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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, 2006
 or
 o
    
    Transaction report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission file number: 000-49883
 
 PLUMAS BANCORP
  California
(State or other jurisdiction of 
incorporation or organization)
    
    75-2987096
(IRS Employer Identification No.)35 S. Lindan Avenue, Quincy, CA
(Address of principal executive offices)
    
    95971
(Zip Code)
 (530) 283-7305
 
  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 þ o
  o þ




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##### 



TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    4Item 1A
    
    Risk Factors
    
    
    18Item 1B
    
    Unresolved Staff Comments
    
    
    21Item 2.
    
    Properties
    
    
    21Item 3.
    
    Legal Proceedings
    
    
    22Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    22PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    22Item 6.
    
    Selected Financial Data
    
    
    25Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    26Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    46Item 8.
    
    Financial Statements and Supplementary Data
    
    
    48Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    49Item 9A.
    
    Controls and Procedures
    
    
    49Item 9B
    
    Other Information
    
    
    51PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    51Item 11.
    
    Executive Compensation
    
    
    51Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    51Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    52Item 14.
    
    Principal Accountant Fees and Services
    
    
    52PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    52Signatures
    
    
    55EXHIBIT 23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  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.
  4




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5




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Commitment to our Communities.
  Recent Developments.
 Trust Preferred Securities.
 6




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Business Concentrations.
 Competition
  7




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Employees.
 Supervision and Regulation
 The Company.
 8




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The Bank.
  Capital Standards.
  9




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Requirement for theBank to be:Adequately
    
    Well
    
    Plumas
    
    PlumasCapitalized
    
    Capitalized
    
    Bank
    
    BancorpTier 1 leverage capital ratio
    
    
    4.0
    %
    
    
    5.0
    %
    
    
    9.3
    %
    
    
    9.5
    %Tier 1 risk-based capital ratio
    
    
    4.0
    %
    
    
    6.0
    %
    
    
    10.6
    %
    
    
    10.9
    %Total risk-based capital ratio
    
    
    8.0
    %
    
    
    10.0
    %
    
    
    11.6
    %
    
    
    11.8
    %
 Prompt Corrective Action.
  10




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Premiums for Deposit Insurance.
  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
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Fair Housing Act
 Home Mortgage Disclosure Act
 Right to Financial Privacy Act
 Real Estate Settlement Procedures Act
  Recent Legislation and Other Changes.
  
    
    Merging the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF)
into a new fund, the Deposit Insurance Fund (DIF). This change was made effective March
31, 2006.
    
    Increasing the coverage limit for retirement accounts to $250,000 and indexing the
coverage limit for retirement accounts to inflation as with the general deposit insurance
coverage limit. This change was made effective April 1, 2006.
    
    Establishing a range of 1.15 percent to 1.50 percent within which the FDIC Board of
Directors may set the Designated Reserve Ratio (DRR).
    
    Allowing the FDIC to manage the pace at which the reserve ratio varies within this
range.
 1.
    
    If the reserve ratio falls below 1.15 percentor is expected to
within 6 monthsthe FDIC must adopt a restoration plan that provides that the DIF
will return to 1.15 percent generally within 5 years.2.
    
    If the reserve ratio exceeds 1.35 percent, the FDIC must generally
dividend to DIF members half of the amount above the amount necessary to maintain
the DIF at 1.35 percent, unless the FDIC Board, considering statutory factors,
suspends the dividends.
 13




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3.
    
    If the reserve ratio exceeds 1.5 percent, the FDIC must generally
dividend to DIF members all amounts above the amount necessary to maintain the DIF
at 1.5 percent.
 
    
    Eliminating the restrictions on premium rates based on the DRR and granting the FDIC
Board the discretion to price deposit insurance according to risk for all insured
institutions regardless of the level of the reserve ratio.
    
    Granting a one-time initial assessment credit (of approximately $4.7 billion) to
recognize institutions past contributions to the fund.
     14




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Recent Accounting Pronouncements
 Accounting for Servicing of Financial Assets
 Accounting for Servicing of Financial Assets  An Amendment of FASB Statement No. 140
 Accounting for Uncertainty in Income Taxes
 Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109 Accounting for Income Taxes.
    16




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Accounting for Purchases of Life Insurance
 Accounting for Purchases of Life Insurance  Determining the Amount
That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for
Purchases of Life Insurance
 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements
 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements
 Fair Value Measurements
 Fair Value Measurements
 17




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Consideration of the Effects of Prior Year Misstatements
 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements.
 
 ITEM 1A. RISK FACTORS
  Deterioration of local economic conditions could hurt our profitability
 Our growth and expansion strategy may not prove to be successful and our market value and
profitability may suffer.
 18




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Loss of any of our executive officers or key personnel could be damaging to us.
 Our performance is subject to interest rate risk.
   We could experience loan losses which exceed our allowance for loan losses.
  19




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We face strong competition which may adversely affect our operating results.
 
    
    larger national and regional banks in many of the communities we serve;
    
    finance companies, investment banking and brokerage firms, and insurance companies
that offer bank-like products;
    
    credit unions, which can offer highly competitive rates on loans and deposits
because they receive tax advantages not available to commercial banks; and
    
    technology-based financial institutions including large national and super-regional
banks offering on-line deposit, bill payment, and mortgage loan application services.
   ITEM 1. BUSINESS  General - Competition
 Our future growth may be hindered if we do not raise additional capital. ITEM 1. BUSINESS  Supervision and Regulation  Capital
Standards
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ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Owned Properties35 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 (4)
    
    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, CaliforniaLeased Properties243 North Lake Boulevard
    
    604 Main Street
    
    2625 Fair Oaks Blvd., Ste. 7Tahoe City, California
    
    Loyalton, California
    
    Sacramento, California (3)1895 Plumas Ste 2Reno, Nevada (3)
 
 (1)
    
    Non-branch administrative or credit administrative offices.(2)
    
    The Westwood branch is a mortgaged property with an outstanding balance of $63,000 at December 31, 2006.(3)
    
    Commercial lending offices(4)
    
    Future location of Companys data processing facilities  Year EndingDecember 31,2007
    
    $
    1642008
    
    
    492009
    
    
    22Total
    
    $
    235
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ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCK- HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
  Quarter
    
    Dividends
    
    High
    
    Low4th Quarter 2006
    
    $
    0.13
    
    
    $
    17.45
    
    
    $
    14.503rd Quarter 2006
    
    
    
    
    
    $
    19.00
    
    
    $
    15.772nd Quarter 2006
    
    $
    0.13
    
    
    $
    19.89
    
    
    $
    15.501st Quarter 2006
    
    
    
    
    
    $
    23.00
    
    
    $
    17.004th Quarter 2005
    
    $
    0.11
    
    
    $
    27.00
    
    
    $
    20.773rd Quarter 2005
    
    
    
    
    
    $
    26.07
    
    
    $
    17.342nd Quarter 2005
    
    $
    0.11
    
    
    $
    21.33
    
    
    $
    14.201st Quarter 2005
    
    
    
    
    
    $
    15.67
    
    
    $
    13.33
   22




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Securities Authorized for Issuance under Equity Compensation Plans.
 Number of securities remainingavailable for future issuanceNumber of securities to
    
    Weighted-average
    
    under equity compensationbe issued upon exercise
    
    exercise price of
    
    plans (excluding securitiesof outstanding options
    
    outstanding options
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    290,914
    
    
    $
    11.62
    
    
    
    615,037Equity compensation
plans not approved
by security holders
    
    None
    
    Not Applicable
    
    NoneTotal
    
    
    290,914
    
    
    $
    11.62
    
    
    
    615,037
  23




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Plumas Bancorp Stock Performance Graph
  
 Period EndingIndex
    
    
    12/31/01
    
    
    12/31/02
    
    
    12/31/03
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06Plumas Bancorp
    
    
    
    100.00
    
    
    
    
    158.08
    
    
    
    
    208.63
    
    
    
    
    227.57
    
    
    
    
    337.24
    
    
    
    
    243.04NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    68.76
    
    
    
    
    103.67
    
    
    
    
    113.16
    
    
    
    
    115.57
    
    
    
    
    127.58SNL NASDAQ Bank Index
    
    
    
    100.00
    
    
    
    
    102.85
    
    
    
    
    132.76
    
    
    
    
    152.16
    
    
    
    
    147.52
    
    
    
    
    165.62SNL All OTC-BB & Pink Banks Index
    
    
    
    100.00
    
    
    
    
    124.40
    
    
    
    
    170.92
    
    
    
    
    204.07
    
    
    
    
    221.37
    
    
    
    
    242.38
 24




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  At or for the year ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(dollars in thousands except per share information)Statement of IncomeInterest income
    
    $
    29,483
    
    
    $
    25,497
    
    
    $
    20,110
    
    
    $
    18,549
    
    
    $
    18,389Interest expense
    
    
    6,954
    
    
    
    4,793
    
    
    
    2,914
    
    
    
    3,013
    
    
    
    4,038Net interest income
    
    
    22,529
    
    
    
    20,704
    
    
    
    17,196
    
    
    
    15,536
    
    
    
    14,351Provision for loan losses
    
    
    1,000
    
    
    
    1,100
    
    
    
    750
    
    
    
    750
    
    
    
    825Noninterest income
    
    
    5,159
    
    
    
    5,073
    
    
    
    5,099
    
    
    
    3,639
    
    
    
    3,278Noninterest expense
    
    
    18,290
    
    
    
    17,549
    
    
    
    15,898
    
    
    
    13,126
    
    
    
    11,604Provision for income taxes
    
    
    3,196
    
    
    
    2,600
    
    
    
    2,001
    
    
    
    2,018
    
    
    
    2,046Net income
    
    $
    5,202
    
    
    $
    4,528
    
    
    $
    3,646
    
    
    $
    3,281
    
    
    $
    3,154Balance sheet (end of period)Total assets
    
    $
    473,239
    
    
    $
    472,803
    
    
    $
    417,346
    
    
    $
    390,262
    
    
    $
    325,650Total loans
    
    $
    354,712
    
    
    $
    321,646
    
    
    $
    266,913
    
    
    $
    217,957
    
    
    $
    207,721Allowance for loan losses
    
    $
    3,917
    
    
    $
    3,256
    
    
    $
    2,722
    
    
    $
    2,524
    
    
    $
    2,431Total deposits
    
    $
    402,176
    
    
    $
    426,560
    
    
    $
    378,567
    
    
    $
    355,842
    
    
    $
    293,941Total shareholders equity
    
    $
    35,852
    
    
    $
    31,137
    
    
    $
    27,891
    
    
    $
    25,749
    
    
    $
    23,286Balance sheet (period average)Total assets
    
    $
    468,988
    
    
    $
    452,225
    
    
    $
    409,335
    
    
    $
    339,160
    
    
    $
    294,708Total loans
    
    $
    335,226
    
    
    $
    302,596
    
    
    $
    233,759
    
    
    $
    214,736
    
    
    $
    197,900Total deposits
    
    $
    415,700
    
    
    $
    403,818
    
    
    $
    373,267
    
    
    $
    304,840
    
    
    $
    268,773Total shareholders equity
    
    $
    33,682
    
    
    $
    29,548
    
    
    $
    26,829
    
    
    $
    24,558
    
    
    $
    22,184Capital ratiosLeverage ratio
    
    
    9.5
    %
    
    
    8.5
    %
    
    
    7.6
    %
    
    
    8.4
    %
    
    
    8.8
    %Tier 1 risk-based capital
    
    
    10.9
    %
    
    
    10.3
    %
    
    
    10.1
    %
    
    
    10.4
    %
    
    
    11.8
    %Total risk-based capital
    
    
    11.8
    %
    
    
    11.1
    %
    
    
    10.9
    %
    
    
    11.3
    %
    
    
    12.8
    %Asset quality ratiosNonperforming loans/total loans
    
    
    0.29
    %
    
    
    0.52
    %
    
    
    0.45
    %
    
    
    0.40
    %
    
    
    0.86
    %Nonperforming assets/total assets
    
    
    0.22
    %
    
    
    0.36
    %
    
    
    0.30
    %
    
    
    0.22
    %
    
    
    0.59
    %Allowance for loan losses/total loans
    
    
    1.10
    %
    
    
    1.01
    %
    
    
    1.03
    %
    
    
    1.18
    %
    
    
    1.19
    %Net loan charge-offs
    
    $
    339
    
    
    $
    566
    
    
    $
    552
    
    
    $
    657
    
    
    $
    507Performance ratiosReturn on average assets
    
    
    1.11
    %
    
    
    1.00
    %
    
    
    0.89
    %
    
    
    0.97
    %
    
    
    1.07
    %Return on average equity
    
    
    15.4
    %
    
    
    15.2
    %
    
    
    13.5
    %
    
    
    13.3
    %
    
    
    14.2
    %Net interest margin
    
    
    5.32
    %
    
    
    5.06
    %
    
    
    4.77
    %
    
    
    5.20
    %
    
    
    5.48
    %Loans to Deposits
    
    
    88.2
    %
    
    
    75.4
    %
    
    
    70.5
    %
    
    
    61.3
    %
    
    
    70.7
    %Efficiency ratio
    
    
    66.1
    %
    
    
    68.1
    %
    
    
    71.3
    %
    
    
    68.5
    %
    
    
    65.8
    %Per share informationBasic earnings
    
    $
    1.04
    
    
    $
    0.92
    
    
    $
    0.75
    
    
    $
    0.68
    
    
    $
    0.66Diluted earnings
    
    $
    1.02
    
    
    $
    0.89
    
    
    $
    0.73
    
    
    $
    0.66
    
    
    $
    0.64Cash dividends
    
    $
    0.26
    
    
    $
    0.22
    
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.18Dividend payout ratio
    
    
    25.0
    %
    
    
    23.9
    %
    
    
    25.1
    %
    
    
    23.7
    %
    
    
    27.3
    %Book value
    
    $
    7.14
    
    
    $
    6.26
    
    
    $
    5.69
    
    
    $
    5.29
    
    
    $
    4.84Common shares outstanding at period end
    
    
    5,023,205
    
    
    
    4,976,654
    
    
    
    4,901,197
    
    
    
    4,863,040
    
    
    
    4,813,975
 25




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
    Critical Accounting Policies
  Allowance for Loan Losses.
   26




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Available for Sale Securities.
 Deferred Income Taxes.
 Impairment of Core Deposit Intangible.
 Stock-Based Compensation Share-Based Payment Accounting
for Stock-Based Compensation
  Overview
  27




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Results of Operations
 Net Interest Income
  Year ended December 31,2006
    
    
    2005
    
    
    2004Interest
    
    
    Rates
    
    
    
    
    
    
    Interest
    
    
    Rates
    
    
    
    
    
    
    Interest
    
    
    RatesAverage
    
    
    income/
    
    
    earned
    
    
    Average
    
    
    income/
    
    
    earned
    
    
    Average
    
    
    income/
    
    
    earnedbalance
    
    
    expense
    
    
    / paid
    
    
    balance
    
    
    expense
    
    
    / paid
    
    
    balance
    
    
    expense
    
    
    / paid(dollars in thousands)AssetsFederal funds sold
    
    $
    3,616
    
    
    $
    164
    
    
    
    4.54
    %
    
    $
    5,930
    
    
    $
    218
    
    
    
    3.68
    %
    
    $
    12,729
    
    
    $
    163
    
    
    
    1.28
    %Investment securities(1)
    
    
    84,794
    
    
    
    3,047
    
    
    
    3.59
    
    
    
    100,633
    
    
    
    3,324
    
    
    
    3.30
    
    
    
    113,684
    
    
    
    3,483
    
    
    
    3.06Total loans (2)(3)
    
    
    335,226
    
    
    
    26,272
    
    
    
    7.84
    
    
    
    302,596
    
    
    
    21,955
    
    
    
    7.26
    
    
    
    233,759
    
    
    
    16,464
    
    
    
    7.04Total earning assets
    
    
    423,636
    
    
    
    29,483
    
    
    
    6.96
    %
    
    
    409,159
    
    
    
    25,497
    
    
    
    6.23
    %
    
    
    360,172
    
    
    
    20,110
    
    
    
    5.58
    %Cash and due from banks
    
    
    13,547
    
    
    
    
    
    
    
    
    
    
    
    15,953
    
    
    
    
    
    
    
    
    
    
    
    23,813Other assets
    
    
    31,805
    
    
    
    
    
    
    
    
    
    
    
    27,357
    
    
    
    
    
    
    
    
    
    
    
    25,551Total assets
    
    $
    468,988
    
    
    
    
    
    
    
    
    
    
    $
    452,469
    
    
    
    
    
    
    
    
    
    
    $
    409,536Liabilities and shareholders
equityInterest bearing demand deposits
    
    $
    80,685
    
    
    
    1,489
    
    
    
    1.85
    %
    
    $
    48,577
    
    
    
    196
    
    
    
    0.40
    %
    
    $
    44,244
    
    
    
    58
    
    
    
    0.13
    %Money market deposits
    
    
    56,496
    
    
    
    661
    
    
    
    1.17
    
    
    
    64,025
    
    
    
    747
    
    
    
    1.17
    
    
    
    65,026
    
    
    
    490
    
    
    
    0.75Savings deposits
    
    
    59,802
    
    
    
    423
    
    
    
    0.71
    
    
    
    67,702
    
    
    
    445
    
    
    
    0.66
    
    
    
    64,472
    
    
    
    292
    
    
    
    0.45Time deposits
    
    
    93,515
    
    
    
    3,314
    
    
    
    3.54
    
    
    
    98,946
    
    
    
    2,704
    
    
    
    2.73
    
    
    
    93,684
    
    
    
    1,760
    
    
    
    1.88Short-term borrowings
    
    
    4,446
    
    
    
    237
    
    
    
    5.33
    
    
    
    6,921
    
    
    
    210
    
    
    
    3.03
    
    
    
    
    
    
    
    
    
    
    
    Trust preferred securities
    
    
    10,310
    
    
    
    810
    
    
    
    7.86
    
    
    
    7,259
    
    
    
    479
    
    
    
    6.60
    
    
    
    6,186
    
    
    
    305
    
    
    
    4.93Other
    
    
    285
    
    
    
    20
    
    
    
    7.02
    
    
    
    245
    
    
    
    12
    
    
    
    4.90
    
    
    
    215
    
    
    
    9
    
    
    
    4.19Total interest bearing liabilities
    
    
    305,539
    
    
    
    6,954
    
    
    
    2.28
    %
    
    
    293,675
    
    
    
    4,793
    
    
    
    1.63
    %
    
    
    273,827
    
    
    
    2,914
    
    
    
    1.06
    %Noninterest bearing demand deposits
    
    
    125,202
    
    
    
    
    
    
    
    
    
    
    
    124,568
    
    
    
    
    
    
    
    
    
    
    
    105,841Other liabilities
    
    
    4,565
    
    
    
    
    
    
    
    
    
    
    
    4,434
    
    
    
    
    
    
    
    
    
    
    
    2,838Shareholders equity
    
    
    33,682
    
    
    
    
    
    
    
    
    
    
    
    29,792
    
    
    
    
    
    
    
    
    
    
    
    27,030Total liabilities and
shareholders equity
    
    $
    468,988
    
    
    
    
    
    
    
    
    
    
    $
    452,469
    
    
    
    
    
    
    
    
    
    
    $
    409,536Net interest income
    
    
    
    
    
    $
    22,529
    
    
    
    
    
    
    
    
    
    
    $
    20,704
    
    
    
    
    
    
    
    
    
    
    $
    17,196Net interest spread(4)
    
    
    
    
    
    
    
    
    
    
    4.68
    %
    
    
    
    
    
    
    
    
    
    
    4.60
    %
    
    
    
    
    
    
    
    
    
    
    4.52
    %Net interest margin(5)
    
    
    
    
    
    
    
    
    
    
    5.32
    %
    
    
    
    
    
    
    
    
    
    
    5.06
    %
    
    
    
    
    
    
    
    
    
    
    4.77
    %
 
 (1)
    
    Interest income is reflected on an actual basis and is not computed on a tax-equivalent
basis.(2)
    
    Average nonaccrual loan balances of $1.2 million for 2006, $1.3 million for 2005 and $1.6
million for 2004 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 $539,000 and $21,000 for 2006 and 2005, respectively and net loan fees of
$317,000 for 2004.(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. 29




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##### Table of Contents



2006 compared to 2005
    
    2005 compared to 2004Increase (decrease) due to change in:
    
    Increase (decrease) due to change in:Average
    
    Average
    
    
    
    
    
    
    
    
    
    Average
    
    AverageVolume(1)
    
    Rate(2)
    
    Mix(3)
    
    Total
    
    Volume(1)
    
    Rate(2)
    
    Mix(3)
    
    Total(dollars in thousands)Interest-earning assets:Federal funds sold
    
    $
    (85
    )
    
    $
    51
    
    
    $
    (20
    )
    
    $
    (54
    )
    
    $
    (87
    )
    
    $
    305
    
    
    $
    (163
    )
    
    $
    55Investment securities
    
    
    (523
    )
    
    
    292
    
    
    
    (46
    )
    
    
    (277
    )
    
    
    (400
    )
    
    
    272
    
    
    
    (31
    )
    
    
    (159
    )Loans
    
    
    2,367
    
    
    
    1,760
    
    
    
    190
    
    
    
    4,317
    
    
    
    4,848
    
    
    
    497
    
    
    
    146
    
    
    
    5,491Total interest income
    
    
    1,759
    
    
    
    2,103
    
    
    
    124
    
    
    
    3,986
    
    
    
    4,361
    
    
    
    1,074
    
    
    
    (48
    )
    
    
    5,387Interest-bearing liabilities:Interest bearing demand
deposits
    
    
    130
    
    
    
    700
    
    
    
    463
    
    
    
    1,293
    
    
    
    6
    
    
    
    120
    
    
    
    12
    
    
    
    138Money market deposits
    
    
    (88
    )
    
    
    2
    
    
    
    
    
    
    
    (86
    )
    
    
    (8
    )
    
    
    269
    
    
    
    (4
    )
    
    
    257Savings deposits
    
    
    (52
    )
    
    
    34
    
    
    
    (4
    )
    
    
    (22
    )
    
    
    15
    
    
    
    132
    
    
    
    6
    
    
    
    153Time deposits
    
    
    (148
    )
    
    
    802
    
    
    
    (44
    )
    
    
    610
    
    
    
    99
    
    
    
    800
    
    
    
    45
    
    
    
    944Short-term borrowings
    
    
    (75
    )
    
    
    159
    
    
    
    (57
    )
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    210
    
    
    
    210Trust preferred securities
    
    
    201
    
    
    
    91
    
    
    
    39
    
    
    
    331
    
    
    
    53
    
    
    
    103
    
    
    
    18
    
    
    
    174Other borrowings
    
    
    2
    
    
    
    5
    
    
    
    1
    
    
    
    8
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    3Total interest expense
    
    
    (30
    )
    
    
    1,793
    
    
    
    398
    
    
    
    2,161
    
    
    
    166
    
    
    
    1,426
    
    
    
    287
    
    
    
    1,879Net interest income
    
    $
    1,789
    
    
    $
    310
    
    
    $
    (274
    )
    
    $
    1,825
    
    
    $
    4,195
    
    
    $
    (352
    )
    
    $
    (335
    )
    
    $
    3,508
 
 (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. 2006 compared to 2005.
     30




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##### Table of Contents



2005 compared to 2004.
   Provision for Loan Losses
   31




---



##### Table of Contents



Non-Interest Income
  Years Ended December 31,
    
    Change during Year2006
    
    2005
    
    2004
    
    2006
    
    2005(dollars in thousands)Service charges on deposit
accounts
    
    $
    3,676
    
    
    $
    3,458
    
    
    $
    3,297
    
    
    $
    218
    
    
    $
    161Earnings on bank owned life
insurance policies
    
    
    393
    
    
    
    355
    
    
    
    415
    
    
    
    38
    
    
    
    (60
    )Merchant processing
    
    
    318
    
    
    
    338
    
    
    
    263
    
    
    
    (20
    )
    
    
    75Official check fees
    
    
    170
    
    
    
    118
    
    
    
    62
    
    
    
    52
    
    
    
    56Customer service fees
    
    
    113
    
    
    
    111
    
    
    
    119
    
    
    
    2
    
    
    
    (8
    )Investment services
    
    
    104
    
    
    
    189
    
    
    
    175
    
    
    
    (85
    )
    
    
    14Federal Home Loan Bank
Dividends
    
    
    104
    
    
    
    82
    
    
    
    50
    
    
    
    22
    
    
    
    32Safe deposit box and night
depository income
    
    
    69
    
    
    
    69
    
    
    
    61
    
    
    
    
    
    
    
    8Printed check fee income
    
    
    44
    
    
    
    43
    
    
    
    24
    
    
    
    1
    
    
    
    19Gain on sale of loans, net
    
    
    42
    
    
    
    45
    
    
    
    94
    
    
    
    (3
    )
    
    
    (49
    )Loan commission and
servicing fees
    
    
    14
    
    
    
    171
    
    
    
    184
    
    
    
    (157
    )
    
    
    (13
    )(Loss) gain on sale of
investment securities, net
    
    
    
    
    
    
    (8
    )
    
    
    235
    
    
    
    8
    
    
    
    (243
    )Other income
    
    
    112
    
    
    
    102
    
    
    
    120
    
    
    
    10
    
    
    
    (18
    )Total non-interest income
    
    $
    5,159
    
    
    $
    5,073
    
    
    $
    5,099
    
    
    $
    86
    
    
    $
    (26
    )
 2006 compared to 2005.
  2005 compared to 2004.
  32




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##### Table of Contents



Non-Interest Expense
  Years Ended December 31,
    
    Change during Year2006
    
    2005
    
    2004
    
    2006
    
    2005(dollars in thousands)Salaries and employee benefits
    
    $
    10,043
    
    
    $
    9,514
    
    
    $
    8,831
    
    
    $
    529
    
    
    $
    683Occupancy and equipment
    
    
    3,323
    
    
    
    3,070
    
    
    
    2,713
    
    
    
    253
    
    
    
    357Professional fees
    
    
    780
    
    
    
    865
    
    
    
    596
    
    
    
    (85
    )
    
    
    269Outside service fees
    
    
    591
    
    
    
    700
    
    
    
    551
    
    
    
    (109
    )
    
    
    149Business development
    
    
    555
    
    
    
    494
    
    
    
    389
    
    
    
    61
    
    
    
    105Advertising and promotion
    
    
    552
    
    
    
    467
    
    
    
    350
    
    
    
    85
    
    
    
    117Telephone and data
communications
    
    
    374
    
    
    
    366
    
    
    
    346
    
    
    
    8
    
    
    
    20Director compensation and
retirement
    
    
    370
    
    
    
    288
    
    
    
    284
    
    
    
    82
    
    
    
    4Core deposit intangible
amortization
    
    
    301
    
    
    
    301
    
    
    
    299
    
    
    
    
    
    
    
    2Stationery and supplies
    
    
    282
    
    
    
    336
    
    
    
    292
    
    
    
    (54
    )
    
    
    44Armored car and courier
    
    
    270
    
    
    
    337
    
    
    
    371
    
    
    
    (67
    )
    
    
    (34
    )Postage
    
    
    249
    
    
    
    258
    
    
    
    261
    
    
    
    (9
    )
    
    
    (3
    )Insurance
    
    
    173
    
    
    
    206
    
    
    
    236
    
    
    
    (33
    )
    
    
    (30
    )Loan expenses
    
    
    139
    
    
    
    114
    
    
    
    191
    
    
    
    25
    
    
    
    (77
    )Other operating expense
    
    
    288
    
    
    
    233
    
    
    
    188
    
    
    
    55
    
    
    
    45Total non-interest expense
    
    $
    18,290
    
    
    $
    17,549
    
    
    $
    15,898
    
    
    $
    741
    
    
    $
    1,651
 2006 compared to 2005.
  33




---



##### Table of Contents



Share Based Payment
 Accounting for Stock Issued to Employees
    2005 compared to 2004.
  34




---



##### Table of Contents



Provision for income taxes.
 Financial Condition
 Loan Portfolio.
   35




---



##### Table of Contents



At December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(dollars in thousands)Real estate  mortgage
    
    $
    116,329
    
    
    $
    110,686
    
    
    $
    102,125
    
    
    $
    67,532
    
    
    $
    66,039Real estate  construction
    
    
    75,930
    
    
    
    56,370
    
    
    
    31,964
    
    
    
    26,194
    
    
    
    15,175Commercial
    
    
    36,182
    
    
    
    42,252
    
    
    
    42,689
    
    
    
    51,073
    
    
    
    52,432Consumer
    
    
    90,694
    
    
    
    81,320
    
    
    
    59,068
    
    
    
    46,621
    
    
    
    48,465Agriculture
    
    
    35,577
    
    
    
    31,018
    
    
    
    31,067
    
    
    
    26,537
    
    
    
    25,610Total loans
    
    
    354,712
    
    
    
    321,646
    
    
    
    266,913
    
    
    
    217,957
    
    
    
    207,721Less:Deferred (costs) fees
    
    
    (1,182
    )
    
    
    (766
    )
    
    
    260
    
    
    
    530
    
    
    
    601Allowance for loan losses
    
    
    3,917
    
    
    
    3,256
    
    
    
    2,722
    
    
    
    2,524
    
    
    
    2,431Net loans
    
    $
    351,977
    
    
    $
    319,156
    
    
    $
    263,931
    
    
    $
    214,903
    
    
    $
    204,689
  Within
    
    After One
    
    AfterOne Year
    
    Through Five Years
    
    Five Years
    
    Total(dollars in thousands)Real estate  mortgage
    
    $
    6,077
    
    
    $
    30,826
    
    
    $
    79,426
    
    
    $
    116,329Real estate  construction
    
    
    37,998
    
    
    
    27,263
    
    
    
    10,669
    
    
    
    75,930Commercial
    
    
    11,131
    
    
    
    15,132
    
    
    
    9,919
    
    
    
    36,182Consumer
    
    
    14,272
    
    
    
    47,695
    
    
    
    28,727
    
    
    
    90,694Agriculture
    
    
    18,069
    
    
    
    13,003
    
    
    
    4,505
    
    
    
    35,577Total
    
    $
    87,547
    
    
    $
    133,919
    
    
    $
    133,246
    
    
    $
    354,712Loans maturing after one year with:Fixed interest rates
    
    
    
    
    
    $
    66,521
    
    
    $
    35,752
    
    
    $
    102,273Variable interest rates
    
    
    
    
    
    
    67,398
    
    
    
    97,494
    
    
    
    164,892Total
    
    
    
    
    
    $
    133,919
    
    
    $
    133,246
    
    
    $
    267,165
 Analysis of Asset Quality and Allowance for Loan Losses.
   36




---



##### Table of Contents



§
    
    specific allocation for problem graded loans (classified loans),§

    
    general or formula allocation,§
    
    and discretionary allocation based on loan portfolio segmentation.
  §
    
    Statement of Financial Accounting Standards (SFAS) No. 5 Accounting for Contingencies,§
    
    SFAS No.114 ,Accounting by Creditors for Impairment of a Loan and§
    
    SFAS 118, Accounting by Creditors for Impairment of a Loan  Income Recognition and
Disclosures.
  37




---



##### Table of Contents



At December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(dollars in thousands)Balance at beginning of period
    
    $
    3,256
    
    
    $
    2,722
    
    
    $
    2,524
    
    
    $
    2,431
    
    
    $
    2,113Charge-offs:Commercial and agricultural
    
    
    126
    
    
    
    297
    
    
    
    103
    
    
    
    295
    
    
    
    195Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    13Real estate construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    Consumer
    
    
    519
    
    
    
    442
    
    
    
    600
    
    
    
    520
    
    
    
    393Total charge-offs
    
    
    645
    
    
    
    739
    
    
    
    703
    
    
    
    847
    
    
    
    601Recoveries:Commercial and agricultural
    
    
    46
    
    
    
    21
    
    
    
    15
    
    
    
    45
    
    
    
    21Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    260
    
    
    
    152
    
    
    
    136
    
    
    
    145
    
    
    
    73Total recoveries
    
    
    306
    
    
    
    173
    
    
    
    151
    
    
    
    190
    
    
    
    94Net charge-offs
    
    
    339
    
    
    
    566
    
    
    
    552
    
    
    
    657
    
    
    
    507Provision for loan losses
    
    
    1,000
    
    
    
    1,100
    
    
    
    750
    
    
    
    750
    
    
    
    825Balance at end of period
    
    $
    3,917
    
    
    $
    3,256
    
    
    $
    2,722
    
    
    $
    2,524
    
    
    $
    2,431Net charge-offs during the period
to average loans
    
    
    0.10
    %
    
    
    0.19
    %
    
    
    0.24
    %
    
    
    0.31
    %
    
    
    0.26
    %Allowance for loan losses to total loans
    
    
    1.10
    %
    
    
    1.01
    %
    
    
    1.02
    %
    
    
    1.16
    %
    
    
    1.17
    %
  38




---



##### Table of Contents



At December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(dollars in thousands)Nonaccrual loans
    
    $
    972
    
    
    $
    1,661
    
    
    $
    1,171
    
    
    $
    847
    
    
    $
    1,711Loans past due 90 days or
more and still accruing
    
    
    41
    
    
    
    
    
    
    
    36
    
    
    
    29
    
    
    
    75Total nonperforming loans
    
    
    1,013
    
    
    
    1,661
    
    
    
    1,207
    
    
    
    876
    
    
    
    1,786Other real estate owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125Other vehicles owned
    
    
    47
    
    
    
    40
    
    
    
    33
    
    
    
    
    
    
    
    Total nonperforming assets
    
    $
    1,060
    
    
    $
    1,701
    
    
    $
    1,240
    
    
    $
    876
    
    
    $
    1,911Interest income forgone on
nonaccrual loans
    
    $
    53
    
    
    $
    39
    
    
    $
    25
    
    
    $
    51
    
    
    $
    148Interest income recorded on a
cash basis on nonaccrual loans
    
    $
    116
    
    
    $
    16
    
    
    $
    63
    
    
    $
    143
    
    
    $
    29Nonperforming loans to total
Loans
    
    
    0.29
    %
    
    
    0.52
    %
    
    
    0.45
    %
    
    
    0.40
    %
    
    
    0.86
    %Nonperforming assets to total
Assets
    
    
    0.22
    %
    
    
    0.36
    %
    
    
    0.30
    %
    
    
    0.22
    %
    
    
    0.59
    %Allowance for loan losses to nonperforming
Loans
    
    
    387
    %
    
    
    196
    %
    
    
    226
    %
    
    
    288
    %
    
    
    136
    %
   Investment Portfolio and Federal Funds Sold.
 39




---



##### Table of Contents



December 31,Available-for-sale (fair value)
    
    2006
    
    
    2005
    
    
    2004(dollars in thousands)U.S. Treasuries
    
    $
    5,344
    
    
    $
    9,823
    
    
    $
    10,055U.S. Government agencies
    
    
    30,063
    
    
    
    43,756
    
    
    
    57,083Corporate debt securities
    
    
    7,868
    
    
    
    9,231
    
    
    
    9,501U.S. Government agency
mortgage-backed
Securities
    
    
    17,440
    
    
    
    20,951
    
    
    
    20,640Total
    
    $
    60,715
    
    
    $
    83,761
    
    
    $
    97,279
 December 31,Held-to-maturity (amortized cost)
    
    2006
    
    
    2005
    
    
    2004(dollars in thousands)U.S. Government agencies
    
    
    
    
    
    $
    6
    
    
    $
    507Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    500Municipal obligations
    
    $
    14,080
    
    
    
    14,077
    
    
    
    14,966Total
    
    $
    14,080
    
    
    $
    14,083
    
    
    $
    15,973
 40




---



##### Table of Contents



(dollars in thousands)
    
    
    
    
    
    
    
    
    
    After One Through
    
    After Five ThroughAvailable-for-sale
    
    One Year or Less
    
    Five Years
    
    Ten Years
    
    After Ten Years
    
    Total(Fair Value)
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    YieldU.S. Treasuries
    
    $
    1,966
    
    
    
    2.73
    %
    
    $
    3,378
    
    
    
    3.02
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    5,344
    
    
    
    2.91
    %U.S. Government agencies
    
    
    21,743
    
    
    
    3.26
    %
    
    
    8,320
    
    
    
    2.87
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    30,063
    
    
    
    3.15
    %Corporate debt securities
    
    
    3,996
    
    
    
    3.17
    %
    
    
    3,872
    
    
    
    3.57
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    7,868
    
    
    
    3.37
    %U.S. Government agency
mortgage-backed securities
    
    
    
    
    
    
    
    %
    
    
    5,688
    
    
    
    3.68
    %
    
    
    4,332
    
    
    
    3.85
    %
    
    
    7,420
    
    
    
    4.79
    %
    
    
    17,440
    
    
    
    4.19
    %Total
    
    $
    27,705
    
    
    
    3.21
    %
    
    $
    21,258
    
    
    
    3.24
    %
    
    $
    4,332
    
    
    
    3.85
    %
    
    $
    7,420
    
    
    
    4.79
    %
    
    $
    60,715
    
    
    
    3.46
    %Held-to-maturity
(Amortized Cost)Municipal obligations
    
    $
    588
    
    
    
    5.37
    %
    
    $
    1,501
    
    
    
    5.61
    %
    
    $
    8,789
    
    
    
    5.52
    %
    
    $
    3,202
    
    
    
    6.32
    %
    
    $
    14,080
    
    
    
    5.70
    %
 41




---



##### Table of Contents



Deposits.
    2006
    
    
    2005
    
    
    2004Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate %
    
    
    Balance
    
    
    Rate %
    
    
    Balance
    
    
    Rate %(dollars in thousands)Non-interest-bearing deposits
    
    $
    125,202
    
    
    
    
    
    
    $
    124,568
    
    
    
    
    
    
    $
    105,841Interest-bearing deposits:Interest bearing demand deposits
    
    
    80,685
    
    
    
    1.85
    %
    
    
    48,577
    
    
    
    0.40
    %
    
    
    44,244
    
    
    
    0.13
    %Money market accounts
    
    
    56,496
    
    
    
    1.17
    %
    
    
    64,025
    
    
    
    1.17
    %
    
    
    65,026
    
    
    
    0.75
    %Savings
    
    
    59,802
    
    
    
    0.71
    %
    
    
    67,702
    
    
    
    0.66
    %
    
    
    64,472
    
    
    
    0.45
    %Time deposits
    
    
    93,515
    
    
    
    3.54
    %
    
    
    93,946
    
    
    
    2.73
    %
    
    
    93,684
    
    
    
    1.88
    %Total interest bearing deposits
    
    
    290,498
    
    
    
    2.03
    %
    
    
    274,250
    
    
    
    1.49
    %
    
    
    267,426
    
    
    
    0.97
    %Total deposits
    
    $
    415,700
    
    
    
    1.42
    %
    
    $
    398,818
    
    
    
    1.03
    %
    
    $
    373,267
    
    
    
    0.70
    %
 
 Amount(dollars in thousands)Remaining Maturity:Three months or less
    
    $
    7,672Over three months to six months
    
    
    11,338Over six months to 12 months
    
    
    10,844Over 12 months
    
    
    7,009Total
    
    $
    36,863
 42




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##### Table of Contents



Capital Resources
 Shareholders Equity.
 Capital Standards.
   43




---



##### Table of Contents



December 31, 2006
    
    December 31, 2005Amount
    
    Ratio
    
    Amount
    
    RatioTier 1 Leverage RatioPlumas Bancorp and Subsidiary
    
    $
    45,206
    
    
    
    9.5
    %
    
    $
    40,589
    
    
    
    8.5
    %Minimum regulatory requirement
    
    
    18,955
    
    
    
    4.0
    %
    
    
    19,013
    
    
    
    4.0
    %Plumas Bank
    
    
    44,094
    
    
    
    9.3
    %
    
    
    37,611
    
    
    
    7.8
    %Minimum requirement for
Well-Capitalized institution
    
    
    23,669
    
    
    
    5.0
    %
    
    
    24,060
    
    
    
    5.0
    %Minimum regulatory requirement
    
    
    18,935
    
    
    
    4.0
    %
    
    
    19,248
    
    
    
    4.0
    %Tier 1 Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    
    45,206
    
    
    
    10.9
    %
    
    
    40,589
    
    
    
    10.3
    %Minimum regulatory requirement
    
    
    16,610
    
    
    
    4.0
    %
    
    
    15,780
    
    
    
    4.0
    %Plumas Bank
    
    
    44,094
    
    
    
    10.6
    %
    
    
    37,611
    
    
    
    9.6
    %Minimum requirement for
Well-Capitalized institution
    
    
    24,885
    
    
    
    6.0
    %
    
    
    23,635
    
    
    
    6.0
    %Minimum regulatory requirement
    
    
    16,590
    
    
    
    4.0
    %
    
    
    15,757
    
    
    
    4.0
    %Total Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    
    49,123
    
    
    
    11.8
    %
    
    
    43,845
    
    
    
    11.1
    %Minimum regulatory requirement
    
    
    33,221
    
    
    
    8.0
    %
    
    
    31,560
    
    
    
    8.0
    %Plumas Bank
    
    
    48,011
    
    
    
    11.6
    %
    
    
    40,867
    
    
    
    10.4
    %Minimum requirement for
Well-Capitalized institution
    
    
    41,475
    
    
    
    10.0
    %
    
    
    39,392
    
    
    
    10.0
    %Minimum regulatory requirement
    
    
    33,180
    
    
    
    8.0
    %
    
    
    31,514
    
    
    
    8.0
    %
  Off-Balance Sheet Arrangements
 Loan Commitments.
 44




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##### Table of Contents



Operating Leases.
  Contractual Obligations and Commitments
  Contractual Obligations Due by Period(dollars in thousands)
    
    Total
    
    Less than 1 year
    
    1 to 3 years
    
    3 to 5 years
    
    More than 5 yearsLong-term debt obligations:Junior subordinated deferrable
Interest debentures
    
    $
    10,310
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10,310Operating lease obligations
    
    
    235
    
    
    
    164
    
    
    
    71
    
    
    
    
    
    
    
    Other long-term liabilities:Salary continuation
    
    
    2,822
    
    
    
    35
    
    
    
    84
    
    
    
    106
    
    
    
    2,597Branch mortgage
    
    
    63
    
    
    
    10
    
    
    
    21
    
    
    
    25
    
    
    
    7Total contractual liabilities
    
    $
    13,430
    
    
    $
    209
    
    
    $
    176
    
    
    $
    131
    
    
    $
    12,914
 Liquidity
    45




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     Net Interest Income Simulation.
  46




---



##### Table of Contents



December 31, 2006
    
    December 31, 2005Adjusted Net
    
    Percent
    
    Adjusted Net
    
    PercentInterest Income
    
    Change
    
    Interest Income
    
    ChangeChange in Rates
    
    (in thousands)
    
    From Base
    
    (in thousands)
    
    From BaseUp 300 basis points
    
    $
    28,996
    
    
    
    14.8
    %
    
    $
    27,408
    
    
    
    18.1
    %Up 200 basis points
    
    
    27,724
    
    
    
    9.8
    %
    
    
    25,965
    
    
    
    11.9
    %Up 100 basis points
    
    
    26,477
    
    
    
    4.8
    %
    
    
    24,568
    
    
    
    5.9
    %Base scenario
    
    
    25,258
    
    
    
    
    %
    
    
    23,206
    
    
    
    
    %Down 100 basis
points
    
    
    24,051
    
    
    
    -4.8
    %
    
    
    21,855
    
    
    
    -5.8
    %Down 200 basis
points
    
    
    22,853
    
    
    
    -9.5
    %
    
    
    20,536
    
    
    
    -11.5
    %Down 300 basis
points
    
    
    21,664
    
    
    
    -14.2
    %
    
    
    19,233
    
    
    
    -17.1
    %
  Unaudited Quarterly Statement of Operations Data
 Q4
    
    Q3
    
    Q2
    
    Q1
    
    Q4
    
    Q3
    
    Q2
    
    Q12006
    
    2006
    
    2006
    
    2006
    
    2005
    
    2005
    
    2005
    
    2005(dollars in thousands)Net interest income
    
    $
    5,877
    
    
    $
    5,741
    
    
    $
    5,519
    
    
    $
    5,391
    
    
    $
    5,541
    
    
    $
    5,399
    
    
    $
    5,027
    
    
    $
    4,737Provision for loan losses
    
    
    100
    
    
    
    300
    
    
    
    300
    
    
    
    300
    
    
    
    200
    
    
    
    300
    
    
    
    300
    
    
    
    300Non-interest income
    
    
    1,306
    
    
    
    1,393
    
    
    
    1,348
    
    
    
    1,112
    
    
    
    1,354
    
    
    
    1,306
    
    
    
    1,110
    
    
    
    1,109Non-interest expense
    
    
    4,958
    
    
    
    4,580
    
    
    
    4,441
    
    
    
    4,310
    
    
    
    4,615
    
    
    
    4,414
    
    
    
    4,125
    
    
    
    4,201Income before income taxes
    
    
    2,125
    
    
    
    2,254
    
    
    
    2,126
    
    
    
    1,893
    
    
    
    2,080
    
    
    
    1,991
    
    
    
    1,712
    
    
    
    1,345Income taxes
    
    
    804
    
    
    
    858
    
    
    
    816
    
    
    
    718
    
    
    
    780
    
    
    
    743
    
    
    
    629
    
    
    
    448Net income
    
    $
    1,321
    
    
    $
    1,396
    
    
    $
    1,310
    
    
    $
    1,175
    
    
    $
    1,300
    
    
    $
    1,248
    
    
    $
    1,083
    
    
    $
    897Per share:Basic earnings per share
    
    $
    0.26
    
    
    $
    0.28
    
    
    $
    0.26
    
    
    $
    0.24
    
    
    $
    0.26
    
    
    $
    0.25
    
    
    $
    0.22
    
    
    $
    0.19Diluted earnings per share
    
    $
    0.26
    
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.23
    
    
    $
    0.25
    
    
    $
    0.24
    
    
    $
    0.22
    
    
    $
    0.18
 47




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  PageReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheet as of December 31, 2006 and 2005
    
    F-2Consolidated Statement of Income for the years ended December 31, 2006, 2005 and 2004
    
    F-3Consolidated Statement of Changes in Shareholders Equity for the years ended December 31, 2006, 2005 and 2004
    
    F-5Consolidated Statement of Cash Flows for the years ended December 31, 2006, 2005 and 2004
    
    F-7Notes to Consolidated Financial Statements
    
    F-10
 48




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal
Control-Integrated Framework
  
 F - 1




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEET
 December 31, 2006 and 2005
 2006
    
    
    2005ASSETSCash and due from banks
    
    $
    11,293,000
    
    
    $
    17,271,000Federal funds sold
    
    
    
    
    
    
    7,325,000Cash and cash equivalents
    
    
    11,293,000
    
    
    
    24,596,000Investment securities (Note 3)
    
    
    74,795,000
    
    
    
    97,844,000Loans, less allowance for loan losses of $3,917,000
in 2006 and $3,256,000 in 2005 (Notes 4, 7, 9 and 13)
    
    
    351,977,000
    
    
    
    319,156,000Premises and equipment, net (Note 5)
    
    
    15,190,000
    
    
    
    11,404,000Intangible assets, net (Note 17)
    
    
    1,337,000
    
    
    
    1,638,000Bank owned life insurance (Note 14)
    
    
    9,449,000
    
    
    
    8,930,000Accrued interest receivable and other assets (Note 12)
    
    
    9,198,000
    
    
    
    9,235,000Total assets
    
    $
    473,239,000
    
    
    $
    472,803,000LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    121,464,000
    
    
    $
    129,734,000Interest bearing (Note 6)
    
    
    280,712,000
    
    
    
    296,826,000Total deposits
    
    
    402,176,000
    
    
    
    426,560,000Short-term borrowings (Note 7)
    
    
    20,000,000
    
    
    
    Accrued interest payable and other liabilities
    
    
    4,901,000
    
    
    
    4,796,000Junior subordinated deferrable interest debentures
(Note 8)
    
    
    10,310,000
    
    
    
    10,310,000Total liabilities
    
    
    437,387,000
    
    
    
    441,666,000Commitments and contingencies (Note 9)Shareholders equity (Note 10):Serial preferred stock  no par value; 10,000,000
shares authorized; none issued
    
    
    
    
    
    
    Common stock  no par value; 22,500,000 shares
authorized; issued and outstanding  5,023,205
shares in 2006 and 4,976,654 shares in 2005
    
    
    4,828,000
    
    
    
    4,412,000Retained earnings
    
    
    31,716,000
    
    
    
    27,816,000Accumulated other comprehensive loss
(Notes 3 and 15)
    
    
    (692,000
    )
    
    
    (1,091,000
    )Total shareholders equity
    
    
    35,852,000
    
    
    
    31,137,000Total liabilities and shareholders equity
    
    $
    473,239,000
    
    
    $
    472,803,000
 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, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Interest income:Interest and fees on loans
    
    $
    26,272,000
    
    
    $
    21,955,000
    
    
    $
    16,464,000Interest on investment securities:Taxable
    
    
    2,516,000
    
    
    
    2,787,000
    
    
    
    3,044,000Exempt from Federal income taxes
    
    
    531,000
    
    
    
    537,000
    
    
    
    439,000Interest on Federal funds sold
    
    
    164,000
    
    
    
    218,000
    
    
    
    163,000Total interest income
    
    
    29,483,000
    
    
    
    25,497,000
    
    
    
    20,110,000Interest expense:Interest on deposits
    
    
    5,887,000
    
    
    
    4,092,000
    
    
    
    2,600,000Interest on short-term borrowings
(Note 7)
    
    
    257,000
    
    
    
    222,000
    
    
    
    9,000Interest on junior subordinated
deferrable interest debentures
(Note 8)
    
    
    810,000
    
    
    
    479,000
    
    
    
    305,000Total interest expense
    
    
    6,954,000
    
    
    
    4,793,000
    
    
    
    2,914,000Net interest income before
provision for loan losses
    
    
    22,529,000
    
    
    
    20,704,000
    
    
    
    17,196,000Provision for loan losses (Note 4)
    
    
    1,000,000
    
    
    
    1,100,000
    
    
    
    750,000Net interest income after
provision for loan losses
    
    
    21,529,000
    
    
    
    19,604,000
    
    
    
    16,446,000Non-interest income:Service charges
    
    
    3,676,000
    
    
    
    3,458,000
    
    
    
    3,297,000Gain on sale of loans
    
    
    42,000
    
    
    
    45,000
    
    
    
    94,000(Loss) gain on sale of available-for-
sale investment securities, net
(Notes 3 and 15)
    
    
    
    
    
    
    (8,000
    )
    
    
    235,000Earnings on Bank owned life
insurance policies (Note 14)
    
    
    393,000
    
    
    
    355,000
    
    
    
    415,000Other
    
    
    1,048,000
    
    
    
    1,223,000
    
    
    
    1,058,000Total non-interest income
    
    
    5,159,000
    
    
    
    5,073,000
    
    
    
    5,099,000
  F - 3




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF INCOME   For the Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Non-interest expenses:Salaries and employee benefits
(Notes 4 and 14)
    
    $
    10,043,000
    
    
    $
    9,514,000
    
    
    $
    8,831,000Occupancy and equipment
(Notes 5 and 9)
    
    
    3,323,000
    
    
    
    3,070,000
    
    
    
    2,713,000Other (Note 11)
    
    
    4,924,000
    
    
    
    4,965,000
    
    
    
    4,354,000Total non-interest expenses
    
    
    18,290,000
    
    
    
    17,549,000
    
    
    
    15,898,000Income before provision for
income taxes
    
    
    8,398,000
    
    
    
    7,128,000
    
    
    
    5,647,000Provision for income taxes (Note 12)
    
    
    3,196,000
    
    
    
    2,600,000
    
    
    
    2,001,000Net income
    
    $
    5,202,000
    
    
    $
    4,528,000
    
    
    $
    3,646,000Basic earnings per share (Note 10)
    
    $
    1.04
    
    
    $
    0.92
    
    
    $
    0.75Diluted earnings per share (Note 10)
    
    $
    1.02
    
    
    $
    0.89
    
    
    $
    0.73
 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, 2006, 2005 and 2004
 AccumulatedOtherCommon Stock
    
    
    
    
    
    
    Comprehensive
    
    
    Total
    
    
    TotalRetained
    
    
    (Loss) Income
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Earnings
    
    
    (Net of Taxes)
    
    
    Equity
    
    
    IncomeBalance, January 1, 2004
    
    
    4,863,040
    
    
    $
    3,945,000
    
    
    $
    21,638,000
    
    
    $
    166,000
    
    
    $
    25,749,000Comprehensive income (Note 15):Net income
    
    
    
    
    
    
    
    
    
    
    3,646,000
    
    
    
    
    
    
    
    3,646,000
    
    
    $
    3,646,000Other comprehensive loss, net of tax:Net change in unrealized gains (losses)
on available-for-sale investment
securities (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (658,000
    )
    
    
    (658,000
    )
    
    
    (658,000
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,988,000Cash dividends  $0.19 per share
    
    
    
    
    
    
    
    
    
    
    (914,000
    )
    
    
    
    
    
    
    (914,000
    )Retirement of common stock in connection
with the exercise of stock options
(Note 10)
    
    
    (13,461
    )
    
    
    (176,000
    )
    
    
    
    
    
    
    
    
    
    
    (176,000
    )Stock options exercised and related
tax benefit (Note 10)
    
    
    51,618
    
    
    
    244,000
    
    
    
    
    
    
    
    
    
    
    
    244,000Balance, December 31, 2004
    
    
    4,901,197
    
    
    
    4,013,000
    
    
    
    24,370,000
    
    
    
    (492,000
    )
    
    
    27,891,000Comprehensive income (Note 15):Net income
    
    
    
    
    
    
    
    
    
    
    4,528,000
    
    
    
    
    
    
    
    4,528,000
    
    
    $
    4,528,000Other comprehensive loss, net of tax:Net change in unrealized losses
on available-for-sale investment
securities (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (599,000
    )
    
    
    (599,000
    )
    
    
    (599,000
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,929,000Cash dividends  $0.22 per share
    
    
    
    
    
    
    
    
    
    
    (1,082,000
    )
    
    
    
    
    
    
    (1,082,000
    )Retirement of common stock in connection
with the exercise of stock options
(Note 10)
    
    
    (6,904
    )
    
    
    (105,000
    )
    
    
    
    
    
    
    
    
    
    
    (105,000
    )Stock options exercised and related
tax benefit (Note 10)
    
    
    82,608
    
    
    
    512,000
    
    
    
    
    
    
    
    
    
    
    
    512,000Fractional shares repurchased as a result
of three-for-two stock split
    
    
    (247
    )
    
    
    (8,000
    )
    
    
    
    
    
    
    
    
    
    
    (8,000
    )Balance, December 31, 2005
    
    
    4,976,654
    
    
    
    4,412,000
    
    
    
    27,816,000
    
    
    
    (1,091,000
    )
    
    
    31,137,000
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY   For the Years Ended December 31, 2006, 2005 and 2004
 AccumulatedOtherComprehensive
    
    
    Total
    
    
    TotalCommon Stock
    
    
    Retained
    
    
    (Loss) Income
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Earnings
    
    
    (Net of Taxes)
    
    
    Equity
    
    
    IncomeBalance, December 31, 2005
    
    
    4,976,654
    
    
    
    4,412,000
    
    
    
    27,816,000
    
    
    
    (1,091,000
    )
    
    
    31,137,000Comprehensive income (Note 15):Net income
    
    
    
    
    
    
    
    
    
    
    5,202,000
    
    
    
    
    
    
    
    5,202,000
    
    
    $
    5,202,000Other comprehensive loss, net of tax:Net change in unrealized losses
on available-for-sale investment
securities (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    399,000
    
    
    
    399,000
    
    
    
    399,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,601,000Cash dividends  $0.26 per share
    
    
    
    
    
    
    
    
    
    
    (1,302,000
    )
    
    
    
    
    
    
    (1,302,000
    )Retirement of common stock in connection
with the exercise of stock options
(Note 10)
    
    
    (21,255
    )
    
    
    (417,000
    )
    
    
    
    
    
    
    
    
    
    
    (417,000
    )Stock options exercised and related
tax benefit (Note 10)
    
    
    67,806
    
    
    
    659,000
    
    
    
    
    
    
    
    
    
    
    
    659,000Stock-based compensation expense
    
    
    
    
    
    
    174,000
    
    
    
    
    
    
    
    
    
    
    
    174,000Balance, December 31, 2006
    
    
    5,023,205
    
    
    $
    4,828,000
    
    
    $
    31,716,000
    
    
    $
    (692,000
    )
    
    $
    35,852,000
 2006
    
    
    2005
    
    
    2004Disclosure of reclassification amount, net of taxes (Note 15):Unrealized holding gain (losses) arising during the year
    
    $
    399,000
    
    
    $
    (604,000
    )
    
    $
    (523,000
    )Reclassification adjustment for (losses) gains included in net income
    
    
    
    
    
    
    (5,000
    )
    
    
    135,000Net unrealized gain (losses) on available-for-sale investment securities
    
    $
    399,000
    
    
    $
    (599,000
    )
    
    $
    (658,000
    )
 The accompanying notes are an integral
part of these consolidated financial statements.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 
 CONSOLIDATED STATEMENT OF CASH FLOWS
 For the Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    5,202,000
    
    
    $
    4,528,000
    
    
    $
    3,646,000Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    1,000,000
    
    
    
    1,100,000
    
    
    
    750,000Change in deferred loan origination
costs/fees, net
    
    
    (416,000
    )
    
    
    (1,026,000
    )
    
    
    (270,000
    )Stock-based compensation expense
    
    
    174,000Depreciation and amortization
    
    
    2,171,000
    
    
    
    2,076,000
    
    
    
    1,625,000Net loss (gain) on sale of available-for-sale
investment securities
    
    
    
    
    
    
    8,000
    
    
    
    (235,000
    )Amortization of investment security
premiums
    
    
    387,000
    
    
    
    633,000
    
    
    
    918,000Accretion of investment security discounts
    
    
    (89,000
    )
    
    
    (72,000
    )
    
    
    (87,000
    )Net loss (gain) on sale of premises and
equipment
    
    
    
    
    
    
    2,000
    
    
    
    (4,000
    )Net loss (gain) on sale of other real estate
    
    
    
    
    
    
    15,000
    
    
    
    (141,000
    )Net loss on judgement receivable
    
    
    
    
    
    
    
    
    
    
    53,000Net (gain) loss on sale of other vehicles owned
    
    
    (23,000
    )
    
    
    28,000
    
    
    
    22,000Writedown of other real estate to fair value
    
    
    
    
    
    
    
    
    
    
    18,000Net decrease in loans held for sale
    
    
    
    
    
    
    
    
    
    
    276,000Earnings on bank owned life insurance
policies
    
    
    (393,000
    )
    
    
    (355,000
    )
    
    
    (415,000
    )Expenses on bank owned life insurance
policies
    
    
    74,000
    
    
    
    68,000
    
    
    
    66,000Increase in accrued interest receivable and
other assets
    
    
    (41,000
    )
    
    
    (215,000
    )
    
    
    (217,000
    )Increase in accrued interest payable and
other liabilities
    
    
    105,000
    
    
    
    1,021,000
    
    
    
    2,217,000Provision for deferred income taxes
    
    
    (456,000
    )
    
    
    34,000
    
    
    
    82,000Net cash provided by operating
activities
    
    
    7,695,000
    
    
    
    7,845,000
    
    
    
    8,304,000
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF CASH FLOWS   For the Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Cash flows from investing activities:Proceeds from matured and called available-
for-sale investment securities
    
    $
    19,931,000
    
    
    $
    16,000,000
    
    
    $
    2,355,000Proceeds from matured and called held-to-
maturity investment securities
    
    
    
    
    
    
    1,801,000
    
    
    
    15,320,000Proceeds from sale of available-for-sale
investment securities
    
    
    
    
    
    
    1,992,000
    
    
    
    36,309,000Purchases of available-for-sale investment
securities
    
    
    
    
    
    
    (9,688,000
    )
    
    
    (47,147,000
    )Purchases of held-to-maturity investment
securities
    
    
    (155,000
    )
    
    
    
    
    
    
    (8,827,000
    )Proceeds from principal repayments from
available-for-sale government-guaranteed
mortgage-backed securities
    
    
    3,521,000
    
    
    
    3,572,000
    
    
    
    2,722,000Proceeds from principal repayments from
held-to-maturity government-guaranteed
mortgage-backed securities
    
    
    134,000
    
    
    
    143,000
    
    
    
    181,000Net increase in loans
    
    
    (33,831,000
    )
    
    
    (55,527,000
    )
    
    
    (49,745,000
    )Proceeds from sale of other real estate and
vehicles
    
    
    211,000
    
    
    
    284,000
    
    
    
    890,000Proceeds from the sale of premises and
equipment
    
    
    8,000
    
    
    
    6,000Purchases of premises and equipment
    
    
    (5,173,000
    )
    
    
    (3,394,000
    )
    
    
    (809,000
    )Purchase of bank owned life insurance
    
    
    (200,000
    )
    
    
    (281,000
    )Net cash used in investing activities
    
    
    (15,554,000
    )
    
    
    (45,092,000
    )
    
    
    (48,751,000
    )Cash flows from financing activities:Net (decrease) increase in demand,
interest-bearing and savings deposits
    
    $
    (26,025,000
    )
    
    $
    43,443,000
    
    
    $
    21,535,000Net increase in time deposits
    
    
    1,641,000
    
    
    
    4,550,000
    
    
    
    1,190,000Net increase (decrease) in
short-term borrowings
    
    
    20,000,000
    
    
    
    (1,035,000
    )Proceeds from exercise of stock options
    
    
    181,000
    
    
    
    407,000
    
    
    
    68,000Cash paid for fractional shares
    
    
    
    
    
    
    (8,000
    )Excess tax benefits from stock-based compensation
    
    
    61,000Proceeds from the issuance of junior
subordinated deferrable interest debentures
    
    
    
    
    
    
    4,124,000Payment of cash dividends
    
    
    (1,302,000
    )
    
    
    (1,082,000
    )
    
    
    (914,000
    )Net cash (used in) provided by financing
activities
    
    
    (5,444,000
    )
    
    
    50,399,000
    
    
    
    21,879,000(Decrease) increase in cash and cash
equivalents
    
    
    (13,303,000
    )
    
    
    13,152,000
    
    
    
    (18,568,000
    )Cash and cash equivalents at beginning of year
    
    
    24,596,000
    
    
    
    11,444,000
    
    
    
    30,012,000Cash and cash equivalents at end of year
    
    $
    11,293,000
    
    
    $
    24,596,000
    
    
    $
    11,444,000
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF CASH FLOWS   For the Years Ended December 31, 2006, 2005 and 2004
 2006
    
    2005
    
    2004Supplemental disclosure of cash flow information:Cash paid during the year for:Interest expense
    
    $
    6,882,000
    
    
    $
    4,581,000
    
    
    $
    2,881,000Income taxes
    
    $
    3,370,000
    
    
    $
    2,805,000
    
    
    $
    1,612,000Non-cash investing activities:Real estate acquired through foreclosure
    
    
    
    
    
    
    
    
    
    $
    145,000Vehicles acquired through repossession
    
    $
    196,000
    
    
    $
    228,000
    
    
    $
    92,000Reclassification of loans to other assets
    
    $
    230,000Net change in unrealized loss on
available-for-sale investment securities
    
    $
    679,000
    
    
    $
    (1,019,000
    )
    
    $
    (1,122,000
    )Non-cash financing activities:Common stock retired in connection
with the exercise of stock options
    
    $
    417,000
    
    
    $
    105,000
    
    
    $
    176,000
 The accompanying notes are an integralpart 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 BANCORPDuring 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 twelve branches in California, including branches in Alturas, Chester,
Fall River Mills, Greenville, Kings Beach, Loyalton, Portola, Quincy, Susanville, Tahoe
City, Truckee and Westwood. During the fourth quarter of 2006 the Bank opened a commercial
lending office in Reno, Nevada. The Banks deposits are insured by the Federal Deposit
Insurance Corporation (FDIC) up to applicable legal limits. The Banks primary source of
revenue is generated from providing loans to customers who are predominately small and
middle market businesses and individuals residing in the surrounding areas.2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESConsolidation and Basis of PresentationThe consolidated financial statements include the accounts of the Company and the
consolidated accounts of its wholly-owned subsidiary, Plumas Bank. All significant
intercompany balances and transactions have been eliminated.Plumas Statutory Trust I and Trust II are not consolidated into the Companys consolidated
financial statements and, accordingly, are accounted for under the equity method. The
Companys investment in Trust I of $235,000 and Trust II of $134,000 are included in accrued
interest receivable and other assets on the consolidated balance sheet. The junior
subordinated deferrable interest debentures issued and guaranteed by the Company and held by
Trust I and Trust II are reflected as debt on the consolidated balance sheet.The accounting and reporting policies of Plumas Bancorp and subsidiary conform with
accounting principles generally accepted in the United States of America and prevailing
practices within the banking industry.ReclassificationsCertain reclassifications have been made to prior years balances to conform to
classifications used in 2006.
 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)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.Stock SplitOn August 17, 2005 the Companys Board of Director approved a three-for-two stock split for
shareholders of record at the close of business on September 2, 2005 and effective on
September 16, 2005. All share and per share data in the consolidated financial statements
have been retroactively adjusted to give effect to the stock split.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.Cash and Cash EquivalentsFor the purpose of the statement of cash flows, cash and due from banks and Federal funds
sold are considered to be cash equivalents. Generally, Federal funds are sold for one day
periods. Cash held with other federally insured institutions in excess of FDIC limits as of
December 31, 2006 was $84,000.Investment SecuritiesInvestments are classified into one of the following categories:
 
    
    Available-for-sale securities reported at fair value, with unrealized gains
and losses excluded from earnings and reported, net of taxes, as accumulated other
comprehensive income (loss) within shareholders equity.
    
    Held-to-maturity securities, which management has the positive intent and
ability to hold, reported at amortized cost, adjusted for the accretion of discounts
and amortization of premiums.
 Management determines the appropriate classification of its investments at the time of
purchase and may only change the classification in certain limited circumstances. All
transfers between categories are accounted for at fair value. As of December 31, 2006 and
2005 the Company did not have any investment securities classified as trading and there were
no transfers between categories during 2006 or 2005.
 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)Gains or losses on the sale of securities are computed on the specific identification
method. Interest earned on investment securities is reported in interest income, net of
applicable adjustments for accretion of discounts and amortization of premiums.Investment securities are evaluated for impairment on at least a quarterly basis and more
frequently when economic or market conditions warrant such an evaluation to determine
whether a decline in their value is other than temporary. Management utilizes criteria such
as the magnitude and duration of the decline and the intent and ability of the Company to
retain its investment in the securities for a period of time sufficient to allow for an
anticipated recovery in fair value, in addition to the reasons underlying the decline, to
determine whether the loss in value is other than temporary. The term other than
temporary is not intended to indicate that the decline is permanent, but indicates that the
prospects for a near-term recovery of value is not necessarily favorable, or that there is a
lack of evidence to support a realizable value equal to or greater than the carrying value
of the investment. Once a decline in value is determined to be other than temporary, the
value of the security is reduced and a corresponding charge to earnings is recognized.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, 2006 and 2005, Federal Home Loan Bank stock totaled $2,103,000 and
$2,000,000, respectively. On the consolidated balance sheet, Federal Home Loan Bank stock
is included in accrued interest receivable and other assets.Loans Held for Sale, Loan Sales and ServicingThe Company accounts for the transfer and servicing of financial assets based on the
financial and servicing assets it controls and liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities when
extinguished.Servicing rights acquired through 1) a purchase or 2) the origination of loans which are
sold or securitized with servicing rights retained are recognized as separate assets or
liabilities. Servicing assets or liabilities are recorded at the difference between the
contractual servicing fees and adequate compensation for performing the servicing, and are
subsequently amortized in proportion to and over the period of the related net servicing
income or expense. Servicing assets are periodically evaluated for impairment. Fair values
are estimated using discounted cash flows based on current market interest rates. For
purposes of measuring impairment, servicing assets are stratified based on note rate and
term. The amount of impairment recognized, if any is the amount by which the servicing
assets for a stratum exceed their fair value.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Loans Held for Sale, Loan Sales and Servicing (Continued)Government Guaranteed LoansIncluded in the portfolio are loans which are 75% to 90% guaranteed by the Small Business
Administration (SBA), US Department of Agriculture Rural Business Cooperative Service (RBS)
and Farm Services Agency (FSA). The guaranteed portion of these loans may be sold to a
third party, with the Bank retaining the unguaranteed portion. The Company 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, 2006, the premiums and
guaranteed portion of these sold loans subject to these recourse provisions was not
significant. During 2006, 2005 and 2004 the Company was not required to refund any
significant amounts of sales premiums related to the loans sold.The Companys investment in the loan is allocated between the retained portion of the loan,
the servicing asset, the interest-only (IO) strip, and the sold portion of the loan based on
their relative fair values on the date the loan is sold. The gain on the sold portion of
the loan is recognized as income at the time of sale. The carrying value of the retained
portion of the loan is discounted based on the estimated value of a comparable
non-guaranteed loan. The servicing asset is recognized and amortized over the estimated
life of the related loan (see Note 4). Assets (accounted for as interest-only (IO) strips)
are recorded at the fair value of the difference between note rates and rates paid to
purchasers (the interest spread) and contractual servicing fees, if applicable. IO strips
are carried at fair value with gains or losses recorded as a component of shareholders
equity, similar to available-for-sale investment securities. Significant future prepayments
of these loans will result in the recognition of additional amortization of related
servicing assets and an adjustment to the carrying value of related IO strips.Mortgage LoansThe Company originates mortgage loans that are either held in the Companys loan portfolio
or sold in the secondary market. Loans held-for-sale are carried at the lower of cost or
market value. Market value is determined by the specific identification method as of the
balance sheet date or the date which the purchasers have committed to purchase the loans.
At the time the loan is sold, the related right to service the loan is either retained, with
the Bank earning future servicing income, or released in exchange for a one-time
servicing-released premium. Loans subsequently transferred to the loan portfolio are
transferred at the lower of cost or market value at the date of transfer. Any difference
between the carrying amount of the loan and its outstanding principal balance is recognized
as an adjustment to yield by the interest method. The Company did not have any loans held
for sale at December 31, 2006 or 2005.The Company may be required to refund a portion of the premiums and repurchase a portion of
the loans that are sold if the borrower defaults within one hundred and eighty days of the
settlement date. At December 31, 2006, there were no premiums on sold loans subject to
these recourse provisions. During 2006, 2005 and 2004 the Company was not required to
refund any significant amounts of sales premiums related to the loans sold.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Loans Held for Sale, Loan Sales and Servicing (Continued)Mortgage Loans(Continued)The Company serviced loans for the Federal National Mortgage Association (FNMA) totaling
$6,388,000 and $8,229,000 as of December 31, 2006 and 2005, respectively.Participation LoansThe Company also serviced loans which it has participated with other financial institutions
totaling $2,910,000 and $1,516,000 as of December 31, 2006 and 2005, respectively.LoansLoans are stated at principal balances outstanding, except for loans transferred from loans
held for sale which are carried at the lower of principal balance or market value at the
date of transfer, adjusted for accretion of discounts. Interest is accrued daily based upon
outstanding loan balances. However, when, in the opinion of management, loans are
considered to be impaired and the future collectibility of interest and principal is in
serious doubt, loans are placed on nonaccrual status and the accrual of interest income is
suspended. Any interest accrued but unpaid is charged against income. Payments received
are applied to reduce principal to the extent necessary to ensure collection. Subsequent
payments on these loans, or payments received on nonaccrual loans for which the ultimate
collectibility of principal is not in doubt, are applied first to earned but unpaid interest
and then to principal.An impaired loan is measured based on the present value of expected future cash flows
discounted at the loans effective interest rate or, as a practical matter, at the loans
observable market price or the fair value of collateral if the loan is collateral dependent.
A loan is considered impaired when, based on current information and events, it is probable
that the Bank will be unable to collect all amounts due (including both principal and
interest) in accordance with the contractual terms of the loan agreement.Loan origination fees, commitment fees, direct loan origination costs and purchased premiums
and discounts on loans are deferred and recognized as an adjustment of yield, to be
amortized to interest income over the contractual term of the loan. The unamortized balance
of deferred fees and costs is reported as a component of net loans.The Company may acquire loans through a business combination or a purchase for which
differences may exist between the contractual cash flows and the cash flows expected to be
collected due, at least in part, to credit quality. When the Company acquires such loans,
the yield that may be accreted (accretable yield) is limited to the excess of the Companys
estimate of undiscounted cash flows expected to be collected over the Companys initial
investment in the loan. The excess of contractual cash flows over cash flows expected to be
collected may not be recognized as an adjustment to yield, loss, or a valuation allowance.
Subsequent increases in cash flows expected to be collected generally should be recognized
prospectively through adjustment of the loans yield over its remaining life. Decreases in
cash flows expected to be collected should be
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Loans (Continued)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, 2006 and 2005, there were no such loans being accounted for under this policy.Allowance for Loan LossesThe allowance for loan losses is maintained to provide for losses related to impaired loans
and other losses that can be expected to occur in the normal course of business. The
determination of the allowance is based on estimates made by management, to include
consideration of the character of the loan portfolio, specifically identified problem loans,
potential losses inherent in the portfolio taken as a whole and economic conditions in the
Companys service area.Classified loans and loans determined to be impaired are evaluated by management for
specific risk of loss. In addition, reserve factors are assigned to currently performing
loans based on managements assessment of the following for each identified loan type: (1)
inherent credit risk, (2) historical losses and, (3) where the Company has not experienced
losses, the loss experience of peer banks. These estimates are particularly susceptible to
changes in the economic environment and market conditions.The Banks Loan Committee reviews the adequacy of the allowance for loan losses at least
quarterly, to include consideration of the relative risks in the portfolio and current
economic conditions. The allowance is adjusted based on that review if, in managements
judgment, changes are warranted.The allowance is established through a provision for loan losses which is charged to
expense. Additions to the allowance are expected to maintain the adequacy of the total
allowance after credit losses and loan growth. The allowance for loan losses at December
31, 2006 and 2005, respectively, reflects managements estimate of probable losses in the
portfolio.Allowance for Losses Related to Undisbursed CommitmentsThe Company maintains a separate allowance for losses related to undisbursed loan
commitments. Management estimates the amount of probable losses by applying a loss reserve
factor to the unused portion of undisbursed lines of credit. The allowance totaled $55,000
and $40,000 at December 31, 2006 and 2005, respectively and is included in accrued interest
payable and other liabilities in the consolidated balance sheet.Other Real EstateThe Company had no other real estate holdings and no investment in real estate acquired in
full or partial settlement of loan obligations at December 31, 2006 and 2005. 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
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Other Real Estate (Continued)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.Premises and EquipmentPremises and equipment are carried at cost. Depreciation is determined using the
straight-line method over the estimated useful lives of the related assets. The useful
lives of premises are estimated to be twenty to thirty years. The useful lives of
furniture, fixtures and equipment are estimated to be two to ten years. Leasehold
improvements are amortized over the life of the asset or the life of the related lease,
whichever is shorter. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts, and any resulting
gain or loss is recognized in income for the period. The cost of maintenance and repairs is
charged to expense as incurred. The Company evaluates premises and equipment for financial
impairment as events or changes in circumstances indicate that the carrying amount of such
assets may not be fully recoverable.Intangible AssetsIntangible assets consist of core deposit intangibles related to branch acquisitions and are
amortized using the straight-line method over ten years. 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.Income TaxesThe Company files its income taxes on a consolidated basis with its subsidiary. The
allocation of income tax expense (benefit) represents each entitys proportionate share of
the consolidated provision for income taxes.Deferred tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. On the consolidated balance sheet, net deferred tax assets
are included in accrued interest receivable and other assets.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Earnings Per ShareBasic earnings per share (EPS), which excludes dilution, is computed by dividing income
available to common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock, such as stock options, result in the issuance of
common stock which shares in the earnings of the Company. The treasury stock method has
been applied to determine the dilutive effect of stock options in computing diluted EPS.Stock-Based CompensationAt December 31, 2006, 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 10. On January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (R), Share-Based Payment(SFAS 123 (R)), using the modified
prospective application transition method, which requires recognition of expense for options
granted prior to the adoption date equal to the fair value of the unvested amounts over
their remaining vesting period based on the grant date fair value estimated in accordance
with the original provisions of SFAS No. 123 Accounting for Stock Based Compensationand
compensation cost for all share based payments granted subsequent to January 1, 2006 based
on the grant date fair values estimated in accordance with the provisions of SFAS 123 (R).
The Company applied the alternative transition method in calculating its pool of excess tax
benefits available to absorb future tax deficiencies as provided by FSP FAS 123(R)-3,
Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.
Results for prior periods have not been restated. Prior to January 1, 2006, the Company
accounted for the Plans under the recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based
compensation cost was recorded prior to January 1, 2006, as all options granted under these
Plans had an exercise price equal to the market value of the underlying common stock on the
date of the grant.As a result of adopting SFAS 123 (R), the Companys income before provision for income taxes
and net income for the year ended December 31, 2006 was $174,000 and $154,000, respectively,
lower than if the Company had continued to account for share-based compensation under APB
25. Basic and diluted earnings per share for the year ended December 31, 2006 would have
been $1.07 and $1.05, respectively, without the adoption of SFAS 123 (R) compared to $1.04
and $1.02, respectively, as reported.In accordance with SFAS 123 (R), beginning in 2006 the Company has presented excess tax
benefits from the exercise of stock-based compensation awards as a financing activity in the
consolidated statement of cash flows.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Stock-Based Compensation
  2005
    
    
    2004Net income, as reported
    
    $
    4,528,000
    
    
    $
    3,646,000Deduct: Total stock-based compensation expense
determined under the fair value based method for
all awards, net of related tax effects
    
    
    177,000
    
    
    
    144,000Pro forma net income
    
    $
    4,351,000
    
    
    $
    3,502,000Basic earnings per share  as reported
    
    $
    .92
    
    
    $
    .75Basic earnings per share  pro forma
    
    $
    .88
    
    
    $
    .72Diluted earnings per share  as reported
    
    $
    .89
    
    
    $
    .73Diluted earnings per share  pro forma
    
    $
    .86
    
    
    $
    .71
   2006
    
    2005
    
    2004Expected life of stock options
    
    5 years
    
    
    5 years
    
    
    5 yearsInterest ratestock options
    
    
    4.67
    %
    
    
    4.14
    %
    
    
    3.46
    %Volatilitystock options
    
    
    21.4
    %
    
    
    30.53
    %
    
    
    51.54
    %Dividend yields
    
    
    1.40
    %
    
    
    1.48
    %
    
    
    1.44
    %Weighted-average fair value of
options granted during the year
    
    $
    4.56
    
    
    $
    4.77
    
    
    $
    5.09
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Impact of New Financial Accounting StandardsAccounting for Servicing of Financial AssetsIn March 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 156
(SFAS 156), Accounting for Servicing of Financial Assets  An Amendment of FASB Statement
No. 140. SFAS 156 requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits, but does not
require, the subsequent measurement of servicing assets and servicing liabilities at fair
value. Under SFAS 156, an entity can elect subsequent fair value measurement of its
servicing assets and servicing liabilities by class. An entity should apply the
requirements for recognition and initial measurement of servicing assets and servicing
liabilities prospectively to all transactions after the effective date. SFAS 156 permits an
entity to reclassify certain available-for-sale securities to trading securities provided
that they are identified in some manner as offsetting the entitys exposure to changes in
fair value of servicing assets or servicing liabilities subsequently measured at fair value.
The provisions of SFAS 156 are effective for an entity as of the beginning of its first
fiscal year that begins after September 15, 2006. Management does not expect the adoption
of SFAS 156 to have a material impact on the Companys financial position or results of
operations.Accounting for Uncertainty in Income TaxesIn July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109..
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes.FIN 48 prescribes a recognition threshold and measurement standard for the
financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosures and transitions. FIN 48
is effective for fiscal years beginning after December 15, 2006.The Company presently recognizes income tax positions based on managements estimate of
whether it is reasonably possible that a liability has been incurred for unrecognized income
tax benefits by applying FASB Statement No. 5, Accounting for Contingencies.The provisions of FIN 48 will be effective for the Company on January 1, 2007 and are to be
applied to all tax positions upon initial application of this standard. Only tax positions
that meet the more-likely-than-not recognition threshold at the effective date may be
recognized or continue to be recognized upon adoption.The cumulative effect of applying the provisions of FIN 48, if any, will be reported as an
adjustment to the opening balance of retained earnings for the fiscal year of adoption.
Management does not expect the adoption of FIN 48 to have a material impact on the Companys
financial position or results of operations.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Impact of New Financial Accounting Standards (Continued)Accounting for Purchases of Life InsuranceIn September 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force
(EITF) on Issue No. 06-5, Accounting for Purchases of Life Insurance  Determining the
Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4,
Accounting for Purchases of Life Insurance. FASB Technical Bulletin No. 85-4 requires that
the amount that could be realized under the insurance contract as of the date of the
statement of financial position should be reported as an asset. Since the issuance of FASB
Technical Bulletin No. 85-4, questions arose regarding whether the amount that could be
realized should consider 1) any additional amounts included in the contractual terms of the
insurance policy other than the cash surrender value and 2) the contractual ability to
surrender all of the individual-life policies (or certificates in a group policy) at the
same time. EITF 06-5 determined that the amount that could be realized should 1) consider
any additional amounts included in the contractual terms of the policy and 2) assume the
surrender of an individual-life by individual-life policy (or certificate by certificate in
a group policy). Any amount that is ultimately realized by the policy holder upon the
assumed surrender of the final policy (or final certificate in a group policy) shall be
included in the amount that could be realized. An entity should apply the provisions of
EITF 06-5 through either a change in accounting principle through a cumulative-effect
adjustment to retained earnings as of the beginning of the year of adoption or a change in
accounting principle through retrospective application to all prior periods. The provisions
of EITF 06-5 are effective for fiscal years beginning after December 15, 2006. Management
has not yet completed its evaluation of the impact that EITF 06-5 will have.Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance ArrangementsIn September 2006, the FASB ratified the consensuses reached by the Task Force on Issue No.
06-4 (EITF 06-4), Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements. A question arose when an employer
enters into an endorsement split-dollar life insurance arrangement related to whether the
employer should recognize a liability for the future benefits or premiums to be provided to
the employee. EITF 06-4 indicates that an employer should recognize a liability for future
benefits and that a liability for the benefit obligation has not been settled through the
purchase of an endorsement type policy. An entity should apply the provisions of EITF 06-4
either through a change in accounting principle through a cumulative-effect adjustment to
retained earnings as of the beginning of the year of adoption or a change in accounting
principle through retrospective application to all prior periods. The provisions of EITF
06-4 are effective for fiscal years beginning after December 15, 2007. Management has not
yet completed its evaluation of the impact that EITF 06-4 will have.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Impact of New Financial Accounting Standards (Continued)Fair Value MeasurementsIn September 2006, the FASB issued Statement No. 157 (SFAS 157), Fair Value Measurements.
SFAS 157 defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS 157 applies whenever other standards require
(or permit) assets or liabilities to be measured at fair value but does not expand the use
of fair value in any new circumstances. In this standard, the FASB clarifies the principle
that fair value should be based on the assumptions market participants would use when
pricing the asset or liability. In support of this principle, SFAS 157 establishes a fair
value hierarchy that prioritizes the information used to develop those assumptions. The
provisions of SFAS 157 are effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years. The
provisions should be applied prospectively, except for certain specifically identified
financial instruments. Management does not expect the adoption of SFAS 157 to have a
material impact to the Companys financial position or result of operations.Consideration of the Effects of Prior Year MisstatementsIn September 2006, the Securities and Exchange Commission published Staff Accounting
Bulleting No. 108 (SAB 108) Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements.The interpretations in this
Staff Accounting Bulleting were issued to address diversity in practice in quantifying
financial statement misstatements and the potential under current practice to build up
improper amounts on the balance sheet. This guidance will apply to the first fiscal year
ending after November 15, 2006 or December 31, 2006 for the Company.. The adoption of SAB
108 did not have a material impact on the Companys financial position, results of
operations or cash flows and no cumulative adjustment was required.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    INVESTMENT SECURITIESThe amortized cost and estimated fair value of investment securities at December 31, 2006
and 2005 consisted of the following:Available-for-Sale
 2006Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Treasury securities
    
    $
    5,481,000
    
    
    $
    
    
    
    $
    (137,000
    )
    
    $
    5,344,000U.S. Government agencies
    
    
    30,435,000
    
    
    
    
    
    
    
    (372,000
    )
    
    
    30,063,000U.S. Government agencies
collateralized by mortgage
obligations
    
    
    17,959,000
    
    
    
    
    
    
    
    (519,000
    )
    
    
    17,440,000Corporate debt securities
    
    
    8,018,000
    
    
    
    
    
    
    
    (150,000
    )
    
    
    7,868,000$
    61,893,000
    
    
    $
    
    
    
    $
    (1,178,000
    )
    
    $
    60,715,000
 Net unrealized losses on available-for-sale investment securities totaling $1,178,000
were recorded, net of $486,000 in tax benefits, as accumulated other comprehensive loss
within shareholders equity at December 31, 2006. There were no sales of available-for-sale
investment securities during the year ended December 31, 2006.
 2005Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Treasury securities
    
    $
    10,030,000
    
    
    
    
    
    
    $
    (207,000
    )
    
    $
    9,823,000U.S. Government agencies
    
    
    44,574,000
    
    
    $
    1,000
    
    
    
    (819,000
    )
    
    
    43,756,000U.S. Government agencies
collateralized by mortgage
obligations
    
    
    21,549,000
    
    
    
    12,000
    
    
    
    (610,000
    )
    
    
    20,951,000Corporate debt securities
    
    
    9,465,000
    
    
    
    
    
    
    
    (234,000
    )
    
    
    9,231,000$
    85,618,000
    
    
    $
    13,000
    
    
    $
    (1,870,000
    )
    
    $
    83,761,000
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    INVESTMENT SECURITIES(Continued)Available-for-Sale: (Continued)Net unrealized losses on available-for-sale investment securities totaling $1,857,000 were
recorded, net of $766,000 in tax benefits, as accumulated other comprehensive loss within
shareholders equity at December 31, 2005. Proceeds and gross realized losses from the sale
of available-for-sale investment securities for the year ended December 31, 2005 totaled
$1,992,000 and $8,000, respectively. Proceeds and gross realized gains from the sale of
available-for-sale investment securities for the year ended December 31, 2004 totaled
$36,309,000 and $235,000, respectively.Held-to-Maturity
 2006Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:Obligations of states and
political subdivisions
    
    $
    14,080,000
    
    
    $
    90,000
    
    
    $
    (44,000
    )
    
    $
    14,126,000
 2005Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:U.S. Government agencies
    
    $
    6,000
    
    
    
    
    
    
    
    
    
    
    $
    6,000Obligations of states and
political subdivisions
    
    
    14,077,000
    
    
    $
    48,000
    
    
    $
    (180,000
    )
    
    
    13,945,000$
    14,083,000
    
    
    $
    48,000
    
    
    $
    (180,000
    )
    
    $
    13,951,000
 There were no sales or transfers of held-to-maturity investment securities during the
years ended December 31, 2006, 2005 and 2004.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    INVESTMENT SECURITIES(Continued)Investment securities with unrealized losses at December 31, 2006 are summarized and
classified according to the duration of the loss period as follows:
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesDebt securities:U.S. Treasury securities
    
    
    
    
    
    
    
    
    
    $
    5,344,000
    
    
    $
    137,000
    
    
    $
    5,344,000
    
    
    $
    137,000U.S. Government
agencies
    
    
    
    
    
    
    
    
    
    
    30,063,000
    
    
    
    372,000
    
    
    
    30,063,000
    
    
    
    372,000Obligations of states
and political subdi-
visions
    
    
    
    
    
    
    
    
    
    
    5,738,000
    
    
    
    44,000
    
    
    
    5,738,000
    
    
    
    44,000U.S. Government
agencies collateral-
ized by mortgage
obligations
    
    
    2,816,000
    
    
    
    15,000
    
    
    
    14,553,000
    
    
    
    504,000
    
    
    
    17,369,000
    
    
    
    519,000Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    7,868,000
    
    
    
    150,000
    
    
    
    7,868,000
    
    
    
    150,000$
    2,816,000
    
    
    $
    15,000
    
    
    $
    63,566,000
    
    
    $
    1,207,000
    
    
    $
    66,382,000
    
    
    $
    1,222,000
 Investment securities with unrealized losses at December 31, 2005 are summarized and
classified according to the duration of the loss period as follows:
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesDebt securities:U.S. Treasury securities
    
    
    
    
    
    
    
    
    
    $
    9,823,000
    
    
    $
    207,000
    
    
    $
    9,823,000
    
    
    $
    207,000U.S. Government
agencies
    
    $
    6,330,000
    
    
    $
    38,000
    
    
    
    34,421,000
    
    
    
    781,000
    
    
    
    40,751,000
    
    
    
    819,000Obligations of states
and political subdi-
visions
    
    
    5,098,000
    
    
    
    49,000
    
    
    
    5,444,000
    
    
    
    131,000
    
    
    
    10,542,000
    
    
    
    180,000U.S. Government
agencies collateral-
ized by mortgage
obligations
    
    
    2,216,000
    
    
    
    19,000
    
    
    
    15,226,000
    
    
    
    591,000
    
    
    
    17,442,000
    
    
    
    610,000Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    9,231,000
    
    
    
    234,000
    
    
    
    9,231,000
    
    
    
    234,000$
    13,644,000
    
    
    $
    106,000
    
    
    $
    74,145,000
    
    
    $
    1,944,000
    
    
    $
    87,789,000
    
    
    $
    2,050,000
 U.S. Treasury and U.S. Government AgenciesAt December 31, 2006, the Company held 3 U.S. Treasury and 22 U.S. Government agency
securities all of which were in a loss position and had been in a loss position for twelve
months or more. The unrealized losses on the Companys investments in direct obligations of
the U.S. Treasury and U.S. government agencies were caused by interest rate increases. The
contractual terms of those investments do not permit the issuer to settle the securities at
a price less than the amortized costs of the investment. Because the decline in market
value is attributable to changes in interest rates and not credit quality, and because the
Company has the ability and intent to hold those investments until a recovery of fair value,
which may be maturity, the Company does not consider those investments to be
other-than-temporarily impaired at December 31, 2006.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    INVESTMENT SECURITIES(Continued)Obligations of States and Political SubdivisionAt December 31, 2006, the Company held 56 obligations of states and political subdivision
securities of which 23 were in a loss position and had been in a loss position for twelve
months or more. The unrealized losses on the Companys investments in obligations of states
and political subdivision securities were caused by interest rate increases. Because the
decline in market value is attributable to changes in interest rates and not credit quality,
and because the Company has the ability and intent to hold those investments until a
recovery of fair value, which may be maturity, the Company does not consider those
investments to be other-than-temporarily impaired at December 31, 2006.U.S. Government Agencies Collateralized by Mortgage ObligationsAt December 31, 2006, the Company held 26 U.S. Government agency securities collateralized
by mortgage obligation securities of which 3 were in a loss position for less than twelve
months and 22 were in a loss position and had been in a loss position for twelve months or
more. The unrealized losses on the Companys investments in U.S. government agencies
collateralized by mortgage obligations were caused by interest rate increases. The
contractual cash flows of these investments are guaranteed by an agency of the U.S.
government. It is expected that the securities will not be settled at a price less than the
amortized cost of the Companys investment. Because the decline in market value is
attributable to changes in interest rates and not credit quality, and because the Company
has the ability and intent to hold those investments until a recovery of fair value, which
may be maturity, the Company does not consider those investments to be
other-than-temporarily impaired at December 31, 2006.Corporate Debt SecuritiesAt December 31, 2006, the Company held 16 corporate debt securities all of which were in a
loss position and had been in a loss position for twelve months or more. The unrealized
losses on the Companys investments in corporate debt securities were caused by interest
rate increases. Because the decline in market value is attributable to changes in interest
rates and not credit quality, and because the Company has the ability and intent to hold
those investments until a recovery of fair value, which may be maturity, the Company does
not consider those investments to be other-than-temporarily impaired at December 31, 2006.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    INVESTMENT SECURITIES(Continued)The amortized cost and estimated fair value of investment securities at December 31, 2006 by
contractual maturity are shown below. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to call or prepay
obligations with or without call or prepayment penalties.
 Available-for-Sale
    
    
    Held-to-MaturityEstimated
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueWithin one year
    
    $
    27,943,000
    
    
    $
    27,705,000
    
    
    $
    588,000
    
    
    $
    586,000After one year through
five years
    
    
    15,991,000
    
    
    
    15,569,000
    
    
    
    1,501,000
    
    
    
    1,500,000After five years through
ten years
    
    
    
    
    
    
    
    
    
    
    8,789,000
    
    
    
    8,798,000After ten years through
fifteen years
    
    
    
    
    
    
    
    
    
    
    3,202,000
    
    
    
    3,242,00043,934,000
    
    
    
    43,275,000
    
    
    
    14,080,000
    
    
    
    14,126,000Investment securities
not due at a single
maturity date:Government-guar-
anteed mortgage-
backed securities
    
    
    17,959,000
    
    
    
    17,440,000$
    61,893,000
    
    
    $
    60,715,000
    
    
    $
    14,080,000
    
    
    $
    14,126,000
 Investment securities with amortized costs totaling $41,616,000 and $38,678,000 and
estimated fair values totaling $41,184,000 and $37,975,000 at December 31, 2006 and 2005,
respectively, were pledged to secure public deposits and treasury, tax and loan accounts.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.
    
    LOANS AND THE ALLOWANCE FOR LOAN LOSSESOutstanding loans are summarized below:
 December 31,2006
    
    
    2005Commercial
    
    $
    36,182,000
    
    
    $
    42,252,000Agricultural
    
    
    35,577,000
    
    
    
    31,018,000Real estate  mortgage
    
    
    116,329,000
    
    
    
    110,686,000Real estate  construction and land
development
    
    
    75,930,000
    
    
    
    56,370,000Installment
    
    
    90,694,000
    
    
    
    81,320,000354,712,000
    
    
    
    321,646,000Deferred loan costs, net
    
    
    1,182,000
    
    
    
    766,000Allowance for loan losses
    
    
    (3,917,000
    )
    
    
    (3,256,000
    )$
    351,977,000
    
    
    $
    319,156,000
  Year Ended December 31,2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    $
    3,256,000
    
    
    $
    2,722,000
    
    
    $
    2,524,000Provision charged to operations
    
    
    1,000,000
    
    
    
    1,100,000
    
    
    
    750,000Losses charged to allowance
    
    
    (645,000
    )
    
    
    (739,000
    )
    
    
    (703,000
    )Recoveries
    
    
    306,000
    
    
    
    173,000
    
    
    
    151,000Balance, end of year
    
    $
    3,917,000
    
    
    $
    3,256,000
    
    
    $
    2,722,000
 The recorded investment in loans that were considered to be impaired totaled $972,000 and
$1,661,000 at December 31, 2006 and 2005, respectively. The related allowance for loan
losses for impaired loans was $66,000 and $137,000 at December 31, 2006 and 2005,
respectively. The average recorded investment in impaired loans for the years ended
December 31, 2006, 2005 and 2004 was $1,201,000,$1,263,000 and $1,582,000, respectively.
The Company recognized $116,000, $16,000 and $63,000 in interest income on a cash basis for
impaired loans during the years ended December 31, 2006, 2005 and 2004, respectively.
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.
    
    LOANS AND THE ALLOWANCE FOR LOAN LOSSES(Continued)At December 31, 2006 and 2005, nonaccrual loans totaled $972,000 and $1,661,000,
respectively. Interest foregone on nonaccrual loans totaled $53,000, $39,000 and $25,000
for the years ended December 31, 2006, 2005 and 2004, respectively.Salaries and employee benefits totaling $1,328,000, $1,197,000 and $746,000 have been
deferred as loan origination costs during the years ended December 31, 2006, 2005 and 2004,
respectively.Servicing Assets and Interest-Only Strips ReceivableThe Company serviced government guaranteed loans for others totaling $4,622,000, $4,251,000
and 3,001,000 as of December 31, 2006, 2005 and 2004, respectively.A summary of the related servicing assets and interest-only strips receivable are as
follows:
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Servicing Assets:Balance at beginning of year
    
    $
    97,000
    
    
    $
    106,000
    
    
    $
    82,000Increase from loan sales
    
    
    15,000
    
    
    
    3,000
    
    
    
    36,000Amortization charged to income
    
    
    (43,000
    )
    
    
    (12,000
    )
    
    
    (12,000
    )Balance at end of year
    
    $
    69,000
    
    
    $
    97,000
    
    
    $
    106,000
 2006
    
    
    2005
    
    
    2004Interest-Only Strips Receivable:Balance at beginning of year
    
    $
    326,000
    
    
    $
    356,000
    
    
    $
    237,000Increase from loan sales
    
    
    66,000
    
    
    
    10,000
    
    
    
    166,000Amortization charged to income
    
    
    (155,000
    )
    
    
    (40,000
    )
    
    
    (47,000
    )Balance at end of year
    
    $
    238,000
    
    
    $
    326,000
    
    
    $
    356,000
 At December 31, 2006, 2005, and 2004, the Company had interest-only strips of $238,000,
$326,000, and $356,000, respectively, which approximates fair value. There were no
significant gains or losses recognized on the interest-only strips for the years ended
December 31, 2006, 2005 and 2004.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5.
    
    PREMISES AND EQUIPMENTPremises and equipment consisted of the following:
 December 31,2006
    
    
    2005Land
    
    $
    2,372,000
    
    
    $
    1,882,000Premises
    
    
    12,142,000
    
    
    
    7,073,000Furniture, equipment and leasehold improvements
    
    
    8,799,000
    
    
    
    7,934,000Construction in progress
    
    
    247,000
    
    
    
    1,880,00023,560,000
    
    
    
    18,769,000Less accumulated depreciation
and amortization
    
    
    (8,370,000
    )
    
    
    (7,365,000
    )$
    15,190,000
    
    
    $
    11,404,000
 Depreciation and amortization included in occupancy and equipment expense totaled
$1,870,000, $1,775,000 and $1,326,000 for the years ended December 31, 2006, 2005 and 2004,
respectively.
 6.
    
    DEPOSITSInterest-bearing deposits consisted of the following:
 December 31,2006
    
    
    2005Interest-bearing demand deposits
    
    $
    81,011,000
    
    
    $
    69,889,000Money market
    
    
    44,082,000
    
    
    
    62,214,000Savings
    
    
    54,866,000
    
    
    
    65,611,000Time, $100,000 or more
    
    
    38,863,000
    
    
    
    32,575,000Other time
    
    
    61,890,000
    
    
    
    66,537,000$
    280,712,000
    
    
    $
    296,826,000
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6.
    
    DEPOSITS(Continued)At December 31, 2006, the scheduled maturities of time deposits were as follows:
 Year EndingDecember 31,2007
    
    $
    81,838,0002008
    
    
    14,292,0002009
    
    
    2,625,0002010
    
    
    1,383,0002011
    
    
    469,000Thereafter
    
    
    146,000$
    100,753,000
 At December 31, 2006, the contractual maturities of time deposits with a denomination of
$100,000 and over were as follows: $7,672,000 in 3 months or less, $11,338,000 over 3 months
through 6 months, $10,844,000 over 6 months through 12 months, and $7,009,000 thousand over
12 months.Deposit overdrafts reclassified as loan balances were $474,000 and $497,000 at December 31,
2006 and 2005, respectively.7.
    
    SHORT-TERM BORROWING ARRANGEMENTSThe Company has unsecured short-term borrowing arrangements with two of its correspondent
banks in the amounts of $10,000,000 and $5,000,000. The Company can also borrow up to
$93,261,000 from the Federal Home Loan Bank (FHLB) secured by commercial and residential
mortgage loans with carrying values totaling $182,380,000. These FHLB advances are normally
made for one day periods but can be for longer periods. Short-term borrowings at December
31, 2006 consisted of $20,000,000 in one day FHLB advances with a 5.34% weighted average
rate. There were no short-term borrowings outstanding at December 31, 2005.8.
    
    JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURESPlumas Statutory Trust I and II are Connecticut business trusts formed by the Company with
capital of $235,000 and $134,000, 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, 2006, 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,
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8.
    
    JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES(Continued)for gross proceeds of $4,000,000. The entire proceeds were invested by Trust I in the
amount of $6,186,000 and Trust II in the amount of $4,124,000 in Floating Rate Junior
Subordinated Deferrable Interest Debentures (the Subordinated Debentures) issued by the
Company, with identical maturity, repricing and payment terms as the Trust Preferred
Securities. The Subordinated Debentures represent the sole assets of Trusts I and II.Trust Is Subordinated Debentures mature on September 26, 2032, bear a current interest rate
of 7.36% (based on 3-month LIBOR plus 3.40%), with repricing and payments due quarterly.
Trust IIs Subordinated Debentures mature on September 28, 2035, bear a current interest
rate of 5.49% (based on 3-month LIBOR plus 1.48%), with repricing and payments due
quarterly. The Subordinated Debentures are redeemable by the Company, subject to receipt by
the Company of prior approval from the Federal Reserve Board of Governors, on any quarterly
anniversary date on or after the 5-year anniversary date of the issuance. The redemption
price is par plus accrued and unpaid interest, except in the case of redemption under a
special event which is defined in the debenture. The Trust Preferred Securities are subject
to mandatory redemption to the extent of any early redemption of the Subordinated Debentures
and upon maturity of the Subordinated Debentures on September 26, 2032 for Trust I and
September 28, 2035 for Trust II.Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on
the liquidation amount of $1,000 per security. The interest rate of the Trust Preferred
Securities issued by Trust I adjust on each quarterly anniversary date to equal the 3-month
LIBOR plus 3.40% provided, however, that prior to September 26, 2007, such annual rate does
not exceed 11.90%. The Trust Preferred Securities issued by Trust II adjust on each
quarterly anniversary date to equal the 3-month LIBOR plus 1.48%. Both Trusts I and II have
the option to defer payment of the distributions for a period of up to five years, as long
as the Company is not in default on the payment of interest on the Subordinated Debentures.
The Trust Preferred Securities were sold and issued in private transactions pursuant to an
exemption from registration under the Securities Act of 1933, as amended. The Company has
guaranteed, on a subordinated basis, distributions and other payments due on the Trust
Preferred Securities.Interest expense recognized by the Company for the years ended December 31, 2006, 2005 and
2004 related to the subordinated debentures was $810,000, $479,000 and $305,000,
respectively. The amount of deferred costs at December 31, 2006 and 2005 was $155,000 and
$161,000, respectively. The amortization of the deferred costs was $6,000 for each of the
years ended December 31, 2006, 2005 and 2004.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    COMMITMENTS AND CONTINGENCIESLeasesThe Company leases its Tahoe City and Loyalton branch offices and its Reno, Nevada loan
production office under noncancelable operating leases that expire in March 2008, June 2007
and October 2009, respectively. The Tahoe City office lease contains an option to renew the
lease for fifteen years. Future minimum lease payments are as follows:
 Year EndingDecember 31,2007
    
    $
    164,0002008
    
    
    49,0002009
    
    
    22,000$
    235,000
 Rental expense included in occupancy and equipment expense totaled $221,000, $242,000 and
$264,000 for the years ended December 31, 2006, 2005 and 2004, respectively.Financial Instruments With Off-Balance-Sheet RiskThe Company is a party to financial instruments with off-balance-sheet risk in the normal
course of business in order to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized on the consolidated balance sheet.The Companys exposure to credit loss in the event of nonperformance by the other party for
commitments to extend credit and letters of credit is represented by the contractual amount
of those instruments. The Company uses the same credit policies in making commitments and
letters of credit as it does for loans included on the consolidated balance sheet.The following financial instruments represent off-balance-sheet credit risk:
 December 31,2006
    
    2005Commitments to extend credit
    
    $
    101,759,000
    
    
    $
    107,500,000Letters of credit
    
    $
    564,000
    
    
    $
    1,195,000
 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
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    COMMITMENTS AND CONTINGENCIES(Continued)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, 2006 and 2005. The
Company recognizes these fees as revenues over the term of the commitment or when the
commitment is used.At December 31, 2006, consumer loan commitments represent approximately 12% of total
commitments and are generally unsecured. Commercial and agricultural loan commitments
represent approximately 24% 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 64% of total commitments and are generally secured by
property with a loan-to-value ratio not to exceed 80%. In addition, the majority of the
Companys commitments have variable interest rates.Concentrations of Credit RiskThe Company grants real estate mortgage, real estate construction, commercial, agricultural
and consumer loans to customers throughout Plumas, Nevada, Placer, Lassen, Sierra, Shasta
and Modoc counties.Although the Company has a diversified loan portfolio, a substantial portion of its
portfolio is secured by commercial and residential real estate. However, personal and
business income represent the primary source of repayment for a majority of these loans.ContingenciesThe Company is subject to legal proceedings and claims which arise in the ordinary course of
business. In the opinion of management, the amount of ultimate liability with respect to
such actions will not materially affect the financial position or results of operations of
the Company.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SHAREHOLDERS EQUITYDividend RestrictionsThe Companys ability to pay cash dividends is dependent on dividends paid to it by the Bank
and limited by California corporation law. Under California law, the holders of common
stock of the Company are entitled to receive dividends when and as declared by the Board of
Directors, out of funds legally available, subject to certain restrictions. The California
general corporation law prohibits the Company from paying dividends on its common stock
unless: (i) its retained earnings, immediately prior to the dividend payment, equals or
exceeds the amount of the dividend or (ii) immediately after giving effect to the dividend,
the sum of the Companys assets (exclusive of goodwill and deferred charges) would be at
least equal to 125% of its liabilities (not including deferred taxes, deferred income and
other deferred liabilities) and the current assets of the Company would be at least equal to
its current liabilities, or, if the average of its earnings before taxes on income and
before interest expense for the two preceding fiscal years was less than the average of its
interest expense for the two preceding fiscal years, at least equal to 125% of its current
liabilities.Dividends from the Bank to the Company are restricted under California law to the lesser of
the Banks retained earnings or the Banks net income for the latest three fiscal years,
less dividends previously declared during that period, or, with the approval of the
Department of Financial Institutions, to the greater of the retained earnings of the Bank,
the net income of the Bank for its last fiscal year, or the net income of the Bank for its
current fiscal year. As of December 31, 2006, the maximum amount available for dividend
distribution under this restriction was approximately $13,282,000. In addition the Companys
ability to pay dividends is subject to certain covenants contained in the indentures
relating to the Trust Preferred Securities issued by the business trusts (see Note 8).
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PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SHAREHOLDERS EQUITY(Continued)Earnings Per ShareA reconciliation of the numerators and denominators of the basic and diluted earnings per
share computations is as follows:
 WeightedAverageNumber ofNet
    
    
    Shares
    
    
    Per ShareFor the Year Ended
    
    Income
    
    
    Outstanding
    
    
    AmountDecember 31, 2006Basic earnings per share
    
    $
    5,202,000
    
    
    
    5,001,389
    
    
    $
    1.04Effect of dilutive stock options
    
    
    
    
    
    
    83,532Diluted earnings per share
    
    $
    5,202,000
    
    
    
    5,084,921
    
    
    $
    1.02December 31, 2005Basic earnings per share
    
    $
    4,528,000
    
    
    
    4,946,026
    
    
    $
    0.92Effect of dilutive stock options
    
    
    
    
    
    
    150,700Diluted earnings per share
    
    $
    4,528,000
    
    
    
    5,096,726
    
    
    $
    0.89December 31, 2004Basic earnings per share
    
    $
    3,646,000
    
    
    
    4,890,630
    
    
    $
    0.75Effect of dilutive stock options
    
    
    
    
    
    
    108,820Diluted earnings per share
    
    $
    3,646,000
    
    
    
    4,999,450
    
    
    $
    0.73
 Shares of common stock issuable under stock options for which the exercise prices were
greater than the average market prices were not included in the computation of diluted
earnings per share due to their antidilutive effect. Stock options not included in the
computation of diluted earnings per share were 12,500 and 78,562 for the years ended
December 31, 2006 and 2004, respectively. For the year ending December 31, 2005, all stock
options were dilutive and therefore included in the computation of diluted earnings per
share.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SHAREHOLDERS EQUITY(Continued)Stock OptionsIn 2001 and 1991, the Company established Stock Option Plans for which 909,951 shares of
common stock remain reserved for issuance to employees and directors and 615,037 shares are
available for future grants under incentive and nonstatutory agreements as of December 31,
2006. 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 activity within the
Plans follows:
 WeightedWeighted
    
    AverageAverage
    
    RemainingExercise
    
    Contractual
    
    Intrinsic ValueShares
    
    Price
    
    Term
    
    (in thousands)Incentive:Options outstanding at January 1, 2004
    
    
    321,862
    
    
    $
    8.43Options granted
    
    
    57,112
    
    
    
    14.07Options exercised
    
    
    (49,338
    )
    
    
    4.60Options cancelled
    
    
    (7,357
    )
    
    
    11.76Options outstanding at December 31, 2004
    
    
    322,279
    
    
    $
    9.94Options granted
    
    
    7,500
    
    
    
    18.97Options exercised
    
    
    (64,895
    )
    
    
    5.71Options cancelled
    
    
    (22,039
    )
    
    
    13.36Options outstanding at December 31, 2005
    
    
    242,845
    
    
    $
    11.05Options granted
    
    
    5,000
    
    
    
    16.89Options exercised
    
    
    (50,771
    )
    
    
    8.90Options cancelled
    
    
    (4,756
    )
    
    
    12.68Options outstanding at December 31, 2006
    
    
    192,318
    
    
    $
    11.72
    
    
    
    6.5
    
    
    $
    613Options exercisable at December 31, 2006
    
    
    120,949
    
    
    $
    10.57
    
    
    
    5.9
    
    
    $
    525Expected to vest after December 31, 2006
    
    
    71,369
    
    
    $
    13.67
    
    
    
    7.5
    
    
    $
    88Nonstatutory:Options outstanding at January 1, 2004
    
    
    114,757
    
    
    $
    9.37Options granted
    
    
    25,313
    
    
    
    14.19Options exercised
    
    
    (2,280
    )
    
    
    4.96Options cancelled
    
    
    
    
    
    
    Options outstanding at December 31, 2004
    
    
    137,790
    
    
    $
    10.33Options granted
    
    
    
    
    
    
    Options exercised
    
    
    (17,713
    )
    
    
    7.58Options cancelled
    
    
    (6,946
    )
    
    
    12.94Options outstanding at December 31, 2005
    
    
    113,131
    
    
    $
    10.59Options granted
    
    
    2,500
    
    
    
    18.79Options exercised
    
    
    (17,035
    )
    
    
    6.95Options cancelled
    
    
    
    
    
    
    Options outstanding at December 31, 2006
    
    
    98,596
    
    
    $
    11.43
    
    
    
    6.2
    
    
    $
    343Options exercisable at December 31, 2006
    
    
    67,976
    
    
    $
    10.44
    
    
    
    5.7
    
    
    $
    304Expected to vest after December 31, 2006
    
    
    30,620
    
    
    $
    13.63
    
    
    
    7.3
    
    
    $
    39
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SHAREHOLDERS EQUITY(Continued)Stock Options (Continued)As of December 31, 2006, there was $361,000 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 2.4 years.The total fair value of options vested was $140,000 for the
year ended December 31, 2006. The
total intrinsic value of options at time of exercise was $616,000, $947,000 and $429,000 for
the years ended December 31, 2006, 2005, and 2004, respectively.Cash received from option exercise for the years ended December 31, 2006, 2005, and 2004,
was $181,000, $372,000 and $62,000, respectively. The tax benefit realized for the tax
deductions from option exercise totaled $61,000, $35,000 and $6,000, respectively, for the
years ended December 31, 2006, 2005, and 2004.Regulatory CapitalThe Company and the Bank are subject to certain regulatory capital requirements administered
by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance
Corporation (FDIC). Failure to meet these minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Companys consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative measures of the
Banks assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Companys and the Banks capital amounts and
classification are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.Quantitative measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to
risk-weighted assets and of Tier 1 capital to average assets. Each of these components is
defined in the regulations. Management believes that the Company and the Bank met all their
capital adequacy requirements as of December 31, 2006 and 2005.In addition, the most recent notification from the FDIC categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and
Tier 1 leverage ratios as set forth below. There are no conditions or events since that
notification that management believes have changed the Banks category.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SHAREHOLDERS EQUITY(Continued)Regulatory Capital (Continued)
 December 31,2006
    
    2005Amount
    
    Ratio
    
    Amount
    
    RatioLeverage RatioPlumas Bancorp and Subsidiary
    
    $
    45,206,000
    
    
    
    9.5
    %
    
    $
    40,589,000
    
    
    
    8.5
    %Minimum regulatory requirement
    
    $
    18,955,000
    
    
    
    4.0
    %
    
    $
    19,013,000
    
    
    
    4.0
    %Plumas Bank
    
    $
    44,094,000
    
    
    
    9.3
    %
    
    $
    37,611,000
    
    
    
    7.8
    %Minimum requirement for Well-Capitalized institution
    
    $
    23,669,000
    
    
    
    5.0
    %
    
    $
    24,060,000
    
    
    
    5.0
    %Minimum regulatory requirement
    
    $
    18,935,000
    
    
    
    4.0
    %
    
    $
    19,248,000
    
    
    
    4.0
    %Tier 1 Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    $
    45,206,000
    
    
    
    10.9
    %
    
    $
    40,589,000
    
    
    
    10.3
    %Minimum regulatory requirement
    
    $
    16,610,000
    
    
    
    4.0
    %
    
    $
    15,780,000
    
    
    
    4.0
    %Plumas Bank
    
    $
    44,094,000
    
    
    
    10.6
    %
    
    $
    37,611,000
    
    
    
    9.6
    %Minimum requirement for Well-Capitalized institution
    
    $
    24,885,000
    
    
    
    6.0
    %
    
    $
    23,635,000
    
    
    
    6.0
    %Minimum regulatory requirement
    
    $
    16,590,000
    
    
    
    4.0
    %
    
    $
    15,757,000
    
    
    
    4.0
    %Total Risk-Based Capital RatioPlumas Bancorp and Subsidiary
    
    $
    49,123,000
    
    
    
    11.8
    %
    
    $
    43,845,000
    
    
    
    11.1
    %Minimum regulatory requirement
    
    $
    33,221,000
    
    
    
    8.0
    %
    
    $
    31,560,000
    
    
    
    8.0
    %Plumas Bank
    
    $
    48,011,000
    
    
    
    11.6
    %
    
    $
    40,867,000
    
    
    
    10.4
    %Minimum requirement for Well-Capitalized institution
    
    $
    41,475,000
    
    
    
    10.0
    %
    
    $
    39,392,000
    
    
    
    10.0
    %Minimum regulatory requirement
    
    $
    33,180,000
    
    
    
    8.0
    %
    
    $
    31,514,000
    
    
    
    8.0
    %
 F - 38




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11.
    
    OTHER EXPENSESOther expenses consisted of the following:
 Year Ended December 31,2006
    
    2005
    
    2004Professional fees
    
    $
    780,000
    
    
    $
    865,000
    
    
    $
    596,000Outside service fees
    
    
    591,000
    
    
    
    700,000
    
    
    
    551,000Business development
    
    
    555,000
    
    
    
    494,000
    
    
    
    389,000Advertising and promotion
    
    
    552,000
    
    
    
    467,000
    
    
    
    350,000Telephone and data communications
    
    
    374,000
    
    
    
    366,000
    
    
    
    346,000Director compensation and retirement
    
    
    370,000
    
    
    
    288,000
    
    
    
    284,000Core deposit intangible amortization
    
    
    301,000
    
    
    
    301,000
    
    
    
    299,000Stationery and supplies
    
    
    282,000
    
    
    
    336,000
    
    
    
    292,000Armored car and courier
    
    
    270,000
    
    
    
    337,000
    
    
    
    371,000Postage
    
    
    249,000
    
    
    
    258,000
    
    
    
    261,000Insurance
    
    
    173,000
    
    
    
    206,000
    
    
    
    236,000Loan expenses
    
    
    139,000
    
    
    
    114,000
    
    
    
    191,000Other operating expenses
    
    
    288,000
    
    
    
    233,000
    
    
    
    188,000$
    4,924,000
    
    
    $
    4,965,000
    
    
    $
    4,354,000
 12.
    
    INCOME TAXESThe provision for income taxes for the years ended December 31, 2006, 2005 and 2004
consisted of the following:
 Federal
    
    
    State
    
    
    Total2006Current
    
    $
    2,736,000
    
    
    $
    916,000
    
    
    $
    3,652,000Deferred
    
    
    (434,000
    )
    
    
    (22,000
    )
    
    
    (456,000
    )Provision for income taxes
    
    $
    2,302,000
    
    
    $
    894,000
    
    
    $
    3,196,0002005Current
    
    $
    1,809,000
    
    
    $
    757,000
    
    
    $
    2,566,000Deferred
    
    
    44,000
    
    
    
    (10,000
    )
    
    
    34,000Provision for income taxes
    
    $
    1,853,000
    
    
    $
    747,000
    
    
    $
    2,600,0002004Current
    
    $
    1,378,000
    
    
    $
    541,000
    
    
    $
    1,919,000Deferred
    
    
    51,000
    
    
    
    31,000
    
    
    
    82,000Provision for income taxes
    
    $
    1,429,000
    
    
    $
    572,000
    
    
    $
    2,001,000
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12.
    
    INCOME TAXES(Continued)Deferred tax assets (liabilities) consisted of the following:
 December 31,2006
    
    
    2005Deferred tax assets:Allowance for loan losses
    
    $
    1,431,000
    
    
    $
    1,149,000Future benefit of state income tax deduction
    
    
    246,000
    
    
    
    172,000Deferred compensation
    
    
    1,441,000
    
    
    
    1,300,000Core deposit premium
    
    
    254,000
    
    
    
    210,000Unrealized loss on available-for-sale
investment securities
    
    
    486,000
    
    
    
    766,000Other
    
    
    46,000
    
    
    
    22,000Total deferred tax assets
    
    
    3,904,000
    
    
    
    3,619,000
 December 31,2006
    
    
    2005Deferred tax liabilities:Prepaid costs
    
    $
    (80,000
    )
    
    $
    (126,000
    )Deferred loan costs
    
    
    (1,421,000
    )
    
    
    (1,272,000
    )Premises and equipment
    
    
    (535,000
    )
    
    
    (576,000
    )Other
    
    
    (123,000
    )
    
    
    (76,000
    )Total deferred tax liabilities
    
    
    (2,159,000
    )
    
    
    (2,050,000
    )Net deferred tax assets
    
    $
    1,745,000
    
    
    $
    1,569,000
 The Company believes that it is more likely than not that it will realize the above deferred
tax assets in future periods; therefore, no valuation allowance has been provided against
its deferred tax assets.The provision for income taxes differs from amounts computed by applying the statutory
Federal income tax rate to operating income before income taxes. The significant items
comprising these differences consisted of the following:
 2006
    
    2005
    
    2004Federal income tax, at statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State franchise tax, net of Federal tax effect
    
    
    7.0
    %
    
    
    6.9
    %
    
    
    6.7
    %Interest on obligations of states and political
subdivisions
    
    
    (2.3
    )%
    
    
    (2.8
    )%
    
    
    (3.2
    )%Net increase in cash surrender value of bank
owned life insurance
    
    
    (1.3
    )%
    
    
    (1.4
    )%
    
    
    (2.5
    )%Other
    
    
    0.7
    %
    
    
    (0.2
    )%
    
    
    0.5
    %Effective tax rate
    
    
    38.1
    %
    
    
    36.5
    %
    
    
    35.5
    %
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13.
    
    RELATED PARTY TRANSACTIONSDuring the normal course of business, the Company enters into transactions with related
parties, including executive officers and directors. These transactions include borrowings
with substantially the same terms, including rates and collateral, as loans to unrelated
parties. The following is a summary of the aggregate activity involving related party
borrowers during 2006:
 Balance, January 1, 2006
    
    $
    2,465,000Disbursements
    
    
    5,639,000Amounts repaid
    
    
    (5,376,000
    )Balance, December 31, 2006
    
    $
    2,728,000Undisbursed commitments to related
parties, December 31, 2006
    
    $
    281,000
 14.
    
    EMPLOYEE BENEFIT PLANSProfit Sharing PlanThe Plumas Bank Profit Sharing Plan commenced April 1, 1988 and is available to employees
meeting certain service requirements. Under the Plan, employees are able to defer a
selected percentage of their annual compensation. Included under the Plans investment
options is the option to invest in Company stock. The Companys contribution consists of
the following:
 
    
    A contribution which matches the participants contribution, up to
a maximum of 3% of the employees compensation.
    
    An additional discretionary contribution.
 During the years ended December 31, 2006, 2005 and 2004, the Companys contribution totaled
$195,000, $189,000 and $160,000, respectively.Salary Continuation and Retirement AgreementsSalary continuation and retirement agreements are in place for five key executives and
members of the Board of Directors. Under these agreements, the directors and executives
will receive monthly payments for twelve to fifteen years, respectively, after retirement.
These benefits are substantially equivalent to those available under split-dollar life
insurance policies purchased by the Bank on the lives of the directors and executives. In
addition, the estimated present value of these future benefits is accrued over the period
from the effective dates of the agreements until the participants expected retirement
dates. The expense recognized under these plans for the years ended December 31, 2006, 2005
and 2004 totaled $331,000, $558,000 and $435,000, respectively.
 F - 41




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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 14.
    
    EMPLOYEE BENEFIT PLANS(Continued)Salary Continuation and Retirement Agreements (Continued)In connection with these agreements, the Bank purchased single premium life insurance
policies with cash surrender values totaling $9,449,000 and $8,930,000 at December 31, 2006
and 2005, respectively. Income earned on these policies, net of expenses, totaled $319,000,
$287,000 and $349,000 for the years ended December 31, 2006, 2005 and 2004, respectively.
Income earned on these policies is not subject to Federal and State income tax.15.
    
    COMPREHENSIVE INCOMEComprehensive income is reported in addition to net income for all periods presented.
Comprehensive income is a more inclusive financial reporting methodology that includes
disclosure of other comprehensive income (loss) that historically has not been recognized in
the calculation of net income. The unrealized gains and losses on the Companys
available-for-sale investment securities are included in other comprehensive income (loss).
Total comprehensive income and the components of accumulated other comprehensive income
(loss) are presented in the consolidated statement of changes in shareholders equity.At December 31, 2006, 2005 and 2004, the Company held securities classified as
available-for-sale which had unrealized (losses) gains as follows:
 TaxBefore
    
    
    Benefit
    
    
    AfterTax
    
    
    (Expense)
    
    
    TaxFor the Year Ended December 31, 2006Total other comprehensive income:Unrealized holding gains
    
    $
    679,000
    
    
    $
    (280,000
    )
    
    $
    399,000For the Year Ended December 31, 2005Other comprehensive loss:Unrealized holding losses
    
    $
    (1,027,000
    )
    
    $
    423,000
    
    
    $
    (604,000
    )Reclassification adjustment for losses
included in net income
    
    
    (8,000
    )
    
    
    3,000
    
    
    
    (5,000
    )Total other comprehensive
loss
    
    $
    (1,019,000
    )
    
    $
    420,000
    
    
    $
    (599,000
    )
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15.
    
    COMPREHENSIVE INCOME(Continued)For the Year Ended December 31, 2004
 Other comprehensive loss:Unrealized holding losses
    
    $
    (885,000
    )
    
    $
    362,000
    
    
    $
    (523,000
    )Reclassification adjustment for gains
included in net income
    
    
    235,000
    
    
    
    (100,000
    )
    
    
    135,000Total other comprehensive
loss
    
    $
    (1,120,000
    )
    
    $
    462,000
    
    
    $
    (658,000
    )
 16.
    
    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTSEstimated fair values are disclosed for financial instruments for which it is practicable to
estimate fair value. These estimates are made at a specific point in time based on relevant
market data and information about the financial instruments. These estimates do not reflect
any premium or discount that could result from offering the Companys entire holdings of a
particular financial instrument for sale at one time, nor do they attempt to estimate the
value of anticipated future business related to the instruments. In addition, the tax
ramifications related to the realization of unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any of these
estimates.Because no market exists for a significant portion of the Companys financial instruments,
fair value estimates are based on judgments regarding current economic conditions, risk
characteristics of various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could significantly
affect the fair values presented.The following methods and assumptions were used by management to estimate the fair value of
its financial instruments at December 31, 2006 and 2005: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.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16.
    
    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)Loans: For variable-rate loans that reprice frequently with no significant change
in credit risk, fair values are based on carrying values. Fair values of loans held for
sale, 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 carrying amount of accrued interest receivable approximates its fair value.Bank owned life insurance: The fair values of bank owned life insurance policies
are based on current cash surrender values at each reporting date provided by the insurers.Deposits: The fair values for demand deposits are, by definition, equal to the
amount payable on demand at the reporting date represented by their carrying amount. Fair
values for fixed-rate certificates of deposit are estimated using a discounted cash flow
analysis using interest rates offered at each reporting date by the Bank for certificates
with similar remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.Short-term borrowings: The carrying amount of the short-term borrowings approximates
its fair value.Junior subordinated deferrable interest debentures: The fair value of junior
subordinated deferrable interest debentures was determined based on the current market value
for like kind instruments of a similar maturity and structure.Commitments to extend credit and letters of credit: The fair value of commitments
are estimated using the fees currently charged to enter into similar agreements.
Commitments to extend credit are primarily for variable rate loans and letters of credit.
For these commitments, there is no significant difference between the committed amounts and
their fair values and therefore, is not included in the table below.The estimated fair values of the Companys financial instruments are as follows:
 December 31, 2006
    
    December 31, 2005Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    11,293,000
    
    
    $
    11,293,000
    
    
    $
    24,596,000
    
    
    $
    24,596,000Investment securities
    
    
    74,795,000
    
    
    
    74,841,000
    
    
    
    97,844,000
    
    
    
    97,712,000Loans
    
    
    351,977,000
    
    
    
    350,721,000
    
    
    
    319,156,000
    
    
    
    320,540,000Cash surrender value of life
insurance policies
    
    
    9,449,000
    
    
    
    9,449,000
    
    
    
    8,930,000
    
    
    
    8,930,000Accrued interest receivable
    
    
    2,784,000
    
    
    
    2,784,000
    
    
    
    2,673,000
    
    
    
    2,673,000Financial liabilities:Deposits
    
    $
    402,176,000
    
    
    $
    402,326,000
    
    
    $
    426,560,000
    
    
    $
    426,437,000Short-term borrowings
    
    
    20,000,000
    
    
    
    20,000,000Junior subordinated deferrable
interest debentures
    
    
    10,310,000
    
    
    
    10,392,000
    
    
    
    10,310,000
    
    
    
    10,495,000Accrued interest payable
    
    
    556,000
    
    
    
    556,000
    
    
    
    484,000
    
    
    
    484,000
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.
    
    INTANGIBLE ASSETSDuring 2003, the Company acquired certain assets and liabilities of the Kings Beach,
Loyalton, Portola, Quincy and Truckee branches of Placer Sierra Bank. Upon acquisition,
premises and equipment were valued at fair value and a core deposit premium was recorded as
an intangible asset. This core deposit premium, along with core deposit premiums from
previous acquisitions, is amortized using the straight-line method over ten years.
Annually, the intangible asset is analyzed for impairment. At December 31, 2006, 2005 and
2004, no impairment of the intangible asset has been recognized in the consolidated
financial statements. Amortization expense totaled $301,000, $301,000 and $299,000 for the
years ended December 31, 2006, 2005 and 2004, respectively. Unamortized core deposit
premiums related to acquisitions totaled $1,338,000 and $1,638,000 at December 31, 2006 and
2005, respectively. The estimated intangible amortization is $301,000 for each year through
December 31, 2010.18.
    
    SUBSEQUENT EVENTOn January 22, 2007 the Company announced that its Board of Directors authorized a
common stock repurchase plan. The plan calls for the repurchase of up to 250,000 shares, or
approximately 5%, of the Companys shares outstanding as of January 22, 2007. The
repurchases will be made from time to time by the Company in the open market or privately
negotiated transactions as conditions allow and all shares repurchased under this plan will
be retired. The number, price and timing of the repurchases shall be at the Companys sole
discretion and the plan may be re-evaluated depending on market conditions, liquidity needs
or other factors. The Board, based on such re-evaluations, may suspend, terminate, modify or
cancel the plan at any time without notice.
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 19. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
 CONDENSED BALANCE SHEET
 December 31, 2006 and 2005
 2006
    
    
    2005ASSETSCash and cash equivalents
    
    $
    857,000
    
    
    $
    2,409,000Investment in bank subsidiary
    
    
    44,740,000
    
    
    
    38,158,000Other assets
    
    
    650,000
    
    
    
    896,000Total assets
    
    $
    46,247,000
    
    
    $
    41,463,000LIABILITIES AND SHAREHOLDERS EQUITYOther liabilities
    
    $
    85,000
    
    
    $
    16,000Junior subordinated deferrable interest debentures
    
    
    10,310,000
    
    
    
    10,310,000Total liabilities
    
    
    10,395,000
    
    
    
    10,326,000Shareholders equity:Common stock
    
    
    4,828,000
    
    
    
    4,412,000Retained earnings
    
    
    31,716,000
    
    
    
    27,816,000Accumulated other comprehensive loss
    
    
    (692,000
    )
    
    
    (1,091,000
    )Total shareholders equity
    
    
    35,852,000
    
    
    
    31,137,000Total liabilities and shareholders equity
    
    $
    46,247,000
    
    
    $
    41,463,000
 CONDENSED STATEMENT OF INCOME
 For the Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Income:Dividends declared by bank subsidiary
    
    
    
    
    
    $
    840,000
    
    
    $
    1,250,000Earnings from investment in Plumas
Statutory Trusts I and II
    
    $
    24,000
    
    
    
    14,000
    
    
    
    9,000Total income
    
    
    24,000
    
    
    
    854,000
    
    
    
    1,259,000Expenses:Interest on junior subordinated
deferrable interest debentures
    
    
    810,000
    
    
    
    479,000
    
    
    
    305,000Other expenses
    
    
    793,000
    
    
    
    611,000
    
    
    
    335,000Total expenses
    
    
    1,603,000
    
    
    
    1,090,000
    
    
    
    640,000(Loss) income before equity in
undistributed income of subsidiary
    
    
    (1,579,000
    )
    
    
    (236,000
    )
    
    
    619,000Equity in undistributed income of
subsidiary
    
    
    6,183,000
    
    
    
    4,328,000
    
    
    
    2,771,000Income before income taxes
    
    
    4,604,000
    
    
    
    4,092,000
    
    
    
    3,390,000Income tax benefit
    
    
    598,000
    
    
    
    436,000
    
    
    
    256,000Net income
    
    $
    5,202,000
    
    
    $
    4,528,000
    
    
    $
    3,646,000
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##### Table of Contents



PLUMAS BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 19. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
 CONDENSED STATEMENT OF CASH FLOWS
 For the Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    5,202,000
    
    
    $
    4,528,000
    
    
    $
    3,646,000Adjustments to reconcile net income to
net cash provided by operating activities:Undistributed net income of subsidiary
    
    
    (6,183,000
    )
    
    
    (4,328,000
    )
    
    
    (2,771,000
    )Stock-based compensation expense
    
    
    174,000Decrease (increase) in other assets
    
    
    246,000
    
    
    
    (127,000
    )
    
    
    (106,000
    )Increase (decrease) in other liabilities
    
    
    69,000
    
    
    
    11,000
    
    
    
    (31,000
    )Net cash (used in) provided by
operating activities
    
    
    (492,000
    )
    
    
    84,000
    
    
    
    738,000Cash flows from investing activities:Investment in bank subsidiary
    
    
    
    
    
    
    (1,000,000
    )Investment in Plumas Statutory Trust II
    
    
    
    
    
    
    (124,000
    )Net cash used in investing activities
    
    
    
    
    
    
    (1,124,000
    )Cash flows from financing activities:Proceeds from the issuance of junior sub-
ordinated deferrable interest debentures
    
    
    
    
    
    
    4,124,000Payment of cash dividends
    
    
    (1,302,000
    )
    
    
    (1,082,000
    )
    
    
    (914,000
    )Proceeds from the exercise of stock
Options
    
    
    181,000
    
    
    
    407,000
    
    
    
    68,000Excess tax benefits from stock-based
Compensation
    
    
    61,000Cash paid for fractional shares
    
    
    
    
    
    
    (8,000
    )Net cash (used in) provided by
financing activities
    
    
    (1,060,000
    )
    
    
    3,441,000
    
    
    
    (846,000
    )(Decrease) increase in cash and cash
equivalents
    
    
    (1,552,000
    )
    
    
    2,401,000
    
    
    
    (108,000
    )Cash and cash equivalents at beginning
of year
    
    
    2,409,000
    
    
    
    8,000
    
    
    
    116,000Cash and cash equivalents at end of year
    
    $
    857,000
    
    
    $
    2,409,000
    
    
    $
    8,000Non-cash investing activities:Net change in unrealized gain (loss) on
investment securities available-for-
sale
    
    $
    679,000
    
    
    $
    (1,019,000
    )
    
    $
    (1,122,000
    )
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
  REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    /s/ D. N. BIDDLE

Mr. Douglas N. BiddlePresident and Chief Executive Officer/s/ ANDREW RYBACK

Mr. Andrew J. RybackExecutive Vice President and Chief Financial Officer
  49




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 Internal
ControlIntegrated Framework
    50




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    
 
 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
  51




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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 included as exhibit 3.2 to the Registrants Form S-4, File
No. 333-84534, which is incorporated by reference herein.3.3
    
    Amendment of the Articles of Incorporation of Registrant dated November 1, 2002.3.4
    
    Amendment of the Articles of Incorporation of Registrant dated August 17, 2005.4
    
    Specimen form of certificate for Plumas Bancorp included as exhibit 4 to the
Registrants Form S-4, File No. 333-84534, which is incorporated by reference
herein.10.1
    
    Executive Salary Continuation Agreement of Andrew J. Ryback dated August 23,
2005, is included as Exhibit 10.1 to the Registrants 8-K filed on October 17,
2005, which is incorporated by this reference herein.10.2
    
    Split Dollar Agreement of Andrew J. Ryback dated August 23, 2005, is included
as Exhibit 10.2 to the Registrants 8-K filed on October 17, 2005, which is
incorporated by this reference herein.10.5
    
    Employment Agreement of Douglas N. Biddle dated January 1, 2006 is included as
Exhibit 10.5 to the Registrants 8-K filed on March 15, 2006, which is
incorporated by this reference herein.10.6
    
    Executive Salary Continuation Agreement as amended of Douglas N. Biddle dated
June 2, 1994, is included as Exhibit 10.6 to the Registrants 10-QSB for June
30, 2002, which is incorporated by this reference herein.10.7
    
    Split Dollar Agreements of Douglas N. Biddle dated January 24, 2002, is
included as Exhibit 10.7 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.10.9
    
    Executive Salary Continuation Agreement as amended of Dennis C. Irvine dated
June 2, 1994, is included as Exhibit 10.9 to the Registrants 10-QSB for June
30, 2002, which is incorporated by this reference herein.10.10
    
    Split Dollar Agreements of Dennis C. Irvine dated January 24, 2002, is included
as Exhibit 10.10 to the Registrants 10-QSB for June 30, 2002, which is
incorporated by this reference herein.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.
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##### Table of Contents



10.13
    
    Deferred Fee Agreement as amended of Jerry V. Kehr dated August 19,
1998, is included as Exhibit 10.13 to the Registrants 10-QSB for
June 30, 2002, which is incorporated by this reference herein.10.14
    
    Amended and Restated Director Retirement Agreement of Jerry V. Kehr
dated April 28, 2000, is included as Exhibit 10.14 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this
reference herein.10.15
    
    Consulting Agreement of Jerry V. Kehr dated May 10, 2000, is
included as Exhibit 10.15 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.16
    
    Deferred Fee Agreement of Jerry V. Kehr dated December 21, 2005 is
included as Exhibit 10.16 to the Registrants 8-K filed on March 15,
2006, which is incorporated by this reference herein.10.18
    
    Amended and Restated Director Retirement Agreement of Daniel E. West
dated May 10, 2000, is included as Exhibit 10.18 to the Registrants
10-QSB for June 30, 2002, which is incorporated by this reference
herein.10.19
    
    Consulting Agreement of Daniel E. West dated May 10, 2000, is
included as Exhibit 10.19 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.20
    
    Split Dollar Agreements of Robert T. Herr dated September 15, 2004,
is included as Exhibit 10.20 to the Registrants 8-K filed on
September 17, 2004, which is incorporated by this reference herein.10.21
    
    Amended and Restated Director Retirement Agreement of Alvin G.
Blickenstaff dated April 19, 2000, is included as Exhibit 10.21 to
the Registrants 10-QSB for June 30, 2002, which is incorporated by
this reference herein.10.22
    
    Consulting Agreement of Alvin G. Blickenstaff dated May 8, 2000, is
included as Exhibit 10.22 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.24
    
    Amended and Restated Director Retirement Agreement of Gerald W.
Fletcher dated May 10, 2000, is included as Exhibit 10.24 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this
reference herein.10.25
    
    Consulting Agreement of Gerald W. Fletcher dated May 10, 2000, is
included as Exhibit 10.25 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.27
    
    Amended and Restated Director Retirement Agreement of Arthur C.
Grohs dated May 9, 2000, is included as Exhibit 10.27 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this
reference herein.10.28
    
    Consulting Agreement of Arthur C. Grohs dated May 9, 2000, is
included as Exhibit 10.28 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.30
    
    Amended and Restated Director Retirement Agreement of Christine
McArthur dated May 12, 2000, is included as Exhibit 10.30 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this
reference herein.10.31
    
    Consulting Agreement of Christine McArthur dated May 12, 2000, is
included as Exhibit 10.31 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.33
    
    Amended and Restated Director Retirement Agreement of Terrance J.
Reeson dated April 19, 2000, is included as Exhibit 10.33 to the
Registrants 10-QSB for June 30, 2002, which is incorporated by this
reference herein.10.34
    
    Consulting Agreement of Terrance J. Reeson dated May 10, 2000, is
included as Exhibit 10.34 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.39
    
    Deferred Fee Agreement of Thomas Watson dated March 3, 2001, is
included as Exhibit 10.39 to the Registrants 10-QSB for June 30,
2002, which is incorporated by this reference herein.10.40
    
    Form of Indemnification Agreement, is included as Exhibit 10.41 to
the Registrants 10-QSB for June 30, 2002, which is incorporated by
this reference herein.10.41
    
    2001 Stock Option Plan as amended is included as exhibit 99.1 of the
Form S-8 filed July 23, 2002, File No. 333-96957.10.43
    
    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.
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##### Table of Contents



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 Plumes 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.10.59
    
    Director Retirement Agreement of Thomas Watson dated May 1, 2003, is
included as Exhibit 10.59 to the Registrants 10-Q for June 30,
2003, which is incorporated by this reference herein.10.60
    
    Consulting Agreement of Thomas Watson dated May 1, 2003, is included
as Exhibit 10.60 to the Registrants 10-Q for June 30, 2003, which
is incorporated by this reference herein.10.62
    
    Deferred Fee Agreement of Thomas Watson dated December 23, 2004, is
included as Exhibit 10.62 to the Registrants 8-K filed on January
6, 2005, which is incorporated by this reference herein.10.63
    
    Deferred Fee Agreement of Jerry V. Kehr dated December 24, 2004, is
included as Exhibit 10.63 to the Registrants 8-K filed on January
6, 2005, which is incorporated by this reference herein.11
    
    Computation of per share earnings appears in the attached 10-K under
Item 8 Financial Statements  Plumas Bancorp and Subsidiary Notes to
Consolidated Financial Statements as Footnote 10  Shareholders
Equity.21.01
    
    Plumas Bank  California.21.02
    
    Plumas Statutory Trust I  Connecticut.21.03
    
    Plumas Statutory Trust II  Connecticut.23
    
    Independent Auditors Consent letter dated March 12, 2007.31.1
    
    Rule 13a-14(a) [Section 302] Certification of Principal Financial
Officer dated March 12, 2007.31.2
    
    Rule 13a-14(a) [Section 302] Certification of Principal Executive
Officer dated March 12, 2007.32.1
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 dated March 12, 2007.32.2
    
    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 12, 2007.
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##### Table of Contents



SIGNATURES
  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. PLUMAS BANCORP
  /s/ D. N. BIDDLEDouglas N. BiddlePresident/Chief Executive Officer/s/ ANDREW RYBACKAndrew J. RybackExecutive Vice President/Chief Financial Officer
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##### Table of Contents



/s/ DANIEL E. WEST

Daniel E. West, Director and Chairman of the Board
    
    
    
    Dated: March 14, 2007/s/ TERRANCE J. REESON
    
    
    
    Dated: March 14, 2007Terrance J. Reeson, Director and Vice Chairman of
the Board/s/ D. N. BIDDLE

Douglas N. Biddle, Director
    
    
    
    Dated: March 14, 2007/s/ ALVIN G. BLICKENSTAFF

Alvin G. Blickenstaff, Director
    
    
    
    Dated: March 14, 2007/s/ W. E. ELLIOTT

William E. Elliott, Director
    
    
    
    Dated: March 14, 2007/s/ GERALD W. FLETCHER

Gerald W. Fletcher, Director
    
    
    
    Dated: March 14, 2007/s/ JOHN FLOURNOY

John Flournoy, Director
    
    
    
    Dated: March 14, 2007/s/ ARTHUR C. GROHS

Arthur C. Grohs, Director
    
    
    
    Dated: March 14, 2007/s/ JERRY V. KEHR

Jerry V. Kehr, Director
    
    
    
    Dated: March 14, 2007/s/ CHRISTINE MCARTHUR

Christine McArthur, Director
    
    
    
    Dated: March 14, 2007/s/ THOMAS WATSON

Thomas Watson, Director
    
    
    
    Dated: March 14, 2007
 56