrender values totaling $4,565,000 and
$3,872,000 at December 31, 2002 and 2001, respectively. On the balance
sheet, the cash surrender values are included in accrued interest
receivable and other assets. Income earned on these policies, net of
expenses, totaled $183,000, $212,000 and $184,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                        
|   
|15. |  | COMPREHENSIVE INCOME                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Comprehensive 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 Bank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 Statement of Changes in Shareholders Equity.                                                                                                                                                                    

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PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|15. |  | COMPREHENSIVE INCOME(Continued)                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | At December 31, 2002, 2001 and 2000, the Bank held securities classified
as available-for-sale which had unrealized gains (losses) as follows:

|                                     |                                                               |                                  |   |         |         |           |   |          |          |   |   |         |         | 
|------------------------------------ | ------------------------------------------------------------- | -------------------------------- | - | ------- | ------- | --------- | - | -------- | -------- | - | - | ------- | ------- | 
|                                     |                                                               |                                  |   |         |         |           |   | Tax      |          |   |   |        
|                                     |                                                               |                                  |   | Before  |         | Benefit   |   | After   
|                                     |                                                               |                                  |   | Tax     |         | (Expense) |   | Tax     
|                                     |                                                               |                                  |   |         |         |           |   |         
|For the Year Ended December 31, 2002 |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|Other comprehensive income:          |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|                                     | Unrealized holding gains                                      |                                  | $ | 563,000 |         |           | $ | (232,000 | )        |   | $ | 331,000 |        
|                                     | Reclassification adjustment for gains
included in net income  |                                  |   | 117,000 |         |           |   | (48,000  | )        |   |   | 69,000  |        
|                                     |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|                                     |                                                               | Total other comprehensive
income |   | $       | 446,000 |           |   | $        | (184,000 | ) |   | $       | 262,000 | 
|                                     |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|For the Year Ended December 31, 2001 |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|Other comprehensive income:          |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|                                     | Unrealized holding gains                                      |                                  | $ | 348,000 |         |           | $ | (144,000 | )        |   | $ | 204,000 |        
|                                     | Reclassification adjustment for gains
included in net income  |                                  |   | 72,000  |         |           |   | (30,000  | )        |   |   | 42,000  |        
|                                     |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|                                     |                                                               | Total other comprehensive
income |   | $       | 276,000 |           |   | $        | (114,000 | ) |   | $       | 162,000 | 
|                                     |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|For the Year Ended December 31, 2000 |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|Other comprehensive income:          |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|                                     | Unrealized holding gains                                      |                                  | $ | 418,000 |         |           | $ | (172,000 | )        |   | $ | 246,000 |        
|                                     | Reclassification adjustment for losses
included in net income |                                  |   | (34,000 | )       |           |   | 14,000   |          |   |   | (20,000 | )      
|                                     |                                                               |                                  |   |         |         |           |   |          |          |   |   |        
|                                     |                                                               | Total other comprehensive
income |   | $       | 452,000 |           |   | $        | (186,000 | ) |   | $       | 266,000 | 
|                                     |                                                               |                                  |   |         |         |           |   |          |          |   |   |        



|16. |  | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Estimated 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.

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|16. |  | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | 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, 2002 and
2001:                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | 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.                                                                                                                                                                                                                                                                     
|   
|    |  | 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 carrying amount
of accrued interest receivable approximates its fair value.
|   
|    |  | Cash surrender value of life insurance policies: The fair values of 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.                                                                                
|   
|    |  | Mandatorily redeemable cumulative trust preferred securities of
subsidiary grantor trust: The fair value of mandatorily redeemable
cumulative trust preferred securities of subsidiary grantor trust was
determined based on the current market value for the like kind
instruments of a similar maturity and structure.                                                                                                                                                                                                                                   
|   
|    |  | Commitments to extend credit: Commitments to extend credit are primarily
for variable rate loans and letters of credit. For these commitments,
there is no difference between the committed amounts and their fair
values. Commitments to fund fixed rate loans and letters of credit are
at rates which approximate fair value at each reporting date.                                                                                                                                                                                                    

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|16. |  | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)
|--- |  | ----------------------------------------------------------------

|                                         |                                                              |                              |   |                   |            |                   |   |             |            |       |   |             |            |  |   |             |            | 
|---------------------------------------- | ------------------------------------------------------------ | ---------------------------- | - | ----------------- | ---------- | ----------------- | - | ----------- | ---------- | ----- | - | ----------- | ---------- |  | - | ----------- | ---------- | 
|                                         |                                                              |                              |   | December 31, 2002 |            | December 31, 2001
|                                         |                                                              |                              |   |                   |            |                  
|                                         |                                                              |                              |   | Carrying          |            | Fair              |   | Carrying    |            | Fair 
|                                         |                                                              |                              |   | Amount            |            | Value             |   | Amount      |            | Value
|                                         |                                                              |                              |   |                   |            |                   |   |             |            |      
|Financial assets:                        |                                                              |                              |   |                   |            |                   |   |             |            |       |   |             |            |  |   |            
|                                         | Cash and cash equivalents                                    |                              | $ | 37,930,000        |            |                   | $ | 37,930,000  |            |       | $ | 30,088,000  |            |  | $ | 30,088,000  |           
|                                         | Loans held for sale                                          |                              |   | 1,472,000         |            |                   |   | 1,472,000   |            |       |   | 649,000     |            |  |   | 649,000     |           
|                                         | Investment securities                                        |                              |   | 61,436,000        |            |                   |   | 61,807,000  |            |       |   | 45,843,000  |            |  |   | 46,275,000  |           
|                                         | Loans                                                        |                              |   | 204,649,000       |            |                   |   | 204,826,000 |            |       |   | 180,775,000 |            |  |   | 181,637,000 |           
|                                         | Cash surrender value of life
insurance policies              |                              |   | 4,565,000         |            |                   |   | 4,565,000   |            |       |   | 3,872,000   |            |  |   | 3,872,000   |           
|                                         | Accrued interest receivable                                  |                              |   | 2,132,000         |            |                   |   | 2,132,000   |            |       |   | 1,860,000   |            |  |   | 1,860,000   |           
|Financial liabilities:                   |                                                              |                              |   |                   |            |                   |   |             |            |       |   |             |            |  |   |            
|                                         | Deposits                                                     |                              | $ | 293,939,000       |            |                   | $ | 294,586,000 |            |       | $ | 252,206,000 |            |  | $ | 252,261,000 |           
|                                         | Mandatorily redeemable
cumulative trust preferred
securities |                              |   | 6,000,000         |            |                   |   | 6,000,000   |            |       |   |             |            |  |   |             |           
|                                         | Accrued interest payable                                     |                              |   | 348,000           |            |                   |   | 348,000     |            |       |   | 582,000     |            |  |   | 582,000     |           
|Off-balance-sheet financial
instruments: |                                                              |                              |   |                   |            |                   |   |             |            |       |   |             |            |  |   |            
|                                         |                                                              | Commitments to extend
credit |   | $                 | 49,267,000 |                   |   | $           | 49,267,000 |       |   | $           | 35,753,000 |  |   | $           | 35,753,000 | 
|                                         |                                                              | Standby letters of credit    |   |                   | 509,000    |                   |   |             | 509,000    |       |   |             | 279,000    |  |   |             | 279,000    | 

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|17. |  | PARENT ONLY CONDENSED FINANCIAL STATEMENTS                                                                                                                                     
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company commenced operations on June 21, 2002. As a result,
comparative financial information is not available. The information
below is presented as of December 31, 2002.

BALANCE SHEET

DECEMBER 31, 2002

|                                                               |                                        |   |                            |                                      |  |            |  | 
|-------------------------------------------------------------- | -------------------------------------- | - | -------------------------- | ------------------------------------ |  | ---------- |  | 
|                                                               |                                        |   |                            | ASSETS                               |  |            |  | 
|Cash and due from banks                                        |                                        | $ | 3,305,000                  |                                     
|Investment in bank subsidiary                                  |                                        |   | 25,721,000                 |                                     
|Investment in trust subsidiary                                 |                                        |   | 188,000                    |                                     
|Other assets                                                   |                                        |   | 265,000                    |                                     
|                                                               |                                        |   |                            |                                     
|                                                               |                                        | $ | 29,479,000                 |                                     
|                                                               |                                        |   |                            |                                     
|                                                               |                                        |   |                            | LIABILITIES AND
SHAREHOLDERS EQUITY |  |            |  | 
|Other liabilities                                              |                                        | $ | 5,000                      |                                     
|Junior subordinated debentures due to subsidiary grantor trust |                                        |   | 6,186,000                  |                                     
|                                                               |                                        |   |                            |                                     
|                                                               |                                        |   | Total liabilities          |                                      |  | 6,191,000  | 
|                                                               |                                        |   |                            |                                     
|Shareholders equity:                                          |                                        |   |                            |                                     
|                                                               | Common stock                           |   |                            | 3,743,000                            | 
|                                                               | Retained earnings                      |   |                            | 19,135,000                           | 
|                                                               | Accumulated other comprehensive income |   |                            | 410,000                              | 
|                                                               |                                        |   |                            |                                     
|                                                               |                                        |   | Total shareholders equity |                                      |  | 23,288,000 | 
|                                                               |                                        |   |                            |                                     
|                                                               |                                        | $ | 29,479,000                 |                                     
|                                                               |                                        |   |                            |                                     

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|17. |  | PARENT ONLY CONDENSED FINANCIAL STATEMENTS(Continued)
|--- |  | -----------------------------------------------------

STATEMENT OF INCOME

For the Period From June 21, 2002 (Date Operations Commenced)
to December 31, 2002

|                                             |                                                                            |                                                            |           |         |           | 
|-------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------------------------------- | --------- | ------- | --------- | 
|Income:                                      |                                                                            |                                                            |           |        
|                                             | Dividends declared by bank subsidiary                                      |                                                            | $         | 271,000 |          
|                                             |                                                                            |                                                            |           |        
|Expenses:                                    |                                                                            |                                                            |           |        
|                                             | Interest on junior subordinated debentures due to
subsidiary grantor trust |                                                            |           | 87,000  |          
|                                             | Other expenses                                                             |                                                            |           | 129,000 |          
|                                             |                                                                            |                                                            |           |        
|                                             |                                                                            | Total expenses                                             |           |         | 216,000   | 
|                                             |                                                                            |                                                            |           |        
|                                             |                                                                            | Income before equity in undistributed
income of subsidiary |           |         | 55,000    | 
|Equity in undistributed income of subsidiary |                                                                            |                                                            | 1,225,000 |        
|                                             |                                                                            |                                                            |           |        
|                                             |                                                                            | Income before income taxes                                 |           |         | 1,280,000 | 
|Income tax benefit                           |                                                                            |                                                            | 84,000    |        
|                                             |                                                                            |                                                            |           |        
|                                             |                                                                            | Net income                                                 |           | $       | 1,364,000 | 
|                                             |                                                                            |                                                            |           |        

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|17. |  | PARENT ONLY CONDENSED FINANCIAL STATEMENTS(Continued)
|--- |  | -----------------------------------------------------

STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

For the Period From June 21,
2002 (Date Operations Commenced) to December
31, 2002

|                                                                       |                                                      |                                                               |                            |   |              |   |           |   |          |   |             |           |          |   |               |  |               |   |               |           |         |  |   |           |         |           | 
|---------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------------- | -------------------------- | - | ------------ | - | --------- | - | -------- | - | ----------- | --------- | -------- | - | ------------- |  | ------------- | - | ------------- | --------- | ------- |  | - | --------- | ------- | --------- | 
|                                                                       |                                                      |                                                               |                            |   | Common Stock |   |           |   |          |   | Accumulated |           |          |   |               |  |               |   |              
|                                                                       |                                                      |                                                               |                            |   |              |   |           |   |          |   | Other       |           |          |   |               |  |               |   |              
|                                                                       |                                                      |                                                               |                            |   |              |   |           |   |          |   |             |           | Retained |   | Comprehensive |  | Shareholders' |   | Comprehensive
|                                                                       |                                                      |                                                               |                            |   | Shares       |   | Amount    |   | Earnings |   | Income      |           | Equity   |   | Income       
|                                                                       |                                                      |                                                               |                            |   |              |   |           |   |          |   |             |           |          |   |              
|Stock issued to effect merger with the Bank                            |                                                      |                                                               | 3,196,529                  |   |              | $ | 3,656,000 |   |          | $ | 17,932,000  |           |          | $ | 146,000       |  |               | $ | 21,734,000    |           |         |  |   |          
|Comprehensive income:                                                  |                                                      |                                                               |                            |   |              |   |           |   |          |   |             |           |          |   |               |  |               |   |               |           |         |  |   |          
|                                                                       | Net income (including dividend received
of $271,000) |                                                               |                            |   |              |   |           |   |          |   |             | 1,364,000 |          |   |               |  |               |   |               | 1,364,000 |         |  | $ | 1,364,000 |        
|                                                                       | Other comprehensive income, net of tax:              |                                                               |                            |   |              |   |           |   |          |   |             |           |          |   |               |  |               |   |               |           |         |  |   |           |        
|                                                                       |                                                      | Unrealized income on available-for-sale
investment securities |                            |   |              |   |           |   |          |   |             |           |          |   |               |  | 264,000       |   |               |           | 264,000 |  |   |           | 264,000 |          
|                                                                       |                                                      |                                                               |                            |   |              |   |           |   |          |   |             |           |          |   |               |  |               |   |               |           |         |  |   |          
|                                                                       |                                                      |                                                               | Total comprehensive income |   |              |   |           |   |          |   |             |           |          |   |               |  |               |   |               |           |         |  |   |           | $       | 1,628,000 | 
|                                                                       |                                                      |                                                               |                            |   |              |   |           |   |          |   |             |           |          |   |               |  |               |   |               |           |         |  |   |          
|Cash dividend - $.05 per share                                         |                                                      |                                                               |                            |   |              |   |           |   |          |   | (161,000    | )         |          |   |               |  |               |   | (161,000      | )         |         |  |   |          
|Stock options exercised and related tax
benefit                        |                                                      |                                                               | 13,112                     |   |              |   | 91,000    |   |          |   |             |           |          |   |               |  |               |   | 91,000        |           |         |  |   |          
|Fractional shares repurchased as a result
of three-for-two stock split |                                                      |                                                               | (245                       | ) |              |   | (4,000    | ) |          |   |             |           |          |   |               |  |               |   | (4,000        | )         |         |  |   |          
|                                                                       |                                                      |                                                               |                            |   |              |   |           |   |          |   |             |           |          |   |               |  |               |   |               |           |         |  |   |          
|Balance, December 31, 2002                                             |                                                      |                                                               | 3,209,396                  |   |              | $ | 3,743,000 |   |          | $ | 19,135,000  |           |          | $ | 410,000       |  |               | $ | 23,288,000    |           |         |  |   |          
|                                                                       |                                                      |                                                               |                            |   |              |   |           |   |          |   |             |           |          |   |               |  |               |   |               |           |         |  |   |          

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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



|17. |  | PARENT ONLY CONDENSED FINANCIAL STATEMENTS(Continued)
|--- |  | -----------------------------------------------------

STATEMENT OF CASH FLOWS

For the Period From June 21, 2002 (Date Operations Commenced)
to December 31, 2002

|                                      |                                          |                                                                                          |                                          |                                           |            |            |            |  
|------------------------------------- | ---------------------------------------- | ---------------------------------------------------------------------------------------- | ---------------------------------------- | ----------------------------------------- | ---------- | ---------- | ---------- | -
|                                      | Cash flows from operating activities:    |                                                                                          |                                          |                                           |           
|                                      |                                          | Net income                                                                               |                                          | $                                         | 1,364,000  |           
|                                      |                                          | Adjustments to reconcile net income to net cash
used in operating activities:            |                                          |                                           |            |           
|                                      |                                          |                                                                                          | Undistributed net income of subsidiaries |                                           |            | (1,225,000 | )         
|                                      |                                          |                                                                                          | Increase in other assets                 |                                           |            | (265,000   | )         
|                                      |                                          |                                                                                          | Increase in other liabilities            |                                           |            | 5,000      |           
|                                      |                                          |                                                                                          |                                          |                                          
|                                      |                                          |                                                                                          |                                          | Net cash used in operating activities     |            |            | (121,000   | )
|                                      |                                          |                                                                                          |                                          |                                          
|                                      | Cash flows from investing activities:    |                                                                                          |                                          |                                           |           
|                                      |                                          | Investment in bank subsidiary                                                            |                                          |                                           | (2,500,000 | )         
|                                      |                                          | Investment in trust subsidiary                                                           |                                          |                                           | (186,000   | )         
|                                      |                                          |                                                                                          |                                          |                                          
|                                      |                                          |                                                                                          |                                          | Net cash used in investing activities     |            |            | (2,686,000 | )
|                                      |                                          |                                                                                          |                                          |                                          
|Cash flows from financing activities: |                                          |                                                                                          |                                          |                                          
|                                      |                                          | Proceeds from short-term borrowings                                                      |                                          |                                           | 35,000     |           
|                                      |                                          | Proceeds from the issuance of junior subordinated
debentures to subsidiary grantor trust |                                          |                                           | 6,186,000  |           
|                                      |                                          | Repayment of short-term borrowings                                                       |                                          |                                           | (35,000    | )         
|                                      |                                          | Dividends paid                                                                           |                                          |                                           | (161,000   | )         
|                                      |                                          | Cash paid to repurchase fractional shares                                                |                                          |                                           | (4,000     | )         
|                                      |                                          | Proceeds from the exercise of stock options                                              |                                          |                                           | 91,000     |           
|                                      |                                          |                                                                                          |                                          |                                          
|                                      |                                          |                                                                                          |                                          | Net cash provided by financing activities |            |            | 6,112,000  |  
|                                      |                                          |                                                                                          |                                          |                                          
|                                      | Cash and cash equivalents at end of year |                                                                                          | $                                        | 3,305,000                                 |           
|                                      |                                          |                                                                                          |                                          |                                          
|                                      | Non-cash investing activities:           |                                                                                          |                                          |                                           |           
|                                      |                                          | Issuance of common stock in exchange for the common
stock of the Bank                    |                                          | $                                         | 3,656,000  |           
|                                      |                                          | Net change in unrealized gain on investment securities
available-for-sale                |                                          | $                                         | 448,000    |           

F-42



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##### Table of Contents






|        |  |                                                                                     
|------- |  | ------------------------------------------------------------------------------------
|Item 8. |  | Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
|        |  |                                                                                     
|        |  | None.                                                                               




PART III




|        |  |                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------
|Item 9. |  | Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

The information required by this Item can be found in Plumas Bancorps
Definitive Proxy Statement pursuant to Regulation 14A under the Securities
Exchange Act of 1934, and is by this reference incorporated herein.




|         |  |                       
|-------- |  | ----------------------
|Item 10. |  | Executive Compensation

The information required by this Item can be found in Plumas Bancorps
Definitive Proxy Statement pursuant to Regulation 14A under the Securities
Exchange Act of 1934, and is by this reference incorporated herein.




|         |  |                                                                                               
|-------- |  | ----------------------------------------------------------------------------------------------
|Item 11. |  | Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

Stock Option Information.Upon completion of the reorganization, the
Company adopted the two outstanding shareholder approved stock option plans of
Plumas Bank, the 1991 and 2001 Stock Option Plans. Under these plans 775,618
shares of the Companys stock were reserved for issuance to employees and
directors at December 31, 2002. As of December 31, 2002, 262,693 options with
a weighted average exercise price of $10.04 were outstanding, of which 162,118
options with a weighted average exercise price of $7.05 were exercisable. The
following table summarizes the Companys securities authorized for issuance
under these equity plans.

Plumas Bancorp
Equity Compensation Plan Information

|                                                           |  |                         |         |                   |  |                           |       |                       |  |                         |         | 
|---------------------------------------------------------- |  | ----------------------- | ------- | ----------------- |  | ------------------------- | ----- | --------------------- |  | ----------------------- | ------- | 
|                                                           |  |                         |         |                   |  |                           |       |                       |  | Number of securities   
|                                                           |  |                         |         |                   |  |                           |       |                       |  | remaining available for
|                                                           |  |                         |         |                   |  | Weighted-average          |       | future issuance under
|                                                           |  | Number of securities to |         | exercise price of |  | equity compensation plans
|                                                           |  | be issued upon exercise |         | outstanding       |  | (excluding securities    
|                                                           |  | of outstanding options, |         | options, warrants |  | reflected in column      
|                                                           |  | warrants and rights     |         | and rights        |  | (a)                      
|                                                           |  |                         |         |                   |  |                          
|                                                           |  | (a)                     |         | (b)               |  | (c)                      
|                                                           |  |                         |         |                   |  |                          
|Equity compensation plans
approved by security holders     |  |                         | 262,693 |                   |  | $                         | 10.52 |                       |  |                         | 512,925 | 
|Equity compensation plans not
approved by security holders |  |                         |        |                   |  |                           |      |                       |  |                         |        | 
|                                                           |  |                         |         |                   |  |                           |       |                       |  |                         |         | 
|Total                                                      |  |                         | 262,693 |                   |  | $                         | 10.52 |                       |  |                         | 512,925 | 
|                                                           |  |                         |         |                   |  |                           |       |                       |  |                         |         | 

Additional information required by this Item can be found in Plumas
Bancorps Definitive Proxy Statement pursuant to Regulation 14A under the
Securities Exchange Act of 1934, and is by this reference incorporated herein.

38



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##### Table of Contents






|         |  |                                               
|-------- |  | ----------------------------------------------
|Item 12. |  | Certain Relationships and Related Transactions

Some of the directors and executive officers of Plumas Bancorp and their
immediate families, as well as the companies with which they are associated,
are customers of, or have had banking transactions with, Plumas Bancorp in the
ordinary course of Plumas Bancorps business, and Plumas Bancorp expects to
have banking transactions with such persons in the future. In managements
opinion, all loans and commitments to lend in such transactions were made in
compliance with applicable laws and on substantially the same terms, including
interest rates and collateral, as those prevailing for comparable transactions
with other persons of similar creditworthiness and in the opinion of management
did not involve more than a normal risk of collectibility or present other
unfavorable features.




|         |  |                                   
|-------- |  | ----------------------------------
|Item 13. |  | Exhibits and Reports on Form 8-KSB

|    |  |         
|--- |  | --------
|(a) |  | Exhibits

The following documents are included or incorporated by reference in this
Annual Report on Form 10K.

| |      |                                                                                                                                                                                                                          
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.                                                                                
| |      |                                                                                                                                                                                                                          
| | 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 | Employment Agreement of William E. Elliott dated May 16, 2001, is
included as Exhibit 10.1 to the Registrants 10-QSB for June 30
2002, which is incorporated by this reference herein.                                  
| |      |                                                                                                                                                                                                                          
| | 10.2 | Incentive Stock Option Agreement as amended of William E. Elliott
dated November 18, 1998, is included as Exhibit 10.2 to the
Registrants 10-QSB for June 30 2002, 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 | Incentive Stock Option Agreement as amended of Douglas N. Biddle
dated November 18, 1998, is included as Exhibit 10.5 to the
Registrants 10-QSB for June 30 2002, 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.                            
| |      |                                                                                                                                                                                                                          
| | 10.8 | Incentive Stock Option Agreement as amended of Dennis C. Irvine
dated November 18, 1998, is included as Exhibit 10.8 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.      

39



---



##### Table of Contents



| |       |                                                                                                                                                                                                                            
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.                              
| |       |                                                                                                                                                                                                                            
| | 10.11 | Incentive Stock Option Agreement as amended of Robert T. Herr dated
July 19, 2000, is included as Exhibit 10.11 to the Registrants
10-QSB for June 30 2002, which is incorporated by this reference
herein.               
| |       |                                                                                                                                                                                                                            
| | 10.12 | Non-Qualified Stock Option Agreement as amended of Jerry V. Kehr
dated November 18, 1998, is included as Exhibit 10.12 to the
Registrants 10-QSB for June 30 2002, 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 | Non-Qualified Stock Option Agreement as amended of Daniel E. West
dated November 19, 1997, is included as Exhibit 10.16 to the
Registrants 10-QSB for June 30 2002, which is incorporated by this
reference herein.       
| |       |                                                                                                                                                                                                                            
| | 10.17 | Non-Qualified Stock Option Agreement as amended of Daniel E. West
dated November 18, 1998, is included as Exhibit 10.17 to the
Registrants 10-QSB for June 30 2002, 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 | Non-Qualified Stock Option Agreement as amended of Alvin G.
Blickenstaff dated November 18, 1998, is included as Exhibit 10.20
to the Registrants 10-QSB for June 30 2002, 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.                                 
| |       |                                                                                                                                                                                                                            
| | 10.23 | Non-Qualified Stock Option Agreement as amended of Gerald W.
Fletcher dated November 18, 1998, is included as Exhibit 10.23 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.                                   
| |       |                                                                                                                                                                                                                            
| | 10.26 | Non-Qualified Stock Option Agreement as amended of Arthur C. Grohs
dated November 18, 1998, is included as Exhibit 10.26 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                                                                                                                                                  

40



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##### Table of Contents



| |       |                                                                                                                                                                                                                         
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       | Exhibit 10.28 to the Registrants 10-QSB for June 30
2002, which is incorporated by this reference herein.                                                                                                              
| |       |                                                                                                                                                                                                                         
| | 10.29 | Non-Qualified Stock Option Agreement as amended of Christine
McArthur dated August 16, 2000, is included as Exhibit 10.29 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.                                
| |       |                                                                                                                                                                                                                         
| | 10.32 | Non-Qualified Stock Option Agreement as amended of Terrance J.
Reeson dated November 18, 1998, is included as Exhibit 10.32 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.                                
| |       |                                                                                                                                                                                                                         
| | 10.35 | Non-Qualified Stock Option Agreement as amended of Walter Sphar
dated November 18, 1998, is included as Exhibit 10.35 to the
Registrants 10-QSB for June 30 2002, which is incorporated by this
reference herein.      
| |       |                                                                                                                                                                                                                         
| | 10.36 | Amended and Restated Director Retirement Agreement of Walter Sphar
dated April 20, 2000, is included as Exhibit 10.36 to the
Registrants 10-QSB for June 30 2002, which is incorporated by this
reference herein.      
| |       |                                                                                                                                                                                                                         
| | 10.37 | Consulting Agreement of Walter Sphar dated May 9, 2000, is included
as Exhibit 10.37 to the Registrants 10-QSB for June 30 2002, which
is incorporated by this reference herein.                                       
| |       |                                                                                                                                                                                                                         
| | 10.38 | Non-Qualified Stock Option Agreement as amended of Thomas Watson
dated November 21, 2001, is included as Exhibit 10.38 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 | 1991 Stock Option Plan as amended, is included as Exhibit 10.40 to
the Registrants 10-QSB for June 30 2002, which is incorporated by
this reference herein.                                                            
| |       |                                                                                                                                                                                                                         
| | 10.41 | 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.                                                            
| |       |                                                                                                                                                                                                                         
| | 10.42 | 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                                                                                                   
| |       |                                                                                                                                                                                                                         
| | 11    | Computation of per share earnings appears in the attached 10-QSB
under Plumas Bancorp Notes to Consolidated Financial Statements as
Footnote 4  Earnings Per Share Computation.                                        
| |       |                                                                                                                                                                                                                         
| | 13.01 | Form 10-QSB for the quarterly period ended March 31, 2002.                                                                                                                                                              
| |       |                                                                                                                                                                                                                         
| | 13.02 | Form 10-QSB for the quarterly period ended June 30, 2002.                                                                                                                                                               
| |       |                                                                                                                                                                                                                         
| | 13.03 | Form 10-QSB for the quarterly period ended September 30, 2002.                                                                                                                                                          
| |       |                                                                                                                                                                                                                         
| | 21.01 | Plumas Bank - California.                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                         
| | 21.02 | Plumas Statutory Trust I  Connecticut.                                                                                                                                                                                 
| |       |                                                                                                                                                                                                                         
| | 23.01 | Independent auditor's consent letter dated March 28, 2003.                                                                                                                                                              

41



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##### Table of Contents





|(b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On October 16, 2002, the Company filed a Current Report on Form 8-K. The
Current Report included as an exhibit, the press release dated October 16,
2002, filed by the Company containing unaudited financial information and
accompanying discussion for the quarter ended September 30,
2002.
On October 28, 2002, the Company filed a Current Report on Form 8-K. The
Current Report included as an exhibit, the press release dated October 28,
2002, filed by the Company containing unaudited financial information and
announcement of a stock split and special cash dividend.




Item 14. Controls and Procedures

The Companys Chief Executive Officer and Chief Financial Officer, based
on their evaluation within 90 days prior to the date of this report of the
Companys disclosure controls and procedures (as defined in Exchange Act Rule
13a  14(c)), have concluded that the Companys disclosure controls and
procedures are adequate and effective for purposes of Rule 13a  14(c) in
timely alerting them to material information relating to the Company required
to be included in the Companys filings with the SEC under the Securities
Exchange Act of 1934.

There were no significant changes in the Companys internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their evaluation.

42



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##### Table of Contents






SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                            |  |                                                                                                                                                                                                                                                                                                                                                                                     
|--------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PLUMAS BANCORP
(Registrant) |  |                                                                                                                                                                                                                                                                                                                                                                                     
|                           
|Date: March  21, 2003       |  |                                                                                                                                                                                                                                                                                                                                                                                     
|                           
|                            |  | I certify that this periodic report containing the
issuers financial statements fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that
information contained in this periodic reports fairly
presents, in all material respects, the financial
condition and results of operations of the issuer.
|                           
|                            |  | /s/ WILLIAM E. ELLIOTTWilliam E. ElliottPresident/Chief Executive Officer                                                                                                                                                                                                                                                                                                           
|                           
|                            |  | I certify that this periodic report containing the
issuers financial statements fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that
information contained in this periodic reports fairly
presents, in all material respects, the financial
condition and results of operations of the issuer.
|                           
|                            |  | /s/ DOUGLAS N. BIDDLEDouglas N. BiddleExecutive Vice President Chief Financial Officer                                                                                                                                                                                                                                                                                              
|                           
|                            |  | I certify that this periodic report containing the
issuers financial statements fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that
information contained in this periodic reports fairly
presents, in all material respects, the financial
condition and results of operations of the issuer.
|                           
|                            |  | /s/ ANDREW J. RYBACKAndrew J. Ryback
Senior Vice President Controller and Principal Accountant                                                                                                                                                                                                                                                                                      

43



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##### Table of Contents



I, Andrew J. Ryback, certify that:



|1. |  | I have reviewed this annual report on Form 10-KSB of Plumas
Bancorp;                                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weakness in internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, weather or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                      



|6. |  | The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date: | March 21, 2003
|----- | --------------

/s/  Andrew J. Ryback

Andrew J. Ryback, SVP & Controller

44



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##### Table of Contents



I, Douglas N. Biddle, certify that:



|7.  |  | I have reviewed this annual report on Form 10-KSB of Plumas
Bancorp;                                                                                                                                                                                                                                                    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|8.  |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|   
|9.  |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;                   
|   
|10. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|11. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weakness in internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, weather or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                      



|12. |  | The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date: | March 21, 2003
|----- | --------------

/s/  Douglas N. Biddle

Douglas N. Biddle, EVP & CFO

45



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##### Table of Contents



I, William E. Elliott, certify that:



|13. |  | I have reviewed this annual report on Form 10-KSB of Plumas
Bancorp;                                                                                                                                                                                                                                                    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|14. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|   
|15. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;                   
|   
|16. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|17. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weakness in internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, weather or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                      



|18. |  | The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date: March 21, 2003
|--------------------

/s/ William E. Elliott

William E. Elliott, President and CEO

46



---



##### Table of Contents



Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

|                                                        |  |                      
|------------------------------------------------------- |  | ---------------------
|/s/ JERRY V. KEHR                                       |  | Dated: March 21, 2003
|                                                        |  |                      
|Jerry V. Kehr, Director and Chairman of the Board       |  |                      
|                                                        |  |                      
|/s/ DANIEL E. WEST                                      |  | Dated: March 21, 2003
|                                                        |  |                      
|Daniel E. West, Director and Vice Chairman of the
Board |  |                      
|                                                        |  |                      
|/s/ ALVIN G. BLICKENSTAFF                               |  | Dated: March 21, 2003
|                                                        |  |                      
|Alvin G. Blickenstaff, Director                         |  |                      
|                                                        |  |                      
|/s/ WILLIAM E. ELLIOTT                                  |  | Dated: March 21, 2003
|                                                        |  |                      
|William E. Elliott, Director                            |  |                      
|                                                        |  |                      
|/s/ GERALD W. FLETCHER                                  |  | Dated: March 21, 2003
|                                                        |  |                      
|Gerald W. Fletcher, Director                            |  |                      
|                                                        |  |                      
|/s/ ARTHUR C. GROHS                                     |  | Dated: March 21, 2003
|                                                        |  |                      
|Arthur C. Grohs, Director                               |  |                      
|                                                        |  |                      
|/s/ CHRISTINE MCARTHUR                                  |  | Dated: March 21, 2003
|                                                        |  |                      
|Christine McArthur, Director                            |  |                      
|                                                        |  |                      
|/s/ TERRANCE J. REESON                                  |  | Dated: March 21, 2003
|                                                        |  |                      
|Terrance J. Reeson, Director                            |  |                      
|                                                        |  |                      
|/s/ WALTER SPHAR                                        |  | Dated: March 21, 2003
|                                                        |  |                      
|Walter Sphar, Director                                  |  |                      
|                                                        |  |                      
|/s/ THOMAS WATSON                                       |  | Dated: March 21, 2003
|                                                        |  |                      
|Thomas Watson, Director                                 |  |                      

47