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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-K
  þ
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2004 or  o
    Transaction report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 000-49883   PLUMAS BANCORP
  California
    
    75-2987096(State or other jurisdiction ofincorporation or organization)
    
    (IRS Employer Identification No.)35 S. Lindan Avenue, Quincy, CA
    
    95971(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (530) 283-7305   Securities to be registered pursuant to Section 12(b) of the Act: None. Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, no par value.    Yes
    
    Noþ
    
    o
 Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not 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-K or any amendment
to this form 10-K. þ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). Yes
    
    Noo
    
    þ
 As of June 30, 2004, the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant was approximately $52.6 million, based on the closing
price reported to the Registrant on that date of $18.35 per share. Shares of Common Stock held by each officer and director have been excluded in that such
persons may be deemed to be affiliates. This determination of the affiliate status is not
necessarily a conclusive determination for other purposes. The
number of shares of Common Stock of the registrant outstanding as of
March 28, 2005 was
3,287,829. Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2005
Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to
SEC Regulation 14A are incorporated by reference in Part III, Items 10-14.




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TABLE OF CONTENTS PagePART IItem 1. Business
    
    
    3Item 2. Properties
    
    
    16Item 3. Legal Proceedings
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17PART IIItem 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    18Item 6. Selected Financial Data
    
    
    20Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 8. Financial Statements and Supplementary Data
    
    
    42Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    43Item 9A. Controls and Procedures
    
    
    43PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    43Item 11. Executive Compensation
    
    
    43Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    43Item 13. Certain Relationships and Related Transactions
    
    
    43Item 14. Principal Accountant Fees and Services
    
    
    43PART IVItem 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    44EXHIBIT 23.01EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 31.3EXHIBIT 32.1EXHIBIT 32.2EXHIBIT 32.3
  2




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PART I Forward-Looking Information This Annual Report on Form 10-K includes forward-looking statements and information is subject to
the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements (which involve Plumas Bancorps
(the Companys) plans, beliefs and goals, refer to estimates or use similar terms) involve
certain risks and uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks and uncertainties include, but are not limited to, the
following factors:  
    Competitive pressure in the banking industry, competition in the markets the Company
operates in and changes in the regulatory environment
    Changes in the interest rate environment and volatility of rate sensitive deposits
    Declines in the health of the economy, nationally or regionally, which could reduce the
demand for loans or reduce the value of real estate collateral securing most of the
Companys loans
    Credit quality deterioration, which could cause an increase in the provision for loan
and lease losses
    Devaluation of fixed income securities
    Asset/liability matching risks and liquidity risks
    Loss of key personnel
    Operational interruptions including data processing systems failure and fraud The Company undertakes no obligation to revise or publicly release the results of any revision to
these forward-looking statements. For additional information concerning risks and uncertainties
related to the Company and its operations, please refer to Managements Discussion and Analysis of
Financial Condition and Results of Operations in Item 7 and other information in this Report. 
 ITEM 1. BUSINESS General The Company. Plumas Bancorp (the Company) is a California corporation registered as a bank
holding company under the Bank Holding Company Actof 1956, as amended, and is headquartered in
Quincy, California. The Company was incorporated in January 2002 and acquired all of the
outstanding shares of Plumas Bank (the Bank) in June 2002. The Companys principal subsidiary is
the Bank, and the Company exists primarily for the purpose of holding the stock of the Bank and of
such other subsidiaries it may acquire or establish. At the present time, the Companys only other
subsidiary is Plumas Statutory Trust I, which was formed in September 2002 solely to facilitate the
issuance of trust preferred securities. The Companys principal source of income is dividends from the Bank, but the Company intends to
explore supplemental sources of income in the future. The cash outlays of the Company, including
(but not limited to) the payment of dividends to shareholders, if and when declared by the Board of
Directors, and the cost of servicing debt, will generally be paid from dividends paid to the
Company by the Bank. At December 31, 2004, the Company had consolidated assets of $417.3 million, deposits of $378.6
million and shareholders equity of $27.9 million. The Companys liabilities include $6.2 million
in junior 3




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subordinated deferrable interest debentures issued in conjunction with the trust preferred
securities issued by Plumas Statutory Trust I (the Trust) in September 2002. The Trust is
further discussed in the section titled Trust Preferred Securities. References herein to the Company, we, us and our refer to Plumas Bancorp and its
consolidated subsidiary, unless the context indicates otherwise. Our operations are conducted at
35 South Lindan Avenue, Quincy, California. Our annual, quarterly and other reports under the
Securities Exchange Act of 1934 with the Securities and Exchange Commission and are posted and are
available at no cost on the Companys website, www.plumasbank.com, as soon as reasonably
practicable after the Company files such documents with the SEC. These reports are also available
through the SECs website at www.sec.gov. The Bank.The Bank is a California state-chartered bank that was incorporated in July 1980 and
opened for business in December 1980. The Banks Administrative Office is also located at 35 South
Lindan Avenue, Quincy, California. At December 31, 2004 the Bank had approximately $416.9 million
in assets, $266.9 million in loans and $378.6 million in deposits (including a deposit of $29
thousand from the Company). It is currently the largest independent bank headquartered in Plumas
County. The Banks deposit accounts are insured by the Federal Deposit Insurance Corporation (the
FDIC) up to maximum insurable amounts. The Bank is not a member of the Federal Reserve System. The Banks primary service area covers the Northeastern corner of California, with Lake Tahoe to
the South and the Oregon border to the North. The Bank through its twelve branch network, serves
the seven contiguous counties of Plumas, Nevada, Sierra, Placer, Lassen, Modoc and Shasta. The
branches are located in the communities of Quincy, Portola, Greenville, Westwood, Truckee, Fall
River Mills, Alturas, Susanville, Chester, Tahoe City, Kings Beach and Loyalton. Additionally,
within our service area, the Bank maintains sixteen automated teller machines (ATMs) tied in with
major statewide and national networks. The Bank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 Banks primary service areas. With a predominant focus on personal service, the Bank has positioned itself as a multi-community
independent bank serving the financial needs of individuals and businesses within the Banks
geographic footprint. Our principal retail lending services include consumer, home equity and home
mortgage loans. Our principal commercial lending services include term real estate, land
development and construction loans. In addition, we provide commercial and industrial term,
government-guaranteed and agricultural loans as well as credit lines. The Government-guaranteed lending center, headquartered in Truckee, provides Small Business
Administration (SBA) lending and USDA Rural Development lending. The Bank produces 9-12 of these
types of loans annually and it is anticipated that this will continue at the same level for the
foreseeable future. Also in Truckee, we have a senior commercial lender charged with the
production and maintenance of a significant participation loan portfolio. $33.5 million in new
participations were acquired in 2004. The Agricultural Credit Centers located in Susanville and Alturas provide a complete line of credit
services in support of the agricultural activities which are key to the continued economic
development of the communities we serve. Ag lending clients include a full range of individual
farming customers, small- to medium-sized business farming organizations and corporate farming
units. As of December 31, 2004, the principal areas in which we directed our lending activities, and the
percentage of our total loan portfolio for which each of these areas was responsible, were as
follows: (i) loans secured by real estate  50.2%; (ii) commercial and industrial (including SBA)
loans  16.0%; (iii) consumer loans (including residential equity lines of credit)  22.1%; and
(iv) agricultural loans (including agricultural real estate loans)  11.7%. 4




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In addition to the lending activities noted above, we offer a wide range of deposit products for
the retail and commercial banking markets including checking, interest-bearing checking, business
sweep, savings, time deposit and retirement accounts, as well as telephone banking and internet
banking with bill-pay options. As of December 31, 2004, the Bank had 34,969 deposit accounts with
balances totaling approximately $378.6 million, compared to 32,812 deposit accounts with balances
totaling approximately $355.9 million at December 31, 2003. We attract deposits through our
customer-oriented product mix, competitive pricing, convenient locations, extended hours and
drive-up banking, all provided with the highest level of customer service. Most of our deposits are attracted from individuals, business-related sources and smaller municipal
entities. This mix of deposit customers resulted in a relatively modest average deposit balance of
approximately $11,000 at December 31, 2004, but makes us less vulnerable to adverse effects from
the loss of depositors who may be seeking higher yields in other markets or who may otherwise draw
down balances for cash needs. We do not accept brokered deposits. We also offer a multitude of other products and services to our customers to complement the lending
and deposit services previously reviewed. These include cashiers checks, travelers checks,
bank-by-mail, ATMs, night depository, safe deposit boxes, direct deposit, electronic funds
transfers, on-line banking, and other customary banking services. In order to provide non-deposit investment options we have developed a strategic alliance with
Financial Network Investment Corporation (FNIC). Through this arrangement, certain employees of
the Bank are also registered and licensed representatives of FNIC. These employees provide our
customers throughout our branch network with convenient access to annuities, insurance products,
mutual funds, and a full range of investment products. We have not engaged in any material research activities relating to the development of new products
or services during the last two fiscal years; however, a substantial investment of time and capital
has been devoted to the improvement of existing Bank services during the last twelve months.
Specifically, in 2004 the bank hired a Dealer Services Manager to accommodate a growing network of
auto dealers. In conjunction with this, the Bank established a dealer loan center to handle the
more than 200 applications received each month. The Bank now serves more than 30 auto dealers in
the Quincy, Chester, Red Bluff, Corning and Redding areas. The officers and employees of the Bank are continually engaged in marketing activities, including
the evaluation and development of new products and services to enable the Bank to retain and
improve its competitive position in its service area. Alternatives for future electronic banking
delivery are currently being examined in an effort to keep pace with evolving technology and
continue to provide superior customer service. We hold no patents or licenses (other than licenses required by appropriate bank regulatory
agencies), franchises, or concessions. Our business has a modest seasonal component due to the
heavy agricultural and tourism orientation of some of the communities we serve. As our branches in
less rural areas such as Truckee have expanded, however, the agriculture-related base has become
less significant. We are not dependent on a single customer or group of related customers for a
material portion of our deposits, nor is a material portion of our loans concentrated within a
single industry or group of related industries. There has been no material effect upon our capital
expenditures, earnings, or competitive position as a result of Federal, state, or local
environmental regulation. Commitment to our Communities.The Board of Directors and Management believe that the Company
plays an important role in the economic well being of the communities it serves. Our 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 the Bank. 5




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We offer various loan products 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, mortgage and government-guaranteed
community infrastructure loans. Many banking decisions are made locally with the goal of
maintaining customer satisfaction. Recent Developments.In November of 2003, we expanded into Placer County with the opening of our
de novo branch in the community of Tahoe City. Also in November 2003, we increased our deposit
base by $45 million within our service area through the acquisition of five branches from a
competitor. The branch acquisition involved the purchase of deposits and certain fixed and other
assets related to the branches located in the communities of Kings Beach, Loyalton, Portola, Quincy
and Truckee. The deposits of the Portola, Quincy and Truckee branches were consolidated into our
existing branches in those communities while the Kings Beach and Loyalton offices were added to our
existing branch network. Trust Preferred Securities.During the third quarter of 2002, 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 (the Debentures) in the aggregate principal amount of $6,186,000. In
exchange for these debentures the Trust paid the Company $6,186,000. The Trust funded its purchase
of debentures by issuing $6,000,000 in floating rate capital securities (trust preferred
securities), which were sold to a third party. These trust preferred securities qualify as Tier I
capital under current 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
based on the three month LIBOR (London Interbank Offered Rate) plus 3.40%, not to exceed 11.9%,
adjustable quarterly. The proceeds from the sale of the Debentures were primarily used by the
Company to inject capital into the Bank. The Debentures and trust preferred 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 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 trust preferred securities are mandatorily redeemable upon maturity of the Debentures on
September 26, 2032, or upon earlier redemption as provided in the indenture. The Trust is not consolidated into the Companys consolidated financial statements and,
accordingly, is accounted for under the equity method and the junior subordinated debentures are
reflected as debt on the consolidated balance sheet. Business Concentrations.No individual or single group of related customer accounts is considered
material in relation to the Banks assets or deposits, or in relation to our overall business.
However, at December 31, 2004 approximately 66.9% of the Banks total loan portfolio consisted of
real estate-secured loans, including real estate mortgage loans, real estate construction loans,
consumer equity lines of credit, and agricultural loans secured by real estate. Moreover, our
business activities are currently focused in the California counties of Plumas, Nevada, Placer,
Lassen, Modoc, Shasta and Sierra. Consequently, our results of operations and financial condition
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 our operations
in these areas of California exposes us 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. With respect to commercial bank competitors, the business is largely dominated by a
relatively small number of major banks with many offices operating over a wide geographical area.
These 6




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banks have, among other advantages, the ability to finance wide-ranging and effective advertising
campaigns and to allocate their resources to regions of highest yield and demand. Many of the
major banks operating in the area offer certain services that we do not offer directly but may
offer indirectly through correspondent institutions. By virtue of their greater total
capitalization, such banks also have substantially higher lending limits than we do. For customers
whose loan demands exceed our legal lending limit, we attempt to arrange for such loans on a
participation basis with correspondent banks. In addition to other banks, our competitors include savings institutions, credit unions, and
numerous non-banking institutions such as finance companies, leasing companies, insurance
companies, brokerage firms, and investment banking firms. In recent years, increased competition
has also developed from specialized finance and non-finance companies that offer wholesale finance,
credit card, and other consumer finance services, including on-line banking services and personal
financial software. Strong competition for deposit and loan products affects the rates of those
products as well as the terms on which they are offered to customers. Mergers between financial
institutions have placed additional pressure on banks within the industry to streamline their
operations, reduce expenses, and increase revenues to remain competitive. Competition has also
intensified due to federal and state interstate banking laws enacted in the mid-1990s, which
permit banking organizations to expand into other states, and the relatively large California
market has been particularly attractive to out-of-state institutions. The Financial Modernization
Act, which became effective March 11, 2000, has made it possible for full affiliations to occur
between banks and securities firms, insurance companies, and other financial companies, and has
also intensified competitive conditions. Currently, within the Banks service area there are 21 traditional banking branch offices of
competing institutions, including 15 branches of 4 major banks. As of June 30, 2004, the Federal
Deposit Insurance Corporation estimated the Banks market share of insured deposits within the
communities it serves to be as follows: Chester 71%, Quincy 68%, Portola 52%, Fall River Mills 47%,
Alturas 38%, Kings Beach 35%, Susanville 26%, Truckee 17%, Tahoe City 2% and 100% in the
communities of Greenville, Westwood and Loyalton. Tahoe City is the location of our de novo
branch, which opened its doors in November 2003. Technological innovations have also resulted in increased competition in financial services
markets. Such innovation has, for example, made it possible for non-depository institutions to
offer customers automated transfer payment services that previously were considered traditional
banking products. In addition, many customers now expect a choice of delivery systems and
channels, including telephone, mail, home computer, ATMs, full-service branches, and/or in-store
branches. The sources of competition in such products include traditional banks as well as savings
associations, credit unions, brokerage firms, money market and other mutual funds, asset management
groups, finance and insurance companies, internet-only financial intermediaries, and mortgage
banking firms. For many years we have countered rising competition by providing our own style of
community-oriented, personalized service. We rely on local promotional activity, personal contacts
by our officers, directors, employees, and shareholders, automated 24-hour banking, and the
individualized service that we can provide through our flexible policies. This appears to be
well-received by our customers throughout our service area, who appreciate a more personal and
customer-oriented environment in which to conduct their financial transactions. We have also
embraced the electronic age and installed telephone banking and personal computer and internet
banking with bill payment capabilities to meet the needs of customers with electronic access
requirements. This high tech and high touch approach allows the customers to customize their
access to our services based on their particular preference. Employees.At December 31, 2004, the Company and its subsidiary employed 194 persons. On a
full-time equivalent basis, we employed 172 persons. We believe our employee relations are
excellent. 7




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Supervision and Regulation The Company.As a bank holding company, we are subject to regulation under the Bank Holding
Company Act of 1956, as amended, (the BHCA), and are registered with and subject to the
supervision of the Federal Reserve Bank (the FRB). It is the policy of the FRB, that each bank
holding company serve as a source of financial and managerial strength to its subsidiary banks. We
are required to file reports with the FRB and provide such additional information as the FRB may
require. The FRB has the authority to examine us and our subsidiary, as well as any arrangements
between us and our subsidiary, with the cost of any such examination to be borne by us. The BHCA requires us to obtain the prior approval of the FRB before acquisition of 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 the acquisition, we would own or control, directly or indirectly,
more than 5% of the voting shares of that bank. Amendments to the BHCA expand the circumstances
under which a bank holding company may acquire control of or all or substantially all of the assets
of a bank located outside the State of California. We may not engage in any business other than managing or controlling banks or furnishing services
to our subsidiary, with the exception of certain activities which, in the opinion of the FRB, are
so closely related to banking or to managing or controlling banks as to be incidental to banking.
In addition, we are generally prohibited from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company unless that company is engaged in such authorized
activities and the Federal Reserve approves the acquisition. We and our subsidiary are prohibited from engaging in certain tie-in arrangements in connection
with any extension of credit, sale or lease of property or provision of services. For example, with
certain exceptions, the bank may not condition an extension of credit on a customer obtaining other
services provided by us, the bank or any other subsidiary of ours, or on a promise by the customer
not to obtain other services from a competitor. In addition, federal law imposes certain
restrictions on transactions between the bank and its affiliates. As affiliates, the bank and we
are subject, with certain exceptions, to the provisions of federal law imposing limitations on and
requiring collateral for extensions of credit by the bank to any affiliate. The Bank.As a California state-chartered bank that is not a member of the Federal Reserve, Plumas
Bank is subject to primary supervision, examination and regulation by the FDIC, the California
Department of Financial Institutions (the DFI) and is subject to applicable regulations of the
FRB. The 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 the Bank. Federal and California statutes and regulations
relate to many aspects of the Banks 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. Capital Standards.The FRB and the FDIC 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 reported 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 0.0% for assets with low 8




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credit risk, such as certain U.S. government securities, to 100.0% for assets with relatively
higher credit risk, such as business loans. A banking organizations risk-based capital ratios are obtained by dividing its qualifying capital
by its total risk-adjusted assets and off-balance-sheet items. The regulators measure
risk-adjusted assets and off-balance-sheet items against both total qualifying capital (the sum of
Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists
of common stock, retained earnings, noncumulative perpetual preferred stock and minority interests
in certain subsidiaries, less most other intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for loan and lease losses and certain other instruments with some
characteristics of equity. The inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies. Since December 31, 1992, the FRB and
the FDIC have required a minimum ratio of qualifying total capital to risk-adjusted assets and
off-balance-sheet items of 8.0%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and
off-balance-sheet items of 4.0%. In addition to the risk-based guidelines, the FRB and FDIC require banking organizations to
maintain a minimum amount of Tier 1 capital to average total assets, referred to as the leverage
ratio. For a banking organization rated in the highest of the five categories used by regulators
to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3.0%. It is improbable, however, that an institution with a 3.0% leverage ratio would receive the
highest rating by the regulators since a strong capital position is a significant part of the
regulators ratings. For all banking organizations not rated in the highest category, the minimum
leverage ratio is at least 100 to 200 basis points above the 3.0% minimum. Thus, the effective
minimum leverage ratio, for all practical purposes, is at least 4.0% or 5.0%. In addition to these
uniform risk-based capital guidelines and leverage ratios that apply across the industry, the FRB
and FDIC have the discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios. A bank that does not achieve and maintain the required capital levels may be issued a capital
directive by the FDIC to ensure the maintenance of required capital levels. As discussed above, we
are required to maintain certain levels of capital, as is the Bank. The regulatory capital
guidelines as well as our actual capitalization on a consolidated basis and for the Bank and
Bancorp as of December 31, 2004 follow: RequirementFor the Bank toAdequately
    
    be Well
    
    Plumas
    
    PlumasCapitalized
    
    Capitalized
    
    Bank
    
    BancorpTotal risk-based capital ratio
    
    
    8.0
    %
    
    
    10.0
    %
    
    
    10.8
    %
    
    
    10.9
    %Tier 1 risk-based capital ratio
    
    
    4.0
    %
    
    
    6.0
    %
    
    
    10.0
    %
    
    
    10.1
    %Tier 1 leverage capital ratio
    
    
    4.0
    %
    
    
    5.0
    %
    
    
    7.5
    %
    
    
    7.6
    %
 Prompt Corrective Action.Federal banking agencies possess broad powers to take corrective and
other supervisory action to resolve the problems of insured depository institutions, including
those institutions that fall below one or more prescribed minimum capital ratios described above.
An institution that, based upon its capital levels, is classified as well capitalized, adequately
capitalized, or undercapitalized may be treated as though it were in the next lower capital
category if the appropriate federal banking agency, after notice and opportunity for hearing,
determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository institution is subject
to more restrictions. In addition to measures taken under the prompt corrective action provisions, commercial banking
organizations may be subject to potential enforcement actions by the federal regulators for unsafe
or unsound practices in conducting their businesses or for violations of any law, rule, regulation,
or any condition imposed in writing by the agency or any written agreement with the agency.
Enforcement actions may include the imposition of a conservator or receiver, the issuance of a
cease-and-desist order 9




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that can be judicially enforced, the termination of insurance of deposits (in the case of a
depository institution), the imposition of civil money penalties, the issuance of directives to
increase capital, the issuance of formal and informal agreements, the issuance of removal and
prohibition orders against institution-affiliated parties and the enforcement of such actions
through injunctions or restraining orders based upon a judicial determination that the agency would
be harmed if such equitable relief was not granted. Additionally, a holding companys inability to
serve as a source of strength to its subsidiary banking organizations could serve as an additional
basis for a regulatory action against the holding company. Premiums for Deposit Insurance.Through the Bank Insurance Fund, or BIF, the FDIC insures our
customer deposits up to prescribed limits for each depositor. The amount of FDIC assessments paid
by each BIF member institution is based on its relative risk of default as measured by regulatory
capital ratios and other factors. Specifically, the assessment rate is based on the institutions
capitalization risk category and supervisory subgroup category. An institutions capitalization
risk category is based on the FDICs determination of whether the institution is well capitalized,
adequately capitalized or less than adequately capitalized. An institutions supervisory subgroup
category is based on the FDICs assessment of the financial condition of the institution and the
probability that FDIC intervention or other corrective action will be required. The assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The FDIC
may increase or decrease the assessment rate schedule on a semi-annual basis. Due to continued
growth in deposits and some recent bank failures, the BIF is nearing its minimum ratio of 1.25% of
insured deposits as mandated by law. If the ratio drops below 1.25%, it is likely the FDIC will be
required to assess premiums on all banks. Any increase in assessments or the assessment rate could
have a material adverse effect on our business, financial condition, results of operations or cash
flows, depending on the amount of the increase. Furthermore, the FDIC is authorized to raise
insurance premiums under certain circumstances. The FDIC is authorized to terminate a depository institutions deposit insurance upon a finding by
the FDIC that the institutions financial condition is unsafe or unsound or that the institution
has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order
or condition enacted or imposed by the institutions regulatory agency. The termination of deposit
insurance for the bank would have a material adverse effect on our business, financial condition,
results of operations or cash flows. All FDIC-insured depository institutions must pay an annual assessment to provide funds for the
payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered
under the authority of the Federal Housing Finance Board. The bonds, commonly referred to as FICO
bonds, were issued to capitalize the Federal Savings and Loan Insurance Corporation. The FDIC
established the FICO assessment rates effective for the first half of 2004 at approximately 1.54
cents for each $100 of assessable deposits. The FICO assessments are adjusted quarterly to reflect
changes in the assessment bases of the FDICs insurance funds and do not vary depending on a
depository institutions capitalization or supervisory evaluations. Federal Home Loan Bank System.The Bank is a member of the Federal Home Loan Bank of San Francisco
(the FHLB-SF). Among other benefits, each Federal Home Loan Bank (FHLB), serves as a reserve
or central bank for its members within its assigned region. Each FHLB is financed primarily from
the sale of consolidated obligations of the FHLB system. Each FHLB makes available loans or
advances to its members in compliance with the policies and procedures established by the Board of
Directors of the individual FHLB. A new capital plan of the FHLB-SF was approved and implemented
by the Federal Housing Finance Board on April 1, 2004. The new capital plan incorporates a single
class of stock with a par value of $100 per share, and may be issued, exchanged, redeemed, and
repurchased only at par value. As an FHLB member, the bank is required to own capital stock in an
FHLB in an amount equal to the greater of: 10




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
    a membership stock requirement with an initial cap of $25 million (100% of membership
asset value as defined), or
    an activity based stock requirement (based on percentage of outstanding advances). The new capital stock is redeemable on five years written notice, subject to certain
conditions. We do not believe that the FHLB-SFs new capital plan has a material impact upon our business,
financial condition, results of operations or cash flows. However, the bank could be required to
purchase as much as 50% additional capital stock or sell as much as 50% of its proposed capital
stock requirement at the discretion of the FHLB-SF. Federal Reserve System.The FRB requires all depository institutions to maintain non-interest
bearing reserves at specified levels against their transaction accounts and non-personal time
deposits. At December 31, 2004, we were in compliance with these requirements. 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 FRB. The
FRB can and does implement national monetary policy, such as seeking to curb inflation and combat
recession, by its open market operations in United States Government securities and by its control
of the discount rates applicable to borrowings by banks from the FRB. The actions of the FRB in
these areas influence the growth of bank loans and leases, investments and deposits and affect the
interest rates charged on loans and leases and paid on deposits. The FRBs 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. Extensions of Credit to Insiders and Transactions with Affiliates.The Federal Reserve Actand FRB
Regulation Oplace limitations and conditions on loans or extensions of credit to:  
    a banks or bank holding companys executive officers, directors and principal
shareholders (i.e., in most cases, those persons who own, control or have power to vote
more than 10% of any class of voting securities),
    any company controlled by any such executive officer, director or shareholder, or
    any political or campaign committee controlled by such executive officer, director or
principal shareholder. Loans and leases extended to any of the above persons must comply with loan-to-one-borrower
limits, require prior full board approval when aggregate extensions of credit to the person exceed
specified amounts, must be made on substantially the same terms (including interest rates and
collateral) as, and follow credit-underwriting procedures that are not less stringent than, those
prevailing at the time for comparable transactions with non-insiders, and must not involve more
than the normal risk of repayment or present other unfavorable features. In addition, Regulation O
provides that the aggregate limit on extensions of credit to all insiders of a bank as a group
cannot exceed the banks unimpaired capital and unimpaired surplus. Regulation O also prohibits a
bank from paying an overdraft on an account of an executive officer or director, except pursuant to
a written pre-authorized interest-bearing extension of credit plan that specifies a method of
repayment or a written pre-authorized transfer of funds from another account of the officer or
director at the bank. Consumer Protection Laws and Regulations.The banking regulatory agencies are focusing greater
attention on compliance with consumer protection laws and their implementing regulations.
Examination and enforcement have become more intense in nature, and insured institutions have been
advised to monitor carefully compliance with such laws and regulations. The Company is subject to
many federal consumer protection statutes and regulations, some of which are discussed below. 11




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The Community Reinvestment Act(the 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 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
ratings range from a high of outstanding to a low of substantial noncompliance. In its last
examination for CRA compliance, as of October 2002, the Bank was rated satisfactory. The Equal Credit Opportunity Act(the 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(the 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 the annual percentage rate, the finance charge, the amount financed, the total
of payments and the payment schedule, among other things. The Fair Housing Act(the 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. A number of lending
practices have been found by the courts to be, or may be considered, illegal under the FH Act,
including some that are not specifically mentioned in the FH Act itself. The Home Mortgage Disclosure Act(the 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(the 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. Finally, the Real Estate Settlement Procedures Act(the 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, ECOA, TILA,
FH Act, 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 and Proposed Legislation.Our operations and the operations of the Bank are subject to
extensive regulation by federal, state, and local governmental authorities and are subject to
various laws and judicial and administrative decisions imposing requirements and restrictions on
part or all of their respective operations. We believe that we are in substantial compliance in
all material respects with all applicable federal, state and local laws, rules and regulations.
Because our business and the business of the Bank is 12




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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. Sarbanes-Oxley Act.On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002
implementing legislative reforms intended to address corporate and accounting fraud. The Act
applies to publicly reporting companies. In addition to the establishment of a new accounting
oversight board which will enforce auditing, quality control and independence standards and will be
funded by fees from all publicly traded companies, the bill restricts provision of both auditing
and consulting services by accounting firms. To maintain auditor independence, any non-audit
services being provided to an audit client will require pre-approval by the companys audit
committee members. In addition, the audit partners must be rotated. The Act also requires chief executive officers and chief financial officers, or their equivalent,
to certify to the accuracy of periodic reports filed with the Securities and Exchange Commission,
or SEC, subject to civil and criminal penalties if they knowingly or willfully violate this
certification requirement. In addition, under the Act, legal counsel will be required to report
evidence of a material violation of the securities laws or a breach of fiduciary duty by a company
to its chief executive officer or its chief legal officer, and, if such officer does not
appropriately respond, to report such evidence to the audit committee or other similar committee of
the board of directors or the board itself. The Act also 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. Longer prison terms and increased penalties will also be applied to corporate executives who
violate federal securities laws, the period during which certain types of suits can be brought
against a company or its officers has been extended, and bonuses issued to top executives prior to
restatement of a companys financial statements are now subject to disgorgement if such restatement
was due to corporate misconduct. Executives are also prohibited from insider trading during
retirement plan blackout periods, and loans to company executives are restricted. The Act
accelerates the time frame for disclosures by public companies, as they must immediately disclose
any material changes in their financial condition or operations. Directors and executive officers
must also provide information for most changes in ownership in a companys securities within
twenty-four hours. The Act also prohibits any officer or director of a company or any other person acting under their
direction from taking any action to fraudulently influence, coerce, manipulate or mislead any
independent public or certified accountant engaged in the audit of the companys financial
statements for the purpose of rendering the financial statements materially misleading. The Act
also requires the SEC to prescribe rules requiring inclusion of an internal control report and
assessment by management in the annual report to shareholders. In addition, the Act requires that
each financial report required to be prepared in accordance with (or reconciled to) accounting
principles generally accepted in the United States of America and filed with the SEC reflect all
material correcting adjustments that are identified by a registered public accounting firm in
accordance with accounting principles generally accepted in the United States of America and the
rules and regulations of the SEC. 13




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USA PATRIOT Act.In the wake of the tragic events of September 11th, on October 26, 2001, the
President signed the Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, referred to as the USA PATRIOT Act. Under the USA
PATRIOT Act, financial institutions are subject to prohibitions regarding specified financial
transactions and account relationships as well as enhanced due diligence and know your customer
standards in their dealings with foreign financial institutions and foreign customers. For example,
the enhanced due diligence policies, procedures, and controls generally require financial
institutions to take reasonable steps:  
    To conduct enhanced scrutiny of account relationships to guard against money laundering
and report any suspicious transaction,
    To ascertain the identity of the nominal and beneficial owners of, and the source of
funds deposited into, each account as needed to guard against money laundering and report
any suspicious transactions,
    To ascertain for any foreign bank, the shares of which are not publicly traded, the
identity of the owners of the foreign bank, and the nature and extent of the ownership
interest of each such owner, and
    To ascertain whether any foreign bank provides correspondent accounts to other foreign
banks and, if so, the identity of those foreign banks and related due diligence
information. The USA PATRIOT Act sets forth minimum standards for anti-money laundering programs,
including:  
    The development of internal policies, procedures, and controls,
    The designation of a compliance officer,
    An ongoing employee training program, and
    An independent audit function to test the programs. The board of directors of the Bank adopted comprehensive policies and procedures to address
the requirements of the USA PATRIOT Act. Financial Services Modernization Legislation Act.On November 12, 1999 the Gramm-Leach-Bliley Act
of 1999, also known as the Financial Services Modernization Act, was signed into law. The Financial
Services Modernization Act is intended to modernize the banking industry by removing barriers to
affiliation among banks, insurance companies, the securities industry and other financial service
providers. It provides financial organizations with the flexibility of structuring such
affiliations through a holding company structure or through a financial subsidiary of a bank,
subject to certain limitations. The Financial Services Modernization Act establishes a new type of
bank holding company known as a financial holding company that may engage in an expanded list of
activities that are financial in nature, which include securities and insurance brokerage,
securities underwriting, insurance underwriting and merchant banking. The Financial Services Modernization Act also sets forth a system of functional regulation that
makes the FRB the umbrella supervisor for holding companies, while providing for the supervision
of the holding companys subsidiaries by other federal and state agencies. A bank holding company
may not become a financial holding company if any of its subsidiary financial institutions are not
well-capitalized or well-managed. Further, each bank subsidiary of the holding company must have
received at least a satisfactory CRA rating. The Financial Services Modernization Act also expands
the types of financial activities a national bank may conduct through a financial subsidiary,
addresses state regulation of insurance, provides privacy protection for nonpublic customer
information of financial institutions, modernizes the FHLB system and makes miscellaneous
regulatory improvements. The FRB and the Secretary of the Treasury must coordinate their
supervision regarding approval of new financial activities to be conducted through a financial
holding company or through a financial subsidiary of a bank. While the provisions of the Financial
Services Modernization Act regarding activities that may be conducted through a financial
subsidiary directly apply only to national banks, those provisions indirectly apply to
state-chartered banks. 14




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##### Table of Contents



In addition, the Bank is subject to other provisions of the Financial Services Modernization Act,
including those relating to CRA, privacy and safe-guarding confidential customer information,
regardless of whether we elect to become a financial holding company or to conduct activities
through a financial subsidiary of the bank. We do not, however, currently intend to file a notice
with the FRB to become a financial holding company or to engage in expanded financial activities
through a financial subsidiary of the Bank. We do not believe that the Financial Services Modernization Act will have a material adverse effect
on our or the Banks operations in the near term. However, to the extent that it permits banks,
securities firms, and insurance companies to affiliate, the financial services industry may
experience further consolidation. The Financial Services Modernization Act is intended to grant to
community banks certain powers as a matter of right that larger institutions have accumulated on an
ad hoc basis. Nevertheless, this Act may have the result of increasing the amount of competition
that we and the bank face from larger institutions and other types of companies offering financial
products, many of which may have substantially more financial resources than us and the Bank. Other.Various other legislation, including proposals to overhaul the bank regulatory system and
to limit the investments that a depository institution may make with insured funds, is introduced
into Congress or the California Legislature from time to time. We cannot determine the ultimate
effect that any potential legislation, if enacted, or regulations promulgated there under, would
have upon the business, financial condition, results of operations or cash flows of us or the bank. Recent Accounting Pronouncements Other-Than-Temporary Impairment of Securities In June 2004, the Financial Accounting Standards Board (FASB) ratified Emerging Issues Task Force
(EITF) Issue 03-1, The Meaning of Other-than-Temporary Impairment and Its Application to Certain
Investments(EITF 03-1). EITF 03-1 includes additional guidance for evaluating and recording
impairment losses on debt and equity investments, as well as disclosure requirements for
investments that are deemed to be temporarily impaired. The proposed guidance indicates that an
investor must have the intent and ability to hold an investment until a forecasted recovery of the
fair value up to or beyond the cost of the investment in order to determine that any impairment is
temporary. In September 2004, the FASB delayed the effective date of the recognition and
measurement guidance of EITF 03-1, pending further deliberations. The disclosures for investments
that are deemed temporarily impaired are included in Note 2 to the consolidated financial
statements. Once the FASB has reached a final decision on the measurement and recognition
provisions, the Company will evaluate the impact of the adoption of EITF 03-1. Share-Based Payments In December 2004, the FASB issued Statement Number 123 (revised 2004) (FAS 123 ®), Share-Based
Payments. FAS 123 ® requires all entities to recognize compensation expense in an amount equal
to the fair value of share-based payments such as stock options granted to employees. The Company
is required to apply FAS 123 ® on a modified prospective method. Under this method, the Company
is required to record compensation expense (as previous awards continue to vest) for the unvested
portion of previously granted awards that remain outstanding at the date of adoption. In addition,
the Company may elect to adopt FAS 123 ® by restating previously issued financial statements,
basing the expense on that previously reported in their pro forma disclosures required by FAS 123.
FAS 123 ® is effective for the first reporting period beginning after June 15, 2005. Management
has not completed its evaluation of the effect that FAS 123 ® will have, but believes that the
effect will be consistent with its previous pro forma disclosures. 15




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Accounting for Loans or Debt Securities Acquired in a Transfer In December 2003, the Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 03-03, Accounting for Certain Loans or
Debt Securities Acquired in a Transfer(SOP). This SOP addresses accounting for differences
between contractual cash flows and cash flows expected to be collected from an investors initial
investment in loans or debt securities (loans) acquired in a transfer if those differences are
attributable, at least in part, to credit quality. It also includes such loans acquired in
purchase business combinations. This SOP does not apply to loans originated by the entity. This
SOP limits the yield that may be accreted and requires that the excess of contractual cash flows
over cash flows expected to be collected not be recognized as an adjustment of yield, loss accrual,
or valuation allowance. This SOP prohibits carrying over or creation of valuation allowances in the initial accounting
for loans acquired in a transfer that are within the scope of this SOP. The prohibition of the
valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a
group of loans, and loans acquired in a purchase business combination. This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. In
managements opinion, the adoption of this pronouncement will not have a material impact on the
Companys financial position or results of operations. 
 ITEM 2. PROPERTIES Of the Companys twelve depository branches, nine are owned and three are leased. In addition the
Company owns two administrative facilities and leases one administrative lending office. The
Company also owns one real estate investment property that is expected to be sold and leases one
property related to the 2003 branch acquisition that is expected to be either sub-let to another
party or to expire at the end of the lease term in early 2006. Owned Properties35 South Lindan Avenue
Quincy, California (1)
    
    32 Central Avenue
Quincy, California (1)
    
    336 West Main Street
Quincy, California120 North Pine Street
Portola, California
    
    121 Crescent Street
Greenville, California
    
    315 Birch Street
Westwood, California (2)43163 Highway 299E
Fall River Mills, California
    
    510 North Main Street
Alturas, California
    
    3000 Riverside Drive
Susanville, California255 Main Street
Chester, California
    
    8475 North Lake Boulevard
Kings Beach, California
    
    100 Grand Avenue
Susanville, California (3)
 Leased Properties11429 Donner Pass Road
Truckee, California
    
    243 North Lake Boulevard
Tahoe City, California
    
    604 Main Street
Loyalton, California12219 Business Park Drive
Truckee, California (1)
    
    11317 Deerfield Drive
Truckee, California (4)
   (1)
    
    Non-branch administrative or credit administrative offices.(2)
    
    The Westwood branch is a mortgaged property with an outstanding balance of $80,000 at December
31, 2004.(3)
    
    Real estate investment property (vacant land) not currently in use.(4)
    
    Former branch office (from 2003 branch acquisition) not currently in use. 16




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##### Table of Contents



Total rental expenses under all leases, including premises, totaled $264,000, $179,000 and
$85,000, in 2004, 2003 and 2002 respectively. The expiration dates of the leases vary, with the
first such lease expiring during 2006 and the last such lease expiring during 2008. Future minimum
lease payments in dollars are as follows: Year EndingDecember 31,2005
    
    $
    245,0002006
    
    
    176,0002007
    
    
    118,0002008
    
    
    30,000Total
    
    $
    569,000
 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 subsidiary 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. 17




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##### Table of Contents



PART II 
  ITEM 5.
    MARKET FOR REGISTRANTS 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, 2004, there were 3,267,465 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. Closing PricesQuarter,
    
    Dividends
    
    
    High
    
    
    Low4th Quarter 2004
    
    $
    0.14
    
    
    $
    22.00
    
    
    $
    19.753rd Quarter 2004
    
    
    
    
    
    $
    20.00
    
    
    $
    18.352nd Quarter 2004
    
    $
    0.14
    
    
    $
    19.50
    
    
    $
    17.501st Quarter 2004
    
    
    
    
    
    $
    20.10
    
    
    $
    18.154th Quarter 2003
    
    $
    0.12
    
    
    $
    20.25
    
    
    $
    18.753rd Quarter 2003
    
    
    
    
    
    $
    20.00
    
    
    $
    18.752nd Quarter 2003
    
    $
    0.12
    
    
    $
    19.25
    
    
    $
    16.631st Quarter 2003
    
    
    
    
    
    $
    17.50
    
    
    $
    15.30
 Dividends paid to shareholders by the Company are subject to restrictions set forth in California
General Corporation Law, which provides that a corporation may make a distribution to its
shareholders if retained earnings immediately prior to the dividend payout are at least equal to
the amount of the proposed distribution. As a bank holding company without significant assets
other than its equity position in the Bank, the Companys ability to pay dividends to its
shareholders depends primarily upon dividends it receives from the Bank. Such dividends paid by
the Bank to the Company are subject to certain limitations. See Item 1 Business  Supervision and
Regulation  Capital Standards. It is the policy of the Company to periodically distribute excess retained earnings to the
shareholders through the payment of cash dividends. Such dividends help promote shareholder value
and capital adequacy by enhancing the marketability of the Companys stock. All authority to
provide a return to the shareholders in the form of a cash or stock dividend or split rests with
the Board of Directors (the Board). The Board will periodically, but on no regular schedule,
review the appropriateness of a cash dividend payment. The Board by resolution shall set the
amount, the record date and the payment date of any dividend after considering numerous factors,
including the Companys regulatory capital requirements, earnings, financial condition and the need
for capital for expanded growth and general economic conditions. Although no assurance can be
given that cash or stock dividends will be paid in the future the Companys dividend payout ratio
over the last five years has averaged approximately 25%. 18




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Securities Authorized for Issuance under Equity Compensation Plans.The following table sets forth
securities authorized for issuance under equity compensation plans as for December 31, 2004. Number of securities remainingavailable for future issuanceNumber of securities to
    
    Weighted-average
    
    under equity compensationbe issued upon exercise
    
    exercise price of
    
    plans (excluding securitiesof outstanding options
    
    outstanding options
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    

    306,713
    

    
    $
    15.09
    
    
    
    397,530Equity compensation
plans not approved
by security holders
    
    None
    
    
    Not Applicable
    
    
    NoneTotal
    
    
    306,713
    
    
    $
    15.09
    
    
    

    397,530
 For additional information related to the above plans see Note 10 of the Companys Consolidated
Financial Statements in Item 8  Financial Statements and Supplementary Data of this Annual Report
on Form 10K. 19




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA The following table presents a summary of selected financial data and should be read in conjunction
with the Companys consolidated financial statements and notes thereto included under Item 8 
Financial Statements and Supplementary Data. At or for the year ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(dollars in thousands except per share information)Statement of IncomeInterest income
    
    $
    20,076
    
    
    $
    18,413
    
    
    $
    18,389
    
    
    $
    19,149
    
    
    $
    18,455Interest expense
    
    
    2,914
    
    
    
    3,013
    
    
    
    4,038
    
    
    
    6,373
    
    
    
    6,724Net interest income
    
    
    17,162
    
    
    
    15,400
    
    
    
    14,351
    
    
    
    12,776
    
    
    
    11,731Provision for loan losses
    
    
    750
    
    
    
    750
    
    
    
    825
    
    
    
    725
    
    
    
    500Noninterest income
    
    
    4,818
    
    
    
    3,775
    
    
    
    3,278
    
    
    
    2,854
    
    
    
    2,167Noninterest expense
    
    
    15,583
    
    
    
    13,126
    
    
    
    11,604
    
    
    
    10,480
    
    
    
    9,431Provision for income taxes
    
    
    2,001
    
    
    
    2,018
    
    
    
    2,046
    
    
    
    1,667
    
    
    
    1,404Net income
    
    $
    3,646
    
    
    $
    3,281
    
    
    $
    3,154
    
    
    $
    2,758
    
    
    $
    2,563Balance sheet (end of period)Total assets
    
    $
    417,346
    
    
    $
    390,262
    
    
    $

    325,650
    
    
    $
    275,090
    
    
    $
    243,601Total loans
    
    $
    266,913
    
    
    $
    217,957
    
    
    $
    207,721
    
    
    $
    183,676
    
    
    $
    164,004Allowance for loan losses
    
    $
    2,762
    
    
    $
    2,564
    
    
    $
    2,471
    
    
    $
    2,153
    
    
    $
    1,888Total deposits
    
    $
    378,567
    
    
    $
    355,842
    
    
    $
    293,941
    
    
    $
    252,206
    
    
    $
    223,256Total shareholders equity
    
    $
    27,891
    
    
    $
    25,749
    
    
    $
    23,286
    
    
    $
    20,617
    
    
    $
    18,165Balance sheet (period average)Total assets
    
    $
    409,537
    
    
    $
    339,353
    
    
    $
    294,708
    
    
    $
    257,581
    
    
    $
    229,508Total loans
    
    $
    233,632
    
    
    $
    214,178
    
    
    $
    197,900
    
    
    $
    176,746
    
    
    $
    141,562Total deposits
    
    $
    373,253
    
    
    $
    304,835
    
    
    $
    268,773
    
    
    $
    235,840
    
    
    $
    209,794Total shareholders equity
    
    $
    27,045
    
    
    $
    25,809
    
    
    $
    22,184
    
    
    $
    19,423
    
    
    $
    17,194Capital ratiosLeverage ratio
    
    
    7.6
    %
    
    
    8.4
    %
    
    
    8.8
    %
    
    
    7.4
    %
    
    
    7.1
    %Tier 1 risk-based capital
    
    
    10.1
    %
    
    
    10.4
    %
    
    
    11.8
    %
    
    
    9.3
    %
    
    
    9.2
    %Total risk-based capital
    
    
    10.9
    %
    
    
    11.3
    %
    
    
    12.8
    %
    
    
    10.3
    %
    
    
    10.2
    %Asset quality ratiosNonperforming loans/total loans
    
    
    0.44
    %
    
    
    0.40
    %
    
    
    0.86
    %
    
    
    0.71
    %
    
    
    0.32
    %Nonperforming assets/total assets
    
    
    0.29
    %
    
    
    0.22
    %
    
    
    0.59
    %
    
    
    0.52
    %
    
    
    0.34
    %Allowance for loan losses/total loans
    
    
    1.03
    %
    
    
    1.18
    %
    
    
    1.19
    %
    
    
    1.17
    %
    
    
    1.15
    %Performance ratiosReturn on average assets
    
    
    0.89
    %
    
    
    0.97
    %
    
    
    1.07
    %
    
    
    1.07
    %
    
    
    1.12
    %Return on average equity
    
    
    13.5
    %
    
    
    12.7
    %
    
    
    14.2
    %
    
    
    14.2
    %
    
    
    14.9
    %Net interest margin
    
    
    4.77
    %
    
    
    5.16
    %
    
    
    5.48
    %
    
    
    5.57
    %
    
    
    5.84
    %Loans to Deposits
    
    
    70.5
    %
    
    
    61.3
    %
    
    
    70.7
    %
    
    
    72.8
    %
    
    
    73.5
    %Efficiency ratio
    
    
    70.9
    %
    
    
    68.5
    %
    
    
    65.8
    %
    
    
    67.1
    %
    
    
    67.9
    %Per share informationBasic earnings
    
    $
    1.12
    
    
    $
    1.02
    
    
    $
    0.99
    
    
    $
    0.87
    
    
    $
    0.82Diluted earnings
    
    $
    1.09
    
    
    $
    0.99
    
    
    $
    0.96
    
    
    $
    0.86
    
    
    $
    0.79Cash dividends
    
    $
    0.28
    
    
    $
    0.24
    
    
    $
    0.27
    
    
    $
    0.20
    
    
    $
    0.20Dividend payout ratio
    
    
    25.1
    %
    
    
    23.7
    %
    
    
    27.3
    %
    
    
    23.0
    %
    
    
    24.4
    %Book value
    
    $
    8.54
    
    
    $
    7.93
    
    
    $
    7.26
    
    
    $
    6.46
    
    
    $
    5.89Common shares outstanding at period end
    
    
    3,267,465
    
    
    
    3,242,027
    
    
    
    3,209,317
    
    
    
    3,192,335
    
    
    
    3,082,457
 20




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We are a bank holding company for Plumas Bank, a California state-chartered commercial bank. We
derive our income primarily from interest received on real estate related, commercial and consumer
loans and, to a lesser extent, interest on investment securities, fees received in connection with
servicing deposit and loan deposit customers and fees from the sale or referral of loans. Our
major operating expenses are the interest we pay on deposits and borrowings and general operating
expenses. We rely on locally-generated deposits to provide us with funds for making loans. We are subject to competition from other financial institutions and our operating results,
like those of other financial institutions operating in California, are significantly influenced by
economic conditions in California, including the strength of the real estate market. In addition,
both the fiscal and regulatory policies of the federal and state government and regulatory
authorities that govern financial institutions and market interest rates also impact the Banks
financial condition, results of operations and cash flows. One of our strategic objectives is to expand our banking service activities in the
Truckee/Tahoe region and the adjacent communities. Consistent with this objective, in late 2003 we
opened a de novo branch in Tahoe City. Also in late 2003 we bought five branches located within
our existing service area from Placer Sierra Bank. Of the five branches purchased, two were
located in the Truckee/Tahoe region, specifically in the communities of Truckee and Kings Beach.
This helped further strengthen our presence in this region. During 2004 we focused on migrating the liquidity generated from the 2003 branch purchases into
higher-yielding loan balances. Critical Accounting Policies Our accounting policies are integral to understanding the financial results reported. Our
most complex accounting policies require managements judgment to ascertain the valuation of
assets, liabilities, commitments and contingencies. We have established detailed policies and
control procedures that are intended to ensure valuation methods are well controlled and applied
consistently from period to period. The following is a brief description of our current accounting
policies involving significant management valuation judgments. Allowance for Loan Losses.The allowance for loan losses represents our best estimate of
losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the
provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. We evaluate our allowance for loan losses quarterly. We believe that the allowance for loan losses
is a critical accounting estimate because it is based upon managements assessment of various
factors affecting the collectibility of the loans, including current economic conditions, past
credit experience, delinquency status, the value of the underlying collateral, if any, and a
continuing review of the portfolio of loans. We determine the appropriate level of the allowance for loan losses, primarily on an analysis
of the various components of the loan portfolio, including all significant credits on an individual
basis. We segment the loan portfolio into as many components as practical. Each component has
similar characteristics, such as risk classification, past due status, type of loan or lease,
industry or collateral. We cannot provide you with any assurance that further economic difficulties or other
circumstances which would adversely affect our borrowers and their ability to repay outstanding
loans will not occur which would be reflected in increased losses in our loan portfolio, which
could result in actual losses that exceed reserves previously established. Available for Sale Securities.Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, requires that available-for-sale
securities be carried at 21




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##### Table of Contents



fair value. We believe this is a critical accounting estimate in that
the fair value of a security is based on
quoted market prices or if quoted market prices are not available, fair values are extrapolated
from the quoted prices of similar instruments. Adjustments to the available-for-sale securities
fair value impact the consolidated financial statements by increasing or decreasing assets and
shareholders equity. Deferred Income Taxes.Deferred income taxes reflect the estimated future tax effects of
temporary differences between the reported amount of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws and regulations. We use an estimate of future
earnings to support our position that the benefit of our deferred tax assets will be realized. If
future income should prove non-existent or less than the amount of the deferred tax assets within
the tax years to which they may be applied, the asset may not be realized and our net income will
be reduced. Impairment of Core Deposit Intangible.The core deposit intangible represents the excess of
the premiums paid over the fair value of the assets and liabilities acquired in the branch
acquisitions. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assetsand SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets,the core deposit intangible will be amortized over its expected useful life and
will evaluated for impairment at least annually and whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the fair value of the
asset is determined to be less than the carrying amount, the core deposit intangible will be
written down through a charge to operations. Stock-Based Compensation.The Company accounts for its stock-based compensation under the
recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Since the Companys stock
option plan provides for the issuance of options at a price of no less than the fair market value
at the date of the grant, no compensation expense is recognized in the financial statements unless
the options are modified after the grant date. In December 2004, the Financial Accounting Standards Board issued Statement Number 123 (revised
2004) (FAS 123 (R)), Share-Based Payments. FAS 123 (R) requires all entities to recognize
compensation expense in an amount equal to the fair value of share-based payments such as stock
options granted to employees. The Company is required to apply FAS 123 (R) on a modified
prospective method. Under this method, the Company is required to record compensation expense (as
previous awards continue to vest) for the unvested portion of previously granted awards that remain
outstanding at the date of adoption. Management believes that the effect of FAS 123 (R) will be
consistent with its pro forma disclosures included in Note 2 to the Consolidated Financial
Statements in Item 8  Financial Statements and Supplementary Data. The fair value of each option
is estimated on the date of grant and amortized over the service period using an option pricing
model. Critical assumptions that affect the estimated fair value of each option include expected
stock price volatility, dividend yields, option life and forfeiture rates and the risk-free
interest rate. 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, 2004 and 2003 and for each of the
three years in the period ended December 31, 2004. 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 $365,000, or 11.1%, to $3,646,000 for the year ended December
31, 2004 from $3,281,000 for the same period in 2003. Net income was $3,154,000 for the year ended
December 31, 2002. The primary contributors to the increase in net income for 2004 were a $1.7
million increase in interest income and a $1 million increase in non-interest income largely offset
by a $2.5 million increase in non-interest expenses. 22




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##### Table of Contents



Total assets at December 31, 2004 increased $27 million, or 7%, to $417 million from $390 million
at December 31, 2003. Growth in total assets was concentrated in the loan portfolio. The loan
portfolio grew $49 million, or 23%, to $264 million during 2004. Growth in loans was funded by
growth in deposits and declines in Federal funds sold and cash and due from bank balances.
Deposits grew $23 million, or 6%, to $379 million at December 31, 2004 from $356 million at
December 31, 2003 while Federal funds sold and cash and due from banks decreased $19 million. The return on average assets was 0.89% for 2004, down from 0.97% for 2003. The return on average
equity was 13.5% for 2004, up from 12.7% for 2003. Although the Company reported its sixteenth
consecutive year of earnings growth in 2004, this years growth was outpaced by growth in assets.
Average assets increased $70 million, or 21%, due in large part to the acquisition, in November
2003 of five branches from Placer Sierra Bank. Results of Operations Net Interest Income before Provision for Loan Losses 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 rate percentages. Nonaccrual loans are included in the calculation
of average loans while nonaccrued interest thereon is excluded from the computation of yields
earned: Year ended December 31,2004
    
    
    2003
    
    
    2002Interest
    
    
    Rates
    
    
    
    
    
    
    Interest
    
    
    Rates
    
    
    
    
    
    
    Interest
    
    
    RatesAverage
    
    
    income/
    
    
    earned
    
    
    Average
    
    
    income/
    
    
    earned
    
    
    Average
    
    
    income/
    
    
    earnedbalance
    
    
    expense
    
    
    / paid
    
    
    balance
    
    
    expense
    
    
    / paid
    
    
    balance
    
    
    expense
    
    
    / paid(dollars in thousands)AssetsFederal funds sold
    
    $
    12,729
    
    
    $
    163
    
    
    
    1.28
    %
    
    $
    11,276
    
    
    $
    116
    
    
    
    1.03
    %
    
    $
    17,465
    
    
    $
    275
    
    
    
    1.57
    %Investment securities(1)
    
    
    113,684
    
    
    
    3,483
    
    
    
    3.06
    
    
    
    72,745
    
    
    
    2,221
    
    
    
    3.05
    
    
    
    46,628
    
    
    
    2,065
    
    
    
    4.43Total loans (2)(3)
    
    
    233,632
    
    
    
    16,430
    
    
    
    7.03
    
    
    
    214,178
    
    
    
    16,076
    
    
    
    7.51
    
    
    
    197,900
    
    
    
    16,049
    
    
    
    8.11Total earning assets
    
    
    360,045
    
    
    
    20,076
    
    
    
    5.58
    %
    
    
    298,199
    
    
    
    18,413
    
    
    
    6.17
    %
    
    
    261,993
    
    
    
    18,389
    
    
    
    7.02
    %Cash and due from banks
    
    
    23,813
    
    
    
    
    
    
    
    
    
    
    
    21,517
    
    
    
    
    
    
    
    
    
    
    
    16,201Other assets
    
    
    25,679
    
    
    
    
    
    
    
    
    
    
    
    19,637
    
    
    
    
    
    
    
    
    
    
    
    16,514Total assets
    
    $
    409,537
    
    
    
    
    
    
    
    
    
    
    $
    339,353
    
    
    
    
    
    
    
    
    
    
    $
    294,708Liabilities and shareholders
equityInterest bearing demand deposits
    
    $
    44,244
    
    
    
    58
    
    
    
    0.13
    %
    
    $
    35,668
    
    
    
    79
    
    
    
    0.22
    %
    
    $
    33,070
    
    
    
    114
    
    
    
    0.34
    %Money market deposits
    
    
    65,026
    
    
    
    490
    
    
    
    0.75
    
    
    
    58,814
    
    
    
    498
    
    
    
    0.85
    
    
    
    51,776
    
    
    
    775
    
    
    
    1.50Savings deposits
    
    
    64,472
    
    
    
    292
    
    
    
    0.45
    
    
    
    48,866
    
    
    
    310
    
    
    
    0.63
    
    
    
    39,094
    
    
    
    432
    
    
    
    1.11Time deposits
    
    
    93,684
    
    
    
    1,760
    
    
    
    1.88
    
    
    
    83,186
    
    
    
    1,816
    
    
    
    2.18
    
    
    
    84,195
    
    
    
    2,624
    
    
    
    3.12Other borrowings(4)
    
    
    6,401
    
    
    
    314
    
    
    
    4.91
    
    
    
    6,375
    
    
    
    310
    
    
    
    4.86
    
    
    
    1,617
    
    
    
    93
    
    
    
    5.75Total interest bearing liabilities
    
    
    273,827
    
    
    
    2,914
    
    
    
    1.06
    %
    
    
    232,909
    
    
    
    3,013
    
    
    
    1.29
    %
    
    
    209,752
    
    
    
    4,038
    
    
    
    1.93
    %Noninterest bearing demand deposits
    
    
    105,827
    
    
    
    
    
    
    
    
    
    
    
    78,301
    
    
    
    
    
    
    
    
    
    
    
    60,638Other liabilities
    
    
    2,838
    
    
    
    
    
    
    
    
    
    
    
    2,334
    
    
    
    
    
    
    
    
    
    
    
    2,134Shareholders equity
    
    
    27,045
    
    
    
    
    
    
    
    
    
    
    
    25,809
    
    
    
    
    
    
    
    
    
    
    
    22,184Total liabilities and
shareholders equity
    
    $
    409,537
    
    
    
    
    
    
    
    
    
    
    $
    339,353
    
    
    
    
    
    
    
    
    
    
    $
    294,708Net interest income
    
    
    
    
    
    $
    17,162
    
    
    
    
    
    
    
    
    
    
    $
    15,400
    
    
    
    
    
    
    
    
    
    
    $
    14,351Net interest spread(5)
    
    
    
    
    
    
    
    
    
    
    4.52
    %
    
    
    
    
    
    
    
    
    
    
    4.88
    %
    
    
    
    
    
    
    
    
    
    
    5.09
    %Net interest margin(6)
    
    
    
    
    
    
    
    
    
    
    4.77
    %
    
    
    
    
    
    
    
    
    
    
    5.16
    %
    
    
    
    
    
    
    
    
    
    
    5.48
    %
 23




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##### Table of Contents



(1)
    
    Interest income is reflected on an actual basis and is not computed on a tax-equivalent
basis.(2)
    
    Average nonaccrual loan balances of $1.6 million for 2004, $2.0 million for 2003 and $1.5
million for 2002 are included in average loan balances for computational purposes.(3)
    
    Loan origination fees and costs are included in interest income as adjustments of the loan
yields over the life of the loan using the interest method. Loan interest income includes net
loan fees of $317,000 for 2004, $585,000 for 2003 and $579,000 for 2002.(4)
    
    For the purpose of this schedule the interest expense related to the Companys junior
subordinated deferrable interest debentures is included in other borrowings.(5)
    
    Net interest spread represents the average yield earned on interest-earning assets less the
average rate paid on interest-bearing liabilities.(6)
    
    Net interest margin is computed by dividing net interest income by total average earning
assets. 24




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##### 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: 2004 compared to 2003
    
    
    2003 compared to 2002Increase (decrease) due to change in:
    
    
    Increase (decrease) due to change in:Average
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    AverageVolume(1)
    
    
    Rate(2)
    
    
    Mix(3)
    
    
    Total
    
    
    Volume(1)
    
    
    Rate(2)
    
    
    Mix(3)
    
    
    Total(dollars in thousands)Interest-earning assets:Federal funds sold
    
    $
    15
    
    
    $
    28
    
    
    $
    4
    
    
    $
    47
    
    
    $
    (98
    )
    
    $
    (95
    )
    
    $
    34
    
    
    $
    (159
    )Investment securities
    
    
    1,250
    
    
    
    8
    
    
    
    4
    
    
    
    1,262
    
    
    
    1,156
    
    
    
    (641
    )
    
    
    (359
    )
    
    
    156Loans
    
    
    1,460
    
    
    
    (1,014
    )
    
    
    (92
    )
    
    
    354
    
    
    
    1,320
    
    
    
    (1,195
    )
    
    
    (98
    )
    
    
    27Total interest income
    
    
    2,725
    
    
    
    (978
    )
    
    
    (84
    )
    
    
    1,663
    
    
    
    2,378
    
    
    
    (1,931
    )
    
    
    (423
    )
    
    
    24Interest-bearing
liabilities:Interest bearing demand
deposits
    
    
    19
    
    
    
    (32
    )
    
    
    (8
    )
    
    
    (21
    )
    
    
    9
    
    
    
    (41
    )
    
    
    (3
    )
    
    
    (35
    )Money market deposits
    
    
    53
    
    
    
    (55
    )
    
    
    (6
    )
    
    
    (8
    )
    
    
    106
    
    
    
    (337
    )
    
    
    (46
    )
    
    
    (277
    )Savings deposits
    
    
    99
    
    
    
    (89
    )
    
    
    (28
    )
    
    
    (18
    )
    
    
    108
    
    
    
    (184
    )
    
    
    (46
    )
    
    
    (122
    )Time deposits
    
    
    229
    
    
    
    (253
    )
    
    
    (32
    )
    
    
    (56
    )
    
    
    (31
    )
    
    
    (786
    )
    
    
    9
    
    
    
    (808
    )Other borrowings
    
    
    1
    
    
    
    3
    
    
    
    
    
    
    
    4
    
    
    
    273
    
    
    
    (14
    )
    
    
    (42
    )
    
    
    217Total interest expense
    
    
    401
    
    
    
    (426
    )
    
    
    (74
    )
    
    
    (99
    )
    
    
    465
    
    
    
    (1,362
    )
    
    
    (128
    )
    
    
    (1,025
    )Net interest income
    
    $
    2,324
    
    
    $
    (552
    )
    
    $
    (10
    )
    
    $
    1,762
    
    
    $
    1,913
    
    
    $
    (569
    )
    
    $
    (295
    )
    
    $
    1,049
   (1)
    
    The volume change in net interest income represents the change in average balance divided by
the previous years rate.(2)
    
    The rate change in net interest income represents the change in rate divided by the previous
years average balance.(3)
    
    The mix change in net interest income represents the change in average balance multiplied by
the change in rate. 2004 compared to 2003.Net interest income before provision for loan losses is the difference
between interest income and interest expense. Net interest income was $17.2 million for 2004, an
increase of $1.8 million, or 11%, from $15.4 million for 2003. The increase in net interest income
was attributed to volume increases in average loan and investment balances combined with declines
in rates paid on deposits, partially offset by declines in loan yields and volume increases in
average deposit balances. The average loan balances were $233.6 million for 2004, up $19.5
million, or 9%, from the $214.2 million for 2003. The average investment balances were $113.7
million for 2004, up $40.9 million, or 56%, from the $72.7 million for 2003. Offsetting the
benefits of the increased loan volume was the continuing impact of the falling interest rate
environment which began in 2001. Although rates began to rise during the second half of 2004, the
average loan yield was 7.03% for 2004, down 48 basis points, or 6%, from the 7.51% for 2003. Interest expense decreased $100,000, or 3%, to $2.9 million for 2004, down from $3.0 million for
2003. The decrease in interest expense was primarily attributed to rate decreases for all interest
bearing deposits, with the largest declines in time and savings deposits. The rate decreases were
offset by volume increases primarily in savings and time deposit balances. The average rate paid
on time deposits was 1.88% for 2004, down 30 basis points, or 14%, from the 2.18% paid for 2003.
The average rate paid on savings deposits was 0.45% for 2004, down 18 basis points, or 28%, from
the 0.63% paid for 2003. The average savings deposit balances, were $64.5 million for 2004, up
$15.6 million, or 32%, from the $48.9 million for 2003. The average time deposit balances, were
$93.7 million for 2004, up $10.5 million, or 13%, from the $83.2 million for 2003. Net interest margin is net interest income expressed as a percentage of average interest-earning
assets. The net interest margin for 2004 declined 39 basis points to 4.77%, down from 5.16% for
2003. The adverse effects of the falling interest rate environment, which began in 2001, on the
Companys loan portfolio offset the positive affects of the increasing loan and investment balances
and declining cost of funds and resulted in the decline in the net interest margin when comparing
the periods of 2004 and 2003. 2003 compared to 2002.Net interest income was $15.4 million for 2003, an increase of $1.0
million, or 7%, from $14.4 million for 2002. The increase in net interest income was attributed to
declines in rates paid on deposits combined with volume increases in average loan and investment
balances, partially offset 25




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##### Table of Contents



by declines in the yields on interest-earning assets. The average loan balances were $214.2
million for 2003, up $16.3 million, or 8%, from the $197.9 million for 2002. Offsetting the
benefits of the increased loan volume was the continuing impact of the falling interest rate
environment which began in 2001. The average loan yield was 7.51% for 2003, down 60 basis points,
or 7%, from the 8.11% for 2002. Interest expense decreased $1.0 million, or 25%, to $3.0 million for 2003, down from $4.0 million
for 2002. The decrease in interest expense was primarily attributed to rate decreases for both
time and money market deposits, slightly offset by volume increases in other borrowings. The
average rate paid on time deposits was 2.18% for 2003, down 94 basis points, or 30%, from the 3.12%
paid for 2002. The average rate paid on money market deposits was 0.85% for 2003, down 65 basis
points, or 43%, from the 1.50% paid for 2002. The average other borrowings balances, which
primarily represent junior subordinated deferrable interest debentures, were $6.4 million for 2003,
up $4.8 million, or 294%, from the $1.6 million for 2002. In September of 2002, $6 million of
junior subordinated debentures were issued by the Company. The net interest margin for 2003 declined 32 basis points to 5.16%, down from 5.48% for 2002. The
adverse effects of the falling interest rate environment, which began in 2001, on the Companys
interest-earning assets offset the positive affects of the declining cost of funds and increasing
loan and investment balances and resulted in the decline in the net interest margin when comparing
the periods of 2003 and 2002. 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 $750,000 in provision for loan losses for both 2004 and 2003 and $825,000 for
2002. There was no change in the level of the provision for loan losses from 2003 to 2004.
Although there was an increase of $49 million, or 22%, in the loan portfolio during 2004, the
affects of this loan growth on the provision were offset by a reduction in identified potential
risks currently existing in the loan portfolio. Net charge-offs as a percentage of loans improved
during 2004, declining to 0.26%, down 4 basis points, or 13%, from the 2003 level of 0.30%.
Similarly, the reduction in the provision for loan losses in 2003 from 2002 was attributed to the
general improvement in the overall credit quality of the loan portfolio. Nonaccrual loans ended
2003 with a balance of $847 thousand down $864 thousand, or 50%, from the $1.7 million 2002 year
end balance. Additionally, loan growth for the year-ended 2003 was fairly modest at $10.2 million,
or 5%. Management 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. The Companys loan portfolio composition and non-performing assets are further discussed
under the financial condition section that begins on page 29. 26




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##### Table of Contents



Non-Interest Income The following table sets forth the components of non-interest income for the years ended December
31, 2004, 2003 and 2002. Years Ended December 31,
    
    
    Change during Year2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003(dollars in thousands)Service charges
    
    $
    2,982
    
    
    $
    1,988
    
    
    $
    1,905
    
    
    $
    994
    
    
    $
    83Increase in cash surrender
values of life insurance
policies
    
    
    415
    
    
    
    313
    
    
    
    217
    
    
    
    102
    
    
    
    96Merchant processing
    
    
    263
    
    
    
    235
    
    
    
    205
    
    
    
    28
    
    
    
    30Investment services
    
    
    175
    
    
    
    134
    
    
    
    144
    
    
    
    41
    
    
    
    (10
    )Loan origination and servicing
    
    
    184
    
    
    
    272
    
    
    
    181
    
    
    
    (88
    )
    
    
    91Gain on sale of
investment securities, net
    
    
    235
    
    
    
    328
    
    
    
    117
    
    
    
    (93
    )
    
    
    211Gain on sale of loans, net
    
    
    128
    
    
    
    203
    
    
    
    191
    
    
    
    (75
    )
    
    
    12Other income
    
    
    436
    
    
    
    302
    
    
    
    318
    
    
    
    134
    
    
    
    (16
    )Total non-interest income
    
    $
    4,818
    
    
    $
    3,775
    
    
    $
    3,278
    
    
    $
    1,043
    
    
    $
    497
 2004 compared to 2003.During 2004, total non-interest income increased $1,043,000, or 28%, to
$4.8 million, up from $3.8 million for 2003. The increase in non-interest income was primarily the
result of increases in service charge revenue, increases in the cash surrender value of
company-owned life insurance policies (COLI) and gains on sale of real estate slightly offset by
declines in total gains recorded on the sale of loans and investment securities and fewer
commissions on mortgage loans processed. A large portion of the growth in service charge revenue resulted from an increase in the Companys
overall number of fee generating accounts. As a result of the acquisition in mid-November 2003 of
five branches from a competitor, the Company began servicing over 7,300 new deposit accounts. In
addition, during April 2004 the Company implemented a new overdraft privilege program for select
deposit relationships thereby increasing service charge revenue. Lastly, beginning in 2004 the
Company separated fee income from expenses related to its outsourced ATM and debit card activity.
Largely as a result of this change, service fee income related to ATM and debit cards increased
$332 thousand however, expenses related to these products recorded as outside service fees under
non-interest expense increased by $173 thousand. During the last half of 2003, the Company increased its holding in COLI by $3.2 million to provide
additional coverage for an executive officer of the Company. As a result, during 2004 the Company
realized a full years tax-exempt earnings from these policies as opposed to only half a year in
2003. The increase in other income resulted from the Company recording gains of $135 thousand in June
2004 on the sale of two unused banking offices that were acquired from a competitor as part of the
$45.5 million deposit purchase in mid-November 2003. During the second half of 2004, as the rate environment began to shift upward, opportunities to
record gains on the sale of investment securities significantly diminished. Lastly, the increase in the rate environment also resulted in fewer mortgage loans referrals to our
third party processor resulting in a decline in loan origination fee income as well as fewer
non-conforming and specialty mortgage loans processed internally and sold by the Company. 27




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##### Table of Contents



2003 compared to 2002.During 2003, total non-interest income increased $497,000, or
15%, to $3.8 million, up from $3.3 million for 2002. The increase in non-interest income is
primarily attributable to gains on the sale of investment securities, earnings on additional
company-owned life insurance policies (COLI), mortgage loan referral fees and increases in the
number of fee generating accounts. Throughout 2003 the Company took advantage of opportunities to
record gains by selling $32.4 million of U.S. treasury and agency available-for-sale investment
securities, gains on these securities amounted to $328 thousand. Also during 2003 the Bank
increased its investment in COLI by $3.2 million to provide additional coverage for an executive
officer of the Company. The increase in COLI balances resulted in an additional $96 thousand in
tax-exempt earnings on the policies. Lastly, during 2003 the outsourcing of the mortgage lending
unit resulted in commissions of $86 thousand on mortgage loans processed by our third-party
mortgage service. Non-Interest Expense The following table sets forth the components of other non-interest expense for the years ended
December 31, 2004, 2003 and 2002. Years Ended December 31,
    
    
    Change during Year2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003(dollars in thousands)Salaries and employee benefits
    
    $
    8,831
    
    
    $
    7,442
    
    
    $
    6,269
    
    
    $
    1,389
    
    
    $
    1,173Occupancy and equipment
    
    
    2,713
    
    
    
    2,343
    
    
    
    1,794
    
    
    
    370
    
    
    
    549Professional fees
    
    
    596
    
    
    
    392
    
    
    
    673
    
    
    
    204
    
    
    
    (281
    )Business development
    
    
    389
    
    
    
    357
    
    
    
    371
    
    
    
    32
    
    
    
    (14
    )Armored car and courier
    
    
    371
    
    
    
    342
    
    
    
    318
    
    
    
    29
    
    
    
    24Advertising and promotion
    
    
    351
    
    
    
    288
    
    
    
    260
    
    
    
    63
    
    
    
    28Telephone
    
    
    346
    
    
    
    357
    
    
    
    347
    
    
    
    (11
    )
    
    
    10Deposit premium amortization
    
    
    299
    
    
    
    161
    
    
    
    135
    
    
    
    138
    
    
    
    26Stationery and supplies
    
    
    292
    
    
    
    349
    
    
    
    324
    
    
    
    (57
    )
    
    
    25Director compensation
    
    
    284
    
    
    
    196
    
    
    
    228
    
    
    
    88
    
    
    
    (32
    )Postage
    
    
    261
    
    
    
    253
    
    
    
    184
    
    
    
    8
    
    
    
    69Outside service fees
    
    
    236
    
    
    
    201
    
    
    
    185
    
    
    
    35
    
    
    
    16Insurance
    
    
    236
    
    
    
    164
    
    
    
    171
    
    
    
    72
    
    
    
    (7
    )Loan expenses
    
    
    191
    
    
    
    170
    
    
    
    244
    
    
    
    21
    
    
    
    (74
    )Other expense
    
    
    187
    
    
    
    111
    
    
    
    101
    
    
    
    76
    
    
    
    10Total non-interest expense
    
    $
    15,583
    
    
    $
    13,126
    
    
    $
    11,604
    
    
    $
    2,457
    
    
    $
    1,522
 2004 compared to 2003.During 2004, non-interest expense increased $2.5 million, or 19%, to $15.6
million, up from $13.1 million for 2003. The increase in non-interest expense was primarily the
result of increases in salaries and employee benefits, occupancy and equipment, professional fees
and deposit premium amortization. During 2004 salaries and employee benefits increased $1.4 million, or 19%, due primarily to the
staffing additions related to the full years operations of the Banks three new branch offices,
expansion of the Companys centralized lending function, staffing additions to manage the overall
growth of the Company and increased employee benefit costs related to health-care and the Companys
salary continuation plans. Occupancy and equipment expense increased $370 thousand, or 16%, over the prior year primarily as a
result of additional depreciation and operating costs associated with the three new branches.
These new branches began serving the communities of Tahoe City, Kings Beach and Loyalton in
November 2003. Other increases in occupancy and equipment relate to depreciation on capitalized
upgrades to the Companys network systems. 28




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##### Table of Contents



Professional fees increased $204 thousand, or 52%, from 2003 to 2004. The increases in
professional fees related primarily to several consulting projects conducted in 2004. These
projects included an operational and efficiency review of the lending function, development of a
plan to enhance the customer relationship management (CRM) process and development and
implementation of the new overdraft privilege program. Lastly, deposit premium amortization increased $138 thousand, or 86%, over the prior year as a
result of additional premium amortization related to $45.5 million of deposits purchased in
November 2003. 2003 compared to 2002.During 2003, non-interest expense increased $1.5 million, or 13%, to $13.1
million, up from $11.6 million for 2002. The increase in non-interest expense is primarily due to
increased salary and benefit costs, occupancy and equipment depreciation expense partially offset
by decreases in professional fees. Salary and benefit costs increased $1.2 million, or 19% from 2002 to 2003. The increase in salary
and benefit costs was the result of continued expansion of the Companys centralized lending
efforts, additional personnel as a result of expanding the branch network with the addition of
three new branches, other staffing additions to manage the overall growth and expansion of the
Company and increased employee benefit costs related to health-care, executive officer salary
continuation plans and workers compensation expense. Occupancy and equipment expense increased $549 thousand, or 31% from 2002 to 2003. The increases
to occupancy expense related primarily to lease costs for both the de novo branch in Tahoe City,
leased centralized lending facilities in Truckee, depreciation costs associated with the Companys
new credit administration facility and remodeling costs associated with the Companys
administrative headquarters. Although opened for business in November 2003, the Tahoe City office
was leased for the majority of 2003. The increases to equipment expense related primarily to
additional depreciation and operating costs associated with new network security and monitoring
systems, upgrades to the networks operating system, enhancements to the item processing system and
installation of a new automated teller platform system. Professional fees decreased $281 thousand, or 42%, from 2002 to 2003. The decreases in
professional fees related to significant 2002 information technology consulting projects and legal
costs incurred to complete the merger and reorganization of Plumas Bank under the Company. 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 of all sectors of the area it serves.
Although the Company offers a broad array of financing options, it continues to concentrate its
focus on small to medium sized commercial businesses. These commercial 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 assets and deposit accounts, but looks to business and personal
cash flows as its primary source of repayment. The Companys largest historical lending categories are real estate mortgage loans, commercial
loans and consumer loans. These categories accounted for approximately 38.3%, 16.0% and 22.1%,
respectively of the Companys total loan portfolio at December 31, 2004, and approximately 31.0%,
23.4% and 21.4% respectively, of the Companys total loan portfolio at December 31, 2003. 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 66.9% of the total loan portfolio at December 31, 2004. Moreover, the business
activities of the Company currently are focused in the California counties of Plumas, Nevada,
Placer, Lassen, Modoc, Shasta, and Sierra. 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 29




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##### Table of Contents



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, 2004 and 2003, approximately 73% and 70%, respectively, of the Companys loan portfolio was
compromised of variable 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 include both commercial and commercial real estate
loans. At December 31, 2004, the Companys agricultural loans increased slightly to $31.1 million,
or 11.6% of the Companys total loan portfolio, from $26.5 million, or 12.2%, at December 31, 2003. The following table sets forth the amounts of loans outstanding by category as of the dates
indicated. At December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(dollars in thousands)Real estate  mortgage
    
    $
    102,125
    
    
    $
    67,532
    
    
    $
    66,039
    
    
    $
    50,865
    
    
    $
    48,878Real estate  construction
    
    
    31,964
    
    
    
    26,194
    
    
    
    15,175
    
    
    
    13,705
    
    
    
    10,118Commercial
    
    
    42,689
    
    
    
    51,073
    
    
    
    52,432
    
    
    
    49,910
    
    
    
    43,464Consumer
    
    
    59,068
    
    
    
    46,621
    
    
    
    48,465
    
    
    
    47,280
    
    
    
    43,793Agriculture
    
    
    31,067
    
    
    
    26,537
    
    
    
    25,610
    
    
    
    21,916
    
    
    
    17,751Total loans
    
    
    266,913
    
    
    
    217,957
    
    
    
    207,721
    
    
    
    183,676
    
    
    
    164,004Less:Deferred fees
    
    
    260
    
    
    
    530
    
    
    
    601
    
    
    
    748
    
    
    
    664Allowance for loan losses
    
    
    2,762
    
    
    
    2,564
    
    
    
    2,471
    
    
    
    2,153
    
    
    
    1,888Net loans
    
    $
    263,891
    
    
    $
    214,863
    
    
    $
    204,649
    
    
    $
    180,775
    
    
    $
    161,452
 The following table sets forth the maturity/repricing of gross loan categories as of December
31, 2004. Also provided with respect to such loans are the amounts due after one year, classified
according to sensitivity to changes in interest rates: After OneWithin
    
    
    Through
    
    
    AfterOne Year
    
    
    Five Years
    
    
    Five Years
    
    
    Total(dollars in thousands)Real estate  mortgage
    
    $
    27,123
    
    
    $
    50,000
    
    
    $
    25,002
    
    
    $
    102,125Real estate  construction
    
    
    20,320
    
    
    
    8,381
    
    
    
    3,263
    
    
    
    31,964Commercial
    
    
    27,126
    
    
    
    11,818
    
    
    
    3,745
    
    
    
    42,689Consumer
    
    
    31,792
    
    
    
    12,023
    
    
    
    15,253
    
    
    
    59,068Agriculture
    
    
    17,668
    
    
    
    8,153
    
    
    
    5,246
    
    
    
    31,067Total
    
    $
    124,029
    
    
    $
    90,375
    
    
    $
    52,509
    
    
    $
    266,913Loans maturing after one year with:Fixed interest rates
    
    
    
    
    
    $
    29,275
    
    
    $
    33,824
    
    
    $
    63,099Variable interest rates
    
    
    
    
    
    
    61,100
    
    
    
    18,685
    
    
    
    79,785Total
    
    
    
    
    
    $
    90,375
    
    
    $
    52,509
    
    
    $
    142,884
 Analysis of Asset Quality and Allowance for Loan Losses.The Company attempts to minimize
credit risk through its underwriting and credit review policies. The Companys credit review
process includes internally prepared credit reviews as well as contracting with an outside firm to
conduct periodic credit reviews. The Companys management and lending officers evaluate the loss
exposure of classified and impaired loans on a bi-weekly basis, or more frequently as loan
conditions change. The Board of Directors 30




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##### Table of Contents



through the loan committee, reviews the asset quality of new and criticized 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 criticized loans. Net charge-offs during the year ended December 31, 2004 totaled $552,000, or 0.21% of total loans,
compared to $657,000, or 0.30% of total loans, for the comparable period in 2003 and $507,000, or
0.24% of total loan for the comparable period of 2002. The allowance for loan losses stood at
1.03% of total loans as of December 31, 2004, versus 1.18% of total loans as of December 31, 2003. 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 allowance for loan losses is maintained at a level deemed appropriate by
management to provide for known and inherent risks in loans. The adequacy of the allowance for
loan losses is based upon managements continuing assessment of various factors affecting the
collectibility of loans; including current economic conditions, maturity of the portfolio, size of
the portfolio, industry concentrations, borrower credit history, collateral, the existing allowance
for loan losses, independent credit 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. There is no precise
method of predicting specific losses or amounts which may ultimately be charged off on particular
segments of the loan portfolio. The collectibility of a loan is subjective to some degree, but
must relate to the borrowers financial condition, cash flow, quality of the borrowers management
expertise, collateral and guarantees, and state of the local economy. When determining the
adequacy of the allowance for loan losses, the Company follows the guidelines set forth in the
Interagency Policy Statement on the Allowance for Loan and Lease Losses (Statement) issued
jointly by banking regulators during July 2001. The Statement outlines characteristics that should
be used in segmentation of the loan portfolio for purposes of the analysis including risk
classification, past due status, type of loan, industry or collateral in accordance with Statement
of Financial Accounting Standards (SFAS) No. 5 Accounting for Contingencies. It also outlines
factors to consider when adjusting the loss factors for various segments of the loan portfolio. In
addition, the Company incorporates the Securities and Exchange Commission Staff Accounting Bulletin
No. 102, which represents the SEC staffs view related to methodologies and supporting
documentation for the Allowance for Loan and Lease Losses that should be observed by all public
companies in complying with the federal securities laws and the Commissions interpretations. The Companys methodology for assessing the adequacy of the allowance for loan losses consists of
several key elements, which include but are not limited to:  
    specific allocation for problem graded loans (classified loans),
    general or formula allocation,
    and discretionary allocation based on loan portfolio segmentation In addition, the Companys methodology incorporates the following accounting pronouncements in
determining the adequacy of the allowance related to impaired loans:  
    Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors
for Impairment of a Loan and
    SFAS 118, Accounting by Creditors for Impairment of a Loan  Income Recognition and
Disclosures. Specific allocations are established based on managements periodic evaluation of loss exposure
inherent in classified, impaired, and other loans in which management believes that the collection
of principal and interest under the original terms of the loan agreement are in question. For
purposes of this analysis, classified loans are grouped by internal risk classifications which are
special mention, substandard, doubtful, and loss. Special mention loans are currently
performing but are potentially weak, as the borrower has begun to exhibit deteriorating trends,
which if not corrected, could jeopardize repayment of the loan and result in further downgrade.
Substandard loans have well-defined weaknesses which, if not corrected, could jeopardize the full
satisfaction of the debt. A loan classified as doubtful has critical 31




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##### Table of Contents



weaknesses that make full collection of the obligation improbable. Classified loans, as defined by
the Company, include loans categorized as substandard and doubtful. Loans classified as loss are
immediately charged off. Formula allocations are calculated by applying loss factors to outstanding loans with similar
characteristics. Loss factors are based on the Companys historical loss experience and on the
internal risk grade of those loans and may be adjusted for significant factors that, in
managements judgment, affect the collectibility of the portfolio as of the evaluation date. The
formula allocation analysis incorporates loan losses over the past twelve quarters (three years).
Loss factors are adjusted to recognize and quantify the estimated loss exposure resulting from
changes in market conditions and trends in the Companys loan portfolio. The discretionary allocation is based upon managements evaluation of various loan segment
conditions that are not directly measured in the determination of the formula and specific
allowances. The conditions may include, but are not limited to, general economic and business
conditions affecting the key lending areas of the Company, credit quality trends, collateral
values, loan volumes and concentrations, and other business conditions. 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. At December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(dollars in thousands)Balance at beginning of period
    
    $
    2,564
    
    
    $
    2,471
    
    
    $
    2,153
    
    
    $
    1,888
    
    
    $
    1,608Charge-offs:Commercial and agricultural
    
    
    103
    
    
    
    295
    
    
    
    195
    
    
    
    215
    
    
    
    80Real estate mortgage
    
    
    
    
    
    
    26
    
    
    
    13
    
    
    
    
    
    
    
    Real estate construction
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    600
    
    
    
    520
    
    
    
    393
    
    
    
    345
    
    
    
    250Total charge-offs
    
    
    703
    
    
    
    847
    
    
    
    601
    
    
    
    560
    
    
    
    330Recoveries:Commercial and agricultural
    
    
    15
    
    
    
    45
    
    
    
    21
    
    
    
    15
    
    
    
    17Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    136
    
    
    
    145
    
    
    
    73
    
    
    
    85
    
    
    
    93Total recoveries
    
    
    151
    
    
    
    190
    
    
    
    94
    
    
    
    100
    
    
    
    110Net charge-offs
    
    
    552
    
    
    
    657
    
    
    
    507
    
    
    
    460
    
    
    
    220Provision for loan losses
    
    
    750
    
    
    
    750
    
    
    
    825
    
    
    
    725
    
    
    
    500Balance at end of period
    
    $
    2,762
    
    
    $
    2,564
    
    
    $
    2,471
    
    
    $
    2,153
    
    
    $
    1,888Net charge-offs during the period
to average loans
    
    
    0.24
    %
    
    
    0.31
    %
    
    
    0.26
    %
    
    
    0.26
    %
    
    
    0.16
    %Allowance for loan losses to total
Loans
    
    
    1.03
    %
    
    
    1.18
    %
    
    
    1.19
    %
    
    
    1.17
    %
    
    
    1.15
    %
 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. Impaired loans are measured based on the present value of the expected future cash flows discounted
at the loans effective interest rate or the fair value of the collateral if the loan is collateral
dependent. The 32




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##### Table of Contents



amount of impaired loans is not directly comparable to the amount of nonperforming loans disclosed
later in this section. The primary differences between impaired loans and nonperforming loans is
that impaired loan recognition considers not only loans 90 days or more past due, restructured
loans and nonaccrual loans but also may include problem loans other than delinquent loans. 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. At December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(dollars in thousands)Nonaccrual loans
    
    $
    1,171
    
    
    $
    847
    
    
    $
    1,711
    
    
    $
    1,203
    
    
    $
    522Loans past due 90 days or
more and still accruing
    
    
    36
    
    
    
    29
    
    
    
    75
    
    
    
    98
    
    
    
    3Total nonperforming loans
    
    
    1,207
    
    
    
    876
    
    
    
    1,786
    
    
    
    1,301
    
    
    
    525Other real estate owned
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    122
    
    
    
    300Total nonperforming assets
    
    $
    1,207
    
    
    $
    876
    
    
    $
    1,911
    
    
    $
    1,423
    
    
    $
    825Interest income forgone on
nonaccrual loans
    
    $
    25
    
    
    $
    51
    
    
    $
    148
    
    
    $
    72
    
    
    $
    31Interest income recorded on a
cash basis on nonaccrual loans
    
    $
    63
    
    
    $
    143
    
    
    $
    29
    
    
    $
    1
    
    
    $
    Nonperforming loans to total
loans
    
    
    0.45
    %
    
    
    0.40
    %
    
    
    0.86
    %
    
    
    0.71
    %
    
    
    0.32
    %Nonperforming assets to total
assets
    
    
    0.29
    %
    
    
    0.22
    %
    
    
    0.59
    %
    
    
    0.52
    %
    
    
    0.34
    %Allowance for loan losses to nonperforming
loans
    
    
    229
    %
    
    
    293
    %
    
    
    138
    %
    
    
    165
    %
    
    
    360
    %
 At December 31, 2004 and 2003, the Companys recorded investment in loans for which impairment
has been recognized totaled $1.2 million and $0.8 million, respectively. The specific allowance
for loan losses related to impaired loans was $121,000 and $59,000 at December 31, 2004 and 2003,
respectively. The average recorded investment in impaired loans was $1.6 million, $2.0 million and
$1.4 million during the years ended December 31, 2004, 2003 and 2002, respectively. In most cases,
the Company uses the cash basis method of income recognition for impaired loans. For the years
ended December 31, 2004, 2003 and 2002, the Company recognized $63,000, $143,000 and $29,000,
respectively, of income on such loans. It is the policy of management to make additions to the allowance for loan losses so that it
remains adequate to absorb the inherent risk of loss in the portfolio. Management believes that
the allowance at December 31, 2004 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. Investment Portfolio and Federal Funds Sold.Total investment securities and Federal funds sold
decreased $7.9 million, or 7%, to $113.3 million as of December 31, 2004, down from $121.2 million
at December 31, 2003. The slight decline in these balances in 2004 directly relates to our planned
migration of assets, acquired from the recent branch and deposit purchase, from the investment
securities portfolio to the loan portfolio. In late 2003, when the Company initially received
funds for assuming the deposit liabilities of the acquired branches, these funds were directed into
shorter-term investment securities. However, over time we plan to transition these assets into
higher-yielding loan balances. The composition of the portfolio as of the end of 2004 was fairly consistent with the composition
of the portfolio as of the end of 2003. The investment portfolio balances in U.S. Treasuries, U.S.
Government agencies, corporate debt securities and municipal obligations comprised 9%, 69%, 9% and
13% respectively, at December 31, 2004 versus 10%, 72%, 11% and 7% respectively, at December 31,
2003. 33




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##### Table of Contents



Two trends that continue in the investment portfolio are the growth in holdings of mortgage-backed
securities and tax-exempt municipal securities. During 2003, the Company began investing in mortgage-backed securities of U.S. Government agencies
to increase interest income and provide cash flows for liquidity and reinvestment opportunities.
At December 31, 2004, total balances in these mortgage-backed securities amounted to $20.6 million.
Although these pass-through securities typically have final maturities of between ten and fifteen
years, the pass-through nature of the monthly principal and interest payments is expected to
significantly reduce the average life of these securities. Lastly, the Company has continued to expand its holdings in longer-term municipal securities. In
addition to providing diversified insured investment holdings, these securities provide attractive
tax equivalent yields for the Company. Since the majority of the interest earnings on these
securities are not taxable, the growth in municipal securities has resulted in significantly
lowering the effective tax rate of the Company. 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 classified as
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. The following tables summarize the values of the Companys investment securities held on the dates
indicated: December 31,Available-for-sale (fair value)
    
    2004
    
    
    2003
    
    
    2002(dollars in thousands)U.S. Treasuries
    
    $
    10,055
    
    
    $
    11,907
    
    
    $
    8,654U.S. Government agencies
    
    
    57,083
    
    
    
    70,442
    
    
    
    42,201Corporate debt securities
    
    
    9,501
    
    
    
    10,983
    
    
    
    U.S. Government agency
mortgage-backed
Securities
    
    
    20,640
    
    
    
    12,832
    
    
    
    Total
    
    $
    97,279
    
    
    $
    106,164
    
    
    $
    50,855
 December 31,Held-to-maturity (amortized cost)
    
    2004
    
    
    2003
    
    
    2002(dollars in thousands)U.S. Government agencies
    
    $
    507
    
    
    $
    512
    
    
    $
    2,753Corporate debt securities
    
    
    500
    
    
    
    1,502
    
    
    
    3,313Municipal obligations
    
    
    14,966
    
    
    
    7,705
    
    
    
    4,515Total
    
    $
    15,973
    
    
    $
    9,719
    
    
    $
    10,581
 34




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##### Table of Contents



The following tables summarize the maturities of the Companys securities at their carrying value
and their weighted average yields at December 31, 2004. Yields on tax-exempt municipal obligations
have been computed using a cost of funds rate of 0.71%. (dollars in thousands)Available-for-sale
    
    Within One Year
    
    
    One to Five Years
    
    
    Five to Ten Years
    
    
    Over Ten Years

    
    
    Total(market Value)
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldU.S. Treasuries
    
    $
    
    
    
    
    
    %
    
    $
    10,055
    
    
    
    2.59
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    10,055
    
    
    
    2.59
    %U.S. Government agencies
    
    
    10,984
    
    
    
    2.06
    %
    
    
    46,099
    
    
    
    2.69
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    57,083
    
    
    
    2.57
    %Corporate debt securities
    
    
    
    
    
    
    
    %
    
    
    9,501
    
    
    
    3.25
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    9,501
    
    
    
    3.25
    %U.S. Government agency
mortgage-backed securities
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    15,272
    
    
    
    3.76
    %
    
    
    5,368
    
    
    
    4.36
    %
    
    
    20,640
    
    
    
    3.91
    %Total
    
    $
    10,984
    
    
    
    2.06
    %
    
    $
    65,655
    
    
    
    2.76
    %
    
    $
    15,272
    
    
    
    3.76
    %
    
    $
    5,368
    
    
    
    4.36
    %
    
    $
    97,279
    
    
    
    2.92
    %Held-to-maturity
(book value)U.S. Government agencies
    
    $
    500
    
    
    
    6.03
    %
    
    $
    7
    
    
    
    5.13
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    507
    
    
    
    6.02
    %Corporate debt securities
    
    
    500
    
    
    
    6.02
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    500
    
    
    
    6.02
    %Municipal obligations
    
    
    795
    
    
    
    4.62
    %
    
    
    1,756
    
    
    
    6.82
    %
    
    
    3,652
    
    
    
    5.71
    %
    
    
    8,763
    
    
    
    5.53
    %
    
    
    14,966
    
    
    
    5.68
    %Total
    
    $
    1,795
    
    
    
    5.40
    %
    
    $
    1,763
    
    
    
    6.81
    %
    
    $
    3,652
    
    
    
    5.71
    %
    
    $
    8,763
    
    
    
    5.53
    %
    
    $
    15,973
    
    
    
    5.70
    %
 35




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##### Table of Contents



Deposits.Total deposits were $378.6 million as of December 31, 2004, an increase of $22.7
million, or 6%, from the December 31, 2003 balance of $355.8 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, 2004, non-interest bearing demand deposits
and interest checking deposits increased to 40.7% of total deposits versus 38.9% at December 31,
2003. Money market and savings deposits decreased slightly to 34.3% of total deposits as of
December 31, 2004 compared to 34.9% as of December 31, 2003. Time deposits decreased to 25.0% of
total deposits as of December 31, 2004 compared to 26.2% at December 31, 2003. 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. The Company does not accept brokered deposits. The following chart sets forth the distribution of the Companys average daily deposits for the
periods indicated. 2004
    
    
    2003
    
    
    2002Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate %
    
    
    Balance
    
    
    Rate %
    
    
    Balance
    
    
    Rate %(dollars in thousands)Non-interest-bearing deposits
    
    $
    105,827
    
    
    
    
    
    
    $
    78,301
    
    
    
    
    
    
    $
    60,638Interest-bearing deposits:NOW accounts
    
    
    44,244
    
    
    
    0.13
    %
    
    
    35,668
    
    
    
    0.22
    %
    
    
    33,070
    
    
    
    0.34
    %Money market accounts
    
    
    65,026
    
    
    
    0.75
    %
    
    
    58,814
    
    
    
    0.85
    %
    
    
    51,776
    
    
    
    1.50
    %Savings
    
    
    64,472
    
    
    
    0.45
    %
    
    
    48,866
    
    
    
    0.63
    %
    
    
    39,094
    
    
    
    1.11
    %Time deposits
    
    
    93,684
    
    
    
    1.88
    %
    
    
    83,186
    
    
    
    2.18
    %
    
    
    84,195
    
    
    
    3.12
    %Total interest bearing deposits
    
    
    267,426
    
    
    
    0.97
    %
    
    
    226,534
    
    
    
    1.19
    %
    
    
    208,135
    
    
    
    1.90
    %Total deposits
    
    $
    373,253
    
    
    
    0.70
    %
    
    $
    304,835
    
    
    
    0.89
    %
    
    $
    268,773
    
    
    
    1.47
    %
 The Companys time deposits of $100,000 or more had the following schedule of maturities at
December 31, 2004: Amount(dollars in thousands)Remaining Maturity:Three months or less
    
    $
    14,002Over three months to six months
    
    
    4,147Over six months to 12 months
    
    
    5,760Over 12 months
    
    
    7,368Total
    
    $
    31,277
 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. 36




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##### Table of Contents



Capital Resources Shareholders Equity.Shareholders equity as of December 31, 2004 increased $2.1 million, or 8%,
to $27.9 million from $25.7 million as of December 31, 2003. This increase was due to the
retention of current period earnings of $3.6 million and to a lesser extent the net funds received
from key employees and directors exercising their stock options totaling $68,000. Partially
offsetting these increases were two cash dividends totaling $914,000 paid during 2004 and a
decrease in the unrealized gains on available-for-sale investment securities of $658,000. The Company and the Bank are subject to various regulatory capital requirements administered by
federal banking agencies. 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 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 the
Company to maintain minimum amounts and ratios of Total and Tier 1 capital (primarily common stock
and retained earnings less goodwill) to risk-weighted assets and of Tier 1 capital to average
assets. Management believes as of December 31, 2004, that both the Company and Bank exceed all
capital adequacy requirements to which they are subject. At December 31, 2004, the Companys capital ratios decreased slightly. This decrease was primarily
attributed to the continued absorption of assets related to the acquisition of five branches from a
competitor in late 2003. 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, 2004, the Companys and the 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 the regulatory minimum requirement for
depository institutions as of December 31, 2004 (amounts in thousands except percentage amounts). Plumas Bancorp
    
    
    RegulatoryActual
    
    
    MinimumCapital
    
    
    Ratio
    
    
    RequirementLeverage ratio
    
    $
    32,444
    
    
    
    7.6
    %
    
    
    4.0
    %Tier 1 capital to risk-weighted assets
    
    $
    32,444
    
    
    
    10.1
    %
    
    
    4.0
    %Total risk-based capital ratio
    
    $
    35,206
    
    
    
    10.9
    %
    
    
    8.0
    %
 Plumas Bank
    
    
    RegulatoryActual
    
    
    MinimumCapital
    
    
    Ratio
    
    
    RequirementLeverage ratio
    
    $
    31,982
    
    
    
    7.5
    %
    
    
    4.0
    %Tier 1 capital to risk-weighted assets
    
    $
    31,982
    
    
    
    10.0
    %
    
    
    4.0
    %Total risk-based capital ratio
    
    $
    34,744
    
    
    
    10.8
    %
    
    
    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 37




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##### Table of Contents



the prescribed well-capitalized leverage, Tier 1 risk-based and total risk-based capital ratios of
5%, 6% and 10%, respectively, at all times. Off-Balance Sheet Arrangements 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
and letters of 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, letters of credit
and ongoing monitoring of outstanding balances reduces the risk of loss associated with these
commitments. As of December 31, 2004, the Company had $90.1 million in unfunded loan commitments
and $1.8 million in letters of credit. Of the $90.1 million in unfunded loan commitments, $59.3
million and $30.8 million represented commitments to commercial and consumer customers,
respectively. Of the total unfunded commitments at December 31, 2004, $57.0 million were secured
by real estate, of which $35.9 million was secured by commercial real estate and $21.1 million 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. Since, some of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessary represent future cash requirements. Operating Leases.The Company leases three depository branches as well as one administrative
lending office and four automated teller machine locations used in the normal course of business
throughout six counties in the Companys service area. Total rental expenses under all operating leases, including premises, totaled $264,000, $179,000
and $85,000, in 2004, 2003 and 2002 respectively. The expiration dates of the leases vary, with
the first such lease expiring during 2006 and the last such lease expiring during 2008. Contractual Obligations and Commitments The Companys contractual obligations and commitments are comprised of the junior subordinated
deferrable interest debentures and operating lease obligations and a mortgage for various banking
facilities. As of December 31, 2004, future contractual obligations of the Company are as follows: Contractual Obligations Due by Period(dollars in thousands)
    
    Total
    
    
    Less than 1 year
    
    
    1 to 3 years
    
    
    3 to 5 years
    
    
    More than 5 yearsLong-term debt obligations:Junior subordinated deferrable
Interest debentures
    
    $
    6,186
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,186Operating lease obligations
    
    
    569
    
    
    
    245
    
    
    
    294
    
    
    
    30
    
    
    
    Other long-term liabilities:Salary continuation
    
    
    2,087
    
    
    
    8
    
    
    
    18
    
    
    
    21
    
    
    
    2,040Branch mortgage
    
    
    80
    
    
    
    8
    
    
    
    18
    
    
    
    22
    
    
    
    32Total contractual liabilities
    
    $
    8,922
    
    
    $
    261
    
    
    $
    330
    
    
    $
    73
    
    
    $
    8,258
 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, the Company maintains an investment portfolio containing U.S. Government and
agency securities that are classified as available-for-sale. On the liability side, liquidity
needs are managed by changing competitive offering rates on deposit 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 $10 million and $5 million. In addition, the Company can borrow up to $60.9 million
from the Federal Home 38




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##### Table of Contents



Loan Bank secured by commercial and residential mortgage loans. There was a $1 million short-term
borrowing at December 31, 2004 but no borrowings outstanding at December 31, 2003 and 2002. Customer deposits are the Companys primary source of funds. Deposits totaled $378.6 million at
December 31, 2004, an increase of $22.7 million, or 6%, from the December 31, 2003 balance of
$355.8 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. 39




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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. Based upon the nature of its operations, the Company is not subject to foreign currency
exchange or commodity price risk. However, 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 Company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 using
floating rate loans and deposits, maturities, pricing and mix to attempt to neutralize the
potential impact of changes in market interest rates. The Company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, trust preferred securities and other borrowings. The Company, 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 Company
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 Company 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
Company has adopted formal policies and practices to monitor and manage interest rate risk
exposure. As part of this effort, the Company 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 Companys interest
rate risk, enabling management to make any adjustments necessary. Interest rate risk is managed by the Companys Asset Liability Committee (ALCO), which includes
members of senior management. The ALCO monitors interest rate risk by analyzing the potential
impact on 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 Companys
balance sheet in part to maintain the potential impact on net interest income within acceptable
ranges despite changes in interest rates. The Company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, 2004, the
Company used a simulation model to project changes in net interest income that result from
forecasted changes in interest rates. This analysis which is performed quarterly by management,
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 Companys products. Many of the Company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
Companys non-term deposit products reprice more slowly, usually changing less than the change in
market rates and at the discretion of the Company. 40




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##### Table of Contents



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 Company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 Companys net interest income. The following table reflects the Companys projected net interest income sensitivity analysis based
on year-end data: December 31, 2004
    
    
    December 31, 2003Adjusted Net
    
    
    Percent
    
    
    Adjusted Net
    
    
    PercentInterest Income
    
    
    Change
    
    
    Interest Income
    
    
    ChangeChange in Rates
    
    (in thousands)
    
    
    From Base
    
    
    (in thousands)
    
    
    From BaseUp 300 basis points
    
    $
    25,844
    
    
    
    24.0
    %
    
    $
    20,353
    
    
    
    18.5
    %Up 200 basis points
    
    
    24,032
    
    
    
    15.3
    %
    
    
    18,972
    
    
    
    10.4
    %Up 100 basis points
    
    
    22,304
    
    
    
    7.0
    %
    
    
    17,884
    
    
    
    4.1
    %Base scenario
    
    
    20,836
    
    
    
    
    %
    
    
    17,182
    
    
    
    
    %Down 100 basis
points
    
    
    20,221
    
    
    
    -2.9
    %
    
    
    16,391
    
    
    
    -4.6
    %Down 200 basis
points
    
    
    19,074
    
    
    
    -8.5
    %
    
    
    15,374
    
    
    
    -10.5
    %Down 300 basis
points
    
    
    17,682
    
    
    
    -15.1
    %
    
    
    14,804
    
    
    
    -13.8
    %
 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, 2004, with the exception of the up 300 basis points scenario, the Companys net
interest income exposure related to these hypothetical changes in market interest rate was within
the current guidelines established by the Company. For the up 300 basis points scenario the
Companys net interest income exposure exceeded the guidelines established by $841 thousand, or 4%.
Management expects to return the Companys interest exposure to compliance with its internally
established guidelines for a rapidly rising rate scenario by controlling the Companys future
growth in interest earning assets and interest bearing liabilities. Unaudited Quarterly Statement of Operations Data Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q12004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2003(dollars in thousands)Net interest income
    
    $
    4,689
    
    
    $
    4,414
    
    
    $
    4,040
    
    
    $
    4,019
    
    
    $
    3,943
    
    
    $
    3,863
    
    
    $
    3,908
    
    
    $
    3,686Provision for loan losses
    
    
    150
    
    
    
    300
    
    
    
    150
    
    
    
    150
    
    
    
    125
    
    
    
    175
    
    
    
    225
    
    
    
    225Non-interest income
    
    
    1,172
    
    
    
    1,274
    
    
    
    1,342
    
    
    
    1,030
    
    
    
    1,203
    
    
    
    893
    
    
    
    876
    
    
    
    803Non-interest expense
    
    
    3,989
    
    
    
    3,920
    
    
    
    3,913
    
    
    
    3,761
    
    
    
    3,506
    
    
    
    3,298
    
    
    
    3,236
    
    
    
    3,086Income before income taxes
    
    
    1,722
    
    
    
    1,468
    
    
    
    1,319
    
    
    
    1,138
    
    
    
    1,515
    
    
    
    1,283
    
    
    
    1,323
    
    
    
    1,178Income taxes
    
    
    583
    
    
    
    537
    
    
    
    469
    
    
    
    412
    
    
    
    532
    
    
    
    501
    
    
    
    523
    
    
    
    462Net income
    
    $
    1,139
    
    
    $
    931
    
    
    $
    850
    
    
    $
    726
    
    
    $
    983
    
    
    $
    782
    
    
    $
    800
    
    
    $
    716Per share:Basic earnings per share
    
    $
    0.35
    
    
    $
    0.29
    
    
    $
    0.26
    
    
    $
    0.22
    
    
    $
    0.31
    
    
    $
    0.24
    
    
    $
    0.25
    
    
    $
    0.22Diluted earnings per share
    
    $
    0.34
    
    
    $
    0.28
    
    
    $
    0.25
    
    
    $
    0.22
    
    
    $
    0.29
    
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.22
 41




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of Plumas Bancorp and subsidiary, and independent
auditors report included in the Annual Report of Plumas Bancorp to its shareholders for the years
ended December 31, 2004, 2003 and 2002. PageReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheet as of December 31, 2004 and 2003
    
    F-2Consolidated Statement of Income for the years ended December 31, 2004, 2003 and 2002
    
    F-3Consolidated Statement of Changes in Shareholders Equity for the years ended December 31, 2004, 2003 and 2002
    
    F-5Consolidated Statement of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    F-7Notes to Consolidated Financial Statements
    
    F-11
 42




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Shareholders and
     Board of Directors
Plumas Bancorp We have audited the accompanying consolidated balance sheet of Plumas Bancorp and subsidiary
as of December 31, 2004 and 2003, 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, 2004. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 subsidiary as of
December 31, 2004 and 2003 and the consolidated results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. /s/ PERRY-SMITH LLP Sacramento, California
March 21, 2005 F - 1




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY 
 CONSOLIDATED BALANCE SHEET December 31, 2004 and 2003 2004
    
    
    2003ASSETSCash and due from banks
    
    $
    11,444,000
    
    
    $
    24,717,000Federal funds sold
    
    
    
    
    
    
    5,295,000Total cash and cash equivalents
    
    
    11,444,000
    
    
    
    30,012,000Loans held for sale, at lower of cost or market value
    
    
    
    
    
    
    276,000Investment securities (Notes 3 and 7)
    
    
    113,252,000
    
    
    
    115,883,000Loans, less allowance for loan losses of $2,762,000
in 2004 and $2,564,000 in 2003 (Notes 4, 7, 9 and 13)
    
    
    263,891,000
    
    
    
    214,863,000Premises and equipment, net (Note 5)
    
    
    9,793,000
    
    
    
    10,306,000Intangible assets, net (Note 17)
    
    
    1,939,000
    
    
    
    2,238,000Company owned life insurance (Note 14)
    
    
    8,362,000
    
    
    
    8,013,000Accrued interest receivable and other assets (Note 12)
    
    
    8,665,000
    
    
    
    8,671,000Total assets
    
    $
    417,346,000
    
    
    $
    390,262,000LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    108,556,000
    
    
    $
    96,830,000Interest bearing (Note 6)
    
    
    270,011,000
    
    
    
    259,012,000Total deposits
    
    
    378,567,000
    
    
    
    355,842,000Federal funds purchased (Note 7)
    
    
    1,035,000Accrued interest payable and other liabilities
    
    
    3,667,000
    
    
    
    2,485,000Junior subordinated deferrable interest debentures
(Note 8)
    
    
    6,186,000
    
    
    
    6,186,000Total liabilities
    
    
    389,455,000
    
    
    
    364,513,000Commitments and contingencies (Note 9)Shareholders equity (Note 10):Serial preferred stock  no par value; 10,000,000
shares authorized; none issued
    
    
    
    
    
    
    Common stock  no par value; 15,000,000 shares
authorized; issued and outstanding  3,267,465
shares in 2004 and 3,242,027 shares in 2003
    
    
    4,013,000
    
    
    
    3,945,000Retained earnings
    
    
    24,370,000
    
    
    
    21,638,000Accumulated other comprehensive (loss) income
(Notes 3 and 15)
    
    
    (492,000
    )
    
    
    166,000Total shareholders equity
    
    
    27,891,000
    
    
    
    25,749,000Total liabilities and shareholders equity
    
    $
    417,346,000
    
    
    $
    390,262,000
 The accompanying notes are an integral
part of these consolidated financial statements. F - 2




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY 
 CONSOLIDATED STATEMENT OF INCOME For the Years Ended December 31, 2004, 2003 and 2002 2004
    
    
    2003
    
    
    2002Interest income:Interest and fees on loans
    
    $
    16,423,000
    
    
    $
    16,046,000
    
    
    $
    16,013,000Interest on investment securities:Taxable
    
    
    3,044,000
    
    
    
    2,074,000
    
    
    
    1,922,000Exempt from Federal income taxes
    
    
    439,000
    
    
    
    147,000
    
    
    
    143,000Interest on Federal funds sold
    
    
    163,000
    
    
    
    116,000
    
    
    
    275,000Interest on loans held for sale
    
    
    7,000
    
    
    
    30,000
    
    
    
    36,000Total interest income
    
    
    20,076,000
    
    
    
    18,413,000
    
    
    
    18,389,000Interest expense:Interest on deposits (Note 6)
    
    
    2,600,000
    
    
    
    2,703,000
    
    
    
    3,945,000Interest on short-term borrowings
(Note 7)
    
    
    9,000
    
    
    
    22,000
    
    
    
    6,000Interest on junior subordinated
deferrable interest debentures
(Note 8)
    
    
    305,000
    
    
    
    288,000
    
    
    
    87,000Total interest expense
    
    
    2,914,000
    
    
    
    3,013,000
    
    
    
    4,038,000Net interest income before
provision for loan losses
    
    
    17,162,000
    
    
    
    15,400,000
    
    
    
    14,351,000Provision for loan losses (Note 4)
    
    
    750,000
    
    
    
    750,000
    
    
    
    825,000Net interest income after
provision for loan losses
    
    
    16,412,000
    
    
    
    14,650,000
    
    
    
    13,526,000Non-interest income:Service charges
    
    
    2,982,000
    
    
    
    1,988,000
    
    
    
    1,905,000Gain on sale of loans
    
    
    128,000
    
    
    
    203,000
    
    
    
    191,000Gain on sale of available-for-sale
investment securities, net (Notes 3
and 15)
    
    
    235,000
    
    
    
    328,000
    
    
    
    117,000Earnings on company owned life
insurance policies (Note 14)
    
    
    415,000
    
    
    
    313,000
    
    
    
    217,000Other
    
    
    1,058,000
    
    
    
    943,000
    
    
    
    848,000Total non-interest income
    
    
    4,818,000
    
    
    
    3,775,000
    
    
    
    3,278,000
 (Continued) F - 3




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME
(Continued)For the Years Ended December 31, 2004, 2003 and 2002 2004
    
    
    2003
    
    
    2002Non-interest expenses:Salaries and employee benefits
(Notes 4 and 14)
    
    $
    8,831,000
    
    
    $
    7,442,000
    
    
    $
    6,269,000Occupancy and equipment
(Notes 5 and 9)
    
    
    2,713,000
    
    
    
    2,343,000
    
    
    
    1,794,000Other (Note 11)
    
    
    4,039,000
    
    
    
    3,341,000
    
    
    
    3,541,000Total non-interest expenses
    
    
    15,583,000
    
    
    
    13,126,000
    
    
    
    11,604,000Income before provision for
income taxes
    
    
    5,647,000
    
    
    
    5,299,000
    
    
    
    5,200,000Provision for income taxes (Note 12)
    
    
    2,001,000
    
    
    
    2,018,000
    
    
    
    2,046,000Net income
    
    $
    3,646,000
    
    
    $
    3,281,000
    
    
    $
    3,154,000Basic earnings per share (Note 10)
    
    $
    1.12
    
    
    $
    1.02
    
    
    $
    0.99Diluted earnings per share (Note 10)
    
    $
    1.09
    
    
    $
    0.99
    
    
    $
    0.96
 The accompanying notes are an integral
part of these consolidated financial statements. F - 4




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY 
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY For the Years Ended December 31, 2004, 2003 and 2002 AccumulatedOtherAdditional
    
    
    
    
    
    
    Comprehensive
    
    
    Total
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    (Loss) Income
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    (Net of Taxes)
    
    
    Equity
    
    
    IncomeBalance, January 1, 2002
    
    
    3,192,335
    
    
    $
    2,347,000
    
    
    $
    1,276,000
    
    
    $
    16,846,000
    
    
    $
    148,000
    
    
    $
    20,617,000Comprehensive income (Note 15):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,154,000
    
    
    
    
    
    
    
    3,154,000
    
    
    $
    3,154,000Other comprehensive income, net of tax:Net change in unrealized gains on
available-for-sale investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    262,000
    
    
    
    262,000
    
    
    
    262,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,416,000Cash dividends  $.27 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (867,000
    )
    
    
    
    
    
    
    (867,000
    )Stock options exercised and related tax
benefit (Note 10)
    
    
    17,306
    
    
    
    108,000
    
    
    
    16,000
    
    
    
    
    
    
    
    
    
    
    
    124,000Reorganization 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
    
    
    (324
    )
    
    
    (4,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,000
    )Balance, December 31, 2002
    
    
    3,209,317
    
    
    
    3,743,000
    
    
    
    
    
    
    
    19,133,000
    
    
    
    410,000
    
    
    
    23,286,000Comprehensive income (Note 15):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,281,000
    
    
    
    
    
    
    
    3,281,000
    
    
    $
    3,281,000Other comprehensive loss, net of tax:Net change in unrealized gains on
available-for-sale investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244,000
    )
    
    
    (244,000
    )
    
    
    (244,000
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,037,000Cash dividends  $.24 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (776,000
    )
    
    
    
    
    
    
    (776,000
    )Retirement of common stock in connection
with the exercise of stock options
(Note 10)
    
    
    (4,253
    )
    
    
    (74,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,000
    )Stock options exercised and related tax
benefit (Note 10)
    
    
    36,963
    
    
    
    276,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    276,000Balance, December 31, 2003
    
    
    3,242,027
    
    
    
    3,945,000
    
    
    
    
    
    
    
    21,638,000
    
    
    
    166,000
    
    
    
    25,749,000
 (Continued) F - 5




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(Continued)For the Years Ended December 31, 2004, 2003 and 2002 AccumulatedOtherAdditional
    
    
    
    
    
    
    Comprehensive
    
    
    Total
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    (Loss) Income
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    (Net of Taxes)
    
    
    Equity
    
    
    IncomeBalance, December 31, 2003
    
    
    3,242,027
    
    
    $
    3,945,000
    
    
    
    
    
    
    $
    21,638,000
    
    
    $
    166,000
    
    
    $
    25,749,000Comprehensive income (Note 15):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,646,000
    
    
    

    
    
    
    
    3,646,000
    
    
    $
    3,646,000Other comprehensive loss, net of tax:Net change in unrealized gains (losses)
on available-for-sale investment
securities (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (658,000
    )
    
    
    (658,000
    )
    
    
    (658,000
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,988,000Cash dividends  $.28 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (914,000
    )
    
    

    
    
    
    
    (914,000
    )Retirement of common stock in connection
with the exercise of stock options
(Note 10)
    
    
    (8,974
    )
    
    
    (176,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176,000
    )Stock options exercised and related
tax benefit (Note 10)
    
    
    34,412
    
    
    
    244,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244,000Balance, December 31, 2004
    
    
    3,267,465
    
    
    $
    4,013,000
    
    
    $
    
    
    
    $
    24,370,000
    
    
    $
    (492,000
    )
    
    $
    27,891,000
 2004
    
    
    2003
    
    
    2002Disclosure of reclassification amount, net of taxes (Note 15):Unrealized holding (losses) gains arising during the year
    
    $
    (523,000
    )
    
    $
    (50,000
    )
    
    $
    331,000Reclassification adjustment for gains included in net income
    
    
    135,000
    
    
    
    194,000
    
    
    
    69,000Net unrealized (losses) gains on available-for-sale investment securities
    
    $
    (658,000
    )
    
    $
    (244,000
    )
    
    $
    262,000
 The accompanying notes are an integral
part of these consolidated financial statements. F - 6




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY 
 CONSOLIDATED STATEMENT OF CASH FLOWS For the Years Ended December 31, 2004, 2003 and 2002 2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income
    
    $
    3,646,000
    
    
    $
    3,281,000
    
    
    $
    3,154,000Adjustments to reconcile net
income to net cash provided
by operating activities:Provision for loan losses
    
    
    750,000
    
    
    
    750,000
    
    
    
    825,000Decrease in deferred loan
origination fees, net
    
    
    (270,000
    )
    
    
    (71,000
    )
    
    
    (147,000
    )Depreciation and amortization
    
    
    1,625,000
    
    
    
    1,314,000
    
    
    
    1,060,000Net gain on sale of available-for-
sale investment securities
    
    
    (235,000
    )
    
    
    (328,000
    )
    
    
    (117,000
    )Amortization of investment security
premiums
    
    
    918,000
    
    
    
    1,200,000
    
    
    
    279,000Accretion of investment security
discounts
    
    
    (87,000
    )
    
    
    (24,000
    )
    
    
    (71,000
    )Net (gain) loss on sale of premises
and equipment
    
    
    (4,000
    )
    
    
    3,000
    
    
    
    24,000Net gain on sale of other real estate
    
    
    (141,000
    )
    
    
    (71,000
    )Net loss on judgement receivable
    
    
    53,000Net loss on sale of other vehicles
    
    
    22,000Recovery of impairment on held-to-
maturity investment security
    
    
    
    
    
    
    
    
    
    
    (60,000
    )Writedown of other real estate to
fair value
    
    
    18,000
    
    
    
    
    
    
    
    13,000Net decrease (increase) in loans
held for sale
    
    
    276,000
    
    
    
    1,196,000
    
    
    
    (823,000
    )Increase in cash surrender value
of life insurance policies, net
    
    
    (349,000
    )
    
    
    (278,000
    )
    
    
    (183,000
    )Increase in accrued interest
receivable and other assets
    
    
    (217,000
    )
    
    
    (1,060,000
    )
    
    
    (769,000
    )Increase (decrease) in accrued
interest payable and other liabilities
    
    
    2,217,000
    
    
    
    221,000
    
    
    
    (30,000
    )Provision for deferred income taxes
    
    
    82,000
    
    
    
    28,000
    
    
    
    31,000Net cash provided by operating
activities
    
    
    8,304,000
    
    
    
    6,161,000
    
    
    
    3,186,000
 (Continued) F - 7




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)For the Years Ended December 31, 2003, 2002 and 2001 2004
    
    
    2003
    
    
    2002Cash flows from investing activities:Cash acquired in the purchase of
selected assets and liabilities of
another bank
    
    
    
    
    
    $
    42,520,000Proceeds from matured and called
available-for-sale investment
securities
    
    $
    2,355,000
    
    
    
    15,000,000
    
    
    $
    16,996,000Proceeds from matured and called
held-to-maturity investment
securities
    
    
    15,320,000
    
    
    
    6,237,000
    
    
    
    8,056,000Proceeds from sale of available-
for-sale investment securities
    
    
    36,309,000
    
    
    
    32,426,000
    
    
    
    4,639,000Purchases of available-for-sale
investment securities
    
    
    (47,147,000
    )
    
    
    (104,217,000
    )
    
    
    (47,400,000
    )Purchases of held-to-maturity
investment securities
    
    
    (8,827,000
    )
    
    
    (6,174,000
    )
    
    
    (687,000
    )Proceeds from principal repayments
from available-for-sale government-
guaranteed mortgage-backed
securities
    
    
    2,722,000
    
    
    
    695,000
    
    
    
    796,000Proceeds from principal repayments
from held-to-maturity government-
guaranteed mortgage-backed
securities
    
    
    181,000
    
    
    
    322,000
    
    
    
    2,422,000Net increase in loans
    
    
    (49,745,000
    )
    
    
    (12,338,000
    )
    
    
    (24,690,000
    )Proceeds from sale of other real
estate
    
    
    890,000
    
    
    
    370,000Proceeds from sale of premises
and equipment
    
    
    
    
    
    
    
    
    
    
    3,000Purchases of premises and equipment
    
    
    (809,000
    )
    
    
    (1,587,000
    )
    
    
    (2,142,000
    )Purchase of company owned life
insurance
    
    
    
    
    
    
    (3,170,000
    )
    
    
    (510,000
    )Net cash used in investing
activities
    
    
    (48,751,000
    )
    
    
    (29,916,000
    )
    
    
    (42,517,000
    )
 (Continued) F - 8




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)For the Years Ended December 31, 2004, 2003 and 2002 2004
    
    
    2003
    
    
    2002Cash flows from financing activities:Net increase in demand, interest-
bearing and savings deposits
    
    $
    21,535,000
    
    
    $
    19,114,000
    
    
    $
    45,275,000Net increase (decrease) in time
deposits
    
    
    1,190,000
    
    
    
    (2,677,000
    )
    
    
    (3,541,000
    )Proceeds from exercise of stock
options
    
    
    68,000
    
    
    
    176,000
    
    
    
    124,000Proceeds from the issuance of junior
subordinated deferrable interest
debentures
    
    
    
    
    
    
    
    
    
    
    6,186,000Cash paid to repurchase fractional
shares
    
    
    
    
    
    
    
    
    
    
    (4,000
    )Payment of cash dividends
    
    
    (914,000
    )
    
    
    (776,000
    )
    
    
    (867,000
    )Net cash provided by
financing activities
    
    
    21,879,000
    
    
    
    15,837,000
    
    
    
    47,173,000(Decrease) increase in cash
and cash equivalents
    
    
    (18,568,000
    )
    
    
    (7,918,000
    )
    
    
    7,842,000Cash and cash equivalents at
beginning of year
    
    
    30,012,000
    
    
    
    37,930,000
    
    
    
    30,088,000Cash and cash equivalents at
end of year
    
    $
    11,444,000
    
    
    $
    30,012,000
    
    
    $
    37,930,000Supplemental disclosure of cash
flow information:Cash paid during the year for:Interest expense
    
    $
    2,881,000
    
    
    $
    3,123,000
    
    
    $
    4,272,000Income taxes
    
    $
    1,612,000
    
    
    $
    2,052,000
    
    
    $
    2,079,000Non-cash investing activities:Real estate acquired through
foreclosure
    
    $
    145,000
    
    
    $
    175,000
    
    
    $
    138,000Vehicles acquired through
repossession
    
    $
    92,000Reclassification of loans to other
assets (Note 4)
    
    
    
    
    
    $
    1,399,000Net change in unrealized (loss) gain
on available-for-sale investment
securities
    
    $
    (1,122,000
    )
    
    $
    (415,000
    )
    
    $
    446,000Non-cash financing activities:Common stock retired in connection
with the exercise of stock options
    
    $
    176,000
    
    
    $
    74,000
 (Continued) F - 9




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PLUMAS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)For the Years Ended December 31, 2004, 2003 and 2002 2004
    
    
    2003
    
    
    2002On November 17, 2003, the Company
purchased certain assets and liabilities
of the Kings Beach, Loyalton, Portola,
Quincy and Truckee branches from
Placer Sierra Bank (Note 17):Deposits assumed
    
    
    
    
    
    $
    45,464,000Loans
    
    
    
    
    
    
    (129,000
    )Premises and equipment
    
    
    
    
    
    
    (552,000
    )Premium paid for deposits
    
    
    
    
    
    
    (1,709,000
    )Other assets
    
    
    
    
    
    
    (581,000
    )Other liabilities
    
    
    
    
    
    
    27,000Cash received
    
    
    
    
    
    $
    42,520,000
 The accompanying notes are an integral
part of these consolidated financial statements. F - 10




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    THE BUSINESS OF PLUMAS BANCORPOn January 17, 2002, Plumas Bancorp (the Company) was incorporated as a bank holding
company for the purpose of acquiring Plumas Bank (the Bank) in a one bank holding company
reorganization. This corporate structure gives the Company and the Bank greater flexibility
in terms of operation expansion and diversification. The reorganization was approved by the
Companys shareholders on May 29, 2002, and 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 formed Plumas Statutory Trust I (the
Trust) for the sole purpose of issuing trust preferred securities on September 26, 2002.The Bank operates twelve branches in California, including branches in Alturas, Chester,
Fall River Mills, Greenville, Kings Beach, Loyalton, Portola, Quincy, Susanville, Tahoe
City, Truckee and Westwood. The Banks deposits are insured by the Federal Deposit
Insurance Corporation (FDIC) up to applicable legal limits. The Banks primary source of
revenue is generated from providing loans to customers who are predominately small and
middle market businesses and individuals residing in the surrounding areas.2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESConsolidation and Basis of PresentationThe consolidated financial statements include the accounts of the Company and the
consolidated accounts of its wholly-owned subsidiary, Plumas Bank. All significant
intercompany balances and transactions have been eliminated.Plumas Statutory Trust I is not consolidated into the Companys consolidated financial
statements and, accordingly, is accounted for under the equity method. The Companys
investment in the Trust of $186,000 is included in accrued interest receivable and other
assets on the consolidated balance sheet. The junior subordinated debentures issued and
guaranteed by the Company and held by the Trust are reflected as debt on the consolidated
balance sheet.The accounting and reporting policies of Plumas Bancorp and subsidiary conform with
accounting principles generally accepted in the United States of America and prevailing
practices within the banking industry.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates. F - 11




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Cash and Cash EquivalentsFor the purpose of the statement of cash flows, cash and due from banks and Federal funds
sold are considered to be cash equivalents. Generally, Federal funds are sold for one day
periods. Cash held with other federally insured institutions in excess of FDIC limits as of
December 31, 2004 was $49,000.Investment SecuritiesInvestments are classified into one of the following categories:  
    Available-for-sale securities reported at fair value, with unrealized gains
and losses excluded from earnings and reported, net of taxes, as accumulated other
comprehensive income (loss) within shareholders equity.
    Held-to-maturity securities, which management has the positive intent and
ability to hold, reported at amortized cost, adjusted for the accretion of discounts
and amortization of premiums.  Management determines the appropriate classification of its investments at the time of
purchase and may only change the classification in certain limited circumstances. All
transfers between categories are accounted for at fair value.Gains or losses on the sale of securities are computed on the specific identification
method. Interest earned on investment securities is reported in interest income, net of
applicable adjustments for accretion of discounts and amortization of premiums.Investment securities are evaluated for impairment on at least a quarterly basis and more
frequently when economic or market conditions warrant such an evaluation to determine
whether a decline in their value is other than temporary. Management utilizes criteria such
as the magnitude and duration of the decline and the intent and ability of the Company to
retain its investment in the securities for a period of time sufficient to allow for an
anticipated recovery in fair value, in addition to the reasons underlying the decline, to
determine whether the loss in value is other than temporary. The term other than
temporary is not intended to indicate that the decline is permanent, but indicates that the
prospects for a near-term recovery of value is not necessarily favorable, or that there is a
lack of evidence to support a realizable value equal to or greater than the carrying value
of the investment. Once a decline in value is determined to be other than temporary, the
value of the security is reduced and a corresponding charge to earnings is recognized. F - 12




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Investment in Federal Home Loan Bank StockAs a member of the Federal Home Loan Bank System, the Bank is required to maintain an
investment in the capital stock of the Federal Home Loan Bank. The investment is carried at
cost. At December 31, 2004 and 2003, Federal Home Loan Bank stock totaled $1,827,000 and
$755,000, respectively. On the consolidated balance sheet, Federal Home Loan Bank stock is
included in accrued interest receivable and other assets.Loans Held for Sale, Loan Sales and ServicingThe Company accounts for the transfer and servicing of financial assets based on the
financial and servicing assets it controls and liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities when
extinguished.Servicing rights acquired through 1) a purchase or 2) the origination of loans which are
sold or securitized with servicing rights retained are recognized as separate assets or
liabilities. Servicing assets or liabilities are recorded at the difference between the
contractual servicing fees and adequate compensation for performing the servicing, and are
subsequently amortized in proportion to and over the period of the related net servicing
income or expense. Servicing assets are periodically evaluated for impairment. Fair values
are estimated using discounted cash flows based on current market interest rates. For
purposes of measuring impairment, servicing assets are stratified based on note rate and
term. The amount of impairment recognized is the amount by which the servicing assets for a
stratum exceed their fair value.Government Guaranteed LoansIncluded in the portfolio are loans which are 75% to 90% guaranteed by the Small Business
Administration (SBA), US Department of Agriculture Rural Business Cooperative Service (RBS)
and Farm Services Agency (FSA). The guaranteed portion of these loans may be sold to a
third party, with the Bank retaining the unguaranteed portion. The Company generally
receives a premium in excess of the adjusted carrying value of the loan at the time of sale.
The Company may be required to refund a portion of the sales premium if the borrower
defaults or prepays within ninety days of the settlement date. At December 31, 2004, the
premiums and guaranteed portion of these sold loans subject to these recourse provisions
totaled $53,000 and $1,088,000, respectively. F - 13




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Loans Held for Sale, Loan Sales and Servicing (Continued)Government Guaranteed Loans(Continued)The Companys investment in the loan is allocated between the retained portion of the loan,
the servicing asset, the interest-only (IO) strip, and the sold portion of the loan based on
their relative fair values on the date the loan is sold. The gain on the sold portion of
the loan is recognized as income at the time of sale. The carrying value of the retained
portion of the loan is discounted based on the estimated value of a comparable
non-guaranteed loan. The servicing asset is recognized and amortized over the estimated
life of the related loan (see Note 4). Assets (accounted for as interest-only (IO) strips)
are recorded at the fair value of the difference between note rates and rates paid to
purchasers (the interest spread) and contractual servicing fees, if applicable. IO strips
are carried at fair value with gains or losses recorded as a component of shareholders
equity, similar to available-for-sale investment securities. Significant future prepayments
of these loans will result in the recognition of additional amortization of related
servicing assets and an adjustment to the carrying value of related IO strips.The Company serviced SBA and RBS government guaranteed loans for others totaling $3,001,000
and $2,889,000 as of December 31, 2004 and 2003, respectively.Mortgage LoansThe Company originates mortgage loans that are either held in the Companys loan portfolio
or sold in the secondary market. Loans held-for-sale are carried at the lower of cost or
market value. Market value is determined by the specific identification method as of the
balance sheet date or the date which the purchasers have committed to purchase the loans.
At the time the loan is sold, the related right to service the loan is either retained, with
the Bank earning future servicing income, or released in exchange for a one-time
servicing-released premium. Loans subsequently transferred to the loan portfolio are
transferred at the lower of cost or market value at the date of transfer. Any difference
between the carrying amount of the loan and its outstanding principal balance is recognized
as an adjustment to yield by the interest method.The Company 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, 2004, the premiums and sold loans subject to these
recourse provisions totaled $10,000 and $1,064,000, respectively.The Company serviced loans for the Federal National Mortgage Association (FNMA) totaling
$9,817,000 and $12,518,000 as of December 31, 2004 and 2003, respectively.Participation LoansThe Company also serviced loans which it has participated with other financial institutions
totaling $1,667,000 and $5,109,000 as of December 31, 2004 and 2003, respectively. F - 14




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)LoansLoans are stated at principal balances outstanding, except for loans transferred from loans
held for sale which are carried at the lower of principal balance or market value at the
date of transfer, adjusted for accretion of discounts. Interest is accrued daily based upon
outstanding loan balances. However, when, in the opinion of management, loans are
considered to be impaired and the future collectibility of interest and principal is in
serious doubt, loans are placed on nonaccrual status and the accrual of interest income is
suspended. Any interest accrued but unpaid is charged against income. Payments received
are applied to reduce principal to the extent necessary to ensure collection. Subsequent
payments on these loans, or payments received on nonaccrual loans for which the ultimate
collectibility of principal is not in doubt, are applied first to earned but unpaid interest
and then to principal.An impaired loan is measured based on the present value of expected future cash flows
discounted at the loans effective interest rate or, as a practical matter, at the loans
observable market price or the fair value of collateral if the loan is collateral dependent.
A loan is considered impaired when, based on current information and events, it is probable
that the Bank will be unable to collect all amounts due (including both principal and
interest) in accordance with the contractual terms of the loan agreement.Loan origination fees, commitment fees, direct loan origination costs and purchased premiums
and discounts on loans are deferred and recognized as an adjustment of yield, to be
amortized to interest income over the contractual term of the loan. The unamortized balance
of deferred fees and costs is reported as a component of net loans.Allowance for Loan LossesThe allowance for loan losses is maintained to provide for losses related to impaired loans
and other losses that can be expected to occur in the normal course of business. The
determination of the allowance is based on estimates made by management, to include
consideration of the character of the loan portfolio, specifically identified problem loans,
potential losses inherent in the portfolio taken as a whole and economic conditions in the
Companys service area.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 Company has not experienced
losses, the loss experience of peer banks. These estimates are particularly susceptible to
changes in the economic environment and market conditions.The Banks Loan Committee reviews the adequacy of the allowance for loan losses at least
quarterly, to include consideration of the relative risks in the portfolio and current
economic conditions. The allowance is adjusted based on that review if, in managements
judgment, changes are warranted. F - 15




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Allowance for Loan Losses (Continued)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, 2004 and 2003, respectively, reflects managements estimate of possible losses in the
portfolio.Other Real EstateOther real estate includes former Bank premises with balances of $105,000 and $690,000 at
December 31, 2004 and 2003, respectively. At December 31, 2004 and 2003, the Company had no
investment in real estate acquired in full or partial settlement of loan obligations. When
property is acquired, any excess of the Banks recorded investment in the loan balance and
accrued interest income over the estimated fair market value of the property less costs to
sell is charged against the allowance for loan losses. A valuation allowance for losses on
other real estate is maintained to provide for temporary declines in value. The allowance
is established through a provision for losses on other real estate which is included in
other expenses. Subsequent gains or losses on sales or writedowns resulting from permanent
impairment are recorded in other income or expenses as incurred.Premises and EquipmentPremises and equipment are carried at cost. Depreciation is determined using the
straight-line method over the estimated useful lives of the related assets. The useful
lives of premises are estimated to be twenty to thirty years. The useful lives of
furniture, fixtures and equipment are estimated to be two to ten years. Leasehold
improvements are amortized over the life of the asset or the life of the related lease,
whichever is shorter. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts, and any resulting
gain or loss is recognized in income for the period. The cost of maintenance and repairs is
charged to expense as incurred. The Company evaluates premises and equipment for financial
impairment as events or changes in circumstances indicate that the carrying amount of such
assets may not be fully recoverable.Intangible AssetsIntangible assets consist of core deposit intangibles related to branch acquisitions and are
amortized using the straight-line method over ten years.Income TaxesThe Company files its income taxes on a consolidated basis with its subsidiary. The
allocation of income tax expense (benefit) represents each entitys proportionate share of
the consolidated provision for income taxes. F - 16




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Income Taxes (Continued)Deferred tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. On the consolidated balance sheet, net deferred tax assets
are included in accrued interest receivable and other assets.Earnings Per ShareBasic earnings per share (EPS), which excludes dilution, is computed by dividing income
available to common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock, such as stock options, result in the issuance of
common stock which shares in the earnings of the Company. The treasury stock method has
been applied to determine the dilutive effect of stock options in computing diluted EPS.Stock-Based CompensationAt December 31, 2004, the Company had two stock-based compensation plans, the Plumas Bank
2001 and 1991 Stock Option Plans, which are described more fully in Note 10. The Company
accounts for these plans under the recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based
employee compensation cost is reflected in net income, as all options granted under these
plans had an exercise price equal to the market value of the underlying common stock on the
date of grant.Pro forma adjustments to the Companys consolidated net earnings and earnings per share are
disclosed during the years in which the options become vested. With the assumption of the
existing stock option plans by the Company at the time of the reorganization during the year
ending December 31, 2002, 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 compensation. F - 17




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) 2004
    
    
    2003
    
    
    2002Net income, as reported
    
    $
    3,646,000
    
    
    $
    3,281,000
    
    
    $
    3,154,000Deduct: Total stock-based compensation expense determined under
the fair value based method for all
awards, net of related tax effects
    
    
    144,000
    
    
    
    91,000
    
    
    
    165,000Pro forma net income
    
    $
    3,502,000
    
    
    $
    3,190,000
    
    
    $
    2,989,000Basic earnings per share  as reported
    
    $
    1.12
    
    
    $
    1.02
    
    
    $
    .99Basic earnings per share  pro forma
    
    $
    1.07
    
    
    $
    .99
    
    
    $
    .93Diluted earnings per share  as reported
    
    $
    1.09
    
    
    $
    .99
    
    
    $
    .96Diluted earnings per share  pro forma
    
    $
    1.06
    
    
    $
    .97
    
    
    $
    .92Weighted average fair value of options
granted during the year
    
    $
    5.09
    
    
    $
    5.30
    
    
    $
    4.72
 The fair value of each option was estimated on the date of grant using an option-pricing
model with the following assumptions: 2004
    
    
    2003
    
    
    2002Dividend yield
    
    
    1.44
    %
    
    
    1.29
    %
    
    
    1.67
    %Expected volatility
    
    
    51.54
    %
    
    
    38.74
    %
    
    
    27.38
    %Risk-free interest rate
    
    
    3.46
    %
    
    
    3.07
    %
    
    
    3.01
    %Expected option life
    
    5 years
    
    
    5 years
    
    
    
    3 to 5 years
  ReclassificationsCertain reclassifications have been made to prior years balances to conform to
classifications used in 2004. F - 18




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PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Impact of New Financial Accounting StandardsOther-Than-Temporary Impairment of Certain InvestmentsIn June 2004, the Financial Accounting Standards Board (FASB) ratified Emerging Issues Task
Force (EITF) Issue 03-1, The Meaning of Other-than-Temporary Impairment and Its Application
to Certain Investments(EITF 03-1). EITF 03-1 includes additional guidance for evaluating
and recording impairment losses on debt and equity investments, as well as disclosure
requirements for investments that are deemed to be temporarily impaired. The proposed
guidance indicates that an investor must have the intent and ability to hold an investment
until a forecasted recovery of the fair value up to or beyond the cost of the investment in
order to determine that any impairment is temporary. In September 2004, the FASB delayed
the effective date of the recognition and measurement guidance of EITF 03-1, pending further
deliberations. The disclosures for investments that are deemed temporarily impaired are
included in Note 3 to the consolidated financial statements. Once the FASB has reached a
final decision on the measurement and recognition provisions, the Company will evaluate the
impact of the adoption of EITF 03-1.Share-Based PaymentsIn December 2004, the FASB issued Statement Number 123 (revised 2004) (FAS 123 (R)),
Share-Based Payments. FAS 123 (R) requires all entities to recognize compensation expense
in an amount equal to the fair value of share-based payments such as stock options granted
to employees. The Company is required to apply FAS 123 (R) on a modified prospective
method. Under this method, the Company is required to record compensation expense (as
previous awards continue to vest) for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. In addition, the Company may elect to adopt FAS
123 (R) by restating previously issued financial statements, basing the expense on that
previously reported in their pro forma disclosures required by FAS 123. FAS 123 (R) is
effective for the first reporting period beginning after June 15, 2005. Management has not
completed its evaluation of the effect that FAS 123 (R) will have, but believes that the
effect will be consistent with its previous pro forma disclosures.Accounting for Certain Loans or Debt Securities Acquired in a TransferIn December 2003, the Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 03-03, Accounting for Certain
Loans or Debt Securities Acquired in a Transfer(SOP). This SOP addresses accounting for
differences between contractual cash flows and cash flows expected to be collected from an
investors initial investment in loans or debt securities (loans) acquired in a transfer if
those differences are attributable, at least in part, to credit quality. It also includes
such loans acquired in purchase business combinations. This SOP does not apply to loans
originated by the entity. This SOP limits the yield that may be accreted and requires that
the excess of contractual cash flows over cash flows expected to be collected not be
recognized as an adjustment of yield, loss accrual, or valuation allowance. F - 19




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Impact of New Financial Accounting Standards (Continued)Accounting for Certain Loans or Debt Securities Acquired in a Transfer(Continued)This SOP prohibits carrying over or creation of valuation allowances in the initial
accounting for loans acquired in a transfer that are within its scope. The prohibition of
the valuation allowance carryover applies to the purchase of an individual loan, a pool of
loans, a group of loans, and loans acquired in a purchase business combination.This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004.
In managements opinion, the adoption of this pronouncement will not have a material impact
on the Companys financial position or results of operations.3.
    INVESTMENT SECURITIESThe amortized cost and estimated fair value of investment securities at December 31, 2004
and 2003 consisted of the following:Available-for-Sale: 2004Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Treasury securities
    
    $
    10,161,000
    
    
    
    
    
    
    $
    (106,000
    )
    
    
    10,055,000U.S. Government agencies
    
    
    57,514,000
    
    
    $
    2,000
    
    
    
    (433,000
    )
    
    
    57,083,000U.S. Government agencies
collateralized by mortgage
obligations
    
    
    20,848,000
    
    
    
    8,000
    
    
    
    (216,000
    )
    
    
    20,640,000Corporate debt securities
    
    
    9,594,000
    
    
    
    
    
    
    
    (93,000
    )
    
    
    9,501,000$
    98,117,000
    
    
    $
    10,000
    
    
    $
    (848,000
    )
    
    $
    97,279,000
  Net unrealized losses on available-for-sale investment securities totaling $838,000
were recorded, net of $346,000 in tax benefits, as accumulated other comprehensive loss
within shareholders equity at December 31, 2004. Proceeds and gross realized gains from
the sale of available-for-sale investment securities for the year ended December 31, 2004
totaled $36,309,000 and $235,000, respectively. 2003Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Treasury securities
    
    $
    11,861,000
    
    
    $
    52,000
    
    
    $
    (6,000
    )
    
    $
    11,907,000U.S. Government agencies
    
    
    83,092,000
    
    
    
    294,000
    
    
    
    (112,000
    )
    
    
    83,274,000Corporate debt securities
    
    
    10,928,000
    
    
    
    70,000
    
    
    
    (15,000
    )
    
    
    10,983,000$
    105,881,000
    
    
    $
    416,000
    
    
    $
    (133,000
    )
    
    $
    106,164,000
 F - 20




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PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  3.
    INVESTMENT SECURITIES(Continued)Available-for-Sale: (Continued)Net unrealized gains on available-for-sale investment securities totaling $283,000 were
recorded, net of $117,000 in tax liabilities, as accumulated other comprehensive income
within shareholders equity at December 31, 2003. Proceeds and gross realized gains from
the sale of available-for-sale investment securities for the year ended December 31, 2003
totaled $32,426,000 and $328,000, respectively. 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.Held-to-Maturity: 2004Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Government agencies
    
    $
    507,000
    
    
    $
    2,000
    
    
    
    
    
    
    $
    509,000Obligations of states and
political subdivisions
    
    
    14,966,000
    
    
    
    169,000
    
    
    $
    (45,000
    )
    
    
    15,090,000Corporate debt securities
    
    
    500,000
    
    
    
    12,000
    
    
    
    
    
    
    
    512,000$
    15,973,000
    
    
    $
    183,000
    
    
    $
    (45,000
    )
    
    $
    16,111,000
 2003Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Government agencies
    
    $
    512,000
    
    
    $
    27,000
    
    
    
    
    
    
    $
    539,000Obligations of states and
political subdivisions
    
    
    7,705,000
    
    
    
    155,000
    
    
    $
    (10,000
    )
    
    
    7,850,000Corporate debt securities
    
    
    1,502,000
    
    
    
    47,000
    
    
    
    
    
    
    
    1,549,000$
    9,719,000
    
    
    $
    229,000
    
    
    $
    (10,000
    )
    
    $
    9,938,000
  There were no sales or transfers of held-to-maturity investment securities during the
years ended December 31, 2004, 2003 and 2002. F - 21




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PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  3.
    INVESTMENT SECURITIES(Continued)Investment securities with unrealized losses at December 31, 2004 are summarized and
classified according to the duration of the loss period as follows: Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesDebt securities:U.S. Treasury securities
    
    $
    5,047,000
    
    
    $
    43,000
    
    
    $
    5,008,000
    
    
    $
    63,000
    
    
    $
    10,055,000
    
    
    $
    106,000U.S. Government
agencies
    
    
    38,470,000
    
    
    
    271,000
    
    
    
    14,097,000
    
    
    
    162,000
    
    
    
    52,567,000
    
    
    
    433,000Obligations of states
and political subdivisions
    
    
    5,172,000
    
    
    
    44,000
    
    
    
    292,000
    
    
    
    1,000
    
    
    
    5,464,000
    
    
    
    45,000U.S. Government
agencies collateralized by mortgage
obligations
    
    
    13,042,000
    
    
    
    179,000
    
    
    
    5,866,000
    
    
    
    37,000
    
    
    
    18,908,000
    
    
    
    216,000Corporate debt securities
    
    
    5,893,000
    
    
    
    59,000
    
    
    
    3,608,000
    
    
    
    34,000
    
    
    
    9,501,000
    
    
    
    93,000$
    67,624,000
    
    
    $
    596,000
    
    
    $
    28,871,008
    
    
    $
    297,000
    
    
    $
    96,495,000
    
    
    $
    893,000
  At December 31, 2004, the Company held 149 investment securities of which 75 were in a
loss position for less than twelve months and 28 were in a loss position and had been in a
loss position for twelve months or more. Management periodically evaluates each investment
security for other than temporary impairment, relying primarily on industry analyst reports
and observation of market conditions and interest rate fluctuations. Management believes it
will be able to collect all amounts due according to the contractual terms of the underlying
investment securities and that the noted decline in fair value is considered temporary and
due only to interest rate fluctuations. F - 22




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PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  3.
    INVESTMENT SECURITIES(Continued)The amortized cost and estimated fair value of investment securities at December 31, 2004 by
contractual maturity are shown below. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to call or prepay
obligations with or without call or prepayment penalties. Available-for-Sale
    
    
    Held-to-MaturityEstimated
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueWithin one year
    
    $
    11,019,000
    
    
    $
    10,984,000
    
    
    $
    1,795,000
    
    
    $
    1,813,000After one year through
five years
    
    
    66,250,000
    
    
    
    65,655,000
    
    
    
    1,756,000
    
    
    
    1,826,000After five years through
ten years
    
    
    
    
    
    
    
    
    
    
    3,652,000
    
    
    
    3,663,000After ten years through
fifteen years
    
    
    
    
    
    
    
    
    
    
    8,763,000
    
    
    
    8,802,00077,269,000
    
    
    
    76,639,000
    
    
    
    15,966,000
    
    
    
    16,104,000Investment securities
not due at a single
maturity date:Government-guaranteed mortgage-
backed securities
    
    
    20,848,000
    
    
    
    20,640,000SBA loan pools
    
    
    
    
    
    
    
    
    
    
    7,000
    
    
    
    7,000$
    98,117,000
    
    
    $
    97,279,000
    
    
    $
    15,973,000
    
    
    $
    16,111,000
  Investment securities with amortized costs totaling $35,050,000 and $22,715,000 and
estimated fair values totaling $35,072,000 and $23,398,000 at December 31, 2004 and 2003,
respectively, were pledged to secure public deposits and treasury, tax and loan accounts. F - 23




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PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  4.
    LOANSOutstanding loans are summarized below: December 31,2004
    
    
    2003Commercial
    
    $
    42,689,000
    
    
    $
    51,073,000Agricultural
    
    
    31,067,000
    
    
    
    26,537,000Real estate  mortgage
    
    
    102,125,000
    
    
    
    67,532,000Real estate
 construction and land
development
    
    
    31,964,000
    
    
    
    26,194,000Installment
    
    
    59,068,000
    
    
    
    46,621,000266,913,000
    
    
    
    217,957,000Deferred loan fees, net
    
    
    (260,000
    )
    
    
    (530,000
    )Allowance for loan losses
    
    
    (2,762,000
    )
    
    
    (2,564,000
    )$
    263,891,000
    
    
    $
    214,863,000
  Changes in the allowance for loan losses were as follows: Year Ended December 31,2004
    
    
    2003
    
    
    2002Balance, beginning of year
    
    $
    2,564,000
    
    
    $
    2,471,000
    
    
    $
    2,153,000Provision charged to operations
    
    
    750,000
    
    
    
    750,000
    
    
    
    825,000Losses charged to allowance
    
    
    (703,000
    )
    
    
    (847,000
    )
    
    
    (601,000
    )Recoveries
    
    
    151,000
    
    
    
    190,000
    
    
    
    94,000Balance, end of year
    
    $
    2,762,000
    
    
    $
    2,564,000
    
    
    $
    2,471,000
  The recorded investment in loans that were considered to be impaired totaled $1,171,000 and
$847,000 at December 31, 2004 and 2003, respectively. The related allowance for loan losses
for impaired loans was $121,000 and $59,000 at December 31, 2004 and 2003, respectively.
The average recorded investment in impaired loans for the years ended December 31, 2004,
2003 and 2002 was $1,582,000, $2,034,000 and $1,447,000, respectively. During the year
ended December 31, 2003, the Company received a court judgment on loans previously
considered impaired in the amount of $1,399,000. At December 31, 2003, this judgment was
included in other assets on the consolidated balance sheet. The Company recognized $63,000,
$143,000 and $29,000 in interest income on a cash basis for impaired loans during the years
ended December 31, 2004, 2003 and 2002, respectively. F - 24




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  4.
    LOANS(Continued)At December 31, 2004 and 2003, nonaccrual loans totaled $1,171,000 and $847,000,
respectively. Interest foregone on nonaccrual loans totaled $25,000, $51,000 and $148,000
for the years ended December 31, 2004, 2003 and 2002, respectively.Salaries and employee benefits totaling $746,000, $728,000 and $753,000 have been deferred
as loan origination costs during the years ended December 31, 2004, 2003 and 2002,
respectively.Sales and Servicing of Government-Guaranteed LoansA summary of the activity in government-guaranteed loans follows: Year Ended December 31,2004
    
    
    2003
    
    
    2002Loans originated
    
    $
    3,044,000
    
    
    $
    3,010,000
    
    
    $
    3,401,000Loans sold (guaranteed portion)
    
    
    2,333,000
    
    
    
    
    
    
    
    899,000Loans outstanding at year end
    
    
    4,538,000
    
    
    
    6,773,000
    
    
    
    4,329,000Premium received at sale
    
    
    103,000
    
    
    
    
    
    
    
    38,000Balance of servicing assets at
year end
    
    
    106,000
    
    
    
    82,000
    
    
    
    91,000Fair value of interest-only strips
at year end
    
    
    356,000
    
    
    
    237,000
    
    
    
    263,000
  There were no significant gains or losses recognized on the interest-only strips for the
years ended December 31, 2004, 2003 and 2002.5.
    PREMISES AND EQUIPMENTPremises and equipment consisted of the following: December 31,2004
    
    
    2003Land
    
    $
    1,349,000
    
    
    $
    1,349,000Premises
    
    
    6,931,000
    
    
    
    6,904,000Furniture, equipment and leasehold improvements
    
    
    7,512,000
    
    
    
    7,075,000Construction in progress
    
    
    320,000
    
    
    
    260,00016,112,000
    
    
    
    15,588,000Less accumulated depreciation
and amortization
    
    
    (6,319,000
    )
    
    
    (5,282,000
    )$
    9,793,000
    
    
    $
    10,306,000
 F - 25




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  5.
    PREMISES AND EQUIPMENT(Continued)Depreciation and amortization included in occupancy and equipment expense totaled
$1,326,000, $1,153,000 and $925,000 for the years ended December 31, 2004, 2003 and 2002,
respectively.6.
    INTEREST-BEARING DEPOSITSInterest-bearing deposits consisted of the following: December 31,2004
    
    
    2003NOW
    
    $
    45,439,000
    
    
    $
    41,690,000Money market
    
    
    63,189,000
    
    
    
    64,349,000Savings
    
    
    66,821,000
    
    
    
    59,601,000Time, $100,000 or more
    
    
    31,277,000
    
    
    
    27,461,000Other time
    
    
    63,285,000
    
    
    
    65,911,000$
    270,011,000
    
    
    $
    259,012,000
  Aggregate annual maturities of time deposits are as follows: Year EndingDecember 31,2005
    
    $
    75,113,0002006
    
    
    12,256,0002007
    
    
    4,802,0002008
    
    
    1,553,0002009
    
    
    609,000Thereafter
    
    
    229,000$
    94,562,000
  Interest expense recognized on interest-bearing deposits consisted of the following: Year Ended December 31,2004
    
    
    2003
    
    
    2002NOW
    
    $
    58,000
    
    
    $
    79,000
    
    
    $
    114,000Money market
    
    
    490,000
    
    
    
    498,000
    
    
    
    775,000Savings
    
    
    292,000
    
    
    
    310,000
    
    
    
    432,000Time, $100,000 or more
    
    
    540,000
    
    
    
    507,000
    
    
    
    695,000Other time
    
    
    1,220,000
    
    
    
    1,309,000
    
    
    
    1,929,000$
    2,600,000
    
    
    $
    2,703,000
    
    
    $
    3,945,000
 F - 26




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PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  7.
    SHORT-TERM BORROWING ARRANGEMENTSThe Company has unsecured short-term borrowing arrangements with two of its correspondent
banks in the amounts of $10,000,000 and $5,000,000. The Company can also borrow up to
$60,893,000 from the Federal Home Loan Bank secured by commercial and residential mortgage
loans with carrying values totaling $106,175,000. In addition, the Bank has a reverse
repurchase agreement with a securities firm whereby all borrowings are fully secured by
investment securities. Short-term borrowings at December 31, 2004 consisted of $1,035,000
in Federal funds purchased which are normally purchased for one day periods. There were no
short-term borrowings outstanding at December 31, 2003.8.
    JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURESPlumas Statutory Trust I is a Connecticut business trust formed by the Company with capital
of $186,000 for the sole purpose of issuing trust preferred securities fully and
unconditionally guaranteed by the Company. Under applicable regulatory guidance, the amount
of trust preferred securities that is eligible as Tier 1 capital is limited to twenty-five
percent of the Companys Tier 1 capital on a pro forma basis. At December 31, 2004, all of
the trust preferred securities that have been issued qualify as Tier 1 capital. During the
third quarter of 2002, Plumas Statutory Trust I (the Trust) issued 6,000 Floating Rate
Capital Trust Pass-Through Securities (Trust Preferred Securities), with a liquidation
value of $1,000 per security, for gross proceeds of $6,000,000. The entire proceeds of the
issuance were invested by the Trust in $6,186,000 of Floating Rate Junior Subordinated
Deferrable Interest Debentures (the Subordinated Debentures) issued by the Company, with
identical maturity, repricing and payment terms as the Trust Preferred Securities. The
Subordinated Debentures represent the sole assets of the Trust. The Subordinated Debentures
mature on September 26, 2032, bear a current interest rate of 5.80% (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 Board of Governors, 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 Trust Preferred Securities are subject to mandatory redemption to the extent of any
early redemption of the Subordinated Debentures and upon maturity of the Subordinated
Debentures on September 26, 2032.Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on
the liquidation amount of $1,000 per security. 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 Trust 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 Trust Preferred Securities were
sold and issued in private transactions pursuant to an exemption from registration under the
Securities Act of 1933, as amended. The Company has guaranteed, on a subordinated basis,
distributions and other payments due on the Trust Preferred Securities. F - 27




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PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  8.
    JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES(Continued)Interest expense recognized by the Company for the years ended December 31, 2004, 2003 and
2002 related to the subordinated debentures was $305,000, $288,000 and $87,000,
respectively. The amount of deferred costs at December 31, 2004 and 2003 was $169,000 and
$175,000, respectively. The amortization of the deferred costs was $9,000, $8,750 and
$2,250 for the years ended December 31, 2004, 2003 and 2002, respectively.9.
    COMMITMENTS AND CONTINGENCIESLeasesThe Company leases its Truckee, Tahoe City and Loyalton branch offices and administrative
office space in Truckee under noncancelable operating leases that expire in January 2007,
March 2008, June 2005 and April 2006, respectively. The Tahoe City and Truckee office
leases contain options to renew the leases for fifteen years and three years, respectively.
Future minimum lease payments are as follows: Year EndingDecember 31,2005
    
    $
    245,0002006
    
    
    176,0002007
    
    
    118,0002008
    
    
    30,000$
    569,000
  Rental expense included in occupancy and equipment expense totaled $264,000, $179,000 and
$85,000 for the years ended December 31, 2004, 2003 and 2002, respectively.Financial Instruments With Off-Balance-Sheet RiskThe Company is a party to financial instruments with off-balance-sheet risk in the normal
course of business in order to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized on the consolidated balance sheet.The Companys exposure to credit loss in the event of nonperformance by the other party for
commitments to extend credit and letters of credit is represented by the contractual amount
of those instruments. The Company uses the same credit policies in making commitments and
letters of credit as it does for loans included on the consolidated balance sheet. F - 28




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  9.
    COMMITMENTS AND CONTINGENCIES(Continued)Financial Instruments With Off-Balance-Sheet Risk (Continued)The following financial instruments represent off-balance-sheet credit risk: December 31,2004
    
    
    2003Commitments to extend credit
    
    $
    90,084,000
    
    
    $
    60,203,000Letters of credit
    
    $
    1,777,000
    
    
    $
    1,802,000
  Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since some
of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company evaluates each
customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on managements credit
evaluation of the borrower. Collateral held varies, but may include accounts receivable,
crops, inventory, equipment, income-producing commercial properties, farm land and
residential properties.Letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to customers. The fair
value of the liability related to these letters of credit, which represents the fees
received for issuing the guarantees, was not significant at December 31, 2004 and 2003. The
Company recognizes these fees as revenues over the term of the commitment or when the
commitment is used.At December 31, 2004, consumer loan commitments represent approximately 11% of total
commitments and are generally unsecured. Commercial and agricultural loan commitments
represent approximately 26% of total commitments and are generally secured by various assets
of the borrower. Real estate loan commitments represent the remaining 63% of total
commitments and are generally secured by property with a loan-to-value ratio not to exceed
80%. In addition, the majority of the Companys commitments have variable interest rates.Concentrations of Credit RiskThe Company grants real estate mortgage, real estate construction, commercial, agricultural
and consumer loans to customers throughout Plumas, Nevada, Placer, Lassen, Sierra, Shasta
and Modoc counties.Although the Company has a diversified loan portfolio, a substantial portion of its
portfolio is secured by commercial and residential real estate. However, personal and
business income represent the primary source of repayment for a majority of these loans. F - 29




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  9.
    COMMITMENTS AND CONTINGENCIES(Continued)ContingenciesThe Company is subject to legal proceedings and claims which arise in the ordinary course of
business. In the opinion of management, the amount of ultimate liability with respect to
such actions will not materially affect the financial position or results of operations of
the Company.10.
    SHAREHOLDERS EQUITYDividend RestrictionsThe Companys ability to pay cash dividends is dependent on dividends paid to it by the Bank
and limited by California corporation law. Under California law, the holders of common
stock of the Company are entitled to receive dividends when and as declared by the Board of
Directors, out of funds legally available, subject to certain restrictions. The California
general corporation law prohibits the Company from paying dividends on its common stock
unless: (i) its retained earnings, immediately prior to the dividend payment, equals or
exceeds the amount of the dividend or (ii) immediately after giving effect to the dividend,
the sum of the Companys assets (exclusive of goodwill and deferred charges) would be at
least equal to 125% of its liabilities (not including deferred taxes, deferred income and
other deferred liabilities) and the current assets of the Company would be at least equal to
its current liabilities, or, if the average of its earnings before taxes on income and
before interest expense for the two preceding fiscal years was less than the average of its
interest expense for the two preceding fiscal years, at least equal to 125% of its current
liabilities.Dividends from the Bank to the Company are restricted under California law to the lesser of
the Banks retained earnings or the Banks net income for the latest three fiscal years,
less dividends previously declared during that period, or, with the approval of the
Department of Financial Institutions, to the greater of the retained earnings of the Bank,
the net income of the Bank for its last fiscal year, or the net income of the Bank for its
current fiscal year. As of December 31, 2004, the maximum amount available for dividend
distribution under this restriction was approximately $7,952,000.Stock SplitOn 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 - 30




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  10.
    SHAREHOLDERS EQUITY(Continued)Earnings Per ShareA reconciliation of the numerators and denominators of the basic and diluted earnings per
share computations is as follows: WeightedAverageNumber ofNet
    
    
    Shares
    
    
    Per ShareFor the Year Ended
    
    Income
    
    
    Outstanding
    
    
    AmountDecember 31, 2004Basic earnings per share
    
    $
    3,646,000
    
    
    
    3,260,420
    
    
    $
    1.12Effect of dilutive stock options
    
    
    
    
    
    
    72,547Diluted earnings per share
    
    $
    3,646,000
    
    
    
    3,332,967
    
    
    $
    1.09December 31, 2003Basic earnings per share
    
    $
    3,281,000
    
    
    
    3,230,956
    
    
    $
    1.02Effect of dilutive stock options
    
    
    
    
    
    
    88,007Diluted earnings per share
    
    $
    3,281,000
    
    
    
    3,318,963
    
    
    $
    0.99December 31, 2002Basic earnings per share
    
    $
    3,154,000
    
    
    
    3,199,962
    
    
    $
    0.99Effect of dilutive stock options
    
    
    
    
    
    
    70,635Diluted earnings per share
    
    $
    3,154,000
    
    
    
    3,270,597
    
    
    $
    0.96
  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 52,375, 56,925 and 100,575 for the years
ended December 31, 2004, 2003 and 2002, respectively. F - 31




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  10.
    SHAREHOLDERS EQUITY(Continued)Stock OptionsIn 2001 and 1991, the Company established Stock Option Plans for which 704,243 shares of
common stock remain reserved for issuance to employees and directors and 397,530 shares are
available for future grants under incentive and nonstatutory agreements as of December 31,
2004. 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: 2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceIncentiveOptions outstanding,
beginning of year
    
    
    214,575
    
    
    
    12.64
    
    
    
    196,003
    
    
    $
    10.06
    
    
    
    143,790
    
    
    $
    6.91Options granted
    
    
    38,075
    
    
    
    21.11
    
    
    
    50,800
    
    
    $
    19.25
    
    
    
    66,825
    
    
    $
    16.13Options exercised
    
    
    (32,892
    )
    
    
    6.90
    
    
    
    (29,903
    )
    
    $
    6.63
    
    
    
    (14,612
    )
    
    $
    6.87Options canceled
    
    
    (4,905
    )
    
    
    17.64
    
    
    
    (2,325
    )
    
    $
    16.13Options outstanding,
end of year
    
    
    214,853
    
    
    
    14.91
    
    
    
    214,575
    
    
    $
    12.64
    
    
    
    196,003
    
    
    $
    10.06Options exercisable,
end of year
    
    
    104,903
    
    
    
    10.67
    
    
    
    114,205
    
    
    $
    8.19
    
    
    
    129,178
    
    
    $
    6.92NonstatutoryOptions outstanding,
beginning of year
    
    
    76,505
    
    
    
    14.05
    
    
    
    66,690
    
    
    $
    11.28
    
    
    
    36,930
    
    
    $
    7.52Options granted
    
    
    16,875
    
    
    
    21.28
    
    
    
    16,875
    
    
    $
    19.79
    
    
    
    33,750
    
    
    $
    16.13Options exercised
    
    
    (1,520
    )
    
    
    7.44
    
    
    
    (7,060
    )
    
    $
    7.37
    
    
    
    (2,694
    )
    
    $
    4.88Options canceled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,296
    )
    
    $
    4.96Options outstanding,
end of year
    
    
    91,860
    
    
    
    15.49
    
    
    
    76,505
    
    
    $
    14.05
    
    
    
    66,690
    
    
    $
    11.28Options exercisable,
end of year
    
    
    45,235
    
    
    
    11.81
    
    
    
    34,630
    
    
    $
    9.75
    
    
    
    32,940
    
    
    $
    7.54
 F - 32




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  10.
    SHAREHOLDERS EQUITY(Continued)Stock Options (Continued)A summary of options outstanding at December 31, 2004 follows: Number of
    
    
    WeightedOptions
    
    
    Average
    
    
    OptionsOutstanding
    
    
    Remaining
    
    
    ExercisableRange of
    
    December 31,
    
    
    Contractual
    
    
    December 31,Exercise Prices
    
    2004
    
    
    Life
    
    
    2004Incentive$    4.09
    
    
    9,720
    
    
    0.1 years
    
    
    9,720$    7.44
    
    
    30,918
    
    
    3.9 years
    
    
    30,918$    8.15
    
    
    7,000
    
    
    6.7 years
    
    
    7,000$    8.28
    
    
    8,250
    
    
    3.7 years
    
    
    8,250$    8.29
    
    
    12,275
    
    
    6.8 years
    
    
    12,275$  16.13
    
    
    60,065
    
    
    7.9 years
    
    
    27,210$  16.14
    
    
    5,525
    
    
    8.2 years
    
    
    925$  18.51
    
    
    5,000
    
    
    8.5 years
    
    
    1,000$  18.51
    
    
    2,000
    
    
    9.3 years$  19.79
    
    
    38,025
    
    
    9.0 years
    
    
    7,605$  19.86
    
    
    575
    
    
    9.8 years$  21.28
    
    
    35,500
    
    
    10.0 years214,853
    
    
    
    
    
    
    
    104,903Nonstatutory$    7.00
    
    
    2,000
    
    
    5.6 years
    
    
    2,000$    7.44
    
    
    12,985
    
    
    3.9 years
    
    
    12,985$    7.72
    
    
    5,625
    
    
    2.9 years
    
    
    5,625$    8.29
    
    
    3,750
    
    
    6.8 years
    
    
    3,750$  16.13
    
    
    33,750
    
    
    7.9 years
    
    
    17,500$  19.79
    
    
    16,875
    
    
    9.0 years
    
    
    3,375$  21.28
    
    
    16,875
    
    
    10.0 years91,860
    
    
    
    
    
    
    
    45,235
 F - 33




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  10.
    SHAREHOLDERS EQUITY(Continued)Regulatory CapitalThe Company and the Bank are subject to certain regulatory capital requirements administered
by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance
Corporation (FDIC). Failure to meet these minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Companys consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative measures of the
Banks assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Companys and the Banks capital amounts and
classification are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.Quantitative measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to
risk-weighted assets and of Tier 1 capital to average assets. Each of these components is
defined in the regulations. Management believes that the Company and the Bank met all their
capital adequacy requirements as of December 31, 2004 and 2003.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 31,2004
    
    
    2003Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioLeverage RatioPlumas Bancorp and Subsidiary
    
    $
    32,444,000
    
    
    
    7.6
    %
    
    $
    29,345,000
    
    
    
    8.4
    %Minimum regulatory requirement
    
    $
    17,120,000
    
    
    
    4.0
    %
    
    $
    14,053,000
    
    
    
    4.0
    %Plumas Bank
    
    $
    31,982,000
    
    
    
    7.5
    %
    
    $
    28,852,000
    
    
    
    8.2
    %Minimum requirement for Well-
Capitalized institution
    
    $
    21,400,000
    
    
    
    5.0
    %
    
    $
    17,567,000
    
    
    
    5.0
    %Minimum regulatory requirement
    
    $
    17,120,000
    
    
    
    4.0
    %
    
    $
    14,053,000
    
    
    
    4.0
    %
 F - 34




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  10.
    SHAREHOLDERS EQUITY(Continued)Regulatory Capital (Continued) December 31,2004
    
    
    2003Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTier 1 Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    $
    32,444,000
    
    
    
    10.1
    %
    
    $
    29,345,000
    
    
    
    10.4
    %Minimum regulatory requirement
    
    $
    12,858,000
    
    
    
    4.0
    %
    
    $
    11,261,000
    
    
    
    4.0
    %Plumas Bank
    
    $
    31,982,000
    
    
    
    10.0
    %
    
    $
    28,852,000
    
    
    
    10.3
    %Minimum requirement for Well-
Capitalized institution
    
    $
    19,262,000
    
    
    
    6.0
    %
    
    $
    16,867,000
    
    
    
    6.0
    %Minimum regulatory requirement
    
    $
    12,841,000
    
    
    
    4.0
    %
    
    $
    11,245,000
    
    
    
    4.0
    %Total Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    $
    35,206,000
    
    
    
    10.9
    %
    
    $
    31,909,000
    
    
    
    11.3
    %Minimum regulatory requirement
    
    $
    25,715,000
    
    
    
    8.0
    %
    
    $
    22,522,000
    
    
    
    8.0
    %Plumas Bank
    
    $
    34,744,000
    
    
    
    10.8
    %
    
    $
    31,416,000
    
    
    
    11.1
    %Minimum requirement for Well-
Capitalized institution
    
    $
    32,103,000
    
    
    
    10.0
    %
    
    $
    28,112,000
    
    
    
    10.0
    %Minimum regulatory requirement
    
    $
    25,682,000
    
    
    
    8.0
    %
    
    $
    22,490,000
    
    
    
    8.0
    %
  11.
    OTHER EXPENSESOther expenses consisted of the following: Year Ended December 31,2004
    
    
    2003
    
    
    2002Professional fees
    
    $
    596,000
    
    
    $
    392,000
    
    
    $
    673,000Business development
    
    
    389,000
    
    
    
    357,000
    
    
    
    371,000Armored car and courier
    
    
    371,000
    
    
    
    342,000
    
    
    
    318,000Advertising and promotion
    
    
    350,000
    
    
    
    288,000
    
    
    
    260,000Telephone and data communications
    
    
    346,000
    
    
    
    357,000
    
    
    
    347,000Core deposit intangible amortization
    
    
    299,000
    
    
    
    161,000
    
    
    
    135,000Stationery and supplies
    
    
    292,000
    
    
    
    349,000
    
    
    
    324,000Director compensation and retirement
    
    
    284,000
    
    
    
    196,000
    
    
    
    228,000Postage
    
    
    261,000
    
    
    
    253,000
    
    
    
    184,000Outside service fees
    
    
    236,000
    
    
    
    201,000
    
    
    
    185,000Insurance
    
    
    236,000
    
    
    
    164,000
    
    
    
    171,000Loan expenses
    
    
    191,000
    
    
    
    170,000
    
    
    
    244,000Other operating expenses
    
    
    188,000
    
    
    
    111,000
    
    
    
    101,000$
    4,039,000
    
    
    $
    3,341,000
    
    
    $
    3,541,000
 F - 35




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  12.
    INCOME TAXESThe provision for income taxes for the years ended December 31, 2004, 2003 and 2002
consisted of the following: Federal
    
    
    State
    
    
    Total2004Current
    
    $
    1,378,000
    
    
    $
    541,000
    
    
    $
    1,919,000Deferred
    
    
    51,000
    
    
    
    31,000
    
    
    
    82,000Provision for income taxes
    
    $
    1,429,000
    
    
    $
    572,000
    
    
    $
    2,001,0002003Current
    
    $
    1,437,000
    
    
    $
    553,000
    
    
    $
    1,990,000Deferred
    
    
    19,000
    
    
    
    9,000
    
    
    
    28,000Provision for income taxes
    
    $
    1,456,000
    
    
    $
    562,000
    
    
    $
    2,018,0002002Current
    
    $
    1,460,000
    
    
    $
    555,000
    
    
    $
    2,015,000Deferred
    
    
    21,000
    
    
    
    10,000
    
    
    
    31,000Provision for income taxes
    
    $
    1,481,000
    
    
    $
    565,000
    
    
    $
    2,046,000
  Deferred tax assets (liabilities) consisted of the following: December 31,2004
    
    
    2003Deferred tax assets:Allowance for loan losses
    
    $
    986,000
    
    
    $
    925,000Future benefit of state income tax deduction
    
    
    87,000
    
    
    
    81,000Deferred compensation
    
    
    1,006,000
    
    
    
    806,000Core deposit premium
    
    
    166,000
    
    
    
    124,000Unrealized loss on available-for-sale
investment securities
    
    
    346,000Other
    
    
    40,000
    
    
    
    11,000Total deferred tax assets
    
    
    2,631,000
    
    
    
    1,947,000
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PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  12.
    INCOME TAXES(Continued) December 31,2004
    
    
    2003Deferred tax liabilities:Prepaid costs
    
    $
    986,000Deferred loan costs
    
    
    (786,000
    )Unrealized gain on available-for-sale
investment securities
    
    
    
    
    
    $
    (117,000
    )Premises and equipment
    
    
    (82,000
    )
    
    
    (608,000
    )Total deferred tax liabilities
    
    
    (1,028,000
    )
    
    
    (725,000
    )Net deferred tax assets
    
    $
    1,603,000
    
    
    $
    1,222,000
  The Company believes that it is more likely than not that it will realize the above deferred
tax assets in future periods; therefore, no valuation allowance has been provided against
its deferred tax assets.The provision for income taxes differs from amounts computed by applying the statutory
Federal income tax rate to operating income before income taxes. The significant items
comprising these differences consisted of the following: 2004
    
    
    2003
    
    
    2002Federal income tax, at statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State franchise tax, net of Federal tax effect
    
    
    6.7
    %
    
    
    6.8
    %
    
    
    6.5
    %Interest on obligations of states and political
subdivisions
    
    
    (3.2
    )%
    
    
    (1.2
    )%
    
    
    (0.9
    )%Net increase in cash surrender value of officers
life insurance
    
    
    (2.5
    )%
    
    
    (2.0
    )%
    
    
    (1.4
    )%Other
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    1.1
    %Effective tax rate
    
    
    35.5
    %
    
    
    38.1
    %
    
    
    39.3
    %
 F - 37




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  13.
    RELATED PARTY TRANSACTIONS  During the normal course of business, the Company enters into transactions with related
parties, including executive officers and directors. These transactions include borrowings
with substantially the same terms, including rates and collateral, as loans to unrelated
parties. The following is a summary of the aggregate activity involving related party
borrowers during 2004: Balance, January 1, 2004
    
    $
    1,168,000Disbursements
    
    
    2,246,000Amounts repaid
    
    
    (1,551,000
    )Balance, December 31, 2004
    
    $
    1,863,000Undisbursed commitments to related
parties, December 31, 2004
    
    $
    381,000
  14.
    EMPLOYEE BENEFIT PLANS  Profit Sharing PlanThe Plumas Bank Profit Sharing Plan commenced April 1, 1988 and is available to employees
meeting certain service requirements. Under the Plan, employees are able to defer a
selected percentage of their annual compensation. Included under the Plans investment
options is the option to invest in Company stock. The Companys contribution consists of
the following:  
    A contribution which matches the participants contribution, up to
a maximum of 3% of the employees compensation.
    An additional discretionary contribution.  During the years ended December 31, 2004, 2003 and 2002, the Companys contribution totaled
$160,000, $139,000 and $135,000, respectively.Salary Continuation and Retirement PlansSalary 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 Company 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, 2004, 2003 and 2002 totaled $435,000, $402,000 and $199,000, respectively. F-38




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  14.
    EMPLOYEE BENEFIT PLANS(Continued)Salary Continuation and Retirement Plans (Continued)In connection with these plans, the Company purchased single premium life insurance policies
with cash surrender values totaling $8,362,000 and $8,013,000 at December 31, 2004 and 2003,
respectively. Income earned on these policies, net of expenses, totaled $349,000, $278,000
and $183,000 for the years ended December 31, 2004, 2003 and 2002, respectively. Income
earned on these policies is not subject to Federal and State income tax.15.
    COMPREHENSIVE INCOMEComprehensive income is reported in addition to net income for all periods presented.
Comprehensive income is a more inclusive financial reporting methodology that includes
disclosure of other comprehensive income (loss) that historically has not been recognized in
the calculation of net income. The unrealized gains and losses on the Companys
available-for-sale investment securities are included in other comprehensive income (loss).
Total comprehensive income and the components of accumulated other comprehensive income
(loss) are presented in the consolidated statement of changes in shareholders equity.At December 31, 2004, 2003 and 2002, the Company held securities classified as
available-for-sale which had unrealized (losses) gains as follows: TaxBefore
    
    
    Benefit
    
    
    AfterTax
    
    
    (Expense)
    
    
    TaxFor the Year Ended December 31, 2004Other comprehensive loss:Unrealized holding losses
    
    $
    (885,000
    )
    
    $
    362,000
    
    
    $
    (523,000
    )Reclassification adjustment for gains
included in net income
    
    
    235,000
    
    
    
    (100,000
    )
    
    
    135,000Total other comprehensive
loss
    
    $
    (1,120,000
    )
    
    $
    462,000
    
    
    $
    (658,000
    )For the Year Ended December 31, 2003Other comprehensive loss:Unrealized holding losses
    
    $
    (87,000
    )
    
    $
    37,000
    
    
    $
    (50,000
    )Reclassification adjustment for gains included in net income
    
    
    328,000
    
    
    
    (134,000
    )
    
    
    194,000Total other comprehensive loss
    
    $
    (415,000
    )
    
    $
    171,000
    
    
    $
    (244,000
    )
 F-39




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  15.
    COMPREHENSIVE INCOME(Continued) Before
    
    
    Benefit
    
    
    AfterTax
    
    
    (Expense)
    
    
    TaxFor the Year Ended December 31, 2002Other comprehensive income:Unrealized holding gains
    
    $
    563,000
    
    
    $
    (232,000
    )
    
    $
    331,000Reclassification adjustment for gains
included in net income
    
    
    117,000
    
    
    
    (48,000
    )
    
    
    69,000Total other comprehensive
income
    
    $
    446,000
    
    
    $
    (184,000
    )
    
    $
    262,000
  16.
    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTSEstimated fair values are disclosed for financial instruments for which it is practicable to
estimate fair value. These estimates are made at a specific point in time based on relevant
market data and information about the financial instruments. These estimates do not reflect
any premium or discount that could result from offering the Companys entire holdings of a
particular financial instrument for sale at one time, nor do they attempt to estimate the
value of anticipated future business related to the instruments. In addition, the tax
ramifications related to the realization of unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any of these
estimates.Because no market exists for a significant portion of the Companys financial instruments,
fair value estimates are based on judgments regarding current economic conditions, risk
characteristics of various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could significantly
affect the fair values presented.The following methods and assumptions were used by management to estimate the fair value of
its financial instruments at December 31, 2004 and 2003:Cash and cash equivalents: For cash and cash equivalents, the carrying amount is
estimated to be fair value.Investment securities: For investment securities, fair values are based on quoted
market prices, where available. If quoted market prices are not available, fair values are
estimated using quoted market prices for similar securities and indications of value
provided by brokers. F-40




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  16.
    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)Loans: For variable-rate loans that reprice frequently with no significant change
in credit risk, fair values are based on carrying values. Fair values of loans held for
sale are estimated using quoted market prices for similar loans. The fair values for other
loans are estimated using discounted cash flow analyses, using interest rates currently
being offered at each reporting date for loans with similar terms to borrowers of comparable
creditworthiness. The fair value of loans is adjusted for the allowance for loan losses.
The carrying amount of accrued interest receivable approximates its fair value.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.Junior subordinated deferrable interest debentures: The fair value of junior
subordinated deferrable interest debentures was determined based on the current market value
for like kind instruments of a similar maturity and structure.Commitments to extend credit and letters of credit: 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.The estimated fair values of the Companys financial instruments are as follows: December 31, 2004
    
    
    December 31, 2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    11,444,000
    
    
    $
    11,444,000
    
    
    $
    30,012,000
    
    
    $
    30,012,000Loans held for sale
    
    
    
    
    
    
    
    
    
    
    276,000
    
    
    
    276,000Investment securities
    
    
    113,252,000
    
    
    
    113,390,000
    
    
    
    115,883,000
    
    
    
    116,102,000Loans
    
    
    263,891,000
    
    
    
    265,452,000
    
    
    
    214,863,000
    
    
    
    215,488,000Cash surrender value of life
insurance policies
    
    
    8,362,000
    
    
    
    8,362,000
    
    
    
    8,013,000
    
    
    
    8,013,000Accrued interest receivable
    
    
    2,451,000
    
    
    
    2,451,000
    
    
    
    2,501,000
    
    
    
    2,501,000Financial liabilities:Deposits
    
    $
    378,567,000
    
    
    $
    378,612,000
    
    
    $
    355,842,000
    
    
    $
    356,517,000Junior subordinated deferrable
interest debentures
    
    
    6,186,000
    
    
    
    6,186,000
    
    
    
    6,186,000
    
    
    
    6,186,000Accrued interest payable
    
    
    271,000
    
    
    
    271,000
    
    
    
    238,000
    
    
    
    238,000
 F-41




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  16.
    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued) December 31, 2004
    
    
    December 31, 2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueOff-balance-sheet financial
instruments:Commitments to extend
credit
    
    $
    90,084,000
    
    
    $
    90,084,000
    
    
    $
    60,203,000
    
    
    $
    60,203,000Letters of credit
    
    
    1,777,000
    
    
    
    1,777,000
    
    
    
    1,802,000
    
    
    
    1,802,000
  17.
    INTANGIBLE ASSETSDuring 2003, the Company acquired certain assets and liabilities of the Kings Beach,
Loyalton, Portola, Quincy and Truckee branches of Placer Sierra Bank. Upon acquisition,
premises and equipment were valued at fair value and a core deposit premium was recorded as
an intangible asset. This core deposit premium, along with core deposit premiums from
previous acquisitions, is amortized using the straight-line method over ten years.
Annually, the intangible asset is analyzed for impairment. At December 31, 2004, 2003 and
2002, no impairment of the intangible asset has been recognized in the consolidated
financial statements. Amortization expense totaled $299,000, $161,000 and $135,000 for the
years ended December 31, 2004, 2003 and 2002, respectively. Unamortized core deposit
premiums related to acquisitions totaled $1,939,000 and $2,238,000 at December 31, 2004 and
2003, respectively. The estimated intangible amortization is $301,000 for each year through
December 31, 2009. F-42




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  18.
    PARENT ONLY CONDENSED FINANCIAL STATEMENTS CONDENSED BALANCE SHEET December 31, 2004 and 2003 2004
    
    
    2003ASSETSCash and cash equivalents
    
    $
    8,000
    
    
    $
    116,000Investment in bank subsidiary
    
    
    33,429,000
    
    
    
    31,316,000Other assets
    
    
    645,000
    
    
    
    539,000Total assets
    
    $
    34,082,000
    
    
    $
    31,971,000LIABILITIES AND SHAREHOLDERS EQUITYOther liabilities
    
    $
    5,000
    
    
    $
    36,000Junior subordinated deferrable interest debentures
    
    
    6,186,000
    
    
    
    6,186,000Total liabilities
    
    
    6,191,000
    
    
    
    6,222,000Shareholders equity:Common stock
    
    
    4,013,000
    
    
    
    3,945,000Retained earnings
    
    
    24,370,000
    
    
    
    21,638,000Accumulated other comprehensive (loss) income
    
    
    (492,000
    )
    
    
    166,000Total shareholders equity
    
    
    27,891,000
    
    
    
    25,749,000Total liabilities and shareholders equity
    
    $
    34,082,000
    
    
    $
    31,971,000
 F-43




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##### Table of Contents



18.
    PARENT ONLY CONDENSED FINANCIAL STATEMENTS(Continued) CONDENSED STATEMENT OF INCOME For the Years Ended December 31, 2004 and 2003 2004
    
    
    2003
    
    
    2002Income:Dividends declared by bank subsidiary
    
    $
    1,250,000
    
    
    $
    812,000
    
    
    $
    944,000Earnings from investment in Plumas
Statutory Trust I
    
    
    9,000
    
    
    
    11,000Total income
    
    
    1,259,000
    
    
    
    823,000
    
    
    
    944,000Expenses:Interest on junior subordinated
deferrable interest debentures
    
    
    305,000
    
    
    
    288,000
    
    
    
    87,000Other expenses
    
    
    335,000
    
    
    
    347,000
    
    
    
    129,000Total expenses
    
    
    640,000
    
    
    
    635,000
    
    
    
    216,000Income before equity in undistributed
income of subsidiary
    
    
    619,000
    
    
    
    188,000
    
    
    
    728,000Equity in undistributed income of
subsidiary
    
    
    2,771,000
    
    
    
    2,839,000
    
    
    
    2,342,000Income before income taxes
    
    
    3,390,000
    
    
    
    3,027,000
    
    
    
    3,070,000Income tax benefit
    
    
    256,000
    
    
    
    254,000
    
    
    
    84,000Net income
    
    $
    3,646,000
    
    
    $
    3,281,000
    
    
    $
    3,154,000
 F-44




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##### Table of Contents



18.
    PARENT ONLY CONDENSED FINANCIAL STATEMENTS(Continued) CONDENSED STATEMENT OF CASH FLOWS For the Years Ended December 31, 2004 and 2003 2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income
    
    $
    3,646,000
    
    
    $
    3,281,000
    
    
    $
    3,154,000Adjustments to reconcile net income to
net cash provided by operating activities:Undistributed net income of subsidiary
    
    
    (2,771,000
    )
    
    
    (2,839,000
    )
    
    
    (2,342,000
    )Increase in other assets
    
    
    (106,000
    )
    
    
    (88,000
    )
    
    
    (265,000
    )(Decrease) increase in other liabilities
    
    
    (31,000
    )
    
    
    31,000
    
    
    
    5,000Net cash provided by operating
activities
    
    
    738,000
    
    
    
    385,000
    
    
    
    552,000Cash flows from investing activities:Investment in bank subsidiary
    
    
    
    
    
    
    (3,000,000
    )
    
    
    (2,500,000
    )Investment in Plumas Statutory Trust I
    
    
    
    
    
    
    
    
    
    
    (186,000
    )Net cash used in investing activities
    
    
    
    
    
    
    (3,000,000
    )
    
    
    (2,686,000
    )Cash flows from financing activities:Proceeds from short-term borrowings
    
    
    
    
    
    
    
    
    
    
    35,000Proceeds from issuance of junior subordinated deferral interest debentures
    
    
    
    
    
    
    
    
    
    
    6,186,000Repayment of short-term borrowings
    
    
    
    
    
    
    
    
    
    
    (35,000
    )Dividends paid
    
    
    (914,000
    )
    
    
    (776,000
    )
    
    
    (867,000
    )Cash paid to repurchase fractional shares
    
    
    
    
    
    
    
    
    
    
    (4,000
    )Proceeds from the exercise of stock
options
    
    
    68,000
    
    
    
    202,000
    
    
    
    124,000Net cash (used in) provided by
financing activities
    
    
    (846,000
    )
    
    
    (574,000
    )
    
    
    5,439,000(Decrease) increase in cash and cash
equivalents
    
    
    (108,000
    )
    
    
    (3,189,000
    )
    
    
    3,305,000Cash and cash equivalents at beginning
of year
    
    
    116,000
    
    
    
    3,305,000Cash and cash equivalents at end of year
    
    $
    8,000
    
    
    $
    116,000
    
    
    $
    3,305,000Non-cash investing activities:Issuance of common stock in exchange
for the common stock of the Bank
    
    
    
    
    
    
    
    
    
    $
    3,623,000Net change in unrealized gain on
investment securities available-for-
sale
    
    $
    (1,120,000
    )
    
    $
    (415,000
    )
    
    $
    446,000
 F-45




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our Chief Executive Officer and Chief Financial Officer,
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934). Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. There was no change in our internal control
over financial reporting during our most recently completed fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Items 10 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. EXECUTIVE COMPENSATION The information required by Items 11 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 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS The information required by Items 12 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 13. CERTAIN RELATIONSHIPS AND RELATED MATTERS The information required by Items 13 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 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Items 14 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. 43




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##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K  (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.10.3
    
    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.10.6
    
    Executive Salary Continuation Agreement as amended of Douglas N. Biddle dated June 2, 1994, is included as
Exhibit 10.6 to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.7
    
    Split Dollar Agreements of Douglas N. Biddle dated January 24, 2002, is included as Exhibit 10.7 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.9
    
    Executive Salary Continuation Agreement as amended of Dennis C. Irvine dated June 2, 1994, is included as
Exhibit 10.9 to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.10
    
    Split Dollar Agreements of Dennis C. Irvine dated January 24, 2002, is included as Exhibit 10.10 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.11
    
    First Amendment to Executive Salary Continuation Agreement of Robert T. Herr dated September 15, 2004, is
included as Exhibit 10.11 to the Registrants 8-K filed on September 17, 2004, which is incorporated by this
reference herein.10.13
    
    Deferred Fee Agreement as amended of Jerry V. Kehr dated August 19, 1998, is included as Exhibit 10.13 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.14
    
    Amended and Restated Director Retirement Agreement of Jerry V. Kehr dated April 28, 2000, is included as
Exhibit 10.14 to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.15
    
    Consulting Agreement of Jerry V. Kehr dated May 10, 2000, is included as Exhibit 10.15 to the Registrants
10-QSB for June 30, 2002, which is incorporated by this reference herein.10.18
    
    Amended and Restated Director Retirement Agreement of Daniel E. West dated May 10, 2000, is included as
Exhibit 10.18 to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.19
    
    Consulting Agreement of Daniel E. West dated May 10, 2000, is included as Exhibit 10.19 to the Registrants
10-QSB for June 30, 2002, which is incorporated by this reference herein.10.20
    
    Split Dollar Agreements of Robert T. Herr dated September 15, 2004, is included as Exhibit 10.20 to the
Registrants 8-K filed on September 17, 2004, which is incorporated by this reference herein.
 44




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##### Table of Contents



10.21
    
    Amended and Restated Director Retirement Agreement of Alvin G. Blickenstaff dated April 19, 2000, is included
as Exhibit 10.21 to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference
herein.10.22
    
    Consulting Agreement of Alvin G. Blickenstaff dated May 8, 2000, is included as Exhibit 10.22 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.24
    
    Amended and Restated Director Retirement Agreement of Gerald W. Fletcher dated May 10, 2000, is included as
Exhibit 10.24 to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.25
    
    Consulting Agreement of Gerald W. Fletcher dated May 10, 2000, is included as Exhibit 10.25 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.27
    
    Amended and Restated Director Retirement Agreement of Arthur C. Grohs dated May 9, 2000, is included as
Exhibit 10.27 to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.28
    
    Consulting Agreement of Arthur C. Grohs dated May 9, 2000, is included as Exhibit 10.28 to the Registrants
10-QSB for June 30, 2002, which is incorporated by this reference herein.10.30
    
    Amended and Restated Director Retirement Agreement of Christine McArthur dated May 12, 2000, is included as
Exhibit 10.30 to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.31
    
    Consulting Agreement of Christine McArthur dated May 12, 2000, is included as Exhibit 10.31 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.33
    
    Amended and Restated Director Retirement Agreement of Terrance J. Reeson dated April 19, 2000, is included as
Exhibit 10.33 to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.34
    
    Consulting Agreement of Terrance J. Reeson dated May 10, 2000, is included as Exhibit 10.34 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.36
    
    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.10.39
    
    Deferred Fee Agreement of Thomas Watson dated March 3, 2001, is included as Exhibit 10.39 to the Registrants
10-QSB for June 30, 2002, which is incorporated by this reference herein.10.40
    
    Form of Indemnification Agreement, is included as Exhibit 10.41 to the Registrants 10-QSB for June 30, 2002,
which is incorporated by this reference herein.10.41
    
    2001 Stock Option Plan as amended is included as exhibit 99.1 of the Form S-8 filed July 23, 2002, File No.
333-9695710.42
    
    1991 Stock Option Plan on Form S-8 filed August 19, 2002, File No. 333-9831910.43
    
    Plumas Bank 401(k) Profit Sharing Plan as amended is included as exhibit 99.1 of the Form S-8 filed February
14, 2003, File No. 333-10322910.44
    
    Executive Salary Continuation Agreement of Robert T. Herr dated June 4, 2002, is included as Exhibit 10.44 to
the Registrants 10-Q for March 31, 2003, which is incorporated by this reference herein.10.45
    
    Branch Purchase and Assumption Agreement dated April 25, 2003, is included as Exhibit 10.45 to the
Registrants 10-Q for March 31, 2003, which is incorporated by this reference herein.10.46
    
    1991 Stock Option Plan as amended.10.47
    
    Specimen form of Incentive Stock Option Agreement under the 1991 Stock Option Plan.10.48
    
    Specimen form of Non-Qualified Stock Option Agreement under the 1991 Stock Option Plan.10.59
    
    Director Retirement Agreement of Thomas Watson dated May 1, 2003, is included as Exhibit 10.59 to the
Registrants 10-Q for June 30, 2003, which is incorporated by this reference herein.10.60
    
    Consulting Agreement of Thomas Watson dated May 1, 2003, is included as Exhibit 10.60 to the Registrants
10-Q for June 30, 2003, which is incorporated by this reference herein.10.61
    
    Third Amendment to Executive Salary Continuation Agreement of William E. Elliott dated November 12, 2003, is
included as Exhibit 10.61 to the Registrants 10-K for December 31, 2003, which is incorporated by this
reference herein.
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11
    
    Computation of per share earnings appears in the attached
10-K under Item 8 Financial Statements  Plumas Bancorp and
Subsidiary Notes to Consolidated Financial Statements as
Footnote 10  Shareholders Equity.13.01
    
    Form 10-Q for the quarterly period ended March 31, 2004.13.02
    
    Form 10-Q for the quarterly period ended June 30, 2004.13.03
    
    Form 10-Q for the quarterly period ended September 30, 2004.21.01
    
    Plumas Bank  California.21.02
    
    Plumas Statutory Trust I  Connecticut.23.01
    
    Independent Auditors Consent letter dated March 28, 2005.31.1
    
    Rule 13a-14(a) [Section 302] Certification of Principal
Financial Officer dated March 28, 2005.31.2
    
    Rule 13a-14(a) [Section 302] Certification of Principal
Operating Officer dated March 28, 2005.31.3
    
    Rule 13a-14(a) [Section 302] Certification of Principal
Executive Officer dated March 28, 2005.32.1
    
    Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 dated March 28, 2005.32.2
    
    Certification of Principal Operating Officer pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 dated March 28, 2005.32.3
    
    Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 dated March 28, 2005.
  (b)
    Reports on Form 8-K On January 20, 2005, the Company filed a Current Report on Form 8-K. The
Current Report included as an exhibit, the press release dated January 20,
2005, filed by the Company containing unaudited financial information and
accompanying discussion for the year and quarter ended December 31, 2004. 46




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##### Table of Contents



SIGNATURES Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized. PLUMAS BANCORP
(Registrant) Date: March 21, 2005 /s/ W. E. ELLIOTTWilliam E. ElliottPresident/Chief Executive Officer/s/ D. N. BIDDLEDouglas N. BiddleExecutive Vice President Chief Operating Officer/s/ ANDREW RYBACKAndrew J. RybackExecutive Vice President Chief Financial Officer
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##### 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 22, 2005Jerry V. Kehr, Director andChairman of the Board/s/ DANIEL E. WEST
    
    Dated: March 22, 2005Daniel E. West, Director andVice Chairman of the Board/s/ ALVIN G.
    
    Dated: March 22, 2005BLICKENSTAFFAlvin G. Blickenstaff, Director/s/ W. E. ELLIOTT
    
    Dated: March 22, 2005William E. Elliott, Director/s/ GERALD W.
    
    Dated: March 22, 2005FLETCHERGerald W. Fletcher, Director/s/ JOHN FLOURNOY
    
    Dated: March 22, 2005John Flournoy, Director/s/ ARTHUR C. GROHS
    
    Dated: March 22, 2005Arthur C. Grohs, Director/s/ CHRISTINE
    
    Dated: March 22, 2005MCARTHURChristine McArthur, Director/s/ TERRANCE J.
    
    Dated: March 22, 2005REESONTerrance J. Reeson, Director/s/ THOMAS WATSON
    
    Dated: March 22, 2005Thomas Watson, Director
 48