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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Plumas Bancorp is a bank holding company for Plumas Bank, a California state-chartered commercial bank. We derive our income primarily from interest received on real estate related, commercial, automobile and consumer loans and, to a lesser extent, interest on investment securities and cash balances, fees received in connection with servicing deposit and loan customers and gains from the sale of government guaranteed loans. Our major operating expenses are the interest we pay on deposits and borrowings and general operating expenses. We rely on locally-generated deposits to provide us with funds for making loans.

We are subject to competition from other financial institutions and our operating results, like those of other financial institutions operating in California and Northern Nevada, are significantly influenced by economic conditions in California and Northern Nevada, including the strength of the real estate market. In addition, both the fiscal and regulatory policies of the federal and state government and regulatory authorities that govern financial institutions and market interest rates also impact the Bank’s financial condition, results of operations and cash flows.

U.S. Small Business Administration Paycheck Protection Program

The CARES Act provided for the Paycheck Protection Program (PPP) and additional legislation extended this program into 2021; we have actively participated in the PPP program. The remaining principal balance of PPP loans at December 31, 2023 was $125 thousand and the remaining balance of deferred fees related to these loans totaled $7 thousand at December 31, 2023. For the years ending December 31, 2023, 2022, and 2021 we recognized PPP fees, net of costs, totaling $10 thousand, $1.3 million and $6.1 million, respectively.

Critical Accounting Policies

Our accounting policies are integral to understanding the financial results reported. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and internal control procedures that are intended to ensure valuation methods are applied in an environment that is designed and operating effectively and applied consistently from period to period. The following is a brief description of our current accounting policies involving significant management valuation judgments.

Allowance for Credit Losses. The allowance for credit losses is an estimate of credit losses inherent in the Company's loan portfolio that have been incurred as of the balance-sheet date. The allowance is established through a provision for credit 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. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance.

To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various economic metrics, including California unemployment rates, California housing prices, and California gross domestic product. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. At both January 1, 2023, the adoption and implementation date of ASC Topic 326, and December 31, 2023, the Company utilized a reasonable and supportable forecast period of approximately four quarters and obtained the forecast data from publicly available sources. The Company also considered the impact of portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, and other risk factors that might influence its loss estimation process. Management believes that the allowance for credit losses at December 31, 2023, appropriately reflected expected credit losses inherent in the loan portfolio at that date.

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company's policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans are individually evaluated for reserves. As of December 31, 2023 the Bank's nonaccrual loans comprised the entire population of loans individually evaluated. The Company's policy is that nonaccrual loans also represent the subset of loans where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loans should be categorized as collateral dependent.

We cannot provide you with any assurance that economic difficulties or other circumstances which would adversely affect our borrowers and their ability to repay outstanding loans will not occur which would be reflected in increased losses in our loan portfolio and which could result in actual losses that exceed reserves previously established.

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The following discussion is designed to provide a better understanding of significant trends related to the Company's financial condition, results of operations, liquidity and capital. It pertains to the Company's financial condition, changes in financial condition and results of operations as of December 31, 2023 and 2022 and for each of the three years in the period ended December 31, 2023. The discussion should be read in conjunction with the Company's audited consolidated financial statements and notes thereto and the other financial information appearing elsewhere herein.

Overview

The Company recorded net income of $29.8 million for the year ended December 31, 2023, an increase of $3.4 million or 13% from net income of $26.4 million during the year ended December 31, 2022. Pretax income increased by $4.5 million, or 13%, to $40.2 million in 2023 from $35.7 million during the year ended December 31, 2022. Net interest income increased by $11.3 million to $69.8 million during 2023 from $58.5 million for the year ended December 31, 2022. This increase in net interest income resulted from an increase in interest income of $14.8 million partially offset by an increase in interest expense of $3.5 million. Interest and fees on loans, including loans held for sale, increased by $9.3 million; interest on investment securities increased by $6.0 million. These components of the increase in interest income were partially offset by a decline in interest on other interest earning assets of $0.5 million. The provision for credit losses increased from $1.3 million during the twelve months ended December 31, 2022 to $2.8 million during 2023.

During the year ended December 31, 2023, non-interest income totaled $10.7 million, a decrease of $0.3 million from the $11.0 million earned during

2022. This decrease included a reduction in gain on sale of SBA loans of $2.5 million, partially offset by a gain of $1.7 million on termination of our interest rate swaps during the first quarter of 2023. Non-interest expense increased by $4.9 million from $32.6 million during 2022 to $37.5 million during the twelve months ending December 31, 2023. The provision for income taxes increased by $1.2 million from $9.2 million in 2022 to $10.4 million during the year ended

December 31, 2023.

Total assets at December 31, 2023 were $1.6 billion, a decrease of $11 million from December 31, 2022. The largest component of this decrease was a decline in cash and due from banks of $98 million. This was mostly offset by increases of $45 million in net loans and $45 million in investment securities.

Gross loans, excluding loans held for sale, increased by $47 million, or 5%, from $912 million at December 31, 2022, to $959 million at December 31, 2023. Increases in loans included $28 million in commercial real estate loans, $14 million in construction loans, $7 million in agricultural loans, $2 million in equity lines of credit, and $1 million in automobile loans; these items were partially offset by decreases of $3 million in residential real estate loans and $2 million in commercial loans.

Total deposits decreased by $124 million to $1.3 billion at December 31, 2023. The decrease in deposits includes decreases of $74 million in demand deposits, $69 million in savings, and $24 million in money market accounts deposits. Partially offsetting these decreases was an increase in time deposit of $43 million. On December 31, 2023, 52% of the Company’s deposits were in the form of non-interest-bearing demand deposits.

Borrowings increased by $90 million. There were no borrowings outstanding at December 31, 2022; however, there were $10 million in junior subordinated deferrable interest debentures which were redeemed in 2023. The Company is eligible to participate in the Bank Term Funding Program (BTFP). The Federal Reserve Board, on March 12, 2023, announced the creation of a new BTFP. The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets are valued at par. At December 31, 2023, the Company had outstanding borrowings under the BTFP totaling $80 million, secured by $107 million in par value of securities pledged as collateral under the BTFP.

Shareholders’ equity increased by $28.3 million from $119.0 million at December 31, 2022 to $147.3 million at December 31, 2023. The $28.3 million increase was related to net income during 2023, of $29.8 million, a decline in accumulated other comprehensive loss of $4.3 million and stock option and restricted stock activity of $661,000 partially offset by shareholder dividends of $5.9 million and $554,000 related to the cumulative change from adoption of ASU 2016-13.

Return on average assets was 1.88% during the twelve months ended December 31, 2023, up from 1.61% during 2022. Return on average equity increased to 23.4% for the twelve months ended December 31, 2023, up from 21.9% during 2022.

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Results of Operations

Net Interest Income

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

Year ended December 31,

Interest Rates Interest Rates Interest Rates

Average income/ earned/ Average income/ earned/ Average income/ earned/

balance expense paid balance expense paid balance expense paid

(dollars in thousands)

Assets

Liabilities and shareholders’ equity

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

Increase (decrease) due to change in: Increase (decrease) due to change in:

Average Average Average Average

Volume(1) Rate(2) Mix(3) Total Volume(1) Rate(2) Mix(3) Total

(dollars in thousands)

Interest-earning assets:

Interest-bearing liabilities:

Other borrowings - - 896 896 - - - -

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2023 compared to 2022. Net interest income is the difference between interest income and interest expense. Net interest income for the year ended December 31, 2023 was $69.8 million, an increase of $11.3 million from the $58.5 million earned during 2022. The increase in net interest income includes an increase of $14.8 million in interest income partially offset by an increase of $3.5 million in interest expense. Interest and fees on loans, including loans held for sale, increased by $9.3 million related to growth in the loan portfolio and an increase in yield on the portfolio. Net loan fees/costs declined from net fees of $234,000 during 2022 to net costs of $1.3 million during 2023. This decline is mostly related to a decline in fees earned on PPP loans. The average yield on loans, including loans held for sale, increased by 61 basis points from 5.28% during 2022 to 5.89% during 2023. The average prime rate increased from 4.86% in 2022 to 8.20% in 2023.

Interest on investment securities increased by $6.1 million from 2022, related to an increase in average investment securities of $100 million to $462 million and an increase in yield on the investment portfolio from 2.52% during 2022 to 3.29% during 2023. Interest on interest-earning cash balances decreased by $0.5 million related to a decrease in average interest-earning cash balances partially offset by an increase in the rate earned on these balances. The rate paid on interest-earning cash balances increased from 1.61% during 2022 to 5.05% during 2023 mostly related to an increase in the rate paid on balances held at the Federal Reserve Bank. The average rate paid on Federal Reserve balances was 1.76% during 2022 and 5.1% during 2023. Average interest-earning cash balances declined from $305 million during 2022 to $87 million during 2023 related to a decline in average deposits and increases in average loans and investment securities.

Average interest earning assets during 2023 totaled $1.5 billion, a decrease of $50 million from 2022. This decrease in average interest earning assets resulted from a decline in average interest-earning cash balances of $218 million, mostly offset by increases of $68 million in average loan balances and $100 million in average investment securities. The average yield on interest earning assets increased by 113 basis points to 5.03%, related to increases in market rates.

Interest expense increased from $1.2 million during 2022 to $4.8 million during 2023 related to an increase in rate paid on interest bearing liabilities. The average rate paid on interest bearing liabilities increased from 0.17% during 2022 to 0.67% in 2023 related mainly to an increase in market interest rates and the effect of a 4% time deposit promotion. Beginning in April 2023 we began offering a time deposit promotion offering for a limited time 7-month and 11-month time deposits at an interest rate of 4%. We discontinued this promotion, which generated $46 million in deposits, on June 30, 2023. However, during the fourth quarter we allowed those customers who had promotional time deposits to renew those deposits at similar terms. Interest paid on deposit accounts increased for all products mostly related to market conditions. In total interest paid on deposits increased by $2.9 million broken down by product type as follows: Money market accounts - $1.1 million, Savings accounts - $0.4 million and Time deposits - $1.4 million.

During March we redeemed our junior subordinated debentures with funding provided by a $10 million borrowing on Plumas Bancorp's line of credit/term loan facility. Interest expense incurred during the twelve months ended December 31, 2023, on the junior subordinated debentures totaled $141,000, down from $359,000 during 2022. Interest and fees incurred on the line of credit borrowing totaled $369,000 during the current period. During the fourth quarter of 2023 we borrowed $80 million under the BTFP. Interest incurred on this borrowing totaled $527,000 during 2023.

Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest margin for the twelve months ended December 31, 2023, increased by 89 basis points to 4.71%, up from 3.82% in 2022.

2022 compared to 2021. Net interest income increased by $11.6 million to $58.5 million during 2022 from $46.9 million for the year ended December 31, 2021. Driven by a large increase in the federal funds rate during 2022, interest income increased by $11.7 million from $48.1 million during 2021 to $59.8 million during the twelve months ended December 31, 2022. The increase in the federal funds rate had a much smaller effect on the Company's interest expense which increased by $113 thousand to $1.2 million. Interest and fees on loans, including loans held for sale, increased by $2.4 million, interest on investment securities increased by $4.7 million and interest on interest-bearing cash and due from banks and deposits in banks increased by $4.6 million. Net interest margin for the year ended December 31, 2022, increased 19 basis points to 3.82%, up from 3.63% during 2021.

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The $2.4 million increase in interest and fees on loans and loans held for sale resulted from an increase in average balance of $65 million partially offset by a decrease in yield of 13 basis points to 5.28%. Included in interest and fees on loans during the current year were PPP fees net of costs of $1.3 million, a decrease of $4.8 million from $6.1 million during 2021. Interest on investment securities increased by $4.7 million related to an increase in average balance of $122 million and an increase in yield of 68 basis points from 1.84% during 2021 to 2.52% during 2022. Yield on taxable investment securities increased by 81 basis points and yield on non-taxable investment securities increased by 43 basis points. Interest on interest-bearing cash and due from banks and deposits in banks, which primarily relates to interest on cash balances held at the Federal Reserve Bank of San Francisco, increased by $4.6 million related to an increase in average balance of $52 million and an increase in the average rate paid on these balances from 0.14% during 2021 to 1.61% during 2022. This is consistent with the increase in the federal funds rate during 2022 from an average of 0.13% during 2021 to an average of 1.76% during 2022.

Interest expense on deposits increased by $43 thousand to $823 thousand during 2022, up from $780 thousand during 2021. The average rate paid on interest bearing deposits decreased slightly from 0.13% during 2021 to 0.12% during 2022, while average interest-bearing deposits increased by $128 million to $714 million.

Interest expense on junior subordinated debentures increased by $11 thousand from $348 thousand during 2021 to $359 thousand during 2022 and interest on other interest-bearing liabilities increased by $59 thousand to $67 thousand.

As a result of the changes noted above, the net interest margin for 2022 increased by 19 basis points to 3.82%

Provision for credit losses. On January 1, 2023, the Company adopted ASU 2016-03 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology, referred to as the current expected credit loss (CECL) methodology. Upon adoption of CECL we recorded an increase in the allowance for credit losses of $529,000 and an increase in the reserve for unfunded commitments of $258,000. During 2023 we recorded a provision for credit losses of $2,775,000 an increase of $1,475,000 from $1,300,000 during 2022. The provision for credit losses during the current period consisted of a provision for credit losses-loans of $2,575,000 and an increase in the reserve for unfunded commitments of $200,000. The increase in the reserves includes growth in the loan portfolio, an increase in qualitative reserves related to the continuation of increases in market interest rates and a reduction in economic activity. As time progresses the results of economic conditions will require CECL model assumption inputs to change and further refinements to the estimation process may also be identified. See “Analysis of Asset Quality and Allowance for Credit Losses” for a discussion of loan quality trends and the provision for credit losses.

The following tables present the activity in the allowance for credit losses and the reserve for unfunded commitments during the twelve months ended December 31, 2023, and 2022 (in thousands).

Allowance for Credit Losses December 31, 2023 December 31, 2022

Impact of CECL adoption 529 -

Provision charged to operations 2,575 1,300

Losses charged to allowance (1,802 ) (1,461 )

Reserve for Unfunded Commitments December 31, 2023 December 31, 2022

Balance, beginning of period $ 341 $ 341

Impact of CECL adoption 258 -

Provision charged to operations 200 -

Balance, end of period $ 799 $ 341

These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. Based on information currently available, management believes that the allowance for credit losses is appropriate to absorb potential risks in the portfolio. However, no assurance can be given that the Company may not sustain charge-offs which are in excess of the allowance in any given period.

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Non-Interest Income

The following table sets forth the components of non-interest income for the years ended December 31, 2023, 2022 and 2021.

Years Ended December 31, Change during Year

(dollars in thousands)

Gain on termination of swaps 1,707 - - 1,707 -

Loss on sale of investments - - (209 ) - 209

2023 compared to 2022. During 2023, non-interest income totaled $10.7 million, a decrease of $328,000 from $11.0 million during the twelve months ended December 31, 2022. The largest component of this decrease was a decline in gain on sale of SBA 7(a) loans of $2.5 million from $2.7 million during the twelve months ended December 31, 2022 to $234,000 during the current period. We did not sell SBA 7(a) loans during the second and third quarters of 2021 resulting in an inventory of loans held for sale of $31.3 million at December 31, 2021. During 2022 we sold $50.5 million in guaranteed portions of SBA 7(a) loans. This compares to $5.3 million in sales during the current period. Partially offsetting the decline in SBA gains was a gain of $1.7 million on termination of our interest rate swaps during the first quarter of 2023. In addition, service charges on deposit accounts increased by $325,000. This was mostly related to our Yuba City, California branch acquired in the acquisition of Feather River Bancorp in 2021. During most of 2022 we waived service charges on deposit accounts at the Yuba City Branch.

During the fourth quarter of 2022 and continuing into 2023 we experienced a significant decline in premiums received on the sale of SBA loans; in response we chose to portfolio SBA 7(a) loans which do not meet a minimum premium on sale. During the current period we chose not to sell $4.1 million in salable guaranteed portions of SBA 7(a) loans as they did not meet our minimum premium on sale. Additionally, the SBA 7(a) loan product that is salable in the open market is variable rate tied to prime and we have seen a significant decline in interest in this product given the recent increases in the prime rate. While we continue to produce SBA 7(a) loans for sale at a greatly reduced rate, we have had success in funding fixed rate SBA 7(a) loans which we portfolio. At December 31, 2023, fixed rate SBA 7(a) loans totaled $23 million.

2022 compared to 2021. During 2022, non-interest income totaled $11.0 million, an increase of $2.3 million from the $8.7 million earned during 2021. This increase included increases in several categories of non-interest income, the largest of which was $1.7 million in gains on sale of SBA loans. During 2022, we sold $50.5 million in guaranteed portions of SBA loans. This compares to sales of $14.2 million during 2021. Loans held for sale at December 31, 2022 and 2021 totaling $2.3 million and $31.3 million, respectively, consist of the guaranteed portion of SBA 7(a) loans.

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Non-Interest Expense

The following table sets forth the components of other non-interest expense for the years ended December 31, 2023, 2022 and 2021.

Years Ended December 31, Change during Year

(dollars in thousands)

2023 compared to 2022. During 2023, non-interest expense increased by $4.9 million to $37.5 million. The largest components of this increase were $2.9 million in salary and benefit expense, $692,000 in occupancy and equipment costs, $439,000 in outside service fees and $268,000 in advertising and shareholder relations. The largest single components of the increase in salary and benefit expense were a $1.5 million increase in salary expense and a $1.2 million reduction in the deferral of loan origination expense. We attribute much of the increase in salary expense to two factors. Merit and promotional salary increases and employee termination costs which included $115,000 related to the termination of our automobile loan program. We have seen a reduction in loan demand given the current economic environment, especially in SBA 7(a) loans tied to the prime interest rate resulting in the reduction in the deferral of loan origination costs. Occupancy and equipment costs increased by $692,000, a considerable portion of which relates to snow removal and other costs attributable to an unusually harsh winter in our service area and to our new Chico, California branch. The increase in outside service fees was spread among several different categories, none of which exceeded $100,000. The increase in advertising costs reflects an increase in our budgeted advertising program, with an emphasis on Northern Nevada growth opportunities.

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2022 compared to 2021. During 2022, non-interest expense increased by $6.6 million. The largest components of this increase were $4.7 million in salary and benefit expense, $627 thousand in occupancy and equipment costs, $304 thousand in outside service fees, $242 thousand in advertising and shareholder relations and $163 thousand in business development expense. The largest component of the increase in salary and benefit expense was related to a $2.3 million ERC recorded in 2021 as a reduction in salary and benefit expense. The ERC was made available under the Coronavirus Aid, Relief, and Economic Security Act and modified and extended under the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Other significant increases in salary and benefit expense include $1.4 million in salary expense and $889 thousand in accrued bonus expense. The salary expense includes normal merit increases, promotional increases and and a full year of salaries at our Yuba City branch. The increase in bonus expense includes the effect of the increase in pretax pre-bonus income during the comparison period as well as an increase in performance compared to peers.

The increase in occupancy and equipment expense includes $293 thousand related to a full year of operations of our Yuba City branch. The largest components of the increase in outside service fees were $227 thousand in interchange fees and ATM processing costs and $90 thousand in human resources administration and payroll processing. The increase in advertising and shareholder costs mostly relates to an increase of $219 thousand in expense paid to an advertising agency which is primarily focused on building our brand in Northern Nevada. The increase in business development expense mostly relates to increases in travel, and education and training expenses from relatively low levels during 2021 and 2020 related to the Pandemic.

Provision for Income Taxes. The Company recorded an income tax provision of $10.4 million, or 26.0% of pre-tax income for the year ended December 31, 2023. This compares to an income tax provision of $9.2 million, or 25.9% of pre-tax income during 2022. The percentages for 2023 and 2022 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal securities interest decrease taxable income.

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 basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The determination of the amount of deferred income tax assets which are more likely than not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. The realization of deferred income tax assets is assessed, and a valuation allowance is recorded if it is "more likely than not" that all or a portion of the deferred tax asset will not be realized. "More likely than not" is defined as greater than a 50% chance. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Based upon the analysis of available evidence, management has determined that it is "more likely than not" that all deferred income tax assets as of December 31, 2023 and 2022 will be fully realized and therefore no valuation allowance was recorded.

Financial Condition

Total assets at December 31, 2023, were $1.6 billion, a decrease of $10.6 million from December 31, 2022. Net loans, including loans held for sale, increased by $42.3 million from $906.3 million on December 31, 2022, to $948.6 million at December 31, 2023. Investment securities increased by $44.5 million from $444.7 million on December 31, 2022, to $489.2 million on December 31, 2023. All other assets, excluding cash and cash equivalents, increased by $0.3 million. These increases were offset by a decrease in cash and equivalents of $97.8 million to $85.7 million. Deposits totaled $1.3 billion at December 31, 2023, a decrease of $124.2 million from December 31, 2022. Borrowings increased to $90 million. There were no borrowings outstanding at December 31, 2022; however, there were $10 million in junior subordinated deferrable interest debentures which were redeemed in 2023. Shareholders’ equity increased by $28.3 million from $119.0 million on December 31, 2022, to $147.3 million on December 31, 2023. A detailed discussion of each of these changes follows.

Loan Portfolio. Gross loans, excluding loans held for sale, increased by $47 million, or 5%, from $912 million at December 31, 2022, to $959 million at December 31, 2023. Increases in loans included $28 million in commercial real estate loans, $14 million in construction loans, $7 million in agricultural loans, $2 million in equity lines of credit, and $1 million in automobile loans; these items were partially offset by decreases of $3 million in residential real estate loans and $2 million in commercial loans. Although the Company offers a broad array of financing options, it continues to concentrate its focus on small to medium sized commercial businesses. These loans offer diversification as to industries and types of businesses, thus limiting material exposure in any industry concentrations. The Company offers both fixed and floating rate loans and obtains collateral in the form of real property, business assets and deposit accounts, but looks to business and personal cash flows as its primary source of repayment. In the fourth quarter of 2023 we terminated our indirect auto loan program. Ending this program, which was our lowest yielding loan segment, also improved our loan loss risk profile since this program had historically higher charge-off rates. Terminating this program also improved our consumer compliance risk profile.

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As shown in the following table the Company's largest lending categories are commercial real estate loans, auto loans, agricultural loans and commercial loans.

Percent of Percent of

Loans in Loans in

Balance at Each Balance at Each

End of Category to End of Category to

(dollars in thousands) Period Total Loans Period Total Loans

Real estate – construction & land development 57,717 6.0 % 43,420 4.8 %

The Company’s real estate related loans, including real estate mortgage loans, real estate construction and land development loans, consumer equity lines of credit, and agricultural loans secured by real estate, comprised 77% of the total loan portfolio at December 31, 2023. Moreover, the business activities of the Company currently are focused in the California counties of Butte, Lassen, Modoc, Nevada, Placer, Plumas, Shasta and Sutter and in Washoe and Carson City Counties in Northern Nevada. Consequently, the results of operations and financial condition of the Company are dependent upon the general trends in these economies and, in particular, the commercial real estate markets. In addition, the concentration of the Company's operations in these areas of Northeastern California and Northwestern Nevada exposes it to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and floods in these regions.

The rates of interest charged on variable rate loans are set at specific increments in relation to the Company's lending rate or other indexes such as the published prime interest rate or U.S. Treasury rates and vary with changes in these indexes. The frequency in which variable rate loans reprice can vary from one day to several years. At December 31, 2023 and December 31, 2022, approximately 78% and 80% respectively, of the Company's loan portfolio was comprised of variable rate loans. Loans indexed to the prime interest rate were approximately 20% of the Company’s loan portfolio; these loans reprice within one day to three months of a change in the prime rate. The remainder of the Company's variable rate loans mostly consist of commercial real estate loans tied to U.S. Treasury rates and reprice every five years. While real estate mortgage, agricultural, commercial and consumer lending remain the foundation of the Company's historical loan mix, some changes in the mix have occurred due to the changing economic environment and the resulting change in demand for certain loan types.

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The following table sets forth the maturity of gross loan categories as of December 31, 2023. Also provided with respect to such loans are the amounts due after one year, classified according to sensitivity to changes in interest rates:

After One After 5

Within Through 5 Through 15 Due After 15

One Year Years Years Years Total

( in thousands)

Amount due after one year at fixed interest rates:

(in thousands)

Real estate – residential 6,526

Real estate – commercial 19,190

Real estate – construction & land development 12,705

Equity Lines of Credit 1,559

Amount due after one year at variable interest rates:

(in thousands)

Real estate – residential 2,826

Real estate – commercial 480,918

Real estate – construction & land development 24,475

Equity Lines of Credit 27,711

Auto -

Other -

Analysis of Asset Quality and Allowance for Credit Losses. The Company attempts to minimize credit risk through its underwriting and credit review policies. The Company’s credit review process includes internally prepared credit reviews as well as contracting with an outside firm to conduct periodic credit reviews. The Company’s management and lending officers evaluate the loss exposure of classified and nonaccrual loans on a quarterly basis, or more frequently as loan conditions change. The Management Asset Resolution Committee (MARC) reviews the asset quality of criticized and past due loans monthly and reports the findings to the full Board of Directors. In management's opinion, this loan review system helps facilitate the early identification of potential criticized loans. MARC also provides guidance for the maintenance and timely disposition of OREO properties including developing financing and marketing programs to incent individuals to purchase OREO. MARC consists of the Bank’s Chief Executive Officer, Chief Financial Officer and Chief Credit Officer, and the activities are governed by a formal written charter. The MARC meets monthly and reports to the Board of Directors.

On January 1, 2023, the Company adopted ASU 2016-03 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology, referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities. It also applies to off- balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases.

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The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchase credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the Standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of adoption. The Company recognized an increase in the ACL for loans totaling $529,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $156,000 in taxes. Additionally, the Company recognized an increase in the reserve for unfunded commitments of $258,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $76,000 in taxes.

The allowance for credit losses is established through charges to earnings in the form of the provision for credit losses. Loan losses are charged to, and recoveries are credited to, the allowance for credit losses. The allowance for credit losses is maintained at a level deemed appropriate by management to provide for known and inherent risks in the loan portfolio.

To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various economic metrics including California unemployment rates, California Housing Prices and California gross domestic product. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. At both January 1, 2023, the adoption and implementation date of ASC Topic 326, and December 31, 2023, the Company utilized a reasonable and supportable forecast period of approximately four quarters and obtained the forecast data from publicly available sources. The Company also considered the impact of portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, and other risk factors that might influence its loss estimation process. Management believes that the allowance for credit losses at December 31, 2023, appropriately reflected expected credit losses inherent in the loan portfolio at that date.

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company's policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans are individually evaluated for reserves. As of December 31, 2023, the Bank's nonaccrual loans comprised the entire population of loans individually evaluated. The Company's policy is that nonaccrual loans also represent the subset of loans in which borrowers are experiencing financial difficulty such that an evaluation of the source of repayment is required to determine if the nonaccrual loans should be categorized as collateral dependent.

The implementation of CECL also impacted the Company's ACL on unfunded loan commitments, as the ACL now represents expected credit losses over the contractual life of commitments not identified as unconditionally cancellable by the Company. The Reserve for Unfunded Commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment. The funding rate represents management's estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. Under CECL the ACL on unfunded loan commitments remains in Other Liabilities while the related provision expense is included in the provision for credit loss expense.

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The following table provides selected credit ratios as of December 31, 2023, 2022 and 2021:

(dollars in thousands) As of and for the Year Ended December 31,

Allowance for credit losses to total loans outstanding 1.34 % 1.18 % 1.23 %

Nonaccrual loans to total loans outstanding 0.50 % 0.13 % 0.58 %

Net charge-offs during the period to average loans outstanding:

Net charge-off during the period $ 79 $ 180 $ 116

Net charge-off during the period $ - $ - $ -

Real estate - residential (0.02 %) (0.02 %) (0.03 %)

Net charge-off during the period $ (3 ) $ (3 ) $ (3 )

Net charge-off during the period $ (1 ) $ 17 $ (8 )

Real estate - construction & land development 0.00 % 0.00 % 0.00 %

Net charge-off during the period $ - $ - $ -

Equity lines of credit (0.00 %) (0.00 %) (0.01 %)

Net charge-off during the period $ - $ - $ (4 )

Net charge-off during the period $ 804 $ 713 $ 567

Net charge-off during the period $ 75 $ 28 $ 7

Net charge-off during the period $ 954 $ 935 $ 675

The allowance for credit losses totaled $12.9 million at December 31, 2023, and $10.7 million at December 31, 2022. At least quarterly, the Company evaluates each specific reserve and if it determines that the loss represented by the specific reserve is uncollectable it records a charge-off for the uncollectable portion. Specific reserves related to collateral dependent loans totaled $28,000 on December 31, 2023. There were no specific reserves related to collateral dependent loans on December 31, 2022. The allowance for credit losses as a percentage of total loans was 1.34% on December 31, 2023 and 1.18% on December 31, 2022.

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The following table provides a breakdown of the allowance for credit losses:

Percent of Percent of

Loans in Loans in

Balance at Each Balance at Each

End of Category to End of Category to

(dollars in thousands) Period Total Loans Period Total Loans

Real estate – construction & land development 797 6.0 % 1,500 4.8 %

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

The following table sets forth the amount of the Company's nonperforming assets as of the dates indicated.

At December 31,

(dollars in thousands)

Loans past due 90 days or more and still accruing - - -

Interest income forgone on nonaccrual loans $ 257 $ 121 $ 381

Interest income recorded on a cash basis on nonaccrual loans $ - $ - $ -

Nonperforming loans to total loans 0.50 % 0.13 % 0.58 %

Nonperforming assets to total assets 0.33 % 0.07 % 0.33 %

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A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or the value of the collateral pledged, if any. Total substandard loans increased by $18.3 million from $3.4 million on December 31, 2022 to $21.7 million on December 31, 2023. Loans classified as special mention decreased by $13.5 million from $22.8 million on December 31, 2022 to $9.3 million on December 31, 2023. The increase in substandard loans is primarily related to agricultural loans to one borrower. At December 31, 2023 the loans to this borrower are on accrual status; however, they could move to nonaccrual if the borrower's financial condition worsens, the Bank's collateral position in respect to these loans deteriorates, or if the borrower is unable to meet their payment obligations.

It is the policy of management to make additions to the allowance for credit losses so that it remains appropriate to absorb the inherent risk of loss in the portfolio. Management believes that the allowance on December 31, 2023 is appropriate. However, the determination of the amount of the allowance is judgmental and subject to economic conditions which cannot be predicted with certainty. Accordingly, the Company cannot predict whether charge-offs of loans in excess of the allowance may occur in future periods.

Loans Held for Sale. Included in the loan 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.

As of December 31, 2023, there were no loans held for sale. At December 31, 2022, the Company had $2.3 million in SBA government guaranteed loans held for sale. Loans held for sale are recorded at the lower of cost or fair value and therefore may be reported at fair value on a non-recurring basis. The fair values for loans held for sale are based on either observable transactions of similar instruments or formally committed loan sale prices.

OREO represents real property acquired by the Bank either through foreclosure or through a deed in lieu thereof from the borrower. Repossessed assets include vehicles and other commercial assets acquired under agreements with delinquent borrowers. OREO holdings represented one property totaling $357 thousand at December 31, 2023. There were no OREO holdings at December 31, 2022. Nonperforming assets as a percentage of total assets were 0.33% at December 31, 2023 and 0.07% at December 31, 2022.

The following table provides a summary of the change in the number and balance of OREO properties for the years ended December 31, 2023 and 2022, dollars in thousands:

Year Ended December 31,

Beginning Balance - $ - 3 $ 487

Ending Balance 1 $ 357 - $ -

Investment Portfolio and Federal Reserve Balances. Total investment securities were $489.2 million as of December 31, 2023 and $444.7 million as of December 31, 2022. Net unrealized losses on available-for-sale investment securities totaling $46.1 million were recorded, net of $13.6 million in tax benefit, as accumulated other comprehensive loss within shareholders' equity at December 31, 2023. Net unrealized losses on available-for-sale investment securities totaling $54.2 million were recorded, net of $16.0 million in tax benefit, as accumulated other comprehensive income within shareholders' equity at December 31, 2022. No securities were sold during the twelve months ended December 31, 2023 and 2022.

The investment portfolio at December 31, 2023 consisted of $6.9 million in U.S. Treasury securities, $235.9 million in securities of U.S. Government-sponsored agencies, $116.0 million in securities of U.S. Government-agencies and 244 municipal securities totaling $130.4 million. The investment portfolio at December 31, 2022 consisted of $9.7 million in U.S. Treasury securities, $214.4 million in securities of U.S. Government-sponsored agencies, $99.6 million in securities of U.S. Government-agencies and 239 municipal securities totaling $121.0 million.

There were no Federal funds sold at December 31, 2023 and December 31, 2022; however, the Bank maintained interest earning balances at the Federal Reserve Bank totaling $52.9 million at December 31, 2023 and $154.4 million at December 31, 2022. The balance, on December 31, 2023, earns interest at the rate of 5.40%.

The Company classifies its investment securities as available-for-sale or held-to-maturity. Currently all securities are classified as available-for-sale. Securities classified as available-for-sale may be sold to implement the Company's asset/liability management strategies and in response to changes in interest rates, prepayment rates and similar factors.

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The following table summarizes the maturities of the Company's securities at their carrying value, which represents fair value, and their weighted average tax equivalent yields at December 31, 2023. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations.

After One Through After Five Through

U.S. Treasury securities $ 6,880 2.90 % $ - - % $ - - % $ - - % $ 6,880 2.90 %

Deposits. Total deposits decreased by $124 million to $1.3 billion at December 31, 2023. The decrease in deposits includes decreases of $74 million in demand deposits, $69 million in savings, and $24 million in money market accounts deposits. Partially offsetting these decreases was an increase in time deposit of $43 million. We attribute much of the decrease to the current interest rate environment as we have seen some deposits leave for higher rates and some customers reluctant to borrow to fund operating expense and instead have drawn down their excess deposit balances. Beginning in April 2023 we began offering a time deposit promotion offering 7-month and 11-month time deposits at an interest rate of 4%. Effective June 30, 2023 we discontinued this promotion which generated $46 million in deposits. However, beginning in the fourth quarter we allowed those customers who had promotional time deposits to renew those deposits at similar terms. At December 31, 2023, 52% of the Company’s deposits were in the form of non-interest-bearing demand deposits. The Company has no brokered deposits.

The following tables show the distribution of deposits by type at December 31, 2023 and 2022 and the average balance and rates paid on deposits for the three years ending December 31, 2023:

Percent of Percent of

Deposits in Deposits in

Each Category Each Category

Balance at End to Total Balance at End to Total

of Period Deposits of Period Deposits

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Deposits represent the Bank's primary source of funds. Deposits are primarily core deposits in that they are demand, savings and time deposits generated from local businesses and individuals. These sources are considered to be relatively stable, long-term relationships thereby enhancing steady growth of the deposit base without major fluctuations in overall deposit balances. The Company experiences, to a small degree, some seasonality with the slower growth period between November through April, and the higher growth period from May through October. To assist in meeting any funding demands, the Company maintains several borrowing agreements as described below.

Estimated uninsured deposits totaled $416 million and $478 million at December 31, 2023, and December 31, 2022, respectively. Uninsured amounts are estimated based on the portion of the account balances in excess of FDIC insurance limits.

The following table presents the maturity distribution of the portion of time deposits in excess of the FDIC insurance limit.

Maturity Distribution of Estimated Uninsured Time Deposits

December 31, December 31,

Remaining maturity:

After three through six months 10,097 257

After six through twelve months 5,428 1,688

After twelve months 757 76

Short-term Borrowing Arrangements. The Company is a member of the Federal Home Loan Bank of San Francisco (FHLB) and can borrow up to $215 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $396 million. The Company is required to hold FHLB stock as a condition of membership. At December 31, 2023, the Company held $6.2 million of FHLB stock which is recorded as a component of other assets.

The Company is also eligible to participate in the Bank Term Lending Program. The Federal Reserve Board, on March 12, 2023, announced the creation of a new Bank Term Funding Program (BTFP). The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. At December 31, 2023, the Company had outstanding borrowings under the BTFP totaling $80 million, secured by $107 million in par value of securities pledged as collateral under the BTFP. This borrowing is payable on December 18, 2024, and earns interest at the rate of 4.96%. Borrowings under the BTFP can be prepaid without penalty. Interest expense recognized on the BTFP borrowings for the twelve months ended December 31, 2023, totaled $527 thousand. In addition to its FHLB borrowing line and the BTFP, the Company has unsecured short-term borrowing agreements with two of its correspondent banks in the amounts of $50 million and $20 million. There were no outstanding borrowings to the FHLB or the correspondent banks at December 31, 2023, and December 31, 2022.

Note Payable. On January 25, 2022 the Company replaced its existing $15 million line of credit facility with a $15 million Loan Agreement (the “Loan Agreement”) and Promissory Note (the “Term Note”). The Term Note matures on January 25, 2035 and can be prepaid at any time. During the initial three years of the Loan Agreement the Term Note functions as an interest only revolving line of credit. Beginning on year four the Term Note converts into a term loan requiring semi-annual principal and interest payments and no further advances can be made. The proceeds of this lending facility shall be used by the Company for general corporation purposes, and to provide capital injections into the Bank. The Term Note bears interest at a fixed rate of 3.85% for the first 5 years and then at a floating interest rate linked to WSJ Prime Rate for the remaining eight year term. The Loan Agreement provides for a $187,500 loan fee. The Note is secured by the common stock of the Bank. The Loan Agreement contains certain financial and non-financial covenants, which include, but are not limited to, a minimum leverage ratio at the Bank, a minimum total risk-based capital ratio at the Bank, a maximum Texas Ratio at the Bank, a minimum level of Tier 1 capital at the Bank and a return on average assets needed to generate a 1.25X debt service coverage ratio. The Loan Agreement also contains customary events of default, including, but not limited to, failure to pay principal or interest, the commencement of certain bankruptcy proceedings, and certain adverse regulatory events affecting the Company or the Bank. Upon the occurrence of an event of default under the Loan Agreement, the Company’s obligations under the Loan Agreement may be accelerated. In March 2023 the Company borrowed $10 million on this note and used the proceeds to redeem its Trust Preferred securities as described below. The Company was in compliance with all covenants related to the Term Note at December 31, 2023. Interest expense recognized on the Term Note for the twelve months ended December 31, 2023, totaled $369 thousand. There were no borrowings on the Term Note during 2022.

Repurchase Agreements. The Bank offers a repurchase agreement product for its larger customers which use securities sold under agreements to repurchase as an alternative to interest-bearing deposits. Securities sold under agreements to repurchase totaling $23.1 million and $18.6 million at December 31, 2023, and December 31, 2022, respectively are secured by U.S. Government agency securities with a carrying amount of $34.1 million and $29.6 million at December 31, 2023, and December 31, 2022, respectively. Interest paid on this product is similar to, but less than, that which is paid on the Bank’s money market accounts; however, these are not deposits and are not FDIC insured.

Junior Subordinated Deferrable Interest Debentures. During 2002, Plumas Statutory Trust I issued 6,000 Floating Rate Capital Trust Pass-Through Securities ("Trust Preferred Securities"), with a liquidation value of $1,000 per security, for gross proceeds of $6,000,000. During 2005, Plumas Statutory Trust II issued 4,000 Trust Preferred Securities with a liquidation value of $1,000 per security, for gross proceeds of $4,000,000. The entire proceeds were invested by Trust I in the amount of $6,186,000 and Trust II in the amount of $4,124,000 in Floating Rate Junior Subordinated Deferrable Interest Debentures (the "Subordinated Debentures") issued by the Company, with identical maturity, repricing and payment terms as the Trust Preferred Securities. The Subordinated Debentures represent the sole assets of Trusts I and II.

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On February 9, 2023, Plumas Bancorp submitted redemption notices to redeem $6,000,000 of trust preferred securities of Plumas Statutory Trust I (“Trust I”) and $4,000,000 of trust preferred securities of Plumas Statutory Trust II (“Trust II”). The trust preferred securities were redeemed, along with an aggregate of $310,000 in common securities issued by the trusts and held by the Company and 100% of the Company’s junior subordinated debentures due 2032 held by Trust I and 100% of the Company’s junior subordinated debentures due 2035 held by Trust II underlying the trust preferred securities.

The trust preferred securities of Plumas Statutory Trust II were redeemed on March 15, 2023 and the trust preferred securities of Plumas Statutory Trust I were redeemed on March 27, 2023. The redemption prices for the junior subordinated debentures were equal to 100% of the respective principal amounts, which total $10,000,000, plus accrued interest up to the redemption date. The proceeds from the redemption of the junior subordinated debentures were simultaneously applied to redeem all of the outstanding common securities and the outstanding trust preferred securities at a price of 100% of the aggregate principal amount of the trust preferred securities plus accumulated but unpaid distributions up to the redemption date. Funding for the redemption was provided from borrowings on our Term Note as described above.

Interest expense, net of the effect of interest rate swaps, recognized by the Company for the years ended December 31, 2023, 2022 and 2021 related to the subordinated debentures was $141,000, $359,000 and $348,000, respectively. See the following paragraph for a description of the swaps.

Interest Rate Swaps. On May 26, 2020 we entered into two separate interest rate swap agreements with notional amounts totaling $10 million, effectively converting the $10 million in Subordinated Debentures to fixed obligations. The swaps have a 10 year maturity and fix the labor rate on the Subordinated Debentures at approximately 75 basis points. These agreements have been designated and qualify as cash flow hedging instruments and, as such, changes in the fair value are recorded in accumulated other comprehensive income/loss to the extent the agreements are effective hedges. The swaps were determined to be fully effective during all periods presented. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. In January, 2023 we terminated the swap agreements receiving $1.7 million in proceeds on termination.

Capital Resources

It is the policy of the Company to periodically distribute excess retained earnings to the shareholders through the payment of cash dividends. Such dividends help promote shareholder value and capital adequacy by enhancing the marketability of the Company’s stock. All authority to provide a return to the shareholders in the form of a cash or stock dividend or split rests with the Board of Directors. The Board will periodically, but on no regular schedule, review the appropriateness of a cash dividend payment. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. The Company paid a quarterly cash dividend of $0.25 per share on November 15, 2023, August 15, 2023, May 15, 2023 and February 15, 2023 and a quarterly cash dividend of $0.16 per share on February 15, 2022, May 16, 2022, August 15, 2022, and November 15, 2022, and a quarterly cash dividend of 14 cents per share on February 15, 2021, May 17, 2021, August 16, 2021, and November 15, 2021.

Capital Standards. The Company uses a variety of measures to evaluate its capital adequacy. Management reviews these capital measurements on a monthly basis and takes appropriate action to ensure that they are within established internal and external guidelines. The FDIC has promulgated risk-based capital guidelines for all state non-member banks such as the Bank. These guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures.

In July, 2013, the federal bank regulatory agencies adopted rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. depository organizations, sometimes called “Basel III,” that increased the minimum regulatory capital requirements for bank holding companies and depository institutions and implemented strict eligibility criteria for regulatory capital instruments. The Basel III capital rules include a minimum common equity Tier 1 ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of 4.0% (calculated as Tier 1 capital to average consolidated assets). The minimum capital levels required to be considered “well capitalized” include a common equity Tier 1 ratio of 6.5%, a Tier 1 risk-based capital ratio of 8.0%, a total risk-based capital ratio of 10.0% and a leverage ratio of 5.0%. In addition, the Basel III capital rules require that banking organizations maintain a capital conservation buffer of 2.5% above the minimum capital requirements in order to avoid restrictions on their ability to pay dividends, repurchase stock or pay discretionary bonuses. Including the capital conservation buffer of 2.5%, the Basel III capital rules require the following minimum ratios for a bank holding company or bank to be considered well capitalized: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. At December 31, 2023, the Company’s and the Bank’s capital ratios exceeded the thresholds necessary to be considered “well capitalized” under the Basel III framework.

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Under the FRB’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (the “Policy Statement”), qualifying bank holding companies with less than $3 billion in consolidated assets are exempt from the Basel III consolidated capital rules. The Company qualifies for treatment under the Policy Statement and is not currently subject to the Basel III consolidated capital rules at the bank holding company level. The Basel III capital rules continue to apply to the Bank.

In 2019, the federal bank regulators issued a rule establishing a “community bank leverage ratio” (the ratio of a bank’s tier 1 capital to average total consolidated assets) that qualifying institutions with less than $10 billion in assets may elect to use in lieu of the generally applicable leverage and risk-based capital requirements under Basel III. A qualifying banking organization that elects to use the new ratio will be considered to have met all applicable federal regulatory capital and leverage requirements, including the minimum capital levels required to be considered “well capitalized, ” if it maintains a community bank leverage ratio capital exceeding 9%. The new rule became effective on January 1, 2020. Plumas Bank has chosen not to opt into the community bank leverage ratio at this time.

The following table sets forth the Bank's actual capital amounts and ratios (dollar amounts in thousands):

Minimum Amount of Capital Required

To be Well-Capitalized

For Capital Under Prompt

Actual Adequacy Purposes (1) Corrective Provisions

Amount Ratio Amount Ratio Amount Ratio

(1) Does not include amounts required to maintain the capital conservation buffer under the new capital rules.

Management believes that the Bank met all its capital adequacy requirements as of December 31, 2023.

The current and projected capital positions of the Bank and the impact of capital plans and long-term strategies are reviewed regularly by management. The Company policy is to maintain the Bank’s ratios above the prescribed well-capitalized ratios at all times.

Off-Balance Sheet Arrangements

Loan Commitments. In the normal course of business, there are various commitments outstanding to extend credits that are not reflected in the financial statements. Commitments to extend credit and letters of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Annual review of commercial credit lines, letters of credit and ongoing monitoring of outstanding balances reduces the risk of loss associated with these commitments. As of December 31, 2023, the Company had $174.6 million in unfunded loan commitments and $108 thousand in letters of credit. This compares to $178.7 million in unfunded loan commitments and no letters of credit at December 31, 2022. Of the $174.6 million in unfunded loan commitments, $111.2 million and $63.4 million represented commitments to commercial and consumer customers, respectively. Of the total unfunded commitments at December 31, 2023, $114.3 million were secured by real estate, of which $60.2 million was secured by commercial real estate and $54.1 million was secured by residential real estate mostly in the form of equity lines of credit. The commercial loan commitments not secured by real estate primarily represent business lines of credit, while the consumer loan commitments not secured by real estate primarily represent revolving credit card lines and overdraft protection lines. Since some of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements.

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Operating Leases. The Company leases two lending offices, two branch offices, the land under our Yuba City branch, three administrative offices and two standalone ATM locations. The expiration dates of the leases vary, with the first such lease expiring during 2024 and the last such lease expiring during 2044. Including variable lease expense, total rent expense for the years ended December 31, 2023, 2022 and 2021 was $635,000, $611,000 and $507,000, respectively.

Liquidity

The Company manages its liquidity to provide the ability to generate funds to support asset growth, meet deposit withdrawals (both anticipated and unanticipated), fund customers' borrowing needs and satisfy maturity of short-term borrowings. The Company’s liquidity needs are managed using assets or liabilities, or both. On the asset side, in addition to cash and due from banks, the Company maintains an investment portfolio which includes unpledged U.S. Government-sponsored agency securities that are classified as available-for-sale. On the liability side, liquidity needs are managed by offering competitive rates on deposit products and the use of established lines of credit.

The Company is a member of the Federal Home Loan Bank of San Francisco (FHLB) and can borrow up to $215 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $396 million. The Company is also eligible to participate in the Bank Term Lending Program. At December 31, 2023, the Company had outstanding borrowings under the BTFP totaling $80 million, secured by $107 million in par value of securities pledged as collateral under the BTFP. In addition to its FHLB borrowing line and the BTFP, the Company has unsecured short-term borrowing agreements with two of its correspondent banks in the amounts of $50 million and $20 million. There were no outstanding borrowings to the FHLB, or the correspondent banks at December 31, 2023, and December 31, 2022.

Customer deposits are the Company’s primary source of funds. Total deposits decreased by $124 million from $1.5 billion at December 31, 2022, to $1.3 billion at December 31, 2023. Deposits are held in various forms with varying maturities. The Company estimates that it has approximately $416 million in uninsured deposits. Of this amount, $85 million represents deposits that are collateralized such as deposits of states, municipalities and tribal accounts.

The Company’s securities portfolio, Federal funds sold, FHLB advances, and cash and due from banks serve as the primary sources of liquidity, providing adequate funding for loans during periods of high loan demand. During periods of decreased lending, funds obtained from the maturing or sale of investments, loan payments, and new deposits are invested in short-term earning assets, such as cash held at the FRB, Federal funds sold and investment securities, to serve as a source of funding for future loan growth. Management believes that the Company’s available sources of funds, including borrowings, will provide adequate liquidity for its operations in the foreseeable future.

Subsequent Event

On January 19, 2024, Plumas Bank entered into two agreements for the purchase and sale of real property (the “Sale Agreements”) with Mountainseed Real Estate Services, LLC, a Georgia limited liability company (“Mountainseed”), providing for the Bank’s sale to Mountainseed of up to 12 properties (the “Properties”) for an aggregate cash purchase price of $33.6 million, assuming all of the Properties are sold. Eleven of the Properties are located in California, and one is located in Nevada.

One Sale Agreement provides for the sale to Mountainseed of up to nine properties owned and operated by the Bank as branches (the “Branches”) for an aggregate cash purchase price of approximately $25.7 million, assuming all of the Branches are sold. The second Sale Agreement provides for the sale to Mountainseed of up to three properties operated as non-branch administrative offices (the “Non-Branch Offices”) for an aggregate cash purchase price of $7.9 million, assuming all of the Non-Branch Offices are sold. The closing date on the Non-Branch Offices has been extended to September 16, 2024.

Under the Sale Agreements, the parties have agreed, concurrently with the closing of the sale of the Properties, to enter into triple net lease agreements (the “Lease Agreements”) pursuant to which the Bank will lease each of the Properties sold. Each Lease Agreement will have an initial term of fifteen years with one 15-year renewal option. The Lease Agreements will provide for an annual rent of approximately $3.1 million in the aggregate for all Properties; increased by two percent (2%) per annum for each year during the initial Term. During the renewal term, the initial rent will be the basic rent during the last year of the initial term, increased by two percent (2%) per annum for each year during the renewal term.

The branch portion of the sale was completed on February 14, 2024. A total of nine branches were sold resulting in gross proceeds of $25.7 million and a net gain on sale of $19.8 million. This gain was offset by losses totaling $19.8 million on the sale of approximately $115 million in investment securities. Proceeds from the sale of these investment securities and the proceeds from the branch sales were used to purchase new, higher yielding, securities and to increase cash balances.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company we are not required to provide the information required by this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of Plumas Bancorp and subsidiary, and report of the independent registered public accounting firm, are included in the Annual Report of Plumas Bancorp to its shareholders for the years ended December 31, 2023, 2022 and 2021.

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Management’s Report on Internal Control Over Financial Reporting F-2

Consolidated Balance Sheets as of December 31, 2023 and 2022 F-5

Notes to Consolidated Financial Statements F-13

F-1

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Plumas Bancorp and subsidiary (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

As of December 31, 2023, management assessed the effectiveness of the Company’s internal control over financial reporting based on the framework established in the 2013Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2023, is effective.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Plumas Bancorp and Subsidiary

Reno, Nevada

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Plumas Bancorp and Subsidiary (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows, for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

(Continued)

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company adopted the provisions of FASB Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as of January 1, 2023, using the modified retrospective approach with an adjustment at the beginning of the adoption period. Our opinion is not modified with respect to this matter.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which it relates.

Allowance for Credit Losses

As discussed in Note 5 to the Company’s consolidated financial statements, the Company has a gross loan portfolio, net of deferred fees and costs of $961.5 million and related allowance for credit losses (ACL) of $12.9 million as of December 31, 2023. As discussed in Notes 2 and 5 to the Company’s consolidated financial statements, the ACL represents management’s estimate of expected credit losses over the contractual life of the loan portfolio. The ACL is estimated using relevant available information relating to past events, current economic conditions, and reasonable and supportable forecasts, as well as qualitative adjustments applied on a portfolio segment basis. The qualitative adjustments are used to bring the ACL to the level management believes is appropriate based on factors that are otherwise unaccounted for in the quantitative process.

Auditing these complex judgments and assumptions involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures performed to address this critical audit matter included:

● Evaluating the reasonableness of forecasted economic scenarios.

/s/ Eide Bailly LLP

We have served as the Company’s auditor since 2013, (such date incorporates the acquisition of certain assets of Vavrinek, Trine, Day & Co., LLP by Eide Bailly LLP in 2019).

San Ramon, California

March 20, 2024

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31, 2023 and 2022

ASSETS

Other real estate owned 357,000 -

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Junior subordinated deferrable interest debentures - 10,310,000

Commitments and contingencies (Note 12)

Shareholders' equity:

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

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2023, 2022 and 2021

Interest income:

Interest on investment securities:

Interest expense:

Interest on borrowings 896,000 - -

Non-interest income:

Gain on termination of swaps 1,707,000 - -

Loss on sale of investment securities - - (209,000 )

(Continued)

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Continued)

For the Years Ended December 31, 2023, 2022 and 2021

Non-interest expenses:

Basic earnings per common share $ 5.08 $ 4.53 $ 3.82

Diluted earnings per common share $ 5.02 $ 4.47 $ 3.76

Common dividends per share $ 1.00 $ 0.64 $ 0.56

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

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31, 2023, 2022 and 2021

Other comprehensive income (loss):

Related tax effect:

Reclassification of gain included in net income 505,000 - (62,000 )

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

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Years Ended December 31, 2023, 2022 and 2021

Accumulated

Other

Comprehensive Total

Common Stock Retained Income (loss) Shareholders’

Shares Amount Earnings (Net of Taxes) Equity

Grants of restricted stock 1,650 - -

Termination of restricted stock (825 )

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

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2023, 2022 and 2021

Cash flows from operating activities:

Loss on sale of investment securities - - 209,000

Provision from change in OREO valuation - - 37,000

(Continued)

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

For the Years Ended December 31, 2023, 2022 and 2021

Cash flows from investing activities:

Proceeds from sale of available-for-sale securities - - 19,981,000

Cash acquired in acquisition, net of consideration paid - - 23,631,000

Cash flows from financing activities:

Repayment of FHLB advances - - (5,000,000 )

Redemption of Trust Preferred Securities (10,310,000 ) - -

Increase in other borrowings 90,000,000 - -

(Continued)

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

For the Years Ended December 31, 2023, 2022 and 2021

Supplemental disclosure of cash flow information:

Cash paid during the year for:

Liabilities assumed in acquisition $ - $ - $ 181,565,000

Non-Cash Investing Activities:

Real estate acquired through foreclosure $ 440,000 $ - $ 258,000

Non-Cash Financing Activities:

The accompanying notes are an integralpart of these consolidated financial statements.

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PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE BUSINESS OF PLUMAS BANCORP

During 2002, Plumas Bancorp (the "Company") was incorporated as a bank holding company for the purpose of acquiring Plumas Bank (the "Bank") in a one bank holding company reorganization. This corporate structure gives the Company and the Bank greater flexibility in terms of operation, expansion and diversification. The Company formed Plumas Statutory Trust I ("Trust I") for the sole purpose of issuing trust preferred securities on September 26, 2002. The Company formed Plumas Statutory Trust II ("Trust II") for the sole purpose of issuing trust preferred securities on September 28, 2005. In March 2023 the Trusts were dissolved. Plumas Bancorp's Principal Executive Office is located in Reno, Nevada.

The Bank operates thirteen branches in California, including branches in Alturas, Chester, Chico, Fall River Mills, Greenville, Kings Beach, Portola, Quincy, Redding, Susanville, Tahoe City, Truckee and Yuba City. The Bank's newest branch was opened in April 2023 and is located in Chico, California. The Bank’s administrative headquarters are in Quincy, California. In December 2015 the Bank opened a branch in Reno, Nevada, its first branch outside of California, and in 2018 the Bank purchased a branch located in Carson City, Nevada. In addition, the Bank operates a lending office specializing in government-guaranteed lending in Auburn, California, and a commercial/agricultural lending office in Klamath Falls, Oregon. 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 POLICIES

Consolidation and Basis of Presentation

The 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 $374,000 and Trust II of $188,000 are included in accrued interest receivable and other assets on the consolidated balance sheet at December 31, 2022. 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 at December 31, 2022. In March 2023 the Company redeemed the debentures and the Trusts were dissolved.

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.

Reclassifications

Certain reclassifications have been made to prior years’ balances to conform to the classifications used in 2023. These reclassifications had no impact on the Company’s consolidated financial position, results of operations or net change in cash and cash equivalents.

Segment Information

Management 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.

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PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for credit losses, loan servicing rights, deferred tax assets, and fair values of financial instruments are particularly subject to change.

Cash and Cash Equivalents

For the purpose of the statement of cash flows, cash and due from banks and Federal funds sold are considered to be cash equivalents. Generally, Federal funds are sold for one day periods. Cash held with other federally insured institutions in excess of FDIC limits as of December 31, 2023 was $7.1 million. Net cash flows are reported for customer loans and deposit transactions and repurchase agreements.

Investment Securities

Investments are classified into one of the following categories:

Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances.

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 accounted for by the level yield method with no pre-payment anticipated.

The Company evaluates available for sale debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the allowance for credit losses and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers' financial condition, among other factors. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. No security credit losses were recognized during the years ended December 31,2023,2022 or 2021.

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PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Federal Home Loan Bank Stock

As a member of the Federal Home Loan Bank (FHLB) System, the Bank is required to maintain an investment in the capital stock of the FHLB. The investment is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. At December 31, 2023 and December 31, 2022, the Company held $6,234,000 and $4,964,000, respectively of FHLB stock. On the consolidated balance sheet, FHLB stock is included in accrued interest receivable and other assets.

Federal Reserve Bank (FRB) Stock

The Bank is a member of its regional Federal Reserve Bank. FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. At December 31, 2023 and December 31, 2022, the Company held $1,371,000 and $1,364,000, respectively of FRB stock. On the consolidated balance sheet, FRB stock is included in accrued interest receivable and other assets.

Loans Held for Sale, Loan Sales and Servicing

Included in the loan 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.

As of December 31, 2023, there were no loans held for sale. At December 31, 2022, the Company had $2.3 million in guaranteed portions of SBA loans held for sale. Loans held for sale are recorded at the lower of cost or fair value and therefore may be reported at fair value on a non-recurring basis. The fair values for loans held for sale are based on either observable transactions of similar instruments or formally committed loan sale prices.

SBA Government guaranteed loans with unpaid balances of $113,176,000and $133,927,000 were being serviced for others at December 31, 2023 and 2022, respectively.

The Company accounts for the transfer and servicing of financial assets based on the fair value of financial and servicing assets it controls and liabilities it has assumed, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished.

Servicing rights acquired through 1) a purchase or 2) the origination of loans which are sold or securitized with servicing rights retained are recognized as separate assets or liabilities. Servicing assets or liabilities are recorded at fair value and are subsequently amortized in proportion to and over the period of the related net servicing income or expense. Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with non-interest income on the statement of income. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

The Company's investment in the loan is allocated between the retained portion of the loan and the sold portion of the loan based on their 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.

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PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans

Loans that management has the intent and ability to hold for foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of purchase premiums or discounts, deferred loan fees and costs, and an allowance for credit losses. Loans, if any, that are transferred from loans held for sale 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, the future collectability 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. A loan is moved to non-accrual status in accordance with the Company’s policy, typically after 90 days of non-payment unless well secured and in the process of collection. Past due status is based on the contractual terms of the loan. Subsequent payments on these loans, or payments received on nonaccrual loans for which the ultimate collectability of principal is not in doubt, are applied first to earned but unpaid interest and then to principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loan origination fees, commitment fees, direct loan origination costs and purchased premiums and discounts on loans are deferred and recognized as an adjustment of yield, to be amortized to interest income over the contractual term of the loan. The unamortized balance of deferred fees and costs is reported as a component of net loans.

Allowance for Credit Losses

To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various economic metrics, including California unemployment rates, California Housing Prices and California gross domestic product. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. At both January 1, 2023, the adoption and implementation date of ASC Topic 326, and December 31, 2023, the Company utilized a reasonable and supportable forecast period of approximately four quarters and obtained the forecast data from publicly available sources. The Company also considered the impact of portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, and other risk factors that might influence its loss estimation process. Management believes that the allowance for credit losses at December 31, 2023, appropriately reflected expected credit losses inherent in the loan portfolio at that date.

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company's policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans are individually evaluated for reserves. As of December 31, 2023, the Bank's nonaccrual loans comprised the entire population of loans individually evaluated. The Company's policy is that nonaccrual loans also represent the subset of loans where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loans should be categorized as collateral dependent.

The implementation of CECL also impacted the Company's ACL on unfunded loan commitments, as the ACL now represents expected credit losses over the contractual life of commitments not identified as unconditionally cancellable by the Company. The Reserve for Unfunded Commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment. The funding rate represents management's estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. Under CECL the ACL on unfunded loan commitments remains in Other Liabilities while any related provision expense is included in the provision for credit loss expense.

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PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Credit Losses (continued)

The Company assigns a risk rating to all loans and periodically, but not less than annually, performs detailed reviews of all criticized and classified loans over $100,000 to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by independent specialists engaged by the Company and the Company’s regulators. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each individual loan.

The risk ratings can be grouped into three major categories, defined as follows:

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard – A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or the value of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well defined weaknesses include a project's lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass-rated loans.

For other loans, which are primarily consumer loans and automobile loans the Company evaluates credit quality based on the aging status of the loan and by payment activity.

The Company has identified the following portfolio segments to evaluate and measure the allowance for credit loss:

Commercial – Commercial loans are generally underwritten to existing cash flows of operating businesses. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural– Loans secured by crop production and livestock are especially vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Real Estate – Residential and Home Equity Lines of Credit – The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. These loans generally possess a lower inherent risk of loss than other real estate portfolio segments. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

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PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Credit Losses (continued)

Real Estate – Commercial– Commercial real estate mortgage loans generally possess a higher inherent risk of loss than other real estate portfolio segments, except land and construction loans. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate – Construction and Land Development– Construction and land development loans generally possess a higher inherent risk of loss than other real estate portfolio segments. A major risk arises from the necessity to complete projects within specified cost and timelines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Automobile – An automobile loan portfolio is usually comprised of a large number of smaller loans scheduled to be amortized over a specific period. Most automobile loans are made directly for consumer purchases, but business vehicles may also be included. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

Other– Other loans primarily consist of consumer loans and are similar in nature to automobile loans.

Although management believes the allowance to be adequate, ultimate losses may vary from its estimates. At least quarterly, the Board of Directors and management review the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, the Company'sprimary regulators, the Federal Reserve (FRB) and the Department of Financial Protection and Innovation (“DFPI”), as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

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PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Other Real Estate Owned

Other real estate owned relates to real estate acquired in full or partial settlement of loan obligations. At December 31, 2023 other real estate owned totaled $357,000 consisting of one residential real estate property. There was no other real estate owned at December 31, 2022. There was one consumer mortgage loan with a balance of $122,000 secured by a residential real estate property for which formal foreclosure proceedings were in process at December 31, 2023 and one consumer mortgage loan with a balance of $83,000 secured by a residential real estate property for which formal foreclosure proceedings were in process at December 31, 2022. Proceeds from sales of other real estate owned totaled $122,000, $487,000 and $137,000 for the years ended December 31, 2023, 2022 and 2021, respectively. For the years ended December 31, 2023, 2022 and 2021 the Company recorded gains (losses) on sale of other real estate owned of $39,000, ($37,000) and ($2,000), respectively. Other real estate owned is initially recorded at fair value less cost to sell when acquired. Any excess of the Bank's recorded investment in the loan balance and accrued interest income over the estimated fair value of the property less costs to sell is charged against the allowance for credit 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 also recorded in other expenses as incurred.

The following table provides a summary of the change in the OREO balance for the years ended December 31, 2023 and 2022:

Year Ended December 31,

Beginning balance $ - $ 487,000

Write-downs - -

Goodwill and Intangible Assets

Intangible assets consist of core deposit intangibles related to the acquisition of Feather River Bancorp branch acquisitions and are amortized on an accelerated basis method over ten years. The Company evaluates the recoverability and remaining useful life annually to determine whether events or circumstances warrant a revision to the intangible asset or the remaining period of amortization. There were no such events or circumstances during the periods presented.

Aggregate amortization expense was $237,000, $284,000, and $246,000 for 2023,2022 and 2021.

The gross carrying amount of intangible assets and accumulated amortization was:

Gross Carrying Accumulated Gross Carrying Accumulated

Amount Amortization Amount Amortization

Estimated amortization expense for each of the next five years is $201,000, $172,000, $153,000, $138,000 and $120,000.

Goodwill totaling $5,502,000 was recorded on July 1, 2021, related to the acquisition of Feather River Bancorp. Goodwill is not amortized but is evaluated for impairment at least annually. The Company did not recognize impairment during the years ended December 31, 2023, 2022 and 2021.

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PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. 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.

Bank Owned Life Insurance

The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Revenue from Contracts with Customers

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

Most of our revenue-generating transactions are not subject to Topic 606, including revenue generated from financial instruments, such as our loans and investment securities. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Condensed Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed, charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Low Income Housing Tax Credits

The Company accounts for low-income housing tax credits and the related qualified affordable housing projects using the proportional amortization method. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). Upon entering into a qualified affordable housing project, the Company records, in other liabilities, the entire amount that it has agreed to invest in the project, and an equal amount, in other assets, representing its investment in the project. As the Company disburses cash to satisfy its investment obligation, other liabilities are reduced. Over time, as the tax credits and other tax benefits of the project are realized by the Company, the investment recorded in other assets is reduced using the proportional amortization method.

Income Taxes

The Company files its income taxes on a consolidated basis with its subsidiary. Income tax expense is the total of current year income tax due or refundable and the change in deferred tax assets and liabilities.

Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amount of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. A valuation allowance is recognized if, based on the weight of available evidence management believes it is more likely than not that some portion or all of the deferred tax assets will not be realized. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounting for Uncertainty in Income Taxes

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest expense and penalties associated with unrecognized tax benefits, if any, are classified as income tax expense in the consolidated income statement. There have been no significant changes to unrecognized tax benefits or accrued interest and penalties for the years ended December 31, 2023 and 2022.

Earnings Per Share

Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common stockholders (net income plus discount on redemption of preferred stock less preferred dividends and accretion) 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.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and unrealized gains on cash flow hedges which are also recognized as separate components of equity. The amount reclassified out of other accumulated comprehensive income relating to realized losses on securities available for sale was $0, $0 and $209,000 for 2023,2022 and 2021, with the related tax benefit of $0, $0 and $62,000, respectively. During 2023 the amount reclassified out of other accumulated comprehensive income relating to realized gains on our cash flow hedges was $1,707,000 with the related tax expense of $505,000.

Dividend Restrictions

Banking regulations require maintaining certain capital levels and may limit the dividend paid by the bank to the holding company or by the holding company to shareholders.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock-Based Compensation

Compensation expense related to the Company’s Stock based compensation plans, net of related tax benefit, recorded in 2023,2022 and 2021 totaled $300,000, $224,000 and $208,000 or $0.05, $0.04 and $0.04 per diluted share, respectively. Compensation expense is recognized over the vesting period on a straight-line accounting basis.

The Company determines the fair value of options on the date of grant using a Black-Scholes-Merton option pricing model that uses assumptions based on expected option life, expected stock volatility and the risk-free interest rate. The expected volatility assumptions used by the Company are based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock options it grants to employees. The risk-free rate is based on the U.S. Treasury yield curve for the periods within the contractual life of the options in effect at the time of the grant.

During 2022 the Company granted options to purchase 117,000 shares of common stock. The fair value of each option was estimated on the date of grant using the following assumptions. During 2022 the Company granted 1,650 shares of restricted stock with a fair value of $31 per share and a one-year vesting period. Compensation costs related to these shares during 2023 and 2022 totaled $4,000 and $21,000, respectively. Of the 1,650 restricted stock shares issued, 825 are fully vested and 825 were terminated in 2023.

Expected life of stock options (in years) 6.1

Risk free interest rate 2.96 %

Annualized Volatility 31.8 %

Dividend yields 2.06 %

Weighted-average fair value of options granted during the year $ 8.85

No options were granted during the year ended December 31, 2023.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounting Standards Adopted in 2023

On January 1, 2023, the Company adopted ASU 2016-03Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology. This is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases. In addition, ASC 326 made changes to the accounting for available for sale debt securities.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the Standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining noncredit discount (based on the adjusted amortized costs basis) will be accreted into interest income at the effective interest rate as of adoption. The Company recognized an increase in the ACL for loans totaling $529,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $156,000 in taxes. Additionally, the Company recognized an increase in the reserve for unfunded commitments of $257,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $76,000 in taxes.

On January 1, 2023, the Company adopted ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with noreassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications notaccounted for as separate contracts. ASU 2020-04also provides numerous optional expedients for derivative accounting. In December 2022,the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.The ASU 2022-06deferred the sunset date of ASU 2020-04to December 2024. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The adoption of the ASU provisions did not have a significant impact on the Company’s consolidated financial statements as the Company has an insignificant number of financial instruments applicable to this ASU.

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the recognition and measurement guidance for troubled debt restructurings and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. This ASU also requires enhanced disclosure for loans that have been charged off. The adoption of the ASU provisions did not have a significant impact on the Company’s consolidated financial statements.

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(Continued)

3. FAIR VALUE MEASUREMENTS

The Company measures fair value under the fair value hierarchy described below.

Level 1: Quoted prices for identical instruments traded in active exchange markets.

Level 2: Quoted prices (unadjusted) for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable or can be corroborated by observable market data.

Level 3: Model based techniques that use one significant assumption not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use on pricing the asset or liability. Valuation techniques include management judgment and estimation which may be significant.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls, has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.

PLBC US Equity

PLBC · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PLBC US Equity☆

PLBC · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PLBC US Equity