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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, 2009
 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 of 
incorporation or organization)
    
    (IRS Employer Identification No.)35 S. Lindan Avenue, Quincy, CA
    
    95971(Address of principal executive offices)
    
    (Zip Code)
 (530) 283-7305
 
  Title of Each Class:
    
    Name of Each Exchange on which Registered:Common Stock, no par value
    
    The NASDAQ Stock Market LLC
 None.
 
  o þ
  o þ
  þ o
  o o
 o
  Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer o(Do not check if a smaller reporting company)
Smaller Reporting Company þ
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TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    4Item 1A
    
    Risk Factors
    
    
    23Item 1B
    
    Unresolved Staff Comments
    
    
    23Item 2.
    
    Properties
    
    
    24Item 3.
    
    Legal Proceedings
    
    
    25Item 4.
    
    (Removed and
Reserved)
    
    
    25PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    26Item 6.
    
    Selected Financial Data
    
    
    28Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    53Item 8.
    
    Financial Statements and Supplementary Data
    
    
    53Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    54Item 9A(T).
    
    Controls and Procedures
    
    
    54Item 9B
    
    Other Information
    
    
    55PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    55Item 11.
    
    Executive Compensation
    
    
    55Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    55Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    56Item 14.
    
    Principal Accountant Fees and Services
    
    
    56PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    56Signatures
    
    
    
    
    61Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2Exhibit 99.1Exhibit 99.2
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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 legal, accounting and regulatory environment
    
    Changes in the interest rate environment and volatility of rate sensitive assets and
liabilities
    
    Declines in the health of the economy, nationally or regionally, which could reduce the
demand for loans, reduce the ability of borrowers to repay loans and/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 Item 1A of this Form 10-K entitled Risk
Factors and other information in this Report.
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ITEM 1.
    
    BUSINESS
 General
 The Company Bank Holding Company Act
   www.plumasbank.com www.sec.gov
 The Bank.
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Commitment to our Communities.
  Recent Developments.
 Capital Purchase Program  TARP  Preferred Stock and Stock Warrant.
  6




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Trust Preferred Securities.
    7




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Business Concentrations.
 Competition
    8




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Employees.
 Code of Ethics
  Supervision and Regulation
 The Company.
    9




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The Bank.
  Capital Standards.
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Requirement for theBank to be:Adequately
    
    
    Well
    
    
    Plumas
    
    
    PlumasCapitalized
    
    
    Capitalized
    
    
    Bank
    
    
    BancorpTier 1 leverage capital ratio
    
    
    4.0
    %
    
    
    5.0
    %
    
    
    7.4
    %
    
    
    7.9
    %Tier 1 risk-based capital ratio
    
    
    4.0
    %
    
    
    6.0
    %
    
    
    9.8
    %
    
    
    10.4
    %Total risk-based capital ratio
    
    
    8.0
    %
    
    
    10.0
    %
    
    
    11.0
    %
    
    
    11.6
    %
 Prompt Corrective Action.
  Premiums for Deposit Insurance.
  11




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Federal Home Loan Bank System.
 
    
    a membership stock requirement with an initial cap of $25 million (100% of
membership asset value as defined), or
    
    an activity based stock requirement (based on percentage of outstanding
advances).
   Federal Reserve System.
 Impact of Monetary Policies.
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Extensions of Credit to Insiders and Transactions with Affiliates. Federal Reserve Act Regulation O
 
    
    a banks or bank holding companys executive officers, directors and
principal shareholders (i.e., in most cases, those persons who own, control or have power
to vote more than 10% of any class of voting securities),
    
    any company controlled by any such executive officer, director or
shareholder, or
    
    any political or campaign committee controlled by such executive officer,
director or principal shareholder.
  Consumer Protection Laws and Regulations.
 Community Reinvestment Act .
 Equal Credit Opportunity Act
 Truth in Lending Act
 Fair Housing Act
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Home Mortgage Disclosure Act
 Right to Financial Privacy Act
 Real Estate Settlement Procedures Act
  Recent Legislation and Other Changes.
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
    
    ESTABLISHMENT OF STANDARDS  During the period in which any TARP obligation remains
outstanding, each TARP recipient shall be subject to the standards in the regulations
issued by the Treasury with respect to executive compensation limitations for TARP
recipients, and the provisions of section 162(m)(5) of the Internal Revenue Code of 1986,
as applicable (nondeductibility of executive compensation in excess of $500,000).
    
    COMPLIANCE WITH STANDARDS  The Treasury is required to see that each TARP recipient
meet the required standards for executive compensation and corporate governance.
    
    SPECIFIC REQUIREMENTS FOR THE REQUIRED STANDARDS 
 
    
    Limits on compensation that exclude incentives for senior executive officers of
the TARP recipient to take unnecessary and excessive risks that threaten the value
of the financial institution during the period in which any TARP obligation
remains outstanding.
    
    A clawback requirement by such TARP recipient of any bonus, retention award, or
incentive compensation paid to a senior executive officer and any of the next 20
most highly-compensated employees of the TARP recipient based on statements of
earnings, revenues, gains, or other criteria that are later found to be materially
inaccurate.
    
    A prohibition on such TARP recipient making any golden parachute payment to a
senior executive officer or any of the next 5 most highly-compensated employees of
the TARP recipient during the period in which any TARP obligation remains
outstanding.
    
    A prohibition on any compensation plan that would encourage manipulation of the
reported earnings of such TARP recipient to enhance the compensation of any of its
employees.
    
    A requirement for the establishment of an independent Compensation Committee
that meets at least twice a year to discuss and evaluate employee compensation
plans in light of an assessment of any risk posed to the TARP recipient from such
plans. For a non SEC company that is a TARP recipient that has received
$25,000,000 or less of TARP assistance, the duties of the compensation committee
may be carried out by the board of directors of such TARP recipient.
   
    
    $375 million for temporarily eliminating fees on SBA-backed loans and raising SBAs
guarantee percentage on some loans to 90 percent.
    
    $255 million for a new loan program to help small businesses meet existing debt
payments
    
    $30 million for expanding SBAs Microloan program, enough to finance up to $50 million
in new lending and $24 million in technical assistance grants to microlenders.
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
    
    A new Capital Assistance Program to help ensure that our banking institutions have
sufficient capital to withstand the challenges ahead, paired with a supervisory process to
produce a more consistent and forward-looking assessment of the risks on banks balance
sheets and their potential capital needs.
    
    A new Public-Private Investment Fund on an initial scale of up to $500 billion, with
the potential to expand up to $1 trillion, to catalyze the removal of legacy assets from
the balance sheets of financial institutions. This fund will combine public and private
capital with government financing to help free up capital to support new lending.
    
    A new Treasury and Federal Reserve initiative to dramatically expand  up to $1
trillion  the existing Term Asset-Backed Securities Lending Facility (TALF) in order to
reduce credit spreads and restart the securitized credit markets that in recent years
supported a substantial portion of lending to households, students, small businesses, and
others.
    
    An extension of the FDICs Temporary Liquidity Guarantee Program to October 31, 2009. A
new framework of governance and oversight to help ensure that banks receiving funds are
held responsible for appropriate use of those funds through stronger conditions on
lending, dividends and executive compensation along with enhanced reporting to the public.
  
    
    accelerated from 2011 to 2008 the date that the Federal Reserve Bank could pay interest
on deposits of banks held with the Federal Reserve to meet reserve requirements;
    
    to the extent that the U. S. Treasury purchases mortgage securities as part of TARP,
the Treasury shall implement a plan to minimize foreclosures including using guarantees
and credit enhancements to support reasonable loan modifications, and to the extent loans
are owned by the government to consent to the reasonable modification of such loans;
    
    limits executive compensation for executives for TARP participating financial
institutions including a maximum corporate tax deduction limit of $500,000 for each of the
top five highest paid executives of such institution, requiring clawbacks of incentive
compensation that were paid based on inaccurate or false information, limiting golden
parachutes for involuntary and certain voluntary terminations to 2.99x their average
annual salary and bonus for the last five years, and prohibiting the payment of incentive
compensation that encourages management to take unnecessary and excessive risks with
respect to the institution;
    
    extends the mortgage debt forgiveness provision of the Mortgage Forgiveness Debt Relief
Act of 2007 by three years (2012) to ease the income tax burden on those involved with
certain foreclosures; and
    
    qualified financial institutions may count losses on FNMA and FHLMC preferred stock
against ordinary income, rather than capital gain income.
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®
    20




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
    
    Prohibit a lender from making a loan without regard to borrowers ability to repay the
loan from income and assets other than the homes value. A lender complies, in part, by
assessing repayment ability based on the highest scheduled payment in the first seven
years of the loan. To show that a lender violated this prohibition, a borrower does not
need to demonstrate that it is part of a pattern or practice.
    
    Require creditors to verify the income and assets they rely upon to determine repayment
ability.
    
    Ban any prepayment penalty if the payment can change in the initial four years. For
other higher-priced loans, a prepayment penalty period cannot last for more than two
years.
    
    Require creditors to establish escrow accounts for property taxes and homeowners
insurance for all first-lien mortgage loans.
  
    
    Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to
misstate a homes value.
    
    Companies that service mortgage loans are prohibited from engaging in certain
practices, such as pyramiding late fees. In addition, servicers are required to credit
consumers loan payments as of the date of receipt and provide a payoff statement within a
reasonable time of request.
    
    Creditors must provide a good faith estimate of the loan costs, including a schedule of
payments, within three days after a consumer applies for any mortgage loan secured by a
consumers principal dwelling, such as a home improvement loan or a loan to refinance an
existing loan. Currently, early cost estimates are only required for home-purchase loans.
Consumers cannot be charged any fee until after they receive the early disclosures,
except a reasonable fee for obtaining the consumers credit history.
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
    
    Authorized a bank or trust acting in any capacity under a court or
private trust to arrange for the deposit of securities in a securities depository
or federal reserve bank, and provided how they may be held by the securities
depository;
    
    Reduced from 5% to 1% the amount of eligible assets to be maintained
at an approved depository by an office of a foreign (other nation) bank for the
protection of the interests of creditors of the banks business in this state or
for the protection of the public interest;
    
    Enabled the DFI to issue an order against a bank licensee parent or
subsidiary;
    
    Provided that the examinations may be conducted in alternate
examination periods if the DFI concludes that an examination of the state bank by
the appropriate federal regulator carries out the purpose of this section, but the
DFI may not accept two consecutive examination reports made by federal regulators;
    
    Provided that the DFI may examine subsidiaries of every California
state bank, state trust company, and foreign (other nation) bank to the extent and
whenever and as often as the DFI shall deem advisable;
    
    Enabled the DFI issue an order or a final order to now include any
bank holding company or subsidiary of the bank, trust company, or foreign banking
corporation that is violating or failing to comply with any applicable law, or is
conducting activities in an unsafe or injurious manner;
    
    Enabled the DFI to take action against a person who has engaged in or
participated in any unsafe or unsound act with regard to a bank, including a
former employee who has left the bank.
 Recent Accounting Pronouncements
  
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
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ITEM 2.
    
    PROPERTIES
  Owned
Properties
 35 South Lindan Avenue
    
    32 Central Avenue
    
    80 W. Main St.Quincy, California (1)
    
    Quincy, California (1)
    
    Quincy, California (1)424 N. Mill Creek
    
    336 West Main Street
    
    120 North Pine StreetQuincy, California (1)
    
    Quincy, California
    
    Portola, California43163 Highway 299E
    
    121 Crescent Street
    
    315 Birch StreetFall River Mills, California
    
    Greenville, California
    
    Westwood, California (2)255 Main Street
    
    510 North Main Street
    
    3000 Riverside DriveChester, California
    
    Alturas, California
    
    Susanville, California8475 North Lake Boulevard
    
    11638 Donner Pass RoadKings Beach, California
    
    Truckee, California
 Leased
Properties
 243 North Lake Boulevard
    
    604 Main Street
    
    2175 Civic Center DriveTahoe City, California
    
    Loyalton, California (2)
    
    Redding, California1005 Terminal Way, Ste. 246
    
    470 Nevada St., Suite 108Reno, Nevada (3)
    
    Auburn, California (3)
 (1)
    
    Non-branch administrative or credit administrative offices.(2)
    
    Traditional banking services were discounted at these branches on February 26, 2010. ATMs
remain to service our customers.(3)
    
    Commercial lending offices.  Year Ending December 31,2010
    
    $
    265,0002011
    
    
    234,0002012
    
    
    234,0002013
    
    
    258,0002014
    
    
    143,000Thereafter
    
    
    465,000$
    1,499,000
   24




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ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    (REMOVED AND RESERVED)
  25




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
  CommonQuarter
    
    Dividends
    
    
    High
    
    
    Low4th Quarter 2009
    
    
    
    
    
    $
    4.80
    
    
    $
    2.883rd Quarter 2009
    
    
    
    
    
    $
    4.99
    
    
    $
    3.802nd Quarter 2009
    
    
    
    
    
    $
    5.96
    
    
    $
    3.801st Quarter 2009
    
    
    
    
    
    $
    7.81
    
    
    $
    3.804th Quarter 2008
    
    $
    0.08
    
    
    $
    11.00
    
    
    $
    3.803rd Quarter 2008
    
    
    
    
    
    $
    11.97
    
    
    $
    8.972nd Quarter 2008
    
    $
    0.16
    
    
    $
    14.93
    
    
    $
    10.341st Quarter 2008
    
    
    
    
    
    $
    14.41
    
    
    $
    9.75
      26




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Securities Authorized for Issuance under Equity Compensation Plans.
 Number of securitiesremaining availableNumber of
    
    
    
    
    
    
    for futuresecurities to be
    
    
    
    
    
    
    issuance under equityissued upon
    
    
    Weighted-average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    (excluding securitiesoutstanding options
    
    
    outstanding options
    
    
    reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    403,966
    
    
    $
    13.56
    
    
    
    469,219Equity compensation
plans not approved
by security holders
    
    None
    
    
    Not Applicable
    
    
    NoneTotal
    
    
    403,966
    
    
    $
    13.56
    
    
    
    469,219
  Issuer Purchases of Equity Securities.
  27




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ITEM 6.
    
    SELECTED FINANCIAL DATA
  At or for the year ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in thousands except per share information)Statement of IncomeInterest income
    
    $
    22,836
    
    
    $
    25,440
    
    
    $
    30,284
    
    
    $
    29,483
    
    
    $
    25,497Interest expense
    
    
    3,655
    
    
    
    5,364
    
    
    
    8,536
    
    
    
    6,954
    
    
    
    4,793Net interest income
    
    
    19,181
    
    
    
    20,076
    
    
    
    21,748
    
    
    
    22,529
    
    
    
    20,704Provision for loan losses
    
    
    14,500
    
    
    
    4,600
    
    
    
    800
    
    
    
    1,000
    
    
    
    1,100Noninterest income
    
    
    5,752
    
    
    
    5,091
    
    
    
    5,448
    
    
    
    5,159
    
    
    
    5,073Noninterest expense
    
    
    26,354
    
    
    
    20,475
    
    
    
    19,671
    
    
    
    18,290
    
    
    
    17,549(Benefit from) provision for income taxes
    
    
    (6,775
    )
    
    
    (212
    )
    
    
    2,502
    
    
    
    3,196
    
    
    
    2,600Net (loss) income
    
    $
    (9,146
    )
    
    $
    304
    
    
    $
    4,223
    
    
    $
    5,202
    
    
    $
    4,528Balance sheet (end of period)Total assets
    
    $
    528,117
    
    
    $
    457,175
    
    
    $
    453,115
    
    
    $
    473,239
    
    
    $
    472,803Total loans
    
    $
    332,678
    
    
    $
    366,017
    
    
    $
    352,949
    
    
    $
    354,712
    
    
    $
    321,646Allowance for loan losses
    
    $
    9,568
    
    
    $
    7,224
    
    
    $
    4,211
    
    
    $
    3,917
    
    
    $
    3,256Total deposits
    
    $
    433,255
    
    
    $
    371,493
    
    
    $
    391,940
    
    
    $
    402,176
    
    
    $
    426,560Total shareholders equity
    
    $
    38,231
    
    
    $
    35,437
    
    
    $
    37,139
    
    
    $
    35,852
    
    
    $
    31,137Balance sheet (period average)Total assets
    
    $
    490,000
    
    
    $
    447,720
    
    
    $
    464,974
    
    
    $
    468,988
    
    
    $
    452,225Total loans
    
    $
    354,482
    
    
    $
    355,416
    
    
    $
    353,384
    
    
    $
    335,226
    
    
    $
    302,596Total deposits
    
    $
    403,896
    
    
    $
    382,279
    
    
    $
    403,772
    
    
    $
    415,700
    
    
    $
    403,818Total shareholders equity
    
    $
    43,839
    
    
    $
    37,343
    
    
    $
    37,041
    
    
    $
    33,682
    
    
    $
    29,548Capital ratiosLeverage ratio
    
    
    7.9
    %
    
    
    9.8
    %
    
    
    10.0
    %
    
    
    9.5
    %
    
    
    8.5
    %Tier 1 risk-based capital
    
    
    10.4
    %
    
    
    11.0
    %
    
    
    11.6
    %
    
    
    10.9
    %
    
    
    10.3
    %Total risk-based capital
    
    
    11.6
    %
    
    
    12.2
    %
    
    
    12.7
    %
    
    
    11.8
    %
    
    
    11.1
    %Asset quality ratiosNonperforming loans/total loans
    
    
    4.30
    %
    
    
    7.31
    %
    
    
    0.75
    %
    
    
    0.29
    %
    
    
    0.52
    %Nonperforming assets/total assets
    
    
    4.84
    %
    
    
    6.78
    %
    
    
    0.70
    %
    
    
    0.22
    %
    
    
    0.36
    %Allowance for loan losses/total loans
    
    
    2.88
    %
    
    
    1.97
    %
    
    
    1.19
    %
    
    
    1.10
    %
    
    
    1.01
    %Net loan charge-offs
    
    $
    12,156
    
    
    $
    1,587
    
    
    $
    506
    
    
    $
    339
    
    
    $
    566Performance ratios(Loss) return on average assets
    
    
    (1.87
    )%
    
    
    0.07
    %
    
    
    0.91
    %
    
    
    1.11
    %
    
    
    1.00
    %(Loss) return on average common equity
    
    
    (29.5
    )%
    
    
    0.8
    %
    
    
    11.4
    %
    
    
    15.4
    %
    
    
    15.2
    %(Loss) return on average equity
    
    
    (20.9
    )%
    
    
    0.8
    %
    
    
    11.4
    %
    
    
    15.4
    %
    
    
    15.2
    %Net interest margin
    
    
    4.52
    %
    
    
    4.99
    %
    
    
    5.18
    %
    
    
    5.32
    %
    
    
    5.06
    %Loans to Deposits
    
    
    76.8
    %
    
    
    98.5
    %
    
    
    90.1
    %
    
    
    88.2
    %
    
    
    75.4
    %Efficiency ratio
    
    
    105.7
    %
    
    
    81.4
    %
    
    
    72.3
    %
    
    
    66.1
    %
    
    
    68.1
    %Per share informationBasic earnings (loss)
    
    $
    (2.05
    )
    
    $
    0.06
    
    
    $
    0.85
    
    
    $
    1.04
    
    
    $
    0.92Diluted earnings (loss)
    
    $
    (2.05
    )
    
    $
    0.06
    
    
    $
    0.84
    
    
    $
    1.02
    
    
    $
    0.89Common cash dividends
    
    $
    0.00
    
    
    $
    0.24
    
    
    $
    0.30
    
    
    $
    0.26
    
    
    $
    0.22Dividend payout ratio
    
    
    
    %
    
    
    400
    %
    
    
    35.3
    %
    
    
    25.0
    %
    
    
    23.9
    %Book value per common share
    
    $
    5.58
    
    
    $
    7.42
    
    
    $
    7.63
    
    
    $
    7.14
    
    
    $
    6.26Common shares outstanding at period end
    
    
    4,776,339
    
    
    
    4,775,339
    
    
    
    4,869,130
    
    
    
    5,023,205
    
    
    
    4,976,654
  28




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##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 General
    Critical Accounting Policies
  Allowance for Loan Losses.
    Other Real Estate Owned.
  29




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##### Table of Contents



Income Taxes.
   Stock-Based Compensation
  Overview
   30




---



##### Table of Contents



31




---



##### Table of Contents



Results of Operations
 Net Interest Income
  Year ended December 31,2009
    
    
    2008
    
    
    2007Interest
    
    
    Rates
    
    
    
    
    
    
    Interest
    
    
    Rates
    
    
    
    
    
    
    Interest
    
    
    RatesAverage
    
    
    income/
    
    
    earned/
    
    
    Average
    
    
    income/
    
    
    earned/
    
    
    Average
    
    
    income/
    
    
    earned/balance
    
    
    expense
    
    
    paid
    
    
    balance
    
    
    expense
    
    
    paid
    
    
    balance
    
    
    expense
    
    
    paid(dollars in thousands)AssetsInterest bearing deposits
    
    $
    6,298
    
    
    $
    15
    
    
    
    0.24
    %
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    $
    
    
    
    
    
    %Federal funds sold
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    118
    
    
    
    3
    
    
    
    2.54
    
    
    
    3,517
    
    
    
    171
    
    
    
    4.86Investment securities(1)
    
    
    64,047
    
    
    
    2,163
    
    
    
    3.38
    
    
    
    46,658
    
    
    
    1,887
    
    
    
    4.04
    
    
    
    62,690
    
    
    
    2,404
    
    
    
    3.83Total loans (2)(3)
    
    
    354,482
    
    
    
    20,658
    
    
    
    5.83
    
    
    
    355,416
    
    
    
    23,550
    
    
    
    6.63
    
    
    
    353,384
    
    
    
    27,709
    
    
    
    7.84Total earning assets
    
    
    424,839
    
    
    
    22,836
    
    
    
    5.38
    %
    
    
    402,192
    
    
    
    25,440
    
    
    
    6.33
    %
    
    
    419,591
    
    
    
    30,284
    
    
    
    7.22
    %Cash and due from banks
    
    
    27,372
    
    
    
    
    
    
    
    
    
    
    
    12,174
    
    
    
    
    
    
    
    
    
    
    
    12,850Other assets
    
    
    37,789
    
    
    
    
    
    
    
    
    
    
    
    33,354
    
    
    
    
    
    
    
    
    
    
    
    32,533Total assets
    
    $
    490,000
    
    
    
    
    
    
    
    
    
    
    $
    447,720
    
    
    
    
    
    
    
    
    
    
    $
    464,974Liabilities and shareholders
equityInterest bearing demand deposits
    
    $
    98,394
    
    
    
    671
    
    
    
    0.68
    %
    
    $
    73,338
    
    
    
    548
    
    
    
    0.75
    %
    
    $
    77,254
    
    
    
    1,335
    
    
    
    1.73
    %Money market deposits
    
    
    41,844
    
    
    
    346
    
    
    
    0.83
    
    
    
    37,626
    
    
    
    312
    
    
    
    0.83
    
    
    
    39,431
    
    
    
    327
    
    
    
    0.83Savings deposits
    
    
    50,286
    
    
    
    90
    
    
    
    0.18
    
    
    
    48,573
    
    
    
    161
    
    
    
    0.33
    
    
    
    50,448
    
    
    
    245
    
    
    
    0.49Time deposits
    
    
    105,313
    
    
    
    2,062
    
    
    
    1.96
    
    
    
    110,743
    
    
    
    3,501
    
    
    
    3.16
    
    
    
    121,808
    
    
    
    5,304
    
    
    
    4.35Short-term borrowings
    
    
    24,292
    
    
    
    80
    
    
    
    0.33
    
    
    
    11,857
    
    
    
    202
    
    
    
    1.70
    
    
    
    8,735
    
    
    
    467
    
    
    
    5.35Long-term borrowings
    
    
    1,589
    
    
    
    27
    
    
    
    1.70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Junior subordinated debentures
    
    
    10,310
    
    
    
    371
    
    
    
    3.60
    
    
    
    10,310
    
    
    
    623
    
    
    
    6.04
    
    
    
    10,310
    
    
    
    835
    
    
    
    8.10Other
    
    
    212
    
    
    
    8
    
    
    
    3.77
    
    
    
    309
    
    
    
    17
    
    
    
    5.50
    
    
    
    303
    
    
    
    23
    
    
    
    7.59Total interest bearing liabilities
    
    
    332,240
    
    
    
    3,655
    
    
    
    1.10
    %
    
    
    292,756
    
    
    
    5,364
    
    
    
    1.83
    %
    
    
    308,289
    
    
    
    8,536
    
    
    
    2.77
    %Noninterest bearing demand deposits
    
    
    108,059
    
    
    
    
    
    
    
    
    
    
    
    111,999
    
    
    
    
    
    
    
    
    
    
    
    114,831Other liabilities
    
    
    5,862
    
    
    
    
    
    
    
    
    
    
    
    5,622
    
    
    
    
    
    
    
    
    
    
    
    4,813Shareholders equity
    
    
    43,839
    
    
    
    
    
    
    
    
    
    
    
    37,343
    
    
    
    
    
    
    
    
    
    
    
    37,041Total liabilities and
shareholders equity
    
    $
    490,000
    
    
    
    
    
    
    
    
    
    
    $
    447,720
    
    
    
    
    
    
    
    
    
    
    $
    464,974Net interest income
    
    
    
    
    
    $
    19,181
    
    
    
    
    
    
    
    
    
    
    $
    20,076
    
    
    
    
    
    
    
    
    
    
    $
    21,748Net interest spread(4)
    
    
    
    
    
    
    
    
    
    
    4.28
    %
    
    
    
    
    
    
    
    
    
    
    4.50
    %
    
    
    
    
    
    
    
    
    
    
    4.45
    %Net interest margin(5)
    
    
    
    
    
    
    
    
    
    
    4.52
    %
    
    
    
    
    
    
    
    
    
    
    4.99
    %
    
    
    
    
    
    
    
    
    
    
    5.18
    %
 
 (1)
    
    Interest income is reflected on an actual basis and is not computed on a tax-equivalent
basis.(2)
    
    Average nonaccrual loan balances of $25.1million for 2009, $5.2 million for 2008 and $1.7
million for 2007 are included in average loan balances for computational purposes.(3)
    
    Loan origination fees and costs are included in interest income as adjustments of the loan
yields over the life of the loan using the interest method. Loan interest income includes net
loan costs of $214,000, $288,000 and $360,000 for 2009, 2008 and 2007, respectively.(4)
    
    Net interest spread represents the average yield earned on interest-earning assets less the
average rate paid on interest-bearing liabilities.(5)
    
    Net interest margin is computed by dividing net interest income by total average earning
assets.  32




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##### Table of Contents



2009 compared to 2008
    
    
    2008 compared to 2007Increase (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:Interest bearing deposits
    
    $
    
    
    
    $
    
    
    
    $
    15
    
    
    $
    15
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal funds sold
    
    
    (3
    )
    
    
    (3
    )
    
    
    3
    
    
    
    (3
    )
    
    
    (165
    )
    
    
    (82
    )
    
    
    79
    
    
    
    (168
    )Investment securities
    
    
    703
    
    
    
    (311
    )
    
    
    (116
    )
    
    
    276
    
    
    
    (615
    )
    
    
    131
    
    
    
    (33
    )
    
    
    (517
    )Loans
    
    
    (62
    )
    
    
    (2,838
    )
    
    
    8
    
    
    
    (2,892
    )
    
    
    159
    
    
    
    (4,294
    )
    
    
    (24
    )
    
    
    (4,159
    )Total interest income
    
    
    638
    
    
    
    (3,152
    )
    
    
    (90
    )
    
    
    (2,604
    )
    
    
    (621
    )
    
    
    (4,245
    )
    
    
    22
    
    
    
    (4,844
    )Interest-bearing
liabilities:Interest bearing demand
deposits
    
    
    187
    
    
    
    (48
    )
    
    
    (16
    )
    
    
    123
    
    
    
    (68
    )
    
    
    (758
    )
    
    
    39
    
    
    
    (787
    )Money market deposits
    
    
    35
    
    
    
    
    
    
    
    (1
    )
    
    
    34
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )Savings deposits
    
    
    6
    
    
    
    (74
    )
    
    
    (3
    )
    
    
    (71
    )
    
    
    (9
    )
    
    
    (78
    )
    
    
    3
    
    
    
    (84
    )Time deposits
    
    
    (172
    )
    
    
    (1,333
    )
    
    
    66
    
    
    
    (1,439
    )
    
    
    (482
    )
    
    
    (1,453
    )
    
    
    132
    
    
    
    (1,803
    )Short-term borrowings
    
    
    212
    
    
    
    (163
    )
    
    
    (171
    )
    
    
    (122
    )
    
    
    167
    
    
    
    (318
    )
    
    
    (114
    )
    
    
    (265
    )Long-term borrowings
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Junior subordinated debentures
    
    
    
    
    
    
    (252
    )
    
    
    
    
    
    
    (252
    )
    
    
    
    
    
    
    (212
    )
    
    
    
    
    
    
    (212
    )Other borrowings
    
    
    (5
    )
    
    
    (5
    )
    
    
    1
    
    
    
    (9
    )
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Total interest expense
    
    
    263
    
    
    
    (1,875
    )
    
    
    (97
    )
    
    
    (1,709
    )
    
    
    (407
    )
    
    
    (2,825
    )
    
    
    60
    
    
    
    (3,172
    )Net interest income
    
    $
    375
    
    
    $
    (1,277
    )
    
    $
    7
    
    
    $
    (895
    )
    
    $
    (214
    )
    
    $
    (1,420
    )
    
    $
    (38
    )
    
    $
    (1,672
    )
 (1)
    
    The volume change in net interest income represents the change in average balance multiplied by
the previous years rate.(2)
    
    The rate change in net interest income represents the change in rate multiplied 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. 2009 compared to 2008.
     33




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##### Table of Contents



2008 compared to 2007.
    34




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##### Table of Contents



Provision for Loan Losses
    35




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##### Table of Contents



Non-Interest Income
  Years Ended December 31,
    
    
    Change during Year2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008(dollars in thousands)Service charges on deposit
accounts
    
    $
    3,796
    
    
    $
    3,951
    
    
    $
    3,806
    
    
    $
    (155
    )
    
    $
    145Gain on sale of loans, net
    
    
    593
    
    
    
    111
    
    
    
    47
    
    
    
    482
    
    
    
    64Earnings on bank owned life
insurance policies
    
    
    434
    
    
    
    421
    
    
    
    415
    
    
    
    13
    
    
    
    6Merchant processing
    
    
    282
    
    
    
    286
    
    
    
    282
    
    
    
    (4
    )
    
    
    4Loan servicing fees
    
    
    139
    
    
    
    96
    
    
    
    140
    
    
    
    43
    
    
    
    (44
    )Customer service fees
    
    
    121
    
    
    
    114
    
    
    
    119
    
    
    
    7
    
    
    
    (5
    )Investment services
    
    
    81
    
    
    
    125
    
    
    
    162
    
    
    
    (44
    )
    
    
    (37
    )Safe deposit box and night
depository income
    
    
    68
    
    
    
    67
    
    
    
    67
    
    
    
    1
    
    
    
    Official check fees
    
    
    17
    
    
    
    93
    
    
    
    157
    
    
    
    (76
    )
    
    
    (64
    )Federal Home Loan Bank
dividends
    
    
    4
    
    
    
    105
    
    
    
    109
    
    
    
    (101
    )
    
    
    (4
    )Impairment loss on investment
security
    
    
    
    
    
    
    (415
    )
    
    
    
    
    
    
    415
    
    
    
    (415
    )Other income
    
    
    217
    
    
    
    137
    
    
    
    144
    
    
    
    80
    
    
    
    (7
    )Total non-interest income
    
    $
    5,752
    
    
    $
    5,091
    
    
    $
    5,448
    
    
    $
    661
    
    
    $
    (357
    )
  36




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##### Table of Contents



2009 compared to 2008.
   2008 compared to 2007.
    37




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##### Table of Contents



Non-Interest Expense
  Years Ended December 31,
    
    
    Change during Year2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008(dollars in thousands)Salaries and employee benefits
    
    $
    11,054
    
    
    $
    10,884
    
    
    $
    11,200
    
    
    $
    170
    
    
    $
    (316
    )Occupancy and equipment
    
    
    3,759
    
    
    
    3,838
    
    
    
    3,552
    
    
    
    (79
    )
    
    
    286Provision for OREO losses
    
    
    4,800
    
    
    
    618
    
    
    
    
    
    
    
    4,182
    
    
    
    618FDIC insurance
    
    
    1,125
    
    
    
    258
    
    
    
    48
    
    
    
    867
    
    
    
    210Outside service fees
    
    
    892
    
    
    
    735
    
    
    
    671
    
    
    
    157
    
    
    
    64Professional fees
    
    
    789
    
    
    
    688
    
    
    
    738
    
    
    
    101
    
    
    
    (50
    )Loan collection costs
    
    
    399
    
    
    
    205
    
    
    
    154
    
    
    
    194
    
    
    
    51Telephone and data
communications
    
    
    392
    
    
    
    400
    
    
    
    362
    
    
    
    (8
    )
    
    
    38Business development
    
    
    333
    
    
    
    467
    
    
    
    530
    
    
    
    (134
    )
    
    
    (63
    )OREO costs
    
    
    370
    
    
    
    175
    
    
    
    38
    
    
    
    195
    
    
    
    137Advertising and promotion
    
    
    327
    
    
    
    448
    
    
    
    520
    
    
    
    (121
    )
    
    
    (72
    )Director compensation and
retirement
    
    
    293
    
    
    
    323
    
    
    
    349
    
    
    
    (30
    )
    
    
    (26
    )Armored car and courier
    
    
    281
    
    
    
    289
    
    
    
    279
    
    
    
    (8
    )
    
    
    10Postage
    
    
    207
    
    
    
    208
    
    
    
    242
    
    
    
    (1
    )
    
    
    (34
    )Stationery and supplies
    
    
    183
    
    
    
    236
    
    
    
    278
    
    
    
    (53
    )
    
    
    (42
    )Core deposit intangible
amortization
    
    
    173
    
    
    
    216
    
    
    
    301
    
    
    
    (43
    )
    
    
    (85
    )Loss on sale of OREO
    
    
    158
    
    
    
    
    
    
    
    
    
    
    
    158
    
    
    
    Insurance
    
    
    142
    
    
    
    235
    
    
    
    177
    
    
    
    (93
    )
    
    
    58Other operating expense
    
    
    677
    
    
    
    252
    
    
    
    232
    
    
    
    425
    
    
    
    20Total non-interest expense
    
    $
    26,354
    
    
    $
    20,475
    
    
    $
    19,671
    
    
    $
    5,879
    
    
    $
    804
 2009 compared to 2008.
    38




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##### Table of Contents



2008 compared to 2007.
    39




---



##### Table of Contents



Provision
for income taxes.
   
    
    The Companys 2009 net loss was largely attributable to losses on its Construction and
Land Development portfolio that represented approximately 80% of net charge-offs during
the year ended December 31, 2009. This portfolio has significantly decreased during the
current year and the Company is not growing the portfolio.
  40




---



##### Table of Contents




    
    The Companys 2009 net loss was also attributable to large write-downs in Construction
and Land Development real estate owned which represented the majority of its provision for
losses on other real estate during 2009. Given that the Construction and Land Development
REO is valued significantly below the original appraised value as of December 31, 2009,
management does not anticipate significant additional declines in future periods.
    
    The Company has a long history of earnings profitability.
    
    The Company is projecting future taxable and book income will be generated by
operations.
    
    The size of loan credits in the Companys pipeline of potential problem loans has
significantly decreased.
  
    
    The Company recorded a large net loss in 2009 and is in a cumulative loss position for
the current and preceding two years.
    
    The Company did not meet its financial projections in 2009 or 2008.
  Financial Condition
 Loan Portfolio.
    41




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##### Table of Contents



At December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in thousands)Real estate  mortgage
    
    $
    161,397
    
    
    $
    151,943
    
    
    $
    128,357
    
    
    $
    116,329
    
    
    $
    110,686Real estate  construction
    
    
    38,061
    
    
    
    73,820
    
    
    
    76,478
    
    
    
    75,930
    
    
    
    56,370Commercial
    
    
    37,056
    
    
    
    42,528
    
    
    
    39,584
    
    
    
    36,182
    
    
    
    42,252Consumer
    
    
    54,442
    
    
    
    61,706
    
    
    
    72,768
    
    
    
    90,694
    
    
    
    81,320Agriculture
    
    
    41,722
    
    
    
    36,020
    
    
    
    35,762
    
    
    
    35,577
    
    
    
    31,018Total loans
    
    
    332,678
    
    
    
    366,017
    
    
    
    352,949
    
    
    
    354,712
    
    
    
    321,646Less:Deferred costs
    
    
    (298
    )
    
    
    (279
    )
    
    
    (564
    )
    
    
    (1,182
    )
    
    
    (766
    )Allowance for loan losses
    
    
    9,568
    
    
    
    7,224
    
    
    
    4,211
    
    
    
    3,917
    
    
    
    3,256Net loans
    
    $
    323,408
    
    
    $
    359,072
    
    
    $
    349,302
    
    
    $
    351,977
    
    
    $
    319,156
  Within
    
    
    After One
    
    
    AfterOne Year
    
    
    Through Five Years
    
    
    Five Years
    
    
    Total(dollars in thousands)Real estate  mortgage
    
    $
    20,617
    
    
    $
    30,097
    
    
    $
    110,683
    
    
    $
    161,397Real estate  construction
    
    
    19,011
    
    
    
    7,861
    
    
    
    11,189
    
    
    
    38,061Commercial
    
    
    11,947
    
    
    
    22,315
    
    
    
    2,794
    
    
    
    37,056Consumer
    
    
    9,422
    
    
    
    15,801
    
    
    
    29,219
    
    
    
    54,442Agriculture
    
    
    18,585
    
    
    
    9,407
    
    
    
    13,730
    
    
    
    41,722Total
    
    $
    79,582
    
    
    $
    85,481
    
    
    $
    167,615
    
    
    $
    332,678Loans maturing after one year with:Fixed interest rates
    
    
    
    
    
    $
    27,428
    
    
    $
    58,294
    
    
    $
    85,722Variable interest rates
    
    
    
    
    
    
    58,053
    
    
    
    109,321
    
    
    
    167,374Total
    
    
    
    
    
    $
    85,481
    
    
    $
    167,615
    
    
    $
    253,096
 Analysis of Asset Quality and Allowance for Loan Losses.
  42




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43




---



##### Table of Contents




    
    specific allocation determined in accordance with ASC Topic 310  Receivables
(formerly FAS 114, Accounting for Impairment of a loanbased on probable losses on specific loans.
    
    general reserves determined in accordance with guidance in ASC Topic 450 
Contingencies (formerly SFAS No. 5, Accounting for Contingencies,based on historical
loan loss experience adjusted for other qualitative risk factors both internal and
external to the Company.
     44




---



##### Table of Contents



At December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in thousands)Balance at beginning of period
    
    $
    7,224
    
    
    $
    4,211
    
    
    $
    3,917
    
    
    $
    3,256
    
    
    $
    2,722Charge-offs:Commercial and agricultural
    
    
    663
    
    
    
    477
    
    
    
    83
    
    
    
    126
    
    
    
    297Real estate mortgage
    
    
    1,145
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    Real estate construction
    
    
    10,133
    
    
    
    522
    
    
    
    46
    
    
    
    
    
    
    
    Consumer
    
    
    559
    
    
    
    689
    
    
    
    657
    
    
    
    519
    
    
    
    442Total charge-offs
    
    
    12,500
    
    
    
    1,783
    
    
    
    786
    
    
    
    645
    
    
    
    739Recoveries:Commercial and agricultural
    
    
    18
    
    
    
    11
    
    
    
    53
    
    
    
    46
    
    
    
    21Real estate mortgage
    
    
    8
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    Real estate construction
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    228
    
    
    
    171
    
    
    
    227
    
    
    
    260
    
    
    
    152Total recoveries
    
    
    344
    
    
    
    196
    
    
    
    280
    
    
    
    306
    
    
    
    173Net charge-offs
    
    
    12,156
    
    
    
    1,587
    
    
    
    506
    
    
    
    339
    
    
    
    566Provision for loan losses
    
    
    14,500
    
    
    
    4,600
    
    
    
    800
    
    
    
    1,000
    
    
    
    1,100Balance at end of period
    
    $
    9,568
    
    
    $
    7,224
    
    
    $
    4,211
    
    
    $
    3,917
    
    
    $
    3,256Net charge-offs during the period
to average loans
    
    
    3.43
    %
    
    
    0.45
    %
    
    
    0.14
    %
    
    
    0.10
    %
    
    
    0.19
    %Allowance for loan losses to total loans
    
    
    2.88
    %
    
    
    1.97
    %
    
    
    1.19
    %
    
    
    1.10
    %
    
    
    1.01
    %
      45




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##### Table of Contents



At December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in thousands)Nonaccrual loans
    
    $
    14,263
    
    
    $
    26,444
    
    
    $
    2,618
    
    
    $
    972
    
    
    $
    1,661Loans past due 90 days or
more and still accruing
    
    
    28
    
    
    
    297
    
    
    
    14
    
    
    
    41
    
    
    
    Total nonperforming loans
    
    
    14,291
    
    
    
    26,741
    
    
    
    2,632
    
    
    
    1,013
    
    
    
    1,661Other real estate owned
    
    
    11,204
    
    
    
    4,148
    
    
    
    402
    
    
    
    
    
    
    
    Other vehicles owned
    
    
    65
    
    
    
    129
    
    
    
    135
    
    
    
    47
    
    
    
    40Total nonperforming assets
    
    $
    25,560
    
    
    $
    31,018
    
    
    $
    3,169
    
    
    $
    1,060
    
    
    $
    1,701Interest income forgone on
nonaccrual loans
    
    $
    568
    
    
    $
    576
    
    
    $
    161
    
    
    $
    53
    
    
    $
    39Interest income recorded on a
cash basis on nonaccrual loans
    
    $
    369
    
    
    $
    74
    
    
    $
    118
    
    
    $
    116
    
    
    $
    16Nonperforming loans to total
loans
    
    
    4.30
    %
    
    
    7.31
    %
    
    
    0.75
    %
    
    
    0.29
    %
    
    
    0.52
    %Nonperforming assets to total
Assets
    
    
    4.84
    %
    
    
    6.78
    %
    
    
    0.70
    %
    
    
    0.22
    %
    
    
    0.36
    %Allowance for loan losses to nonperforming
Loans
    
    
    67
    %
    
    
    27
    %
    
    
    160
    %
    
    
    387
    %
    
    
    196
    %
      46




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##### Table of Contents



Investment Portfolio and Federal Funds Sold.
       December 31,Available-for-sale (fair value)
    
    2009
    
    
    2008
    
    
    2007(dollars in thousands)U.S. Treasuries
    
    $
    1,052
    
    
    $
    1,508
    
    
    $
    3,481U.S. Government agencies
    
    
    55,889
    
    
    
    10,392
    
    
    
    19,662Corporate debt securities
    
    
    
    
    
    
    1,550
    
    
    
    3,923U.S. Government agency mortgage-backed
Securities
    
    
    19,287
    
    
    
    12,357
    
    
    
    14,738Municipal obligations
    
    
    11,722
    
    
    
    
    
    
    
    Total
    
    $
    87,950
    
    
    $
    25,807
    
    
    $
    41,804December 31,Held-to-maturity (amortized cost)
    
    2009
    
    
    2008
    
    
    2007(dollars in thousands)Municipal obligations
    
    $
    
    
    
    $
    12,567
    
    
    $
    13,488
  47




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##### Table of Contents



After One Through
    
    
    After Five  Through(dollars in thousands)
    
    One Year or Less
    
    
    Five Years
    
    
    Ten Years
    
    
    After Ten Years
    
    
    TotalAvailable-for-sale(Fair Value)
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldU.S. Treasuries
    
    $
    
    
    
    
    
    %
    
    $
    1,052
    
    
    
    1.07
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    1,052
    
    
    
    1.07
    %U.S. Government agencies
    
    
    
    
    
    
    
    %
    
    
    55,889
    
    
    
    2.45
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    55,889
    
    
    
    2.45
    %U.S. Government agency
mortgage-backed securities
    
    
    1,815
    
    
    
    3.52
    %
    
    
    2,539
    
    
    
    3.90
    %
    
    
    4,439
    
    
    
    4.78
    %
    
    
    10,494
    
    
    
    3.94
    %
    
    
    19,287
    
    
    
    4.08
    %Municipal obligations
    
    
    
    
    
    
    
    %
    
    
    3,725
    
    
    
    5.19
    %
    
    
    7,997
    
    
    
    5.71
    %
    
    
    
    
    
    
    
    %
    
    
    11,722
    
    
    
    5.55
    %Total
    
    $
    1,815
    
    
    
    3.52
    %
    
    $
    63,205
    
    
    
    2.65
    %
    
    $
    12,436
    
    
    
    5.39
    %
    
    $
    10,494
    
    
    
    3.94
    %
    
    $
    87,950
    
    
    
    3.19
    %
  48




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##### Table of Contents



Deposits.
    2009
    
    
    2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate %
    
    
    Balance
    
    
    Rate %
    
    
    Balance
    
    
    Rate %(dollars in thousands)Non-interest-bearing deposits
    
    $
    108,059
    
    
    
    
    
    
    $
    111,999
    
    
    
    
    
    
    $
    114,831Interest-bearing deposits:Interest bearing demand deposits
    
    
    98,394
    
    
    
    0.68
    %
    
    
    73,338
    
    
    
    0.75
    %
    
    
    77,254
    
    
    
    1.73
    %Money market accounts
    
    
    41,844
    
    
    
    0.83
    %
    
    
    37,626
    
    
    
    0.83
    %
    
    
    39,431
    
    
    
    0.83
    %Savings
    
    
    50,286
    
    
    
    0.18
    %
    
    
    48,573
    
    
    
    0.33
    %
    
    
    50,448
    
    
    
    0.49
    %Time deposits
    
    
    105,313
    
    
    
    1.96
    %
    
    
    110,743
    
    
    
    3.16
    %
    
    
    121,808
    
    
    
    4.35
    %Total interest bearing deposits
    
    
    295,837
    
    
    
    1.07
    %
    
    
    270,280
    
    
    
    1.67
    %
    
    
    288,941
    
    
    
    2.50
    %Total deposits
    
    $
    403,896
    
    
    
    0.78
    %
    
    $
    382,279
    
    
    
    1.18
    %
    
    $
    403,772
    
    
    
    1.79
    %
  49




---



##### Table of Contents



(dollars
in thousands)
    
    AmountRemaining Maturity:Three months or less
    
    $
    13,031Over three months to six months
    
    
    7,729Over six months to 12 months
    
    
    9,881Over 12 months
    
    
    24,362Total
    
    $
    55,003
  Short-term borrowing arrangements.
    Long-term borrowing arrangements.
 Capital Resources
    50




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##### Table of Contents



Capital Standards.
    51




---



##### Table of Contents



December 31, 2009
    
    
    December 31, 2008Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTier 1 Leverage RatioPlumas Bancorp and Subsidiary
    
    $
    40,564
    
    
    
    7.9
    %
    
    $
    43,885
    
    
    
    9.8
    %Minimum regulatory requirement
    
    
    20,652
    
    
    
    4.0
    %
    
    
    17,907
    
    
    
    4.0
    %Plumas Bank
    
    
    38,172
    
    
    
    7.4
    %
    
    
    43,372
    
    
    
    9.7
    %Minimum requirement for
Well-Capitalized institution
under the prompt corrective
action plan
    
    
    25,848
    
    
    
    5.0
    %
    
    
    22,365
    
    
    
    5.0
    %Minimum regulatory requirement
    
    
    20,678
    
    
    
    4.0
    %
    
    
    17,892
    
    
    
    4.0
    %Tier 1 Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    
    40,564
    
    
    
    10.4
    %
    
    
    43,885
    
    
    
    11.0
    %Minimum regulatory requirement
    
    
    15,641
    
    
    
    4.0
    %
    
    
    16,021
    
    
    
    4.0
    %Plumas Bank
    
    
    38,172
    
    
    
    9.8
    %
    
    
    43,372
    
    
    
    10.8
    %Minimum requirement for
Well-Capitalized institution
under the prompt corrective
action plan
    
    
    23,433
    
    
    
    6.0
    %
    
    
    23,996
    
    
    
    6.0
    %Minimum regulatory requirement
    
    
    15,622
    
    
    
    4.0
    %
    
    
    15,997
    
    
    
    4.0
    %Total Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    
    45,512
    
    
    
    11.6
    %
    
    
    48,919
    
    
    
    12.2
    %Minimum regulatory requirement
    
    
    31,281
    
    
    
    8.0
    %
    
    
    32,042
    
    
    
    8.0
    %Plumas Bank
    
    
    43,113
    
    
    
    11.0
    %
    
    
    48,399
    
    
    
    12.1
    %Minimum requirement for
Well-Capitalized institution
under the prompt corrective
action plan
    
    
    39,056
    
    
    
    10.0
    %
    
    
    39,994
    
    
    
    10.0
    %Minimum regulatory requirement
    
    
    31,244
    
    
    
    8.0
    %
    
    
    31,995
    
    
    
    8.0
    %
  Off-Balance Sheet Arrangements
 Loan Commitments.
 Operating Leases.
  52




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##### Table of Contents



Liquidity
     
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  PageReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheet as of December 31, 2009 and 2008
    
    
    F-2Consolidated Statement of Income for the years ended December 31,
2009, 2008 and 2007
    
    
    F-3Consolidated Statement of Changes in Shareholders Equity for the
years ended December 31, 2009, 2008 and 2007
    
    
    F-5Consolidated Statement of Cash Flows for the years ended December 31,
2009, 2008 and 2007
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-10
  53




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ Perry-Smith LLP 
  F-1




---



##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEET
 December 31, 2009 and 2008
 2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    59,493,000
    
    
    $
    18,791,000Investment securities
    
    
    87,950,000
    
    
    
    38,374,000Loans, less allowance for loan losses of $9,568,000
in 2009 and $7,224,000 in 2008
    
    
    323,408,000
    
    
    
    359,072,000Premises and equipment, net
    
    
    14,544,000
    
    
    
    15,764,000Intangible assets, net
    
    
    648,000
    
    
    
    821,000Bank owned life insurance
    
    
    10,111,000
    
    
    
    9,766,000Real estate and vehicles acquired through foreclosure
    
    
    11,269,000
    
    
    
    4,277,000Accrued interest receivable and other assets
    
    
    20,694,000
    
    
    
    10,310,000Total assets
    
    $
    528,117,000
    
    
    $
    457,175,000LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    111,958,000
    
    
    $
    112,783,000Interest bearing
    
    
    321,297,000
    
    
    
    258,710,000Total deposits
    
    
    433,255,000
    
    
    
    371,493,000Short-term borrowings
    
    
    20,000,000
    
    
    
    34,000,000Long-term debt
    
    
    20,000,000
    
    
    
    Accrued interest payable and other liabilities
    
    
    6,321,000
    
    
    
    5,935,000Junior subordinated deferrable interest debentures
    
    
    10,310,000
    
    
    
    10,310,000Total liabilities
    
    
    489,886,000
    
    
    
    421,738,000Commitments and contingencies (Note 10)Shareholders equity:Serial preferred stock  no par value; 10,000,000
shares authorized; 11,949 issued and outstanding
at December 31, 2009
    
    
    11,595,000
    
    
    
    Common stock  no par value; 22,500,000 shares
authorized; issued and outstanding  4,776,339
shares in 2009 and 4,775,339 shares in 2008
    
    
    5,970,000
    
    
    
    5,302,000Retained earnings
    
    
    20,044,000
    
    
    
    29,818,000Accumulated other comprehensive income
    
    
    622,000
    
    
    
    317,000Total shareholders equity
    
    
    38,231,000
    
    
    
    35,437,000Total liabilities and shareholders equity
    
    $
    528,117,000
    
    
    $
    457,175,000
 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, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Interest income:Interest and fees on loans
    
    $
    20,658,000
    
    
    $
    23,550,000
    
    
    $
    27,709,000Interest on investment securities:Taxable
    
    
    1,708,000
    
    
    
    1,398,000
    
    
    
    1,900,000Exempt from Federal income taxes
    
    
    455,000
    
    
    
    489,000
    
    
    
    504,000Interest on Federal funds sold
    
    
    15,000
    
    
    
    3,000
    
    
    
    171,000Total interest income
    
    
    22,836,000
    
    
    
    25,440,000
    
    
    
    30,284,000Interest expense:Interest on deposits
    
    
    3,169,000
    
    
    
    4,522,000
    
    
    
    7,211,000Interest on short-term borrowings
    
    
    80,000
    
    
    
    202,000
    
    
    
    467,000Interest on junior subordinated
deferrable interest debentures
    
    
    371,000
    
    
    
    623,000
    
    
    
    835,000Other
    
    
    35,000
    
    
    
    17,000
    
    
    
    23,000Total interest expense
    
    
    3,655,000
    
    
    
    5,364,000
    
    
    
    8,536,000Net interest income before
provision for loan losses
    
    
    19,181,000
    
    
    
    20,076,000
    
    
    
    21,748,000Provision for loan losses
    
    
    14,500,000
    
    
    
    4,600,000
    
    
    
    800,000Net interest income after
provision for loan losses
    
    
    4,681,000
    
    
    
    15,476,000
    
    
    
    20,948,000Non-interest income:Service charges
    
    
    3,796,000
    
    
    
    3,951,000
    
    
    
    3,806,000Gain on sale of loans
    
    
    593,000
    
    
    
    111,000
    
    
    
    47,000Impairment loss on investment
security
    
    
    
    
    
    
    (415,000
    )
    
    
    Earnings on Bank owned life
insurance policies
    
    
    434,000
    
    
    
    421,000
    
    
    
    415,000Other
    
    
    929,000
    
    
    
    1,023,000
    
    
    
    1,180,000Total non-interest income
    
    
    5,752,000
    
    
    
    5,091,000
    
    
    
    5,448,000
   F-3




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF INCOME   For the Years Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Non-interest expenses:Salaries and employee benefits
    
    $
    11,054,000
    
    
    $
    10,884,000
    
    
    $
    11,200,000Occupancy and equipment
    
    
    3,759,000
    
    
    
    3,838,000
    
    
    
    3,552,000Provision for losses on other real
estate
    
    
    4,800,000
    
    
    
    618,000
    
    
    
    Other
    
    
    6,741,000
    
    
    
    5,135,000
    
    
    
    4,919,000Total non-interest expenses
    
    
    26,354,000
    
    
    
    20,475,000
    
    
    
    19,671,000Income (loss) before income
taxes
    
    
    (15,921,000
    )
    
    
    92,000
    
    
    
    6,725,000Provision (benefit) for income taxes
    
    
    (6,775,000
    )
    
    
    (212,000
    )
    
    
    2,502,000Net income (loss)
    
    $
    (9,146,000
    )
    
    $
    304,000
    
    
    $
    4,223,000Basic earnings (loss) per share
    
    $
    (2.05
    )
    
    $
    0.06
    
    
    $
    0.85Diluted earnings (loss) per share
    
    $
    (2.05
    )
    
    $
    0.06
    
    
    $
    0.84Common dividends per share
    
    $
    
    
    
    $
    0.24
    
    
    $
    0.30
 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, 2009, 2008 and 2007
 AccumulatedOtherComprehensive
    
    
    Total
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Retained
    
    
    (Loss) Income
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    (Net of Taxes)
    
    
    Equity
    
    
    IncomeBalance, January 1, 2007
    
    
    
    
    
    
    
    
    
    
    5,023,205
    
    
    $
    4,828,000
    
    
    $
    31,716,000
    
    
    $
    (692,000
    )
    
    $
    35,852,000Comprehensive income):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,223,000
    
    
    
    
    
    
    
    4,223,000
    
    
    $
    4,223,000Other comprehensive income, net of tax:Net change in unrealized losses
on available-for-sale investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585,000
    
    
    
    585,000
    
    
    
    585,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,808,000Cash dividends  $0.30 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,491,000
    )
    
    
    
    
    
    
    (1,491,000
    )Retirement of common stock in connection
with the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    (4,630
    )
    
    
    (70,000
    )
    
    
    
    
    
    
    
    
    
    
    (70,000
    )Stock options exercised and related
tax benefit
    
    
    
    
    
    
    
    
    
    
    19,292
    
    
    
    152,000
    
    
    
    
    
    
    
    
    
    
    
    152,000Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    288,000
    
    
    
    
    
    
    
    
    
    
    
    288,000Repurchase and retirement of
common stock
    
    
    
    
    
    
    
    
    
    
    (168,737
    )
    
    
    (156,000
    )
    
    
    (2,244,000
    )
    
    
    
    
    
    
    (2,400,000
    )Balance, December 31, 2007
    
    
    
    
    
    
    
    
    
    
    4,869,130
    
    
    
    5,042,000
    
    
    
    32,204,000
    
    
    
    (107,000
    )
    
    
    37,139,000Cumulative effect of change in accounting principle,
adoption of EITF 06-4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (420,000
    )
    
    
    
    
    
    
    (420,000
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    304,000
    
    
    
    
    
    
    
    304,000
    
    
    $
    304,000Other comprehensive income, net of tax:Net change in unrealized (losses)/gains
on available-for-sale investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    424,000
    
    
    
    424,000
    
    
    
    424,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    728,000Cash dividends  $0.24 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,153,000
    )
    
    
    
    
    
    
    (1,153,000
    )Stock options exercised and related
tax benefit
    
    
    
    
    
    
    
    
    
    
    12,476
    
    
    
    68,000
    
    
    
    
    
    
    
    
    
    
    
    68,000Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292,000
    
    
    
    
    
    
    
    
    
    
    
    292,000Repurchase and retirement of
common stock
    
    
    
    
    
    
    
    
    
    
    (106,267
    )
    
    
    (100,000
    )
    
    
    (1,117,000
    )
    
    
    
    
    
    
    (1,217,000
    )Balance, December 31, 2008
    
    
    
    
    
    
    
    
    
    
    4,775,339
    
    
    $
    5,302,000
    
    
    $
    29,818,000
    
    
    $
    317,000
    
    
    $
    35,437,000
   F-5




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY   For the Years Ended December 31, 2009, 2008 and 2007
 AccumulatedOtherComprehensive
    
    
    Total
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Retained
    
    
    Income
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    (Net of Taxes)
    
    
    Equity
    
    
    IncomeBalance, December 31, 2008
    
    
    
    
    
    
    
    
    
    
    4,775,339
    
    
    $
    5,302,000
    
    
    $
    29,818,000
    
    
    $
    317,000
    
    
    $
    35,437,000Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,146,000
    )
    
    
    
    
    
    
    (9,146,000
    )
    
    $
    (9,146,000
    )Other comprehensive loss, net of tax:Unrealized gains on securities transferred
from held-to-maturity to available-for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197,000
    
    
    
    197,000
    
    
    
    197,000Net change in unrealized gains
on available-for-sale investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,000
    
    
    
    108,000
    
    
    
    108,000Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,841,000
    )Preferred stock issued
    
    
    11,949
    
    
    $
    11,516,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,516,000Preferred stock discount accretion
    
    
    
    
    
    
    79,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79,000Stock warrants issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407,000
    
    
    
    
    
    
    
    
    
    
    
    407,000Preferred stock dividends & accretion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (628,000
    )
    
    
    
    
    
    
    (628,000
    )Stock options exercised and related
tax benefit
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    5,000Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,000
    
    
    
    
    
    
    
    
    
    
    
    256,000Balance, December 31, 2009
    
    
    11,949
    
    
    $
    11,595,000
    
    
    
    4,776,339
    
    
    $
    5,970,000
    
    
    $
    20,044,000
    
    
    $
    622,000
    
    
    $
    38,231,000
 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, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    (9,146,000
    )
    
    $
    304,000
    
    
    $
    4,223,000Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    14,500,000
    
    
    
    4,600,000
    
    
    
    800,000Change in deferred loan origination
costs/fees, net
    
    
    (19,000
    )
    
    
    285,000
    
    
    
    618,000Stock-based compensation expense
    
    
    256,000
    
    
    
    292,000
    
    
    
    288,000Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    (9,000
    )Depreciation and amortization
    
    
    1,929,000
    
    
    
    1,984,000
    
    
    
    2,197,000Amortization of investment security
premiums
    
    
    283,000
    
    
    
    56,000
    
    
    
    149,000Accretion of investment security discounts
    
    
    (53,000
    )
    
    
    (55,000
    )
    
    
    (63,000
    )Impairment loss on investment security
    
    
    
    
    
    
    415,000Gain on sale of investments
    
    
    (10,000
    )Gain on sale of loans held for sale
    
    
    (593,000
    )Loans originated for sale
    
    
    (12,598,000
    )Proceeds from loan sales
    
    
    11,393,000Provision for losses on other real estate
    
    
    4,800,000
    
    
    
    618,000Net (gain) loss on sale of premises and
equipment
    
    
    (6,000
    )
    
    
    13,000
    
    
    
    39,000Net loss (gain) on sale of other
real estate and vehicles owned
    
    
    198,000
    
    
    
    18,000
    
    
    
    (17,000
    )Gain on life insurance death benefit
    
    
    
    
    
    
    
    
    
    
    (63,000
    )Earnings on bank owned life insurance
policies
    
    
    (434,000
    )
    
    
    (421,000
    )
    
    
    (415,000
    )Expenses on bank owned life insurance
policies
    
    
    89,000
    
    
    
    83,000
    
    
    
    80,000Benefit for deferred income taxes
    
    
    (3,852,000
    )
    
    
    (1,459,000
    )
    
    
    (787,000
    )Decrease (increase) in accrued interest
receivable and other assets
    
    
    (7,022,000
    )
    
    
    297,000
    
    
    
    (426,000
    )(Decrease) increase in accrued interest
payable and other liabilities
    
    
    355,000
    
    
    
    (711,000
    )
    
    
    1,325,000Net cash provided by operating
activities
    
    
    70,000
    
    
    
    6,319,000
    
    
    
    7,939,000
 (Continued)
  F-7




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF CASH FLOWS   For the Years Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Cash flows from investing activities:Proceeds from matured and called available-for-sale investment securities
    
    $
    8,000,000
    
    
    $
    16,475,000
    
    
    $
    27,876,000Proceeds from sale of available-for-sale securitiesProceeds from matured and called held-to-maturity investment securities
    
    
    1,836,000
    
    
    
    920,000
    
    
    
    585,000Proceeds from sale of held-to-maturity securities
    
    
    943,000Proceeds from sale of available-for-sale securities
    
    
    86,000Purchases of available-for-sale investment
securities
    
    
    (65,876,000
    )
    
    
    (2,990,000
    )
    
    
    (11,009,000
    )Purchases of held-to-maturity investment
securities
    
    
    (1,586,000
    )Proceeds from principal repayments from
available-for-sale government-guaranteed
mortgage-backed securities
    
    
    7,320,000
    
    
    
    2,819,000
    
    
    
    2,961,000Net decrease (increase) in loans
    
    
    8,683,000
    
    
    
    (19,520,000
    )
    
    
    355,000Proceeds from sale of vehicles
    
    
    270,000
    
    
    
    376,000
    
    
    
    429,000Proceeds from sale of other real estate
    
    
    1,992,000Proceeds from the sale of premises and
equipment
    
    
    
    
    
    
    
    
    
    
    20,000Purchases of premises and equipment
    
    
    (253,000
    )
    
    
    (2,566,000
    )
    
    
    (1,116,000
    )Proceeds from bank owned life insurance
    
    
    
    
    
    
    
    
    
    
    419,000Net cash (used in) provided by
investing activities
    
    
    (38,585,000
    )
    
    
    (4,486,000
    )
    
    
    20,520,000Cash flows from financing activities:Net increase (decrease) in demand,
interest-bearing and savings deposits
    
    
    37,383,000
    
    
    
    9,658,000
    
    
    
    (37,881,000
    )Net increase (decrease) in time deposits
    
    
    24,379,000
    
    
    
    (30,105,000
    )
    
    
    27,645,000Net (decrease) increase in short-term
borrowings
    
    
    (14,000,000
    )
    
    
    26,500,000
    
    
    
    (12,500,000
    )Proceeds from long-term debt
    
    
    20,000,000Issuance of preferred stock, net of discount
    
    
    11,516,000Payment of cash dividend on preferred stock
    
    
    (473,000
    )Issuance of common stock warrant
    
    
    407,000Proceeds from exercise of stock options
    
    
    5,000
    
    
    
    68,000
    
    
    
    73,000Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    9,000Repurchase and retirement of common stock
    
    
    
    
    
    
    (1,217,000
    )
    
    
    (2,400,000
    )Payment of cash dividends on common stock
    
    
    
    
    
    
    (1,153,000
    )
    
    
    (1,491,000
    )Net cash provided by (used in) financing
activities
    
    
    79,217,000
    
    
    
    3,751,000
    
    
    
    (26,545,000
    )Increase in cash and cash
equivalents
    
    
    40,702,000
    
    
    
    5,584,000
    
    
    
    1,914,000Cash and cash equivalents at beginning of year
    
    
    18,791,000
    
    
    
    13,207,000
    
    
    
    11,293,000Cash and cash equivalents at end of year
    
    $
    59,493,000
    
    
    $
    18,791,000
    
    
    $
    13,207,000
   F-8




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF CASH FLOWS   For the Years Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Supplemental disclosure of cash flow information:Cash paid during the year for:Interest expense
    
    $
    3,666,000
    
    
    $
    5,804,000
    
    
    $
    8,184,000Income taxes
    
    $
    65,000
    
    
    $
    1,385,000
    
    
    $
    3,495,000Non-cash investing activities:Real estate acquired through foreclosure
    
    $
    14,053,000
    
    
    $
    4,364,000
    
    
    $
    402,000Vehicles acquired through repossession
    
    $
    245,000
    
    
    $
    388,000
    
    
    $
    500,000Reclassification of loans to other assets
    
    
    
    
    
    $
    113,000Investment securities transferred from
held-to-maturity to available-for-sale
    
    $
    11,722,000Net change in unrealized gain/loss on
available-for-sale investment securities
    
    $
    108,000
    
    
    $
    424,000
    
    
    $
    585,000Non-cash financing activities:Common stock retired in connection
with the exercise of stock options
    
    
    
    
    
    
    
    
    
    $
    70,000Tax benefit from stock options exercised
    
    
    
    
    
    
    
    
    
    $
    9,000
 The accompanying notes are an integral
part of these consolidated financial statements.
  F-9




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    THE BUSINESS OF PLUMAS BANCORP
 During 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 Company formed Plumas Statutory
Trust I (Trust I) for the sole purpose of issuing trust preferred securities on September
26, 2002. The Company formed Plumas Statutory Trust II (Trust II) for the sole purpose of
issuing trust preferred securities on September 28, 2005.The Bank operates thirteen branches in California, including branches in Alturas, Chester,
Fall River Mills, Greenville, Kings Beach, Loyalton, Portola, Quincy, Redding, Susanville,
Tahoe City, Truckee and Westwood. During the first quarter of 2010 the Bank closed its
Loyalton and Westwood branches and transferred the deposits maintained at these branches to
the Portola and Chester branches, respectively. In addition to its branch network, the Bank
operates a commercial lending office in Reno, Nevada and a lending office specializing in
government-guaranteed lending in Auburn, California. 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.The Banks deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to
applicable legal limits. The Bank is participating in the FDIC Transaction Account
Guarantee Program. Under the program, through June 30, 2010, all noninterest-bearing
transaction accounts are fully guaranteed by the FDIC for the entire amount in the account.
Coverage under the Transaction Account Guarantee Program is in addition to and separate from
the coverage under the FDICs general deposit insurance rules.
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Consolidation and Basis of PresentationThe consolidated financial statements include the accounts of the Company and the
consolidated accounts of its wholly-owned subsidiary, Plumas Bank. All significant
intercompany balances and transactions have been eliminated.Plumas Statutory Trust I and Trust II are not consolidated into the Companys consolidated
financial statements and, accordingly, are accounted for under the equity method. The
Companys investment in Trust I of $268,000 and Trust II of $149,000 are included in accrued
interest receivable and other assets on the consolidated balance sheet. The junior
subordinated deferrable interest debentures issued and guaranteed by the Company and held by
Trust I and Trust II are reflected as debt on the consolidated balance sheet.The accounting and reporting policies of Plumas Bancorp and subsidiary conform with
accounting principles generally accepted in the United States of America and prevailing
practices within the banking industry.
  F-10




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
 ReclassificationsCertain reclassifications have been made to prior years balances to conform to the
classifications used in 2009.Segment InformationManagement has determined that since all of the banking products and services offered by the
Company are available in each branch of the Bank, all branches are located within the same
economic environment and management does not allocate resources based on the performance of
different lending or transaction activities, it is appropriate to aggregate the Bank
branches and report them as a single operating segment. No customer accounts for more than
10 percent of revenues for the Company or the Bank.Use of EstimatesThe preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.Cash and Cash EquivalentsFor the purpose of the statement of cash flows, cash and due from banks and Federal funds
sold are considered to be cash equivalents. Generally, Federal funds are sold for one day
periods. As of December 31, 2009 all cash held with other federally insured institutions
was fully insured by the FDIC.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.
  F-11




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
 Investment Securities (Continued)During 2009, management determined they no longer had the positive intent to hold their
held-to-maturity securities and transferred their held-to-maturity securities to available-for-sale (see note 4.) This transfer increases the Companys flexibility in managing its
loan portfolio; allowing the investments to be sold in implementing its asset/liability
management strategies and in response to changes in interest rates, prepayment rates and
similar factors. All transfers between categories are accounted for at fair value. There
were no transfers between categories during 2008. As of December 31, 2009 and 2008 the
Company did not have any investment securities classified as trading and 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, and
management does not intend to sell the security or it is more likely than not that sale of
the security will not be required before recovery, only the portion of the impairment loss
representing credit exposure is recognized as a charge to earnings, with the balance
recognized as a charge to other comprehensive income. If management intends to sell the
security or it is more likely than not that they will be required to sell the security
before recovering its forecasted cost, the entire impairment loss is recognized as a charge
to earnings.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, 2009 and 2008, Federal Home Loan Bank stock totaled $1,933,000. 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 ServicingIncluded 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 can receive 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, 2009, the premiums and guaranteed portion of these sold loans subject to
these recourse provisions was not significant.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Loans Held for Sale, Loan Sales and Servicing (Continued)During 2009, 2008 and 2007 the Company was not required to refund any significant amounts of
sales premiums related to the loans sold.As of December 31 2009 the Company had $1,798,000 in SBA loans held for sale. Loans held
for sale are recorded at the lower of cost or fair vale and therefore maybe reported at fair
value on a non-recurring basis. The fair values for loans held for sale are based on either
observable transactions of similar instruments or formally committed loan sale prices.Government guaranteed loans with unpaid balances of $18,512,000 and $8,920,000 were being
serviced for others at December 31, 2009 and 2008, respectively. The Company also serviced
loans previously sold to the Federal National Mortgage Association (FNMA) totaling
$3,014,000 and $3,993,000 as of December 31, 2009 and 2008, respectively.The Company accounts for the transfer and servicing of financial assets based on the fair
value of financial and servicing assets it controls and liabilities it has assumed,
derecognizes financial assets when control has been surrendered, and derecognizes
liabilities when extinguished.Servicing rights acquired through 1) a purchase or 2) the origination of loans which are
sold or securitized with servicing rights retained are recognized as separate assets or
liabilities. Servicing assets or liabilities are recorded at the difference between the
contractual servicing fees and adequate compensation for performing the servicing, and are
subsequently amortized in proportion to and over the period of the related net servicing
income or expense. Servicing assets are periodically evaluated for impairment. Fair values
are estimated using discounted cash flows based on current market interest rates. For
purposes of measuring impairment, servicing assets are stratified based on note rate and
term. The amount of impairment recognized, if any is the amount by which the servicing
assets for a stratum exceed their fair value.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 5). 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.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)LoansLoans are stated at principal balances outstanding, except for loans, if any, that are
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.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. 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.Loan origination fees, commitment fees, direct loan origination costs and purchased premiums
and discounts on loans are deferred and recognized as an adjustment of yield, to be
amortized to interest income over the contractual term of the loan. The unamortized balance
of deferred fees and costs is reported as a component of net loans.The Company may acquire loans through a business combination or a purchase for which
differences may exist between the contractual cash flows and the cash flows expected to be
collected due, at least in part, to credit quality. When the Company acquires such loans,
the yield that may be accreted (accretable yield) is limited to the excess of the Companys
estimate of undiscounted cash flows expected to be collected over the Companys initial
investment in the loan. The excess of contractual cash flows over cash flows expected to be
collected may not be recognized as an adjustment to yield, loss, or a valuation allowance.
Subsequent increases in cash flows expected to be collected generally should be recognized
prospectively through adjustment of the loans yield over its remaining life. Decreases in
cash flows expected to be collected should be recognized as an impairment.The Company may not carry over or create a valuation allowance in the initial accounting
for loans acquired under these circumstances. At December 31, 2009 and 2008, there were no
such loans being accounted for under this policy.Allowance for Loan LossesThe allowance for loan losses is maintained to provide for losses related to impaired loans
and other losses that can be expected to occur in the normal course of business. The
determination of the allowance is based on estimates made by management, to include
consideration of the character of the loan portfolio, specifically identified problem
loans, potential losses inherent in the portfolio taken as a whole and economic conditions
in the Companys service area.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
 Allowance for Loan Losses (Continued)Classified loans and loans determined to be impaired are evaluated by management for
specific risk of loss. In addition, reserve factors are assigned to currently performing
loans based on managements assessment of the following for each identified loan type: (1)
inherent credit risk and (2) historical losses. These estimates are particularly
susceptible to changes in the economic environment and market conditions.The Banks Loan Committee reviews the adequacy of the allowance for loan losses at least
quarterly, to include consideration of the relative risks in the portfolio and current
economic conditions. The allowance is adjusted based on that review if, in managements
judgment, changes are warranted.The allowance is established through a provision for loan losses which is charged to
expense. Additions to the allowance are expected to maintain the adequacy of the total
allowance after credit losses and loan growth. The allowance for loan losses at December
31, 2009 and 2008, respectively, reflects managements estimate of probable losses in the
portfolio. This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as new information becomes available, and accordingly
actual losses may vary from their estimates. In addition, the FDIC and California Department
of Financial Institutions, as an integral part of their examination process, review the
allowance for loan and lease losses. These agencies may require additions to the allowance
for loan and lease losses based on their judgment about information available at the time of
their examination.Allowance for Losses Related to Undisbursed CommitmentsThe Company maintains a separate allowance for losses related to undisbursed loan
commitments. Management estimates the amount of probable losses by applying a loss reserve
factor to a portion of undisbursed lines of credit. The allowance totaled $141,000 and
$55,000 at December 31, 2009 and 2008, respectively and is included in accrued interest
payable and other liabilities in the consolidated balance sheet.Other Real EstateThe Companys investment in other real estate holdings, all of which were related to real
estate acquired in full or partial settlement of loan obligations, was $11,204,000 net of a
valuation allowance of $5,066,000 at December 31, 2009 and $4,148,000 net of a valuation
allowance of $618,000 at December 31, 2008. Sales of other real estate totaled $1,992,000
for the year ended December 31, 2009 and a loss of $158,000 was recorded on sale. There were
no sales of other real estate in 2008. 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 write-downs resulting from permanent
impairment are recorded in other income or expenses as incurred.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Intangible AssetsIntangible assets consist of core deposit intangibles related to branch acquisitions and are
amortized using the straight-line method over ten years. The Company evaluates the
recoverability and remaining useful life annually to determine whether events or
circumstances warrant a revision to the intangible asset or the remaining period of
amortization. There were no such events or circumstances in 2009 or 2008.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.Income TaxesThe Company files its income taxes on a consolidated basis with its subsidiary. The
allocation of income tax expense (benefit) represents each entitys proportionate share of
the consolidated provision for income taxes.Deferred tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. A valuation allowance is recognized if, based on the weight
of available evidence management believes it is more likely than not that some portion or
all of the deferred tax assets will not be realized. On the consolidated balance sheet, net
deferred tax assets are included in accrued interest receivable and other assets.Accounting for Uncertainty in Income TaxesWhen tax returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject to
uncertainty about the merits of the position taken or the amount of the position that would
be ultimately sustained. The benefit of a tax position is recognized in the financial
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Accounting for Uncertainty in Income Taxes (Continued)statements in the period during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any. Tax positions taken
are not offset or aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of tax benefit
that is more than 50 percent likely of being realized upon settlement with the applicable
taxing authority. The portion of the benefits associated with tax positions taken that
exceeds the amount measured as described above is reflected as a liability for unrecognized
tax benefits in the accompanying balance sheet along with any associated interest and
penalties that would be payable to the taxing authorities upon examination.Interest expense and penalties associated with unrecognized tax benefits, if any, are
classified as income tax expense in the consolidated statement of income. There have been
no significant changes to unrecognized tax benefits or accrued interest and penalties for
the years ended December 31, 2009 and 2008.Earnings (Loss) Per ShareBasic earnings (loss) per share (EPS), which excludes dilution, is computed by dividing
income (loss) available to common stockholders (net income or (loss) less preferred
dividends) 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, 2009, the Company had two shareholder approved stock-based compensation
plans, the Plumas Bank 2001 and 1991 Stock Option Plans (the Plans) which are described
more fully in Note 11.Compensation expense, net of related tax benefits, recorded in 2009, 2008 and 2007 totaled
$237,000, $269,000 and $262,000 or $0.05, $0.06 and $0.05 per diluted share, respectively.
Compensation expense is recognized over the vesting period on a straight line accounting
basis.The Company determines the fair value of the options previously granted on the date of grant
using a Black-Scholes-Merton option pricing model that uses assumptions based on expected
option life, expected stock volatility and the risk-free interest rate. The expected
volatility assumptions used by the Company are based on the historical volatility of the
Companys common stock over the most recent period commensurate with the estimated expected
life of the Companys stock options. The Company bases its expected life assumption on its
historical experience and on the terms and conditions of the stock options it grants to
employees. The risk-free rate is based on the U.S. Treasury yield curve for the periods within the contractual life of the options in effect at
the time of the grant. The Company also makes assumptions regarding estimated forfeitures
that will impact the total compensation expenses recognized under the Plans.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Stock-Based Compensation (Continued)The fair value of each option is estimated on the date of grant using the following
assumptions.
 2008
    
    
    2007Expected life of stock options
    
    5.2 years
    
    6.6 yearsInterest ratestock options
    
    
    2.98
    %
    
    
    4.71
    %Volatilitystock options
    
    
    25.3
    %
    
    
    26.8
    %Dividend yields
    
    
    2.61
    %
    
    
    1.72
    %Weighted-average fair value
of options granted during the
year
    
    $
    2.54
    
    
    $
    4.53
 No options were granted during the year ended December 31, 2009.Adoption of New Financial Accounting StandardsFASB Accounting Standards Codification (ASC or Codification)In June 2009, the Financial Accounting Standards Board (FASB) issued new accounting
standards ASC 105-10 (previously SFAS No. 168), The FASB Accounting Standards
CodificationTMand the Hierarchy of Generally Accepted Accounting Principles.
With the issuance of ASC 105-10, the FASB Accounting Standards Codification (the
Codification or ASC) becomes the single source of authoritative U.S. accounting and
reporting standards applicable for all nongovernmental entities Rules and interpretive
releases of the SEC under the authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. This change is effective for financial statements
issued for interim or annual periods ended after September 15, 2009. Accordingly, all
specific references to generally accepted accounting principles (GAAP) refer to the
Codification and not to the pre-Codification literature.FASB Clarifies Other-Than-Temporary ImpairmentIn April 2009, the FASB issued ASC No. 320-10-35 (previously FSP 115-2 and 124-2 and EITF
99-20-2), Recognition and Presentation of
Other-Than-Temporary-Impairment. This standard (i) changes previously existing guidance for determining whether an impairment
to debt securities is other than temporary and (ii) replaces the previously existing
requirement that the entitys management assert it has both the intent and ability to hold
an impaired security until recovery with a requirement that management assert: (a) it does
not have the intent to sell the security; and (b) it is more likely than not it will not
have to sell the security before recovery of its cost basis. Under this standard, declines
in fair value below cost that are deemed to be other than temporary are reflected in
earnings as realized losses to the extent the impairment is related to credit
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Adoption of New Financial Accounting Standards (Continued)losses for both held-to-maturity and available-for-sale securities. The amount of impairment
related to other factors is recognized in other comprehensive income. These changes were
effective for interim and annual periods ended after June 15, 2009. Management adopted the
provisions of this standard on January 1, 2009 without a material impact on the Companys
financial condition or results of operations.FASB Clarifies Application of Fair Value AccountingIn April 2009, the FASB issued ASC 820-10 (previously FSP FAS 157-4), Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.This standard affirms the
objective of fair value when a market is not active, clarifies and includes additional
factors for determining whether there has been a significant decrease in market activity,
eliminates the presumption that all transactions are distressed unless proven otherwise, and
requires an entity to disclose a change in valuation technique. This standard was effective
for interim and annual periods ended after June 15, 2009. The Company adopted the
provisions of this standard on April 1, 2009 without a material impact on the Companys
financial condition or results of operations.Measuring Liabilities at Fair ValueIn August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures
(ASC Topic 820)  Measuring Liabilities at Fair Value. This update provides amendments for
the fair value measurement of liabilities. It provides clarification that in circumstances
in which a quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more techniques. It also
clarifies that when estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs relating to the existence
of a restriction that prevents the transfer of the liability. This update was effective for
the first reporting period (including interim periods) beginning after August 2009.
Management adopted the provisions of this update on October 1, 2009 without a material
impact on the Companys financial condition or results of operations.Business CombinationsIn December 2007, the FASB issued ASC Topic 805 (previously SFAS 141(R)), Business
Combinations.This standard broadens the guidance for business combinations and extends its
applicability to all transactions and other events in which one entity obtains control over
one or more other businesses. It broadens the fair value measurement and recognition of
assets acquired, liabilities assumed, and interests transferred as a result of business
combinations. The acquirer is no longer permitted to recognize a separate valuation
allowance as of the acquisition date for loans and other assets acquired in a business
combination. It also requires acquisition-related costs and restructuring costs that the
acquirer expected but was not obligated to incur to be expensed separately from the business
combination. It also expands on required disclosures to improve the ability of the users of the financial statements to evaluate the
nature and financial effects of business combinations. Management adopted these provisions
on January 1, 2009 and had no transactions that created an impact on the Companys financial
condition or result of operations.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Adoption of New Financial Accounting Standards (Continued)Subsequent EventsIn February 2010, the FASB issued ASU 2010-2009 which
amends ASC 855-10 (formerly SFAS No. 165), Subsequent Events, which establishes general standards
of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The ASU addresses certain
implementation issues related to an entity's requirement to perform and disclose subsequent-events
procedures. The ASU requires SEC filers to evaluate subsequent events through the date the
financial statements are issued and exempts SEC filers from disclosing the date through which
subsequent events have been evaluated.Accounting for Transfers of Financial AssetsIn June 2009, the FASB issued ASC Topic 860 (previously SFAS No. 166), Accounting for
Transfers of Financial Assets, an amendment of SFAS No. 140.This standard amends the
derecognition accounting and disclosure guidance included in previously issued standards.
This standard eliminates the exemption from consolidation for qualifying special-purpose
entities (SPEs) and also requires a transferor to evaluate all existing qualifying SPEs to
determine whether they must be consolidated in accordance with ASC Topic 810. This standard
also provides more stringent requirements for derecognition of a portion of a financial
asset and establishes new conditions for reporting the transfer of a portion of a financial
asset as a sale. This standard is effective as of the beginning of the first annual
reporting period that begins after November 15, 2009. Management is assessing the impact
this standard may have on the Companys financial condition and results of operations.Transfers and ServicingIn December 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-16, Transfers
and Servicing (ASC Topic 860): Accounting for Transfers of Financial Assets,which updates
the derecognition guidance in ASC Topic 860 for previously issued
SFAS No. 166. This update reflects the Boards response to issues entities have encountered when
applying ASC 860, including: (1) requires that all arrangements made in connection with a
transfer of financial assets be considered in the derecognition analysis, (2) clarifies when
a transferred asset is considered legally isolated from the transferor, (3) modifies the
requirements related to a transferees ability to freely pledge or exchange transferred
financial assets, and (4) provides guidance on when a portion of a financial asset can be
derecognized. This update is effective for financial asset transfers occurring after the
beginning of an entitys first fiscal year that begins after November 15, 2009. Early
adoption is prohibited. Management is assessing the impact of this standard on the
Companys financial condition and results of operations.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    FAIR VALUE MEASUREMENTS
 Fair Value of Financial Instruments
 The estimated fair values of the Companys financial instruments are as follows:
 December 31, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    59,493,000
    
    
    $
    59,493,000
    
    
    $
    18,791,000
    
    
    $
    18,791,000Investment securities
    
    
    87,950,000
    
    
    
    87,950,000
    
    
    
    38,374,000
    
    
    
    38,606,000Loans
    
    
    323,408,000
    
    
    
    325,589,000
    
    
    
    359,072,000
    
    
    
    363,811,000Bank owned life insurance
    
    
    10,111,000
    
    
    
    10,111,000
    
    
    
    9,766,000
    
    
    
    9,766,000Accrued interest receivable
    
    
    2,487,000
    
    
    
    2,487,000
    
    
    
    2,063,000
    
    
    
    2,063,000Financial liabilities:Deposits
    
    $
    433,255,000
    
    
    $
    433,311,000
    
    
    $
    371,493,000
    
    
    $
    371,761,000Short-term borrowings
    
    
    20,000,000
    
    
    
    20,000,000
    
    
    
    34,000,000
    
    
    
    34,000,000Long-term debt
    
    
    20,000,000
    
    
    
    19,817,000Junior subordinated deferrable
interest debentures
    
    
    10,310,000
    
    
    
    2,909,000
    
    
    
    10,310,000
    
    
    
    2,420,000Accrued interest payable
    
    
    476,000
    
    
    
    476,000
    
    
    
    487,000
    
    
    
    487,000
 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.
 The following methods and assumptions were used by management to estimate the fair value of
its financial instruments at December 31, 2009 and December 31, 2008:
 Cash and cash equivalents: For cash and cash equivalents, the carrying amount is
estimated to be fair value.
 Investment securities: For investment securities, fair values are based on quoted
market prices, where available. If quoted market prices are not available, fair values are
estimated using quoted market prices for similar securities and indications of value
provided by brokers.
 Loans: For variable-rate loans that reprice frequently with no significant change
in credit risk, fair values are based on carrying values. Fair values of loans held for
sale, if any, 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 fair value of accrued interest receivable approximates its fair value as
adjusted for accrued interest on impaired loans.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    FAIR VALUE MEASUREMENTS(Continued)
 The fair value of impaired loans is based on either the estimated fair value of underlying
collateral or estimated cash flows, discounted at the loans effective rate. Assumptions
regarding credit risk and cash flows are determined using available market information and
specific borrower information.
 Bank owned life insurance: The fair values of bank owned life insurance policies
are based on current cash surrender values at each reporting date provided by the insurers.
 Deposits: The fair values for demand deposits are, by definition, equal to the
amount payable on demand at the reporting date represented by their carrying amount. Fair
values for fixed-rate certificates of deposit are estimated using a discounted cash flow
analysis using interest rates offered at each reporting date by the Bank for certificates
with similar remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.
 Short-term borrowings: The carrying amount of the short-term borrowings
approximates its fair value.
 Long-term borrowings: The fair values for Long-term FHLB term advances are
estimated using discounted cash flow analyses, using interest rates currently being offered
at each reporting date for FHLB advances with a similar maturity.
 Junior subordinated deferrable interest debentures: The fair value of junior
subordinated deferrable interest debentures was determined based on the current market value
for like kind instruments of a similar maturity and structure.
 Commitments to extend credit and letters of credit: The fair value of commitments
are estimated using the fees currently charged to enter into similar agreements.
Commitments to extend credit are primarily for variable rate loans and letters of credit.
For these commitments, there is no significant difference between the committed amounts and
their fair values and therefore, is not included in the table above.
 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.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    FAIR VALUE MEASUREMENTS(Continued)The following tables present information about the Companys assets and liabilities measured
at fair value on a recurring and non recurring basis as of December 31, 2009, and indicates
the fair value hierarchy of the valuation techniques utilized by the Company to determine
such fair value:
 Level 1: Quoted prices for identical instruments traded in active exchange markets.
 Level 2: Quoted process for similar instruments in active markets, quoted process for
identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable or can be corroborated by
observable market data.
 Level 3: Model based techniques that use one significant assumption not observable in the
market. These unobservable assumptions reflect the Companys estimates of assumptions that
market participants would use on pricing the asset or liability. Valuation techniques
include management judgment and estimation which may be significant.
 In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, the level in the fair value hierarchy within which
the fair value measurement in its entirety falls has been determined based on the lowest
level input that is significant to the fair value measurement in its entirety. The Companys
assessment of the significance of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to the asset or liability.
 Assets and liabilities measured at fair value on a recurring basis are summarized below:
 Fair Value Measurements at December 31, 2009 UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    UnobservableTotal Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    Inputs (Level 3)Assets:Available-for-sale
securities
    
    $
    87,950,000
    
    
    $
    68,663,000
    
    
    $
    19,287,000
    
    
    $
    
  F-23




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    FAIR VALUE MEASUREMENTS(Continued)
 Fair Value Measurements at December 31, 2008 UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    UnobservableTotal Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    Inputs (Level 3)Assets:Available-for-sale
securities
    
    $
    25,807,000
    
    
    $
    13,450,000
    
    
    $
    12,357,000
    
    
    $
    
 The fair value of securities available for sale equals quoted market price, if
available. If quoted market prices are not available, fair value is determined using quoted
market prices for similar securities. There were no changes in the valuation techniques used
during 2009 or 2008. Changes in fair market value are recorded in other comprehensive
income.
 Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
 Fair Value Measurements at December 31, 2009 UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsTotal Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Impaired
loans
    
    $
    9,435,000
    
    
    $
    
    
    
    $
    9,435,000
    
    
    $
    Other real estate
    
    
    11,204,000
    
    
    
    
    
    
    
    11,204,000
    
    
    
    $
    20,639,000
    
    
    $
    
    
    
    $
    20,639,000
    
    
    $
    
 Fair Value Measurements at December 31, 2008 UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsTotal Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Impaired
loans
    
    $
    19,125,000
    
    
    $
    
    
    
    $
    19,125,000
    
    
    $
    Other real estate
    
    
    4,148,000
    
    
    
    
    
    
    
    4,148,000
    
    
    
    $
    23,273,000
    
    
    $
    
    
    
    $
    23,273,000
    
    
    $
    
  F-24




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    FAIR VALUE MEASUREMENTS(Continued)
 The following methods were used to estimate the fair value of each class of assets above.
 Impaired Loans: The fair value of impaired loans is based on the fair value of the
collateral as they are virtually all collateral dependent loans. These loans had a principal
balance of $13,716,000 with a related valuation allowance of $4,281,000 at December 31,
2009. There were no changes in the valuation techniques used during 2009. During the year
ended December 31, 2009, declines in the collateral values of impaired loans held as of
December 31, 2009 were $5.1 million and are reflected as additional specific allocations of
the allowance for loan losses and/or partial charge-offs of the impaired loan. During the
year ended December 31, 2008, declines in the collateral values of impaired loans held as of
December 31, 2008 were $2.8 million and are reflected as additional specific allocations of
the allowance for loan losses.
 Other Real Estate: The fair value of other real estate is based on property
appraisals at the time of transfer and as appropriate thereafter, less estimated costs to
sell. Estimated costs to sell other real estate were based on standard market factors.
Management periodically reviews other real estate to determine whether the property
continues to be carried at the lower of its recorded book value or estimated fair value, net
of estimated costs to sell. During the years ended December 31, 2009 and 2008, declines in
the collateral values of other real estate during 2009 and 2008 totaled $4.5 million and
$0.6 million, respectively and are reflected in the provision for losses on other real
estate.
  F-25




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.
    
    INVESTMENT SECURITIES
 The amortized cost and estimated fair value of investment securities at December 31, 2009
and 2008 consisted of the following:
 Available-for-Sale
 2009Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Treasury securities
    
    $
    1,059,000
    
    
    
    
    
    
    $
    (7,000
    )
    
    $
    1,052,000U.S. Government agencies
    
    
    55,520,000
    
    
    $
    420,000
    
    
    
    (51,000
    )
    
    
    55,889,000U.S. Government agencies
collateralized by mortgage
obligations
    
    
    18,925,000
    
    
    
    362,000
    
    
    
    
    
    
    
    19,287,000Obligations of states and
political subdivisions
    
    
    11,387,000
    
    
    
    360,000
    
    
    
    (25,000
    )
    
    
    11,722,000$
    86,891,000
    
    
    $
    1,142,000
    
    
    $
    (83,000
    )
    
    $
    87,950,000
 Net unrealized gains on available-for-sale investment securities totaling $1,059,000
were recorded, net of $437,000 in tax expense, as accumulated other comprehensive income
within shareholders equity at December 31, 2009. During 2009 we sold one available-for sale
security for $86,000, recording a $1,000 gain on sale.
 2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Treasury securities
    
    $
    1,498,000
    
    
    $
    10,000
    
    
    
    
    
    
    $
    1,508,000U.S. Government agencies
    
    
    10,001,000
    
    
    
    391,000
    
    
    
    
    
    
    
    10,392,000U.S. Government agencies
collateralized by mortgage
obligations
    
    
    12,183,000
    
    
    
    189,000
    
    
    $
    (15,000
    )
    
    
    12,357,000Corporate debt securities
    
    
    1,585,000
    
    
    
    1,000
    
    
    
    (36,000
    )
    
    
    1,550,000$
    25,267,000
    
    
    $
    591,000
    
    
    $
    (51,000
    )
    
    $
    25,807,000
 Net unrealized gains on available-for-sale investment securities totaling $540,000 were
recorded, net of $223,000 in tax expense, as accumulated other comprehensive income within
shareholders equity at December 31, 2008. There were no sales of available-for-sale
investment securities during the years ended December 31, 2008 or 2007.
  F-26




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.
    
    INVESTMENT SECURITIES(Continued)
 Available-for-Sale (Continued)
 During 2008 the Banks investment securities included a $500,000 corporate debt security
issued by Lehman Brothers Holdings Inc., which filed for Chapter 11 bankruptcy on September
15, 2008. Due to the significant decline in the price of this security following the
bankruptcy filing, the Bank recorded an other than temporary impairment write down of
$415,000. This security was sold during 2009.
 Held-to-Maturity
 Related to a significant deterioration in creditworthiness, during 2009 we sold five held-to
maturity securities for $943,000, recording a $9,000 gain on sale. At December 31, 2009 the
Company transferred all of its obligations of states and political subdivisions from
held-to-maturity to available-for-sale as it was determined that management no longer had
the intent to hold these investments to maturity. At the time of the transfer these
securities had an amortized cost of $11,387,000 and a fair value of $11,722,000. There were
no sales or transfers of held-to-maturity investment securities during the years ended
December 31, 2008 or 2007.
 2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:Obligations of states and
political subdivisions
    
    $
    12,567,000
    
    
    $
    278,000
    
    
    $
    (46,000
    )
    
    $
    12,799,000
 Investment securities with unrealized losses at December 31, 2009 are summarized and
classified according to the duration of the loss period as follows:
 Less than 12 MonthsFair
    
    
    UnrealizedValue
    
    
    LossesDebt securities:U.S. Treasury securities
    
    $
    1,052,000
    
    
    $
    7,000U.S. Government agencies
    
    
    10,787,000
    
    
    
    51,000Obligations of states and political subdivisions
    
    
    1,208,000
    
    
    
    25,000$
    13,047,000
    
    
    $
    83,000
 There were no securities in a loss position for more than one year as December 31,
2009.
  F-27




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.
    
    INVESTMENT SECURITIES(Continued)
 Investment securities with unrealized losses at December 31, 2008 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:Obligations of states
and political subdivisions
    
    $
    1,366,000
    
    
    $
    39,000
    
    
    $
    809,000
    
    
    $
    7,000
    
    
    $
    2,175,000
    
    
    $
    46,000U.S. Government
agencies collateralized by mortgage
obligations
    
    
    
    
    
    
    
    
    
    
    3,419,000
    
    
    
    15,000
    
    
    
    3,419,000
    
    
    
    15,000Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    1,050,000
    
    
    
    36,000
    
    
    
    1,050,000
    
    
    
    36,000$
    1,366,000
    
    
    $
    39,000
    
    
    $
    5,278,000
    
    
    $
    58,000
    
    
    $
    6,644,000
    
    
    $
    97,000
 At December 31, 2009, the Company held 121 securities of which 16 were in a loss
position. Of the securities in a loss position, all were in a loss position for less than
twelve months. Of the 16 securities 1 is a U. S. Treasury, 10 are U.S. government agencies
and 5 are obligations of states and political subdivisions. The unrealized losses relate
principally to market rate conditions. All of the securities continue to pay as scheduled.
When analyzing an issuers financial condition, management considers the length of time and
extent to which the market value has been less than cost; the historical and implied
volatility of the security; the financial condition of the issuer of the security; and the
Companys intent and ability to hold the security to recovery. As of December 31, 2009,
management does not have the intent to sell these securities nor does it believe it is more
likely than not that it will be required to sell these securities before the recovery of its
amortized cost basis. Based on the Companys evaluation of the above and other relevant
factors, the Company does not believe the securities that are in an unrealized loss position
as of December 31, 2009 are other than temporarily impaired.
 The amortized cost and estimated fair value of investment securities at December 31, 2009 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.
 EstimatedAmortized
    
    
    FairCost
    
    
    ValueAfter one year through five years
    
    $
    60,178,000
    
    
    $
    60,666,000After five years through ten years
    
    
    7,788,000
    
    
    
    7,997,00067,966,000
    
    
    
    68,663,000Investment securities not due at a single maturity date:Government-guaranteed mortgage-backed securities
    
    
    18,925,000
    
    
    
    19,287,000$
    86,891,000
    
    
    $
    87,950,000
 Investment securities with amortized costs totaling $72,154,000 and $36,249,000 and
estimated fair values totaling $73,254,000 and $37,056,000 at December 31, 2009 and 2008,
respectively, were pledged to secure deposits, including public deposits and treasury, tax
and loan accounts.
  F-28




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5.
    
    LOANS AND THE ALLOWANCE FOR LOAN LOSSES
 Outstanding loans are summarized below:
 December 31,2009
    
    
    2008Commercial
    
    $
    37,056,000
    
    
    $
    42,528,000Agricultural
    
    
    41,722,000
    
    
    
    36,020,000Real estate  mortgage
    
    
    161,397,000
    
    
    
    151,943,000Real estate  construction and land
development
    
    
    38,061,000
    
    
    
    73,820,000Installment
    
    
    54,442,000
    
    
    
    61,706,000332,678,000
    
    
    
    366,017,000Deferred loan costs, net
    
    
    298,000
    
    
    
    279,000Allowance for loan losses
    
    
    (9,568,000
    )
    
    
    (7,224,000
    )$
    323,408,000
    
    
    $
    359,072,000
 Changes in the allowance for loan losses were as follows:
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Balance, beginning of year
    
    $
    7,224,000
    
    
    $
    4,211,000
    
    
    $
    3,917,000Provision charged to operations
    
    
    14,500,000
    
    
    
    4,600,000
    
    
    
    800,000Losses charged to allowance
    
    
    (12,500,000
    )
    
    
    (1,783,000
    )
    
    
    (786,000
    )Recoveries
    
    
    344,000
    
    
    
    196,000
    
    
    
    280,000Balance, end of year
    
    $
    9,568,000
    
    
    $
    7,224,000
    
    
    $
    4,211,000
 The recorded investment in impaired loans totaled $19,228,000 and $26,444,000 at December
31, 2009 and 2008, respectively. The Company had specific allowances for loan losses of
$4,281,000 on impaired loans of $13,716,000 at December 31, 2009 as compared to specific
allowances for loan losses of $3,132,000 on impaired loans of $19,125,000 at December 31,
2008. The average recorded investment in impaired loans for the years ended December 31,
2009, 2008 and 2007 was $25,092,000, $5,243,000 and $1,736,000, respectively. The Company
recognized $369,000, $74,000 and $118,000 in interest income on a cash basis for impaired
loans during the years ended December 31, 2009, 2008 and 2007, respectively.Included in impaired loans are troubled debt restructurings. A troubled debt restructuring
is a formal restructure of a loan where the Company for economic or legal reasons related to
the borrowers financial difficulties, grants a concession to the borrower. The concessions
may be granted in various forms, including reduction in the standard interest rate,
reduction in the loan balance or accrued interest, and extension of the maturity date.
  F-29




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5.
    
    LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
 At December 31, 2009 and 2008, nonaccrual loans totaled $14,263,000 and $26,444,000,
respectively. Interest foregone on nonaccrual loans totaled $568,000, $576,000 and $161,000
for the years ended December 31, 2009, 2008 and 2007, respectively. Loans past due 90 days
or more and on accrual status were $28,000 and $297,000 at December 31, 2009 and 2008,
respectively.Salaries and employee benefits totaling $708,000, $868,000 and $753,000 have been deferred
as loan origination costs during the years ended December 31, 2009, 2008 and 2007,
respectively.Servicing Assets and Interest-Only Strips ReceivableThe Company serviced government guaranteed loans for others totaling $18,512,000, $8,920,000
and 5,300,000 as of December 31, 2009, 2008 and 2007, respectively.A summary of the related servicing assets and interest-only strips receivable are as
follows:
 Year Ended December 31,Servicing Assets:
    
    2009
    
    
    2008
    
    
    2007Balance at beginning of year
    
    $
    108,000
    
    
    $
    76,000
    
    
    $
    69,000Increase from loan sales
    
    
    176,000
    
    
    
    62,000
    
    
    
    24,000Amortization charged to income
    
    
    (35,000
    )
    
    
    (30,000
    )
    
    
    (17,000
    )Balance at end of year
    
    $
    249,000
    
    
    $
    108,000
    
    
    $
    76,000
 Interest-Only Strips Receivable:
    
    2009
    
    
    2008
    
    
    2007Balance at beginning of year
    
    $
    213,000
    
    
    $
    247,000
    
    
    $
    238,000Increase from loan sales
    
    
    
    
    
    
    46,000
    
    
    
    68,000Amortization charged to income
    
    
    (54,000
    )
    
    
    (80,000
    )
    
    
    (59,000
    )Balance at end of year
    
    $
    159,000
    
    
    $
    213,000
    
    
    $
    247,000
 At December 31, 2009, 2008, and 2007, the Company had interest-only strips of $159,000,
$213,000, and $247,000, respectively, which approximates fair value. There were no
significant gains or losses recognized on the interest-only strips for the years ended
December 31, 2009, 2008 and 2007.
  F-30




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6.
    
    PREMISES AND EQUIPMENT
 Premises and equipment consisted of the following:
 December 31,2009
    
    
    2008Land
    
    $
    2,377,000
    
    
    $
    2,397,000Premises
    
    
    14,220,000
    
    
    
    14,220,000Furniture, equipment and leasehold improvements
    
    
    10,108,000
    
    
    
    9,912,00026,705,000
    
    
    
    26,529,000Less accumulated depreciation
and amortization
    
    
    (12,161,000
    )
    
    
    (10,765,000
    )$
    14,544,000
    
    
    $
    15,764,000
 Depreciation and amortization included in occupancy and equipment expense totaled
$1,756,000, $1,769,000 and $1,897,000 for the years ended December 31, 2009, 2008 and 2007,
respectively.
 7.
    
    DEPOSITS
 Interest-bearing deposits consisted of the following:
 December 31,2009
    
    
    2008Interest-bearing demand deposits
    
    $
    106,083,000
    
    
    $
    72,589,000Money market
    
    
    44,239,000
    
    
    
    39,225,000Savings
    
    
    48,304,000
    
    
    
    48,604,000Time, $100,000 or more
    
    
    55,003,000
    
    
    
    36,179,000Other time
    
    
    67,668,000
    
    
    
    62,113,000$
    321,297,000
    
    
    $
    258,710,000
  F-31




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 7.
    
    DEPOSITS(Continued)At December 31, 2009, the scheduled maturities of time deposits were as follows:
 Year Ending December 31,2010
    
    $
    75,549,0002011
    
    
    42,916,0002012
    
    
    2,903,0002013
    
    
    757,0002014
    
    
    515,000Thereafter
    
    
    31,000$
    122,671,000
 At December 31, 2009, the contractual maturities of time deposits with a denomination of
$100,000 and over were as follows: $13,031,000 in 3 months or less, $7,729,000 over 3 months
through 6 months, $9,881,000 over 6 months through 12 months, and $24,362,000 over 12
months.
 Deposit overdrafts reclassified as loan balances were $328,000 and $484,000 at December 31,
2009 and 2008, respectively.
 8.
    
    BORROWING ARRANGEMENTS
 The Company has a secured short-term borrowing arrangement with one of its correspondent
banks in the amount of $5,000,000. No borrowings were outstanding under this arrangement at
December 31, 2009 or 2008. In addition, the Company has the ability to secure advances
through the Federal Reserve Bank of San Francisco discount window. These advances also must
be collateralized.
 The Company is a member of the FHLB and can borrow up to $82,056,000 from the FHLB secured
by commercial and residential mortgage loans with carrying values totaling $231,492,000. The
Company is required to hold FHLB stock as a condition of membership. At December 31, 2009,
the Company held $1,933,000 of FHLB stock which is recorded as a component of other assets.
At this level of stock holdings the Company can borrow up to $41,132,000. Total borrowings
at December 31, 2009 from the FHLB were $40,000,000 consisting of both short-term and
long-term FHLB advances. To borrow the $82,056,000 in available credit the Company would
need to purchase $1,924,000 in additional FHLB stock.
 Short-term borrowings at December 31, 2009 consisted of a $20,000,000 FHLB advance at
0.47% which matured and was repaid on January 19, 2010. At December 31, 2008 short-term
borrowings consisted of a one day $34,000,000 FHLB advance with an interest rate of 0.05%.
  F-32




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8.
    
    BORROWING ARRANGEMENTS(Continued)
 Long-term borrowings at December 31, 2009 consisted of two $10,000,000 FHLB advances. The
first advance matures on November 23, 2011 and bears interest at 1.00%. The second advance
matures on November 23, 2012 and bears interest at 1.60%. Interest rates on both advances
are fixed until maturity.
 9.
    
    JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
 Plumas Statutory Trust I and II are Connecticut business trusts formed by the Company with
capital of $247,000 and $140,000, respectively, for the sole purpose of issuing trust
preferred securities fully and unconditionally guaranteed by the Company. Under applicable
regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1
capital is limited to twenty-five percent of the Companys Tier 1 capital, as defined, on a
pro forma basis. At December 31, 2009, all of the trust preferred securities that have been
issued qualify as Tier 1 capital.
 During 2002, Plumas Statutory Trust I issued 6,000 Floating Rate Capital Trust Pass-Through
Securities (Trust Preferred Securities), with a liquidation value of $1,000 per security,
for gross proceeds of $6,000,000. During 2005, Plumas Statutory Trust II issued 4,000 Trust
Preferred Securities with a liquidation value of $1,000 per security, for gross proceeds of
$4,000,000. The entire proceeds were invested by Trust I in the amount of $6,186,000 and
Trust II in the amount of $4,124,000 in Floating Rate Junior Subordinated Deferrable
Interest Debentures (the Subordinated Debentures) issued by the Company, with identical
maturity, repricing and payment terms as the Trust Preferred Securities. The Subordinated
Debentures represent the sole assets of Trusts I and II.
 Trust Is Subordinated Debentures mature on September 26, 2032, bear a current interest rate
of 3.65% (based on 3-month LIBOR plus 3.40%), with repricing and payments due quarterly.
Trust IIs Subordinated Debentures mature on September 28, 2035, bear a current interest
rate of 1.73% (based on 3-month LIBOR plus 1.48%), with repricing and payments due
quarterly. The Subordinated Debentures are redeemable by the Company, subject to receipt by
the Company of prior approval from the Federal Reserve Board of Governors, on any quarterly
anniversary date on or after the 5-year anniversary date of the issuance. The redemption
price is par plus accrued and unpaid interest, except in the case of redemption under a
special event which is defined in the debenture. The Trust Preferred Securities are subject
to mandatory redemption to the extent of any early redemption of the Subordinated Debentures
and upon maturity of the Subordinated Debentures on September 26, 2032 for Trust I and
September 28, 2035 for Trust II.
 Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on
the liquidation amount of $1,000 per security. The interest rate of the Trust Preferred
Securities issued by Trust I adjust on each quarterly anniversary date to equal the 3-month
LIBOR plus 3.40%. The Trust Preferred Securities issued by Trust II adjust on
each quarterly anniversary date to equal the 3-month LIBOR plus 1.48%. Both Trusts I and II
have the option to defer payment of the distributions for a period of up to five
  F-33




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES (Continued)
 years, as long as the Company is not in default on the payment of interest on the
Subordinated Debentures. The Trust Preferred Securities were sold and issued in private
transactions pursuant to an exemption from registration under the Securities Act of 1933, as
amended. The Company has guaranteed, on a subordinated basis, distributions and other
payments due on the Trust Preferred Securities.
 Interest expense recognized by the Company for the years ended December 31, 2009, 2008 and
2007 related to the subordinated debentures was $371,000, $623,000 and $835,000,
respectively.
 10.
    
    COMMITMENTS AND CONTINGENCIES
 Leases
 The Company has commitments for leasing premises under the terms of noncancelable operating
leases expiring from 2010 to 2018. Future minimum lease payments are as follows:
 Year Ending December 31,2010
    
    $
    265,0002011
    
    
    234,0002012
    
    
    234,0002013
    
    
    158,0002014
    
    
    143,000Thereafter
    
    
    465,000$
    1,499,000
 Rental expense included in occupancy and equipment expense totaled $317,000, $347,000 and
$209,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
 Financial Instruments With Off-Balance-Sheet Risk
 The 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-34




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    COMMITMENTS AND CONTINGENCIES(Continued)
 The following financial instruments represent off-balance-sheet credit risk:
 December 31,2009
    
    
    2008Commitments to extend credit
    
    $
    67,258,000
    
    
    $
    78,787,000Letters of credit
    
    $
    304,000
    
    
    $
    534,000
 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, 2009 and 2008. The
Company recognizes these fees as revenues over the term of the commitment or when the
commitment is used.
 At December 31, 2009, consumer loan commitments represent approximately 15% of total
commitments and are generally unsecured. Commercial and agricultural loan commitments
represent approximately 34% of total commitments and are generally secured by various assets
of the borrower. Real estate loan commitments, including consumer home equity lines of
credit, represent the remaining 51% 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 Risk
 The 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 in California and Washoe county in Northern Nevada.
  F-35




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    COMMITMENTS AND CONTINGENCIES(Continued)
 Concentrations of Credit Risk (Continued)
 Although the Company has a diversified loan portfolio, a substantial portion of its
portfolio is secured by commercial and residential real estate. A continued substantial
decline in the economy in general, or a continued decline in real estate values in the
Companys primary market areas in particular, could have an adverse impact on the
collectibility of these loans. However, personal and business income represent the primary
source of repayment for a majority of these loans.
 Contingencies
 The Company is subject to legal proceedings and claims which arise in the ordinary course of
business. In the opinion of management, the amount of ultimate liability with respect to
such actions will not materially affect the financial position or results of operations of
the Company.
 11.
    
    SHAREHOLDERS EQUITY
 Dividend Restrictions
 The 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 (DFI), 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, 2009, the bank was restricted, without prior
approval from the DFI, from paying cash dividends to the Company under this restriction. In
addition the Companys ability to pay dividends is subject to certain covenants contained in
the indentures relating to the Trust Preferred Securities issued by the business trusts (see
Note 9).
 As describe below, dividends on common stock are also limited related to the Companys
participation in the Capital Purchase Program.
  F-36




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11.
    
    SHAREHOLDERS EQUITY(Continued)
 Preferred Stock
 On January 30, 2009 the Company entered into a Letter Agreement (the Purchase Agreement)
with the United States Department of the Treasury (Treasury), pursuant to which the
Company issued and sold (i) 11,949 shares of the Companys Fixed Rate Cumulative Perpetual
Preferred Stock, Series A (the Series A Preferred Stock) and (ii) a warrant (the
Warrant) to purchase 237,712 shares of the Companys common stock, no par value (the
Common Stock), for an aggregate purchase price of $11,949,000 in cash.
 The Series A Preferred Stock qualifies as Tier 1 capital and will pay cumulative dividends
quarterly at a rate of 5% per annum for the first five years, and 9% per annum thereafter.
The Company may redeem the Series A Preferred Stock at its liquidation preference ($1,000
per share) plus accrued and unpaid dividends under the American Recovery and Reinvestment
Act of 2009, subject to the Treasurys consultation with the Companys appropriate federal
regulator.
 The Warrant has a 10-year term and is exercisable, with an exercise price, subject to
antidilution adjustments, equal to $7.54 per share of the Common Stock. Treasury has agreed
not to exercise voting power with respect to any shares of Common Stock issued upon exercise
of the Warrant.
 The Series A Preferred Stock and the Warrant were issued in a private placement exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. The
Treasury can request the Company to register the Series A Preferred Stock, the Warrant and
the shares of Common Stock underlying the Warrant (the Warrant Shares). Neither the Series
A Preferred Stock nor the Warrant will be subject to any contractual restrictions on
transfer, except that Treasury may only transfer or exercise an aggregate of one-half of the
Warrant Shares prior to the earlier of the redemption of 100% of the shares of Series A
Preferred Stock or December 31, 2009.
 In the Purchase Agreement, the Company agreed that, until such time as Treasury ceases to
own any debt or equity securities of the Company acquired pursuant to the Purchase
Agreement, the Company will take all necessary action to ensure that its benefit plans with
respect to its senior executive officers comply with Section 111(b) of the Emergency
Economic Stabilization Act of 2008 (the EESA) as implemented by any guidance or regulation
under the EESA that has been issued and is in effect as of the date of issuance of the
Series A Preferred Stock and the Warrant, and has agreed to not adopt any benefit plans with
respect to, or which covers, its senior executive officers that do not comply with the EESA,
and the applicable executives have consented to the foregoing. Furthermore, the Purchase
Agreement allows Treasury to unilaterally amend the terms of the agreement.
 With respect to dividends on the Companys common stock, Treasurys consent shall be
required for any increase in common dividends per share until the third anniversary of
the date of its investment unless prior to such third anniversary the Series A Preferred
Stock is redeemed in whole or the Treasury has transferred all of the Senior Preferred
Series A Preferred Stock to third parties. Furthermore, with respect to dividends on
certain other series of preferred stock, restrictions from Treasury may apply. The Company
does not have any outstanding preferred stock other than the Series A Preferred Stock
discussed above.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11.
    
    SHAREHOLDERS EQUITY(Continued)
 Preferred Stock (Continued)
 The Company allocated the proceeds received on January 30, 2009 between the Series A
Preferred Stock and the Warrant based on the estimated relative fair value of each. The
fair value of the Warrant was estimated based on a Black-Scholes-Merton model and totaled
$320,000. The discount recorded on the Series A Preferred Stock was based on a discount
rate of 12% and will be amortized by the level-yield method over 5 years. Discount
accretion for the year ended December 31, 2009 totaled $79,000.
 Earnings Per Share
 Basic earnings per share is computed by dividing income (loss) available to common
shareholders by the weighted average number of common shares outstanding for the period.
Diluted earnings per share 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 earnings
per share.
 For the Year Ended December 31,(In thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2007Net Income (loss):Net income (loss)
    
    $
    (9,146
    )
    
    $
    304
    
    
    $
    4,223Dividends accrued and discount accreted on
preferred shares
    
    
    (628
    )
    
    
    
    
    
    
    Net income (loss) available to common shareholders
    
    $
    (9,774
    )
    
    $
    304
    
    
    $
    4,223Earnings (loss) Per Share:Basic earnings (loss) per share
    
    $
    (2.05
    )
    
    $
    0.06
    
    
    $
    0.85Diluted earnings (loss) per share
    
    $
    (2.05
    )
    
    $
    0.06
    
    
    $
    0.84Weighted Average Number of Shares Outstanding:Basic shares
    
    
    4,776
    
    
    
    4,817
    
    
    
    4,963Diluted shares
    
    
    4,776
    
    
    
    4,835
    
    
    
    5,005
 Included in diluted shares were dilutive stock options totaling 18,022 and 41,957 for
the years ended December 31, 2008 and 2007, respectively.
 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. When a net loss occurs, no difference
in earnings per share is calculated because the conversion of potential common stock is
anti-dilutive. Stock options not included in the computation of diluted earnings per share,
due to their antidilutive effect, were 394,000 and 215,000 for the years ended December 31,
2008 and 2007, respectively.
  F-38




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11.
    
    SHAREHOLDERS EQUITY(Continued)
 Stock Options
 In 2001 and 1991, the Company established Stock Option Plans for which 873,185 shares
of common stock remain reserved for issuance to employees and directors and 469,219 shares
are available for future grants under incentive and nonstatutory agreements as of December
31, 2009. 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 Plans do not provide for the
settlement of awards in cash and new shares are issued upon option exercise. 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 combined activity within the Plans follows:
 WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    ContractualShares
    
    
    Price
    
    
    Term
    
    
    Intrinsic ValueOptions outstanding at January 1, 2007
    
    
    290,914
    
    
    $
    11.62Options granted
    
    
    155,700
    
    
    
    16.37Options exercised
    
    
    (19,292
    )
    
    
    7.47Options cancelled
    
    
    (31,550
    )
    
    
    15.69Options outstanding at December 31, 2007
    
    
    395,772
    
    
    $
    13.37Options granted
    
    
    90,300
    
    
    
    12.40Options exercised
    
    
    (12,476
    )
    
    
    5.38Options cancelled
    
    
    (6,640
    )
    
    
    14.30Options outstanding at December 31, 2008
    
    
    466,956
    
    
    $
    13.38Options exercised
    
    
    (1,000
    )
    
    
    5.43Options cancelled
    
    
    (61,990
    )
    
    
    12.38Options outstanding at December 31, 2009
    
    
    403,966
    
    
    $
    13.56
    
    
    
    4.7
    
    
    $
    Options exercisable at December 31, 2009
    
    
    270,797
    
    
    $
    13.11
    
    
    
    4.3
    
    
    $
    Expected to vest after December 31, 2009
    
    
    115,996
    
    
    $
    14.47
    
    
    
    5.7
    
    
    $
    
 As of December 31, 2009, there was $297,000 of total unrecognized compensation cost related
to non-vested share-based compensation arrangements granted under the 2001 Plan. That cost
is expected to be recognized over a weighted average period of 1.5 years.
 The total fair value of options vested was $237,000 for the year ended December 31,
2009.The total intrinsic value of options at time of exercise was $1,000, $56,000 and
$132,000 for the years ended December 31, 2009, 2008, and 2007, respectively.
 Cash received from option exercise for the years ended December 31, 2009, 2008, and 2007,
was $5,000, $68,000 and $73,000, respectively. There was no tax benefit realized for
the tax deduction from options exercised in 2009 or 2008. The tax benefit realized for the
tax deductions from option exercise totaled $9,000 for the year ended December 31, 2007.
  F-39




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11.
    
    SHAREHOLDERS EQUITY(Continued)
 Regulatory Capital
 The Company and the Bank are subject to certain regulatory capital requirements
administered by the Board of Governors of the Federal Reserve System and the Federal
Deposit Insurance Corporation (FDIC). Failure to meet these minimum capital requirements
can initiate certain mandatory and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the Companys consolidated
financial statements.
 Under capital adequacy guidelines, the Company and the Bank must meet specific capital
guidelines that involved quantitative measures of their assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. These
quantitative measures are established by regulation accounting practices. These
quantitative measures are established by regulation and require that minimum amounts and
ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average
assets be maintained. Capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
 The Bank is also subject to additional capital guidelines under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Bank must
maintain total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the
table on the following page. The most recent notification from the FDIC categorized the
Bank as well capitalized under these guidelines. There are no conditions or events since
that notification that management believes have changed the Banks category.
 Management believes that the Company and the Bank met all their capital adequacy
requirements as of December 31, 2009 and 2008.
  F-40




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11.
    
    SHAREHOLDERS EQUITY(Continued)
 Regulatory Capital (Continued)
 December 31,2009
    
    
    2008Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioLeverage RatioPlumas Bancorp and Subsidiary
    
    $
    40,564,000
    
    
    
    7.9
    %
    
    $
    43,885,000
    
    
    
    9.8
    %Minimum regulatory requirement
    
    $
    20,652,000
    
    
    
    4.0
    %
    
    $
    17,907,000
    
    
    
    4.0
    %Plumas Bank
    
    $
    38,172,000
    
    
    
    7.4
    %
    
    $
    43,372,000
    
    
    
    9.7
    %Minimum requirement for Well-
Capitalized institution under the
prompt corrective action plan
    
    $
    25,848,000
    
    
    
    5.0
    %
    
    $
    22,365,000
    
    
    
    5.0
    %Minimum regulatory requirement
    
    $
    20,678,000
    
    
    
    4.0
    %
    
    $
    17,892,000
    
    
    
    4.0
    %Tier 1 Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    $
    40,564,000
    
    
    
    10.4
    %
    
    $
    43,885,000
    
    
    
    11.0
    %Minimum regulatory requirement
    
    $
    15,641,000
    
    
    
    4.0
    %
    
    $
    16,021,000
    
    
    
    4.0
    %Plumas Bank
    
    $
    38,172,000
    
    
    
    9.8
    %
    
    $
    43,372,000
    
    
    
    10.8
    %Minimum requirement for Well-
Capitalized institution under the
prompt corrective action plan
    
    $
    23,433,000
    
    
    
    6.0
    %
    
    $
    23,996,000
    
    
    
    6.0
    %Minimum regulatory requirement
    
    $
    15,622,000
    
    
    
    4.0
    %
    
    $
    15,997,000
    
    
    
    4.0
    %Total Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    $
    45,512,000
    
    
    
    11.6
    %
    
    $
    48,919,000
    
    
    
    12.2
    %Minimum regulatory requirement
    
    $
    31,281,000
    
    
    
    8.0
    %
    
    $
    32,042,000
    
    
    
    8.0
    %Plumas Bank
    
    $
    43,113,000
    
    
    
    11.0
    %
    
    $
    48,399,000
    
    
    
    12.1
    %Minimum requirement for Well-
Capitalized institution under the
prompt corrective action plan
    
    $
    39,056,000
    
    
    
    10.0
    %
    
    $
    39,994,000
    
    
    
    10.0
    %Minimum regulatory requirement
    
    $
    31,244,000
    
    
    
    8.0
    %
    
    $
    31,995,000
    
    
    
    8.0
    %
 Share Repurchase Plan
 On January 22, 2007 the Board of Directors approved a stock repurchase plan authorizing
the purchase of up to 250,000 shares of the Companys common stock, or approximately 5% of
the outstanding shares as of that date. The repurchase plan was authorized through December
31, 2007. During 2007 the Company repurchased 168,737 shares at an average price of $14.22
for a total cost of $2,400,000.
  F-41




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11.
    
    SHAREHOLDERS EQUITY(Continued)
 Share Repurchase Plan (Continued)
 On December 20, 2007 the Company announced that for 2008 the Board of Directors authorized
a common stock repurchase plan for up to 244,000 shares, or 5% of the Companys shares
outstanding on December 20, 2007. The repurchase plan was authorized through December 31,
2008. During 2008 the Company repurchased 106,267 shares at an average price of $11.45 for
a total cost of $1,217,000. The Board of Directors did not reauthorize the repurchase plan
in 2009.
 12.
    
    OTHER EXPENSES
 Other expenses consisted of the following:
 Year Ended December 31,2009
    
    
    2008
    
    
    2007FDIC Insurance
    
    $
    1,125,000
    
    
    $
    258,000
    
    
    $
    48,000Outside service fees
    
    
    892,000
    
    
    
    735,000
    
    
    
    671,000Professional fees
    
    
    789,000
    
    
    
    688,000
    
    
    
    738,000Loan collection expenses
    
    
    399,000
    
    
    
    205,000
    
    
    
    154,000Telephone and data communications
    
    
    392,000
    
    
    
    400,000
    
    
    
    362,000OREO expenses
    
    
    370,000
    
    
    
    175,000
    
    
    
    38,000Business development
    
    
    333,000
    
    
    
    467,000
    
    
    
    530,000Advertising and promotion
    
    
    327,000
    
    
    
    448,000
    
    
    
    520,000Director compensation and retirement
    
    
    293,000
    
    
    
    323,000
    
    
    
    349,000Armored car and courier
    
    
    281,000
    
    
    
    289,000
    
    
    
    279,000Postage
    
    
    207,000
    
    
    
    208,000
    
    
    
    242,000Stationery and supplies
    
    
    183,000
    
    
    
    236,000
    
    
    
    278,000Core deposit intangible amortization
    
    
    173,000
    
    
    
    216,000
    
    
    
    301,000Loss on sale of other real estate
    
    
    158,000Insurance
    
    
    142,000
    
    
    
    235,000
    
    
    
    177,000Other operating expenses
    
    
    677,000
    
    
    
    252,000
    
    
    
    232,000$
    6,741,000
    
    
    $
    5,135,000
    
    
    $
    4,919,000
 13.
    
    INCOME TAXES
 The (benefit from) provision for income taxes for the years ended December 31, 2009, 2008
and 2007 consisted of the following:
 Federal
    
    
    State
    
    
    Total2009Current
    
    $
    (2,803,000
    )
    
    $
    (120,000
    )
    
    $
    (2,923,000
    )Deferred
    
    
    (2,122,000
    )
    
    
    (1,730,000
    )
    
    
    (3,852,000
    )Benefit from income
taxes
    
    $
    (4,925,000
    )
    
    $
    (1,850,000
    )
    
    $
    (6,775,000
    )
  F-42




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13.
    
    INCOME TAXES(Continued)
 Federal
    
    
    State
    
    
    Total2008Current
    
    $
    788,000
    
    
    $
    459,000
    
    
    $
    1,247,000Deferred
    
    
    (1,002,000
    )
    
    
    (457,000
    )
    
    
    (1,459,000
    )(Benefit from) provision for income
taxes
    
    $
    (214,000
    )
    
    $
    2,000
    
    
    $
    (212,000
    )
 Federal
    
    
    State
    
    
    Total2007Current
    
    $
    2,374,000
    
    
    $
    915,000
    
    
    $
    3,289,000Deferred
    
    
    (587,000
    )
    
    
    (200,000
    )
    
    
    (787,000
    )Provision for income taxes
    
    $
    1,787,000
    
    
    $
    715,000
    
    
    $
    2,502,000
 Deferred tax assets (liabilities) consisted of the following:
 December 31,2009
    
    
    2008Deferred tax assets:Allowance for loan losses
    
    $
    2,838,000
    
    
    $
    2,635,000NOL carryovers
    
    
    1,353,000Deferred compensation
    
    
    1,588,000
    
    
    
    1,572,000Core deposit premium
    
    
    266,000
    
    
    
    278,000OREO valuation allowance
    
    
    2,066,000
    
    
    
    254,000Future benefit for state income tax deduction
    
    
    
    
    
    
    145,000Other
    
    
    427,000
    
    
    
    84,000Total deferred tax assets
    
    
    8,538,000
    
    
    
    4,968,000Deferred tax liabilities:Prepaid costs
    
    
    (95,000
    )
    
    
    (107,000
    )Deferred loan costs
    
    
    (782,000
    )
    
    
    (866,000
    )Premises and equipment
    
    
    (135,000
    )
    
    
    (319,000
    )Unrealized gain on available-for-sale
investment securities
    
    
    (436,000
    )
    
    
    (223,000
    )Other
    
    
    (174,000
    )
    
    
    (174,000
    )Total deferred tax liabilities
    
    
    (1,622,000
    )
    
    
    (1,689,000
    )Net deferred tax assets
    
    $
    6,916,000
    
    
    $
    3,279,000
  F-43




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13.
    
    INCOME TAXES(Continued)
   
    
    The Companys 2009 net loss was largely attributable to losses on its
Construction and Land Development portfolio that represented approximately 80% of
net charge-offs during the year ended December 31, 2009. This portfolio has
significantly decreased during the current year and the Company is not growing the
portfolio.
    
    The Companys 2009 net loss was also attributable to large write-downs in
Construction and Land Development real estate owned which represented the majority
of its provision for losses on other real estate during 2009. Given that the
Construction and Land Development REO is valued significantly below the original
appraised value as of December 31, 2009, management does not anticipate significant
additional declines in future periods.
    
    The Company has a long history of earnings profitability.
    
    The Company is projecting future taxable and book income will be generated by
operations.
    
    The size of loan credits in the Companys pipeline of potential problem loans
has significantly decreased.
  
    
    The Company recorded a large net loss in 2009 and is in a cumulative loss
position for the current and preceding two years.
    
    The Company did not meet its financial projections in 2009 or 2008.
   F-44




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13.
    
    INCOME TAXES(Continued)
  2009
    
    
    2008
    
    
    2007Federal income tax, at statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State franchise tax, net of Federal tax effect
    
    
    7.0
    %
    
    
    1.7
    %
    
    
    7.0
    %Interest on obligations of states and political
subdivisions
    
    
    1.3
    %
    
    
    (256.3
    )%
    
    
    (3.2
    )%Net increase in cash surrender value of bank
owned life insurance
    
    
    0.8
    %
    
    
    (125.1
    )%
    
    
    (1.7
    )%Other
    
    
    (0.5
    )%
    
    
    114.7
    %
    
    
    1.1
    %Effective tax rate
    
    
    42.6
    %
    
    
    (231.0
    )%
    
    
    37.2
    %
    14.
    
    RELATED PARTY TRANSACTIONS
  Balance, January 1, 2009
    
    $
    1,384,000Disbursements
    
    
    8,000Amounts repaid
    
    
    (22,000
    )Balance, December 31, 2009
    
    $
    1,370,000Undisbursed commitments to related
parties, December 31, 2009
    
    $
    255,000
  F-45




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15.
    
    EMPLOYEE BENEFIT PLANS
 Profit Sharing Plan
  
    
    A contribution which matches the participants contribution, up to
a maximum of 3% of the employees compensation.
    
    An additional discretionary contribution.
  Salary Continuation and Retirement Agreements
 Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Endorsed Split-Dollar Life Insurance Arrangements
   F-46




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16.
    
    COMPREHENSIVE INCOME (LOSS)
   TaxBefore
    
    
    Benefit
    
    
    AfterTax
    
    
    (Expense)
    
    
    TaxFor the Year Ended December 31, 2009Total other comprehensive loss:Unrealized gains on securities transferred
from held-to-maturity to available
for-sale
    
    $
    335,000
    
    
    $
    (138,000
    )
    
    $
    197,000Unrealized holding gains
    
    
    184,000
    
    
    
    (75,000
    )
    
    
    109,000Reclassification adjustment for gains
included in net loss
    
    
    (1,000
    )
    
    
    
    
    
    
    (1,000
    )Total other comprehensive income
    
    $
    518,000
    
    
    $
    (213,000
    )
    
    $
    305,000For the Year Ended December 31, 2008Total other comprehensive income:Unrealized holding gains
    
    $
    1,138,000
    
    
    $
    (470,000
    )
    
    $
    668,000Reclassification adjustment for
impairment loss included in
net income
    
    
    (415,000
    )
    
    
    171,000
    
    
    
    (244,000
    )Total other comprehensive income
    
    $
    723,000
    
    
    $
    (299,000
    )
    
    $
    424,000For the Year Ended December 31, 2007Total other comprehensive income:Unrealized holding gains
    
    $
    996,000
    
    
    $
    (411,000
    )
    
    $
    585,000
  F-47




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.
    
    INTANGIBLE ASSETS
    December 31, 2009
    
    
    December 31, 2008Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationCore Deposit Intangibles
    
    $
    1,709,000
    
    
    $
    1,061,000
    
    
    $
    1,709,000
    
    
    $
    888,000
  Year EndingDecember 31,2010
    
    $
    173,0002011
    
    
    173,0002012
    
    
    173,0002013
    
    
    129,000$
    648,000
  F-48




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 18.
    
    PARENT ONLY CONDENSED
FINANCIAL STATEMENTS
 CONDENSED BALANCE SHEET
 December 31, 2009 and 2008
 2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    3,710,000
    
    
    $
    662,000Investment in bank subsidiary
    
    
    44,734,000
    
    
    
    44,672,000Other assets
    
    
    452,000
    
    
    
    576,000Total assets
    
    $
    48,896,000
    
    
    $
    45,910,000LIABILITIES AND
SHAREHOLDERS EQUITYOther liabilities
    
    $
    355,000
    
    
    $
    163,000Junior subordinated deferrable interest debentures
    
    
    10,310,000
    
    
    
    10,310,000Total liabilities
    
    
    10,665,000
    
    
    
    10,473,000Shareholders equity:Preferred stock
    
    
    11,595,000
    
    
    
    Common stock
    
    
    5,970,000
    
    
    
    5,302,000Retained earnings
    
    
    20,044,000
    
    
    
    29,818,000Accumulated other comprehensive income
    
    
    622,000
    
    
    
    317,000Total shareholders equity
    
    
    38,231,000
    
    
    
    35,437,000Total liabilities and shareholders equity
    
    $
    48,896,000
    
    
    $
    45,910,000
 CONDENSED STATEMENT OF INCOME
 For the Years Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Income:Dividends declared by bank subsidiary
    
    $
    
    
    
    $
    3,000,000
    
    
    $
    4,300,000Earnings from investment in Plumas
Statutory Trusts I and II
    
    
    11,000
    
    
    
    19,000
    
    
    
    18,000Total income
    
    
    11,000
    
    
    
    3,019,000
    
    
    
    4,318,000Expenses:Interest on junior subordinated
deferrable interest debentures
    
    
    371,000
    
    
    
    623,000
    
    
    
    835,000Other expenses
    
    
    808,000
    
    
    
    730,000
    
    
    
    765,000Total expenses
    
    
    1,179,000
    
    
    
    1,353,000
    
    
    
    1,600,000Income (loss) before equity in
undistributed income of subsidiary
    
    
    (1,168,000
    )
    
    
    1,666,000
    
    
    
    2,718,000Equity in undistributed income (loss) of
subsidiary
    
    
    (8,452,000
    )
    
    
    (1,911,000
    )
    
    
    896,000Income (loss) before income taxes
    
    
    (9,620,000
    )
    
    
    (245,000
    )
    
    
    3,614,000Income tax benefit
    
    
    474,000
    
    
    
    549,000
    
    
    
    609,000Net income (loss)
    
    $
    (9,146,000
    )
    
    $
    304,000
    
    
    $
    4,223,000
  F-49




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 18.
    
    PARENT ONLY CONDENSED
FINANCIAL STATEMENTS(Continued)
 CONDENSED STATEMENT OF CASH FLOWS
 For the Years Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    (9,146,000
    )
    
    $
    304,000
    
    
    $
    4,223,000Adjustments to reconcile net income (loss) to
net cash provided by operating activities:Undistributed loss (income) of
subsidiary
    
    
    8,452,000
    
    
    
    1,911,000
    
    
    
    (896,000
    )Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    (9,000
    )Stock-based compensation expense
    
    
    47,000
    
    
    
    58,000
    
    
    
    164,000Decrease (increase) in other assets
    
    
    124,000
    
    
    
    (35,000
    )
    
    
    118,000Increase in other liabilities
    
    
    115,000
    
    
    
    28,000
    
    
    
    50,000Net cash (used in) provided by
operating activities
    
    
    (408,000
    )
    
    
    2,266,000
    
    
    
    3,650,000Cash flows from investing activities:Investment in bank subsidiary
    
    
    (8,000,000
    )Net cash used in investing activities
    
    
    (8,000,000
    )
    
    
    
    
    
    
    Cash flows from financing activities:Payment of cash dividends on common stock
    
    
    
    
    
    
    (1,153,000
    )
    
    
    (1,491,000
    )Payment of cash dividends on preferred stock
    
    
    (473,000
    )Issuance of preferred stock, net of discount
    
    
    11,517,000Issuance of common stock warrant
    
    
    407,000Proceeds from the exercise of stock
options
    
    
    5,000
    
    
    
    68,000
    
    
    
    73,000Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    9,000Repurchase and retirement of common stock
    
    
    
    
    
    
    (1,217,000
    )
    
    
    (2,400,000
    )Net cash provided by (used in)
financing activities
    
    
    11,456,000
    
    
    
    (2,302,000
    )
    
    
    (3,809,000
    )Increase (decrease) in cash and cash
equivalents
    
    
    3,048,000
    
    
    
    (36,000
    )
    
    
    (159,000
    )Cash and cash equivalents at beginning
of year
    
    
    662,000
    
    
    
    698,000
    
    
    
    857,000Cash and cash equivalents at end of year
    
    $
    3,710,000
    
    
    $
    662,000
    
    
    $
    698,000Non-cash investing activities:Net change in unrealized gain/loss on
investment securities available-for-sale
    
    $
    305,000
    
    
    $
    424,000
    
    
    $
    585,000Non-cash financing activities:Common stock retired in connection
with the exercise of stock options
    
    
    
    
    
    
    
    
    
    $
    70,000Tax benefit from stock options exercised
    
    
    
    
    
    
    
    
    
    $
    9,000
  F-50




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A(T).
    
    CONTROLS AND
PROCEDURES
  REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    /s/ D. N. BIDDLEMr. Douglas N. BiddlePresident and Chief Executive Officer/s/ ANDREW RYBACKMr. Andrew J. RybackExecutive Vice President and Chief Financial Officer   54




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##### Table of Contents



ITEM 9B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
   55




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##### Table of Contents



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    Exhibits
  3.1
    
Articles of Incorporation as amended of Registrant included as exhibit 3.1 to the Registrants
Form S-4, File No. 333-84534, which is incorporated by reference herein.3.2
    
Bylaws of Registrant as amended on January 21, 2009, is included as exhibit 3.2 to the
Registrants 10-K for December 31, 2008, which is incorporated by this reference herein.3.3
    
Amendment of the Articles of Incorporation of Registrant dated November 1, 2002, is included
as exhibit 3.3 to the Registrants 10-Q for September 30, 2005, which is incorporated by this
reference herein.3.4
    
Amendment of the Articles of Incorporation of Registrant dated August 17, 2005, is included as
exhibit 3.4 to the Registrants 10-Q for September 30, 2005, which is incorporated by this
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.4.1
    
Certificate of Determination of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, is
included as exhibit 4.1 to Registrants 8-K filed on January 30, 2009, which is incorporated
by this reference herein.10.1
    
Executive Salary Continuation Agreement of Andrew J. Ryback dated December 17, 2008, is
included as exhibit 10.1 to the Registrants 10-K for December 31, 2008, which is incorporated
by this reference herein.10.2
    
Split Dollar Agreement of Andrew J. Ryback dated August 23, 2005, is included as Exhibit 10.2
to the Registrants 8-K filed on October 17, 2005, which is incorporated by this reference
herein.10.5
    
Employment Agreement of Douglas N. Biddle dated February 18, 2009, is included as Exhibit
10.05 to the Registrants 8-K filed on February 19, 2009, 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.
  56




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##### Table of Contents



10.7
    
Split Dollar Agreements of Douglas N. Biddle dated January 24, 2002, is included as Exhibit
10.7 to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference
herein.10.8
    
Director Retirement Agreement of John Flournoy dated March 21, 2007, is included as Exhibit
10.8 to Registrants 10-Q for March 31, 2007, 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.10.18
    
Amended and Restated Director Retirement Agreement of Daniel E. West dated May 10, 2000, is
included as Exhibit 10.18 to the Registrants 10-QSB for June 30, 2002, which is incorporated
by this reference herein.10.19
    
Consulting Agreement of Daniel E. West dated May 10, 2000, is included as Exhibit 10.19 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.20
    
Split Dollar Agreements of Robert T. Herr dated September 15, 2004, is included as Exhibit
10.20 to the Registrants 8-K filed on September 17, 2004, which is incorporated by this
reference herein.10.21
    
Amended and Restated Director Retirement Agreement of Alvin G. Blickenstaff dated April 19,
2000, is included as Exhibit 10.21 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.22
    
Consulting Agreement of Alvin G. Blickenstaff dated May 8, 2000, is included as Exhibit 10.22
to the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.24
    
Amended and Restated Director Retirement Agreement of Gerald W. Fletcher dated May 10, 2000,
is included as Exhibit 10.24 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.25
    
Consulting Agreement of Gerald W. Fletcher dated May 10, 2000, is included as Exhibit 10.25 to
the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.27
    
Amended and Restated Director Retirement Agreement of Arthur C. Grohs dated May 9, 2000, is
included as Exhibit 10.27 to the Registrants 10-QSB for June 30, 2002, which is incorporated
by this reference herein.10.28
    
Consulting Agreement of Arthur C. Grohs dated May 9, 2000, is included as Exhibit 10.28 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.33
    
Amended and Restated Director Retirement Agreement of Terrance J. Reeson dated April 19, 2000,
is included as Exhibit 10.33 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.34
    
Consulting Agreement of Terrance J. Reeson dated May 10, 2000, is included as Exhibit 10.34 to
the Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein.10.35
    
Letter Agreement, dated January 30, 2009 by and between Plumas Bancorp, Inc. and the United
States Department of the Treasury and Securities Purchase Agreement  Standard Terms attached
thereto, is included as exhibit 10.1 to Registrants 8-K filed on January 30, 2009, which is
incorporated by this reference herein.10.36
    
Form of Senior Executive Officer letter agreement, is included as exhibit 10.2 to Registrants
8-K filed on January 30, 2009, which is incorporated by this reference herein.
  57




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##### Table of Contents



10.37
    
Deferred Fee Agreement of Alvin Blickenstaff is included as Exhibit 10.37 to the Registrants
10-Q for March 31, 2009, which is incorporated by this reference herein.10.40
    
2001 Stock Option Plan as amended is included as exhibit 99.1 of the Form S-8 filed July 23,
2002, File No. 333-96957, which is incorporated by this reference herein.10.41
    
Form of Indemnification Agreement (Plumas Bancorp) is included as Exhibit 10.41 to the
Registrants 10-Q for March 31, 2009, which is incorporated by this reference herein.10.42
    
Form of Indemnification Agreement (Plumas Bank) is included as Exhibit 10.42 to the
Registrants 10-Q for March 31, 2009, which is incorporated by this reference herein.10.43
    
Plumas Bank 401(k) Profit Sharing Plan as amended is included as exhibit 99.1 of the Form S-8
filed February 14, 2003, File No. 333-103229, which is incorporated by this reference herein.10.44
    
Executive Salary Continuation Agreement of Robert T. Herr dated June 4, 2002, is included as
Exhibit 10.44 to the Registrants 10-Q for March 31, 2003, which is incorporated by this
reference herein.10.46
    
1991 Stock Option Plan as amended is included as Exhibit 10.46 to the Registrants 10-Q for
September 30, 2004, which is incorporated by this reference herein.10.47
    
Specimen form of Incentive Stock Option Agreement under the 1991 Stock Option Plan is included
as Exhibit 10.47 to the Registrants 10-Q for September 30, 2004, which is incorporated by
this reference herein.10.48
    
Specimen form of Non-Qualified Stock Option Agreement under the 1991 Stock Option Plan is
included as Exhibit 10.48 to the Registrants 10-Q for September 30, 2004, which is
incorporated by this reference herein.10.49
    
Amended and Restated Plumas Bancorp Stock Option Plan is included as Exhibit 10.49 to the
Registrants 10-Q for September 30, 2006, which is incorporated by this reference herein.10.50
    
Executive Salary Continuation Agreement of Rose Dembosz, is included as exhibit 10.50 to the
Registrants 10-K for December 31, 2008, which is incorporated by this reference herein.10.51
    
First Amendment to Split Dollar Agreement of Andrew J. Ryback, is included as exhibit 10.51 to
the Registrants 10-K for December 31, 2008, which is incorporated by this reference herein.10.52
    
Executive Salary Continuation Agreement of Douglas N. Biddle dated December 17, 2008, is
included as exhibit 10.52 to the Registrants 10-K for December 31, 2008, which is
incorporated by this reference herein.10.53
    
Second Amendment to Executive Salary Continuation Agreement of Douglas N. Biddle dated June 2,
1994 and Amended February 16, 2000, is included as exhibit 10.53 to the Registrants 10-K for
December 31, 2008, which is incorporated by this reference herein.10.54
    
First Amendment to Addendum A of Split Dollar Agreements of Douglas N. Biddle dated January
24, 2002, is included as exhibit 10.54 to the Registrants 10-K for December 31, 2008, which
is incorporated by this reference herein.10.55
    
First Amendment to Addendum B of Split Dollar Agreements of Douglas N. Biddle dated January
24, 2002, is included as exhibit 10.55 to the Registrants 10-K for December 31, 2008, which
is incorporated by this reference herein.
  58




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##### Table of Contents



10.56
    
Second Amendment to Executive Salary Continuation Agreement of Robert T. Herr dated
June 4, 2002 and Amended September 15, 2004, is included as exhibit 10.56 to the Registrants
10-K for December 31, 2008, which is incorporated by this reference herein.10.57
    
First Amendment to Split Dollar Agreements of Robert T. Herr dated September 15, 2004, is
included as exhibit 10.57 to the Registrants 10-K for December 31, 2008, which is
incorporated by this reference herein.10.58
    
Executive Salary Continuation Agreement of Robert T. Herr dated December 17, 2008, is included
as exhibit 10.58 to the Registrants 10-K for December 31, 2008, which is incorporated by this
reference herein.10.64
    
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Alvin Blickenstaff adopted on September 19, 2007, is included as Exhibit 10.64 to the
Registrants 8-K filed on September 25, 2007, which is incorporated by this reference herein.10.65
    
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Arthur C. Grohs adopted on September 19, 2007, is included as Exhibit 10.65 to the
Registrants 8-K filed on September 25, 2007, which is incorporated by this reference herein.10.67
    
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Terrance J. Reeson adopted on September 19, 2007, is included as Exhibit 10.67 to the
Registrants 8-K filed on September 25, 2007, which is incorporated by this reference herein.10.69
    
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Daniel E. West adopted on September 19, 2007, is included as Exhibit 10.69 to the Registrants
8-K filed on September 25, 2007, which is incorporated by this reference herein.10.70
    
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Gerald W. Fletcher adopted on October 9, 2007, is included as Exhibit 10.70 to the
Registrants 10-Q for September 30, 2007, which is incorporated by this reference herein.11
    
Computation of per share earnings appears in the attached 10-K under Item 8 Financial
Statements Plumas Bancorp and Subsidiary Notes to Consolidated Financial Statements as
Footnote 11  Shareholders Equity.21.01
    
Plumas Bank  California.21.02
    
Plumas Statutory Trust I  Connecticut.21.03
    
Plumas Statutory Trust II  Connecticut.23
    
Independent Registered Public Accountants Consent letter dated March 19, 201031.1
    
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated March 19, 201031.2
    
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated March 19, 201032.1
    
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 19, 2010.32.2
    
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated March 19, 2010.
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99.1
    
Certification of Chief Executive Officer pursuant to Section 111(b)(4) of the Emergency
Economic Stabilization Act of 2008 dated March 19, 2010.99.2
    
Certification of Chief Financial Officer pursuant to Section 111(b)(4) of the Emergency
Economic Stabilization Act of 2008 dated March 19, 2010.
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##### Table of Contents



SIGNATURES
  PLUMAS BANCORP
 /s/ D. N. BIDDLEDouglas N. BiddlePresident/Chief Executive Officer/s/ ANDREW RYBACKAndrew J. RybackExecutive Vice President/Chief Financial Officer  61




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##### Table of Contents



/s/ DANIEL E. WEST

Daniel E. West, Director and Chairman of the Board
    
    Dated: March 19, 2010/s/ TERRANCE J. REESON

Terrance J. Reeson, Director and Vice Chairman of
the Board
    
    Dated: March 19, 2010/s/ D. N. BIDDLE

Douglas N. Biddle, Director
    
    Dated: March 19, 2010/s/ ALVIN G. BLICKENSTAFF

Alvin G. Blickenstaff, Director
    
    Dated: March 19, 2010/s/ W. E. ELLIOTT

William E. Elliott, Director
    
    Dated: March 19, 2010/s/ GERALD W. FLETCHER

Gerald W. Fletcher, Director
    
    Dated: March 19, 2010/s/ JOHN FLOURNOY

John Flournoy, Director
    
    Dated: March 19, 2010/s/ ARTHUR C. GROHS

Arthur C. Grohs, Director
    
    Dated: March 19, 2010/s/ ROBERT J. MCCLINTOCK

Robert J. McClintock, Director
    
    Dated: March 19, 2010
  62