PLBC US Equity☆

ITEM 1A. RISK FACTORS

Risks Relating to our Business and Industry

The majority of our assets are loans, which are subject to credit risks and potential losses.

The Bank, like other lenders, is subject to credit risk, which is the risk of losing principal or interest due to borrowers’ failure to perform their obligations in accordance with the terms of their credit agreements. Underwriting and documentation controls cannot mitigate all credit risk. Accordingly, our results of operations will be directly affected by the volume and timing of loan losses, which for several reasons can vary from period to period. The risks of loan losses may be exacerbated by a downturn in the economy or the real estate market in our market areas or a rapid increase in interest rates, which could have a negative effect on collateral values and borrowers’ ability to repay. To the extent borrowers do not timely pay our loans, the loans are placed on non-accrual status, thereby reducing interest income. Further, under these circumstances, we may be required to make an additional provision for loan and lease losses or unfunded commitments, which could reduce our income and capital. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Analysis of Asset Quality and Allowance for Credit Losses”.

A deterioration of national or local economic conditions could reduce our profitability.

Our lending operations and customers are primarily located in the eastern region of Northern California and Northern Nevada. As a result, a significant majority of the loans in our loan portfolios as of December 31, 2024, were secured by properties and collateral located within these regions. As of such date, approximately 92% of the loans in our loan portfolio were made to borrowers who primarily conduct business or live in Northern California or Northern Nevada. This geographic concentration imposes risks from lack of geographic diversification, as adverse economic developments in Northern California or Northern Nevada, among other things, could affect the volume of loan originations, increase the level of nonperforming assets, increase the rate of foreclosure losses on loans and reduce the value of our loans and the underlying collateral. Any regional or local economic downturn affecting Northern California or Northern Nevada or existing or prospective borrowers or property values in such areas may affect us and our profitability more significantly and more adversely than depository organizations whose operations are less geographically concentrated. A significant downturn in the national economy or the local economy due to the real estate market, public policy decisions, agricultural commodity prices, natural disaster, fires, drought or other factors could result in a decline in the local economy in general, which could in turn negatively impact our business, financial condition, results of operations and prospects.

If our allowance for credit losses is not sufficient to absorb actual loan losses, our profitability could be reduced.

The risk of loan losses is inherent in the lending business.We maintain an allowance for credit losses based upon our actual losses over a relevant time period and management’s assessment of all relevant qualitative factors that may cause future loss experience to differ from our historical loss experience. Although we maintain a rigorous process for determining the allowance for credit losses, we cannot be certain that it will be sufficient to cover future loan losses. If our allowance for credit losses is not adequate to absorb future losses, or if bank regulatory agencies require us to increase our allowance for credit losses, our earnings could be significantly and adversely impacted.

A deterioration in the real estate market could have a material adverse effect on our business, financial condition and results of operations.

As of December 31, 2024, approximately 77% of our total loan portfolio is secured by real estate, the majority of which is commercial real estate. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the area in which the real estate is located. Adverse changes affecting real estate values and the liquidity of real estate in our markets could increase the credit risk associated with our loan portfolio and could result in losses that would adversely affect credit quality, financial condition, and results of operation. Negative changes in the economy affecting real estate values and liquidity in our market areas could significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses. Collateral may have to be sold for less than the outstanding balance of the loan, which could result in losses on such loans. Declines in real estate market values or increases in commercial and consumer delinquency levels could require increased net charge-offs which could adversely affect our financial condition, results of operations and cash flows.

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Inflationary pressures and rising prices may affect our results of operations and financial condition.

Inflation began to rise sharply at the end of 2021 and has remained at an elevated level through 2024. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition. Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition.

Changes in interest rates could reduce our business and profitability.

Although we maintain a rigorous process for managing the impact of possible interest rate fluctuations on earnings, there is a risk that despite our efforts, our earnings could be significantly and adversely impacted by changes in interest rates.

Our earnings depend largely upon net interest income, which is the difference between the total interest income earned on interest earning assets (primarily loans and investment securities) and the total interest expense incurred on interest bearing liabilities (primarily deposits and borrowed funds). The rate of interest that we earn on assets and pay on liabilities is affected principally by direct competition, and general economic conditions at the state and national level and other factors beyond our control such as actions of the FRB, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and other state and federal economic policies.

In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest expense we incur on our liabilities. Likewise, in a period of falling interest rates, the interest expense we incur on our liabilities may not decrease as rapidly as the interest income we earn on our assets. Historically, our liabilities have shorter contractual maturities than our assets. This creates a potential imbalance as interest rates change over time, which can create significant earnings volatility. Such an occurrence would have a material adverse effect on our net interest income and our results of operations.

Interest rate increases often result in larger payment requirements for our borrowers, increasing the potential for default. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates.

Changes in interest rates can also affect the average life of our loans. A reduction in interest rates causes increased prepayments of loans as borrowers tend to refinance their debt to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest the funds from faster prepayments at rates that are comparable to the rates earned on the prepaid loans.

Changes in interest rates also affect the value of our interest-earning assets, particularly our investment securities portfolio. Generally, the value of fixed-rate securities fluctuates inversely with changes in interest rates, so the market value of our investment securities may fall as interest rates rise. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net of tax. Stockholders’ equity, specifically accumulated other comprehensive income (loss) (“AOCI”), is increased or decreased by the amount of change in the estimated fair value of our securities available for sale, net of deferred income taxes. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on shareholders’ equity.

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A lack of liquidity could adversely affect our operations and jeopardize our business, financial condition and results of operations.

Liquidity is essential to our business. We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations. An inability to raise funds through deposits, borrowings, securities sales, Federal Reserve Bank advances, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our most important source of funding consists of deposits. Deposit balances may decrease if customers seek higher investment returns or choose to move deposits to other banks or investments that are perceived as having lower risks. If customers move money out of bank deposits and into other investments, then we would lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net income.

Other primary sources of funds consist of cash flows from operations, investment maturities and sales, loan repayments, and proceeds from the issuance and sale of any equity and debt securities to investors. Additional liquidity is provided by the ability to borrow from the Federal Reserve Bank of San Francisco and the Federal Home Loan Bank and our ability to raise brokered deposits. We also may borrow funds from third-party lenders, such as other financial institutions. Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable to us, could be impaired by factors that affect us directly or the bank or non-bank financial services industries or the economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the bank or non-bank financial services industries.

Based on experience, we believe that our deposit accounts are relatively stable sources of funds. If we increase interest rates paid to retain deposits, our earnings may be adversely affected, which could have an adverse effect on our business, financial condition and results of operations.

Significant declines in available funding could adversely affect our ability to originate loans, invest in securities, pay our expenses, distribute dividends to our shareholders, and fulfill our debt obligations or deposit withdrawal demands. In addition, a lack of liquidity could result in the sale of securities in an unrealized loss position. All of these factors could have a material adverse impact on our liquidity, business, financial condition and results of operations.

A reduction in the value, or impairment of our investment securities, can impact our earnings and common shareholders’ equity.

Generally Accepted Accounting Principles (“GAAP”) requires that we carry our available-for-sale investment securities at fair value on our balance sheet. Unrealized gains or losses on these securities, reflecting the difference between the fair market value and the amortized cost, net of its tax effect, are reported as a component of shareholders’ equity. In certain instances, GAAP requires recognition through earnings of declines in the fair value of securities that are deemed to be other than temporarily impaired. Changes in the fair value of these securities may result from a number of circumstances that are beyond our control, such as changes in interest rates, the financial condition of municipalities, government sponsored enterprises or insurers of municipal bonds, changes in demand for these securities as a result of economic conditions, or reduced market liquidity. If our investment securities decline in market value and impairments of these assets results, we could be required to recognize a loss which could have a material adverse effect on our net income and capital levels.

Adverse developments affecting the banking industry have eroded customer confidence in the banking system and could have a material effect on our operations and/or stock price.

The recent high-profile failures of several depository institutions may have negatively impacted customer confidence in the safety and soundness of some regional and community banks. As a result, we face that risk that customers may prefer to maintain deposits with larger financial institutions or invest in short-term fixed income securities instead of deposits with the Bank, either of which could materially adversely impact our liquidity, cost of funding, capital, and results of operations. In response to the failures of other depository institutions, we may face increased regulation and supervisory oversight, higher capital or liquidity requirements or a heightened risk of regulatory enforcement activities, any of which could have a material impact on our business. Further, our costs of deposit insurance may increase as a result of these bank failures and the resulting losses to the FDIC’s Deposit Insurance Fund. In addition, concerns about the banking industry’s operating environment and the public trading prices of bank holding companies are often correlated, particularly during times of financial stress, which could adversely impact the trading price of our common stock.

We could be required to raise additional capital in the future, but that capital may not be available when it is needed or may not be available on terms that are favorable to us or our existing shareholders.

As a depository organization, we must meet significant regulatory capital requirements and maintain sufficient liquidity. We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs. Our ability to raise additional capital depends on conditions in the capital markets, economic conditions, and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance. Accordingly, we cannot assure that we will be able to raise additional capital if needed or on terms acceptable to us. If we fail to maintain capital to meet regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected.

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The markets in which we operate are subject to the risks of drought, fires, earthquakes and other natural disasters.

The occurrence of catastrophic weather events or pandemics could adversely affect our financial condition or results of operations. Most of our offices are located in California, as are most of the real and personal properties securing our loans. The areas in which we operate and lend in California and Nevada are prone to earthquakes, fires, flooding and other natural disasters. In addition to possibly sustaining damage to its own properties, if there is a major earthquake, fire, flood or other natural disaster, we face the risk that many of our borrowers may experience uninsured property losses, or sustained job interruption and/or loss which may materially impair their ability to meet the terms of their loan obligations. Therefore, a major earthquake, fire, flood or other natural disaster in California or Nevada could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Over the past decade, California has experienced a severe drought, though drought conditions have lessened in the past few years. A significant portion of our borrowers are involved in or are dependent on the agricultural industry in California, which requires water. As of December 31, 2024, approximately 13% of our loans were categorized as agricultural loans. As a result of the drought, there have been governmental proposals concerning the distribution or rationing of water. If the amount of water available to agriculture becomes scarcer due to drought or rationing, growers may not be able to continue to produce agricultural products profitably, which could force some out of business. Although many of our customers are not directly involved in agriculture, they could be impacted by difficulties in the agricultural industry because many jobs and businesses in our market areas are related to the production of agricultural products. Therefore, a drought could adversely impact our loan portfolio, business, financial condition and results of operations.

We face substantial competition from larger banks and other financial institutions.

We face substantial competition for deposits and loans. Competition for deposits primarily comes from other commercial banks, savings institutions, thrift and loan associations, credit unions, money market and mutual funds and other investment alternatives. Competition for loans comes primarily from other commercial banks, savings institutions, credit unions, mortgage banking firms, thrift and loan associations and increasingly “fintech” lending platforms. Larger competitors with larger capital resources have substantially greater resources to invest in technology and marketing and higher lending limits than us. In addition, with greater financial resources, they may be able to offer longer maturities or lower rates. Our competitors may also provide certain products and services for their customers, such as technological solutions, trust services and international banking, that we are unable to offer or may only be able to offer indirectly through correspondent relationships. Ultimately, competition can reduce our profitability, as well as make it more difficult to increase the size of our loan portfolio and deposit base.

Our growth strategy involves risks.

In January 2025, we announced our proposed merger with Cornerstone Community Bancorp. In July 2021 we completed the acquisition of Bank of Feather River and in 2023 we opened a new branch in Chico California. Previously, during the last ten years we completed two branch purchase and assumption transactions, the establishment of a new branch office in Reno, Nevada and a loan production office in Klamath Falls, Oregon. We may engage in additional acquisition activity and open additional offices in the future to expand our markets and further our growth strategy. Acquiring other banks or branches involves various other risks commonly associated with acquisitions including difficulty in estimating the value of the business to be acquired, integrating the operations, and retaining key employees and customers. We cannot assure that future acquisitions or new offices will be successful. Further, growth may strain our administrative, managerial, financial and operational resources and increase demands on our systems and controls. If we pursue our growth strategy too aggressively or fail to attract qualified personnel, control costs or maintain asset quality, or if factors beyond management’s control divert attention away from our business operations, our pursuit of growth could have a material adverse impact on our business. See “Risks Related to Our Proposed Acquisition of Cornerstone Community Bancorp.”

Our accounting estimates and risk management processes rely on analytical and forecasting models.

The processes we use to estimate expected credit losses on loans and investment securities, and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market volatility or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market factors. If the models we use for determining our expected credit losses on loans and investment securities are inadequate, the allowance for credit losses may not be sufficient to support future charge-offs. If the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.

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The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our critical accounting policies, which are included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe those significant accounting policies and methods used in the preparation of our consolidated financial statements that we consider critical because they require judgments, assumptions and estimates that materially affect our consolidated financial statements and related disclosures. As a result, if future events or regulatory views concerning such analysis differ significantly from the judgments, assumptions and estimates in our critical accounting policies, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures, in each case resulting in our need to revise or restate prior period financial statements, cause damage to our reputation and the price of our common stock and adversely affect our business, financial condition and results of operations.

Cybersecurity breaches and technological disruptions could damage our reputation and profitability.

Our electronic banking activities expose us to possible liability and harm to our reputation should an unauthorized party gain access to confidential customer information. Despite our considerable efforts and investment to provide the security and authentication necessary to effect secure transmission of data, we cannot guarantee that these precautions will protect our systems from security compromises or breaches. Although we have developed systems and processes that are designed to recognize and assist in preventing security breaches (and periodically test our security), a failure to protect against or mitigate breaches of security could adversely affect our ability to offer and grow our online services, constitute a breach of privacy or other laws, result in costly litigation and loss of customer relationships, negatively impact our reputation, and could have an adverse effect on our business, results of operations and financial condition. We may also incur substantial increases in costs in an effort to minimize or mitigate cybersecurity risks and to respond to cyber incidents.

The potential for operational risk exposure exists throughout our business. Integral to our performance is the continued efficacy of our technology and information systems, operational infrastructure and relationships with third parties and colleagues in day-to-day and ongoing operations. A failure by any or all of these resources subjects us to risks that may vary in size, scale and scope. This includes, but is not limited to, operational or systems failures, disruption of client operations and activities, ineffectiveness or exposure due to interruption in third party support as well as the loss of key colleagues or failure on the part of key colleagues to perform properly. The continued evolution and increased use of artificial intelligence technologies may further increase these risks.

Technology is changing rapidly and may put us at a competitive disadvantage.

The banking industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. Effective use of technology increases efficiency and enables banks to better serve customers. Our future success depends, in part, on our ability and the ability of our third-party partners to effectively implement new technology. The widespread adoption of new technologies, including mobile banking services, artificial intelligence, cryptocurrencies and payment systems, could require us in the future to make substantial expenditures to modify or adapt our existing products and services as we grow and develop new products to satisfy our customers’ expectations and comply with regulatory guidance. Many of our larger competitors have substantially greater resources than we do to invest in technological improvements. As a result, they may be able to offer, or more quickly offer, additional or superior products that could put us at a competitive disadvantage.

The use of artificial intelligence in our marketplace may result in reputational harm or liability, or could otherwise adversely affect our business.

Artificial intelligence, including generative artificial intelligence, is or may be enabled by or integrated into our products and services or those developed by our third-party partners. As with many developing technologies, artificial intelligence presents risks and challenges that could affect its further development, adoption, and use, and therefore our business. Artificial intelligence algorithms may be flawed, for example datasets may contain biased information or otherwise be insufficient; and inappropriate or controversial data practices could impair the acceptance of artificial intelligence solutions and result in burdensome new regulations. If the analyses that products incorporating artificial intelligence assist in producing for us or our third-party partners are deficient, biased or inaccurate, we could be subject to competitive harm, potential legal liability and brand or reputational harm. The use of artificial intelligence may also present ethical issues. If we or our third-party partners offer artificial intelligence enabled products that are controversial because of their purported or real impact on human rights, privacy, or other issues, we may experience competitive harm, potential legal liability and brand or reputational harm. In addition, we expect that governments will continue to assess and implement new laws and regulations concerning the use of artificial intelligence, which may affect or impair the usability or efficiency of our products and services and those developed by our third-party partners.

We face risks relating to our reliance on third party vendors.

We outsource a large portion of our data processing to third parties who may encounter technological or other difficulties that could in turn significantly limit or affect our ability to process and account for customer transactions. These vendors provide services that support our operations, including the storage and processing of sensitive consumer and business customer data, as well as our sales efforts. A cyber security breach of a vendor’s system may result in theft of our data or disruption of business processes. In most cases, we would be primarily liable to our customers for losses arising from a breach of a vendor’s data security system.

We also rely on our outsourced service providers to implement and maintain prudent cyber security controls. The loss of these vendor relationships could disrupt the services we provide to customers and cause us to incur significant expense in connection with replacing these services.

The Company depends primarily on the operations of the Bank to pay dividends, repurchase shares, repay its indebtedness and fund its operations. The Bank’s ability to pay dividends to the Company depends on the success of the Bank’s operations.

The Company is a separate and distinct legal entity from its subsidiary, the Bank, and it receives substantially all of its revenue from dividends paid by the Bank. There are legal limitations on the extent to which the Bank may extend credit, pay dividends or otherwise supply funds to, or engage in transactions with, the Company. The Company’s inability to receive dividends from the Bank could adversely affect its business, financial condition, results of operations and prospects. Even if applicable laws and regulations would permit the Bank to pay dividends to the Company and would permit the Company to pay dividends to our shareholders, our Board of Directors could determine that it is not in the best interest of the Company’s shareholders to do so in order to preserve or redeploy our capital resources, for example. For these reasons, the amount and frequency of dividends that we pay to shareholders may vary from time to time.

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Damage to our reputation could significantly harm our business and prospects.

Our reputation is an important asset. Our relationship with many of our customers is predicated upon our reputation as a high-quality provider of financial services that adheres to the highest standards of ethics, service quality and regulatory compliance. Our ability to attract and retain customers, investors and employees depends upon external perceptions. Damage to our reputation among existing and potential customers, investors and employees could cause significant harm to our business and prospects and may arise from numerous sources, including litigation or regulatory actions, failing to deliver minimum standards of service and quality, lending practices, inadequate protection of customer information, sales and marketing efforts, compliance failures, cybersecurity breaches, unethical behavior and the misconduct of employees. Adverse developments in the banking industry may also, by association, negatively impact our reputation or result in greater regulatory or legislative scrutiny or litigation against us. We have policies and procedures in place intended to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors, and employees, costly litigation, a decline in revenues and increased governmental regulation.

We are exposed to risk of environmental liabilities with respect to real properties that we may acquire.

If our borrowers are unable to meet their loan repayment obligations, we will initiate foreclosure proceedings with respect to and may take actions to acquire title to the personal and real property that collateralized their loans. As an owner of such properties, we could become subject to environmental liabilities and incur substantial costs for any property damage, personal injury, investigation and clean-up that may be required due to any environmental contamination that may be found to exist at any of those properties, even though we did not engage in the activities that led to such contamination. In addition, if we were the owner or former owner of a contaminated site, we could be subject to common law claims by third parties seeking damages for environmental contamination emanating from the site. If we were to become subject to significant environmental liabilities or costs, our business, financial condition, results of operations and prospects could be adversely affected.

Risks Related to Our Proposed Acquisition of Cornerstone Community Bancorp

Our failure to manage our proposed acquisition of Cornerstone Community Bancorp may have a material adverse effect on our financial condition and results of operations.

In January 2025, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Cornerstone Community Bancorp (“Cornerstone”), which is the holding company for Cornerstone Community Bank based in Red Bluff, California. The Merger Agreement provides that, subject to the terms and conditions in the agreement, Cornerstone will merge with and into the Company, with the Company as the surviving corporation (the “Merger”). Acquiring other banks involves risks commonly associated with acquisitions generally, including, among other things, the risk that acquisition activity may divert our management’s attention from other aspects of our business, the difficulty in estimating the value of a target company, and the risk that an acquired business may not perform in accordance with our expectations. Our future results of operations will depend in large part on our ability to successfully integrate Cornerstone’s operations with our own and retain Cornerstone’s customers. If we are unable to successfully manage the risks related to the Merger and the integration of the separate business, customers, employees and operating systems of Cornerstone with our own, our financial condition and results of operations may be adversely affected.

We may fail to realize the anticipated benefits of the proposed merger with Cornerstone.

The success of the Merger will depend on, among other things, our ability to combine and integrate the business of Cornerstone into our business. If we are unable to successfully achieve this objective, the anticipated benefits of the Merger may not be realized fully, or at all, or may take longer to realize than expected.

The Company and Cornerstone operate independently and will continue to do so until the Merger is completed. It is possible that the integration process or other factors could result in the loss or departure of key employees, the disruption of the ongoing business of the Company or Cornerstone or inconsistencies in standards, controls, procedures and policies. It is also possible that clients, customers, depositors and counterparties of Cornerstone could choose to discontinue their relationships with the Company after the Merger, which would adversely affect the future anticipated performance of the Company. It is also possible that we may not realize all or some of the anticipated cost savings of the Merger, or that the realization of cost savings may be delayed. These risks could have an adverse effect on the Company, its financial condition, prospects and results of operations following the consummation of the Merger.

We will incur substantial costs related to the Merger.

We have incurred and expect to incur a number of significant non-recurring costs associated with the Merger. These costs include legal, financial advisory, accounting, consulting, and other advisory fees, severance/employee benefit-related costs and other related costs. Some of these costs are payable regardless of whether the Merger is completed. We may incur additional costs to maintain employee morale and retain key employees during the pendency of the Merger. There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction costs over time.

Risks Related to Regulation of the Company and the Bank

We are subject to extensive regulation and may face regulatory enforcement actions, incur fines, penalties and other negative consequences from regulatory violations.

Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on our operations. Over time, our business has been increasingly affected by the growing breadth of these regulations, and this trend is likely to continue. Federal and state banking regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations by bank holding companies and banks in the performance of their supervisory and enforcement duties. If banking regulators determine that we have violated laws or engaged in unsafe or unsound practices, we could face enforcement actions, incur fines, penalties, and other negative consequences. While we maintain systems and procedures designed to ensure that we comply with applicable laws and regulations, we cannot be certain that these will be effective. We may also suffer other negative consequences resulting from findings of noncompliance with laws and regulations which may also damage our reputation, and this in turn might materially affect our business and results of operations. Further, some legal/regulatory frameworks provide for the imposition of fines, restitution, or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there were in place at the time systems and procedures designed to ensure compliance.

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Regulatory policies regarding loans secured by commercial real estate could limit our ability to leverage our capital and adversely affect our growth and profitability.

The federal banking agencies have issued guidance regarding concentrations in commercial real estate (“CRE”) lending for banks that are deemed to have particularly high concentrations of CRE loans within their lending portfolios. Under this guidance, a bank that has (i) total reported loans for construction, land development, and other land which represent 100% or more of the bank’s total risk-based capital; or (ii) total CRE representing 300% or more of the bank’s total risk-based capital, where the outstanding balance of the bank’s CRE loan portfolio has increased 50% or more during the prior 36 months, is identified as having potential CRE concentration risk. While the agencies’ guidance does not limit the levels of a bank’s CRE lending, banks with higher levels of CRE loans are generally expected to implement enhanced underwriting, internal controls, risk management policies and portfolio stress testing, as well as higher levels of allowances for credit losses and capital levels as a result of CRE lending growth and exposures.

As of December 31, 2024, our CRE loans for purposes of this guidance represented 242% of our total risk-based capital. As of December 31, 2024, total loans secured by CRE under construction and land development represented 54% of our total risk-based capital. As a result, the FRB, which is the Bank’s federal banking regulator, could view the Bank as having a high concentration of CRE loans under this guidance.

Although we actively work to manage our CRE concentration and believe that our underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are appropriate to address our CRE concentration, we face heightened regulatory scrutiny as a result of our CRE loan concentrations. Federal regulators could become concerned about our CRE loan concentrations, and we could be required to reduce our levels of CRE lending, increase our capital, allocate greater resources to the management of CRE risks, or any combination of these actions. The FRB could limit our ability to grow by, among other things, restricting their approvals for the establishment or acquisition of branches, or approvals of mergers or other acquisition opportunities. Further, we cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our CRE portfolio.

Any of these risks could have an adverse effect on our business, consolidated financial condition and consolidated results of operations.

General Risk Factors

The trading price of our common stock may be volatile or may decline.

The trading price of our common stock may fluctuate as a result of a number of factors, many of which are outside our control. Among the factors that could affect the trading price of our common stock are:

• research reports and recommendations by financial analysts;

• failure to meet analysts’ revenue or earnings estimates;

• speculation in the press or investment community;

• actions by institutional shareholders;

• proposed or adopted regulatory changes or developments;

• domestic and international economic factors unrelated to our performance.

A significant decline in the trading price of our common stock price could result in substantial losses for individual shareholders and could lead to costly and disruptive securities litigation.

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The trading volume of our common stock is limited.

Although our common stock is traded on the Nasdaq Stock Market, trading volume to date has been relatively modest. The limited trading market for our common stock may lead to exaggerated fluctuations in market prices and possible market inefficiencies compared to more actively traded securities. It may also make it more difficult for investors to sell our common stock at desired prices, especially for holders seeking to dispose of a large number of shares of stock.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We have designed and implemented controls and procedures to provide reasonable assurance that the information we are required to disclose in the reports that we file with the SEC under the Exchange Act is accurately accumulated and communicated to our management, and recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. However, no disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide absolute assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, that alternative reasoned judgments can be drawn, or that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control systems, misstatements due to error or fraud may occur and not be detected, which could result in a material weakness in our internal controls over financial reporting and the correction or restatement of previously disclosed financial statements or information.

We rely on key executives and personnel and the loss of any of them could have a material adverse impact on our prospects.

Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the California and Nevada community banking industry. The process of recruiting personnel with the combination of skills and attributes required to carry out the Company’s strategies is often lengthy. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing, compliance, and technical personnel and upon the continued contributions of our management and personnel. In particular, our success has been and continues to be highly dependent upon the abilities and relationships of key executives and certain other employees.

Climate change may materially adversely affect the Company’s business and results of operations.

Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. We and our clients will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our clients may face cost increases, asset value reductions and operating process changes. The impact on our clients will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in certain industry sectors. In addition, we could face reductions in creditworthiness on the part of some clients or in the value of assets securing loans. Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 1C. CYBERSECURITY

Plumas Bancorp maintains a cyber risk management program that is designed to prevent, detect, and respond to information security threats. The Board of Directors is responsible for oversight of the Company’s information security program, which is designed and implemented by management under the direction of the Chief Information Officer. In addition, the Internal Auditor and Risk Management Officer consider cybersecurity threat risks alongside other company risks as part of our overall risk assessment and management process.

The Chief Information Officer supervises the information security team, which is responsible for maintaining and implementing our enterprise-wide cybersecurity strategy, policy, standards, and architecture processes. The Information Security Officer, in coordination with compliance and human resources, conducts annual and ongoing company-wide information security awareness training. The Chief Information Officer and Information Security Officer have combined over 35 years of IT management experience. We have developed processes to identify and oversee risks from cybersecurity threats associated with third-party service providers, which include the information security team assessing cybersecurity robustness during third-party vendor onboarding, the inclusion of protective provisions in third-party vendor agreements, and risk-based monitoring of third-party vendors on an ongoing basis.

The Board of Directors receives regular reports from the Chief Information Officer and the Information Security Officer on Plumas Bancorp’s cyber risks and threats, the status of projects to strengthen Plumas Bancorp’s information security systems, assessments of Plumas Bancorp’s security program, and the emerging threat landscape. Additionally, the Chief Information Officer chairs the Technology Steering Committee, which drives awareness, ownership, and alignment across all business functions for effective cybersecurity risk management and reporting. In addition to conducting internal audits, Plumas Bancorp annually engages third parties to audit its information security programs, whose findings are reported to the Audit and Executive Committees of the Board. The Company also engages with key third-party vendors, industry participants, government agencies, and intelligence and law enforcement communities as part of our efforts, which are reported to the Technology Steering Committee and Board of Directors.

The Company has experienced and expects that it will continue to experience cyber-based attempts to compromise its information systems, although none, to its knowledge, has had a material adverse effect on its business, financial condition, or results of operations. Like all financial institutions, the Company faces the risks of such threats, the consequences of which could be material. See Item 1A – Risk Factors – “Cybersecurity breaches and technological discussions could damage our reputation and profitability,” above. In addition, given the constant and evolving threat of cyber-based attacks, the Company incurs significant costs in its efforts to detect and prevent security breaches and incidents, and these costs may increase in the future.

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ITEM 2. PROPERTIES

Of the Company’s fifteen depository branches, four are owned and eleven are leased. Our Yuba City branch is classified as owned; however, it is subject to a long-term land lease. The Company also leases two lending offices and four administrative offices and owns three administrative facilities.

Owned Properties

35 South Lindan Avenue 32 Central Avenue 80 W. Main Street

Quincy, California (1) Quincy, California (1) Quincy, California (1)

215 North Lake Boulevard 900 Mangrove Avenue 315 Birch Street

Tahoe City, California Chico, California Westwood, California (1)

1280 Bridge Street 8475 North Lake Boulevard

Yuba City, California (4) Kings Beach, California

Leased Properties

Elko, Nevada (1) Redding, California Auburn, California (2)

Carson City, Nevada Klamath Falls, Oregon (3) Reno, Nevada (1)

5050 Meadowood Mall Circle 336 West Main Street 120 North Pine Street

Reno, Nevada Quincy, California Portola, California

Truckee, California Fall River Mills, California Greenville, California

255 Main Street 510 North Main Street 3000 Riverside Drive

Chester, California Alturas, California Susanville, California

(1) Non-branch administrative or credit administrative offices.

(2) SBA lending office.

(3) Commercial lending office.

(4) Branch subject to long term land lease.

Including variable lease expense, total rent expense for the years ended December 31, 2024, 2023 and 2022 were $3,064,000, $635,000 and $611,000, respectively. The expiration dates of the leases vary, with the first such lease expiring during 2025 and the last such lease expiring during 2044.

Future minimum lease payments at December 31, 2024 for operating leases having initial or remaining noncancelable lease terms in excess of one year are as follows:

Year Ending December 31,

The Company maintains insurance coverage on its premises, leaseholds and equipment, including business interruption and record reconstruction coverage. The branch properties and non-branch offices are adequate, suitable, in good condition and have adequate parking facilities for customers and employees. The Company and Bank are limited in their investments in real property under Federal and state banking laws. Generally, investments in real property are either for the Company and Bank use or are in real property and real property interests in the ordinary course of the Bank’s business.

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ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company’s common stock is traded on the NASDAQ Capital Market under the ticker symbol "PLBC". As of December 31, 2024, there were 5,903,368 shares of the Company’s common stock outstanding held by approximately 1,800 shareholders of record.

It is the policy of the Company to periodically distribute excess retained earnings to the shareholders through the payment of cash dividends. Our Board of Directors believes that dividends help promote shareholder value and capital adequacy by enhancing the marketability of the Company’s stock. The Company is subject to various restrictions on the payment of dividends. The Company paid a quarterly cash dividend of $0.27 per share on November 15, August 15, 2024, May 15, 2024 and February 15, 2024, and a quarterly cash dividend of $0.25 per share on November 15, 2023, August 15, 2023, May 15, 2023, and February 15, 2023.

The payment of future dividends is at the discretion of the Board. The Board generally considers the payment of dividends each quarter based on a number of factors, including our results of operations, general business conditions, growth, financial condition, anticipated capital needs and other factors deemed relevant by the Board.

Further, the Company is subject to various restrictions on the payment of dividends. See Note 13 “Shareholders’ Equity – Dividend Restrictions” of the Company’s Consolidated Financial Statements in Item 8 – Financial Statements and Supplementary Data of this report.

Issuer Purchases of Equity Securities. We did not repurchase any shares of our common stock during the quarterly period ended December 31, 2024.

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The following table presents a summary of selected financial data and should be read in conjunction with the Company’s consolidated financial statements and notes thereto included under Item 8 – Financial Statements and Supplementary Data.

At or for the year ended December 31,

(dollars in thousands except per share information)

Statement of Income

Balance sheet (period average)

Asset quality ratios

Performance ratios

Per share information

Capital ratios – Plumas Bank

ITEM 6. [RESERVED]

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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 and fees received in connection with servicing deposit and loan customers. 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.

SALES/LEASEBACK AND iNVESTMENT RESTRUCTURING

On January 19, 2024, Plumas Bank entered into two agreements for the purchase and sale of real property (the “Sale Agreements”). One Sale Agreement provided for the sale to MountainSeed of nine properties owned and operated by Plumas Bank as branches for an aggregate cash purchase price of approximately $25.7 million. The branch portion of the sale was completed on February 14, 2024 resulting in a net gain on sale of $19.9 million, recording of right-of-use assets totaling $22.3 million and recording a lease liability of $22.3 million. The second Sale Agreement provided for the sale to MountainSeed of up to three properties operated as non-branch administrative offices (the “Non-Branch Offices”). This agreement was terminated in August 2024. We continue to review opportunities for the sale of the Non- Branch Offices.

Concurrently with the closing of the sale of the branch properties, we entered into triple net lease agreements (the “Lease Agreements”) pursuant to which Plumas Bank leased back each of the properties sold. Each Lease Agreement has an initial term of fifteen years with one 15-year renewal option. The Lease Agreements provide for an annual rent of approximately $2.4 million in the aggregate for the nine 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 gain on sales of the branches was offset by losses on the sale of approximately $115 million in investment securities. We sold $115 million in investment securities having a weighted average tax equivalent yield of 2.24% recording a $19.8 million loss on the sales. As part of the restructuring, beginning in December 2023 and ending on March 27, 2024, we purchased $120 million in investment securities having a weighted average tax equivalent yield of 5.25%.

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, 2024, 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, and other risk factors that might influence its loss estimation process. Management believes that the allowance for credit losses at December 31, 2024, 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, in excess of $100,000, are individually evaluated for reserves. As of December 31, 2024 the Bank's nonaccrual loans comprised the entire population of loans individually evaluated. The Company's policy is that nonaccrual loans in excess of $100,000, 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, 2024 and 2023 and for each of the three years in the period ended December 31, 2024. 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 $28.6 million for the year ended December 31, 2024, a decrease of $1.2 million or 4% from net income of $29.8 million during the year ended December 31, 2023. Pretax income decreased by $1.2 million, or 3%, to $39.0 million in 2024 from $40.2 million during the year ended December 31, 2023. Net interest income increased by $3.9 million to $73.7 million during 2024 from $69.8 million for the year ended ​December 31, 2023. This increase in net interest income resulted from an increase in interest income of $9.7 million partially offset by an increase in interest expense of $5.8 million. Interest and fees on loans increased by $6.4 million; interest on investment securities increased by $2.7 million and interest on other interest earning assets increased by $0.6 million. The provision for credit losses decreased from $2.8 million during the twelve months ended December 31, 2023 to $1.2 million during 2024.

During the year ended

December 31, 2024, non-interest income totaled $8.8 million, a decrease of $1.9 million from the $10.7 million earned during

2023. Non-interest income in 2023 included a nonrecurring gain of $1.7 million on termination of our interest rate swaps during the first quarter of 2023. Non-interest expense increased by $4.8 million from $37.5 million during

2023 to $42.3 million during the twelve months ending

December 31, 2024. The provision for income taxes totaled $10.4 million a decrease of $53 thousand from 2023.

Total assets at December 31, 2024 were $1.6 billion, an increase of $13 million from December 31, 2023. The largest component of this increase was an increase in net loans of $56.8 million. This was mostly offset by a decrease of $51 million in investment securities.

Gross loans increased by approximately $57 million, or 6%, from $959 million at December 31, 2023, to $1.0 billion at December 31, 2024. Increases in loans included $102 million in commercial real estate loans and $3 million in commercial loans. These items were partially offset by decreases of $33 million in auto loans, $11 million in agricultural loans and $4 million in construction loans. In the fourth quarter of 2023 we terminated our indirect automobile 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.

Total deposits increased by approximately $37 million from $1.3 billion at December 31, 2023 to $1.4 billion at December 31, 2024. The increase in deposits includes increases of $7 million in demand deposits, $53 million in money market accounts and $2 million in time deposits. Partially offsetting these increases was a $25 million decrease in savings deposits.

Borrowings decreased from $90 million at December 31, 2023 to $15 million at December 31, 2024. Borrowings at December 31, 2023 consisted of $80 million under the Bank Term Funding Program (BTFP) and $10 million under our $15 million Bancorp line of credit with a correspondent bank. At December 31, 2024, the Company had paid its BTFP borrowings in full and outstanding borrowings consisted of $15 million under the Bancorp line of credit.

Shareholders’ equity increased by $30.6 million from $147.3 million at December 31, 2023 to $177.9 million at December 31, 2024. The $30.6 million increase was related to net income during 2024, of $28.6 million, a decline in accumulated other comprehensive loss of $7.3 million and stock option and restricted stock activity of $1.0 million partially offset by shareholder dividends of $6.3 million.

The return on average assets was 1.74% for the twelve months ended December 31, 2024, down from 1.88% for the twelve months ended December 31, 2023. The return on average equity decreased from 23.4% during 2023 to 17.2% during 2024.

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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:

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2024 compared to 2023. Net interest income is the difference between interest income and interest expense. Net interest income for the twelve months ended December 31, 2024 was $73.7 million, an increase of $3.9 million from the $69.8 million earned during 2023. The increase in net interest income includes an increase of $9.7 million in interest income partially offset by an increase of $5.8 million in interest expense.

Interest and fees on loans increased by $6.5 million related to an increase in average balance and yield. The average balance of loans during the twelve months ended December 31, 2024 was $989 million, an increase of $55 million from $934 million during 2023. The average yield on loans increased by 32 basis points from 5.89% during 2023 to 6.21% during 2024.

Interest on investment securities increased by $2.7 million related to an increase in yield of 64 basis points to 3.93%. The increase in investment yields is consistent with the increase in market rates and the partial restructuring of the investment portfolio. Average investment securities declined from $462 million during the twelve months ended December 31, 2023 to $455 million during the current period. Interest on cash balances increased by $606 thousand related to an increase in yield of 31 basis points and an increase in average balance of $6.2 million from $86.9 million during 2023 to $93.1 million during 2024.

Interest expense increased from $4.8 million during 2023 to $10.6 million during the current period related mostly to an increase in rate paid on interest bearing liabilities and an increase in average borrowings. The average rate paid on interest bearing liabilities increased from 0.67% during the 2023 period to 1.39% in 2024 related to an increase in borrowings and an increase in market interest rates. Interest incurred on borrowings, including junior subordinated debentures in 2023, totaled $4.7 million and $1.0 million during 2024 and 2023, respectively. The average balance of borrowings increased by $78 million from $20 million during 2023 to $98 million during 2024.

Interest paid on deposits increased by $2.2 million; this increase is broken down by product type as follows: money market accounts - $1.1 million and time deposits - $1.2 million. Related to a decline in average balance of $51 million, interest on savings deposits declined by $90 thousand. The average rate paid on interest-bearing deposits increased from 0.55% during 2023 to 0.92% during the current period. Rates paid on money market accounts and time deposits increased by 49 basis points and 75 basis points, respectively. This is consistent with market conditions and an increase in higher rate public entity money market accounts.

Net interest margin for the year ended December 31, 2024 increased 8 basis points to 4.79%, up from 4.71% during 2023.

2023 compared to 2022. 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 2023 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.

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Provision for credit losses. During 2024 we recorded a provision for credit losses of $1.2 million consisting of a provision for credit losses on loans of $1.4 million and a decrease in the reserve for unfunded commitments of $179 thousand. 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. 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, 2024, and 2023 (in thousands).

Allowance for Credit Losses December 31, 2024 December 31, 2023

Impact of CECL adoption - 529

Provision charged to operations 1.375 2,575

Losses charged to allowance (2,039 ) (1,802 )

Reserve for Unfunded Commitments December 31, 2024 December 31, 2023

Balance, beginning of period $ 799 $ 341

Impact of CECL adoption - 258

Provision charged to operations (179 ) 200

Balance, end of period $ 620 $ 799

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.

Non-Interest Income

The following table sets forth the components of non-interest income for the years ended December 31, 2024, 2023 and 2022.

Years Ended December 31, Change during Year

(dollars in thousands)

Gain on sale of buildings $ 19,854 $ - $ - $ 19,854 $ -

Earnings on bank owned life insurance policies, net 409 417 391 (8 ) 26

Loss on sale of investments (19,817 ) - - (19,817 ) -

2024 compared to 2023. During the year ended December 31, 2024, non-interest income totaled $8.8 million, a decrease of $1.9 million from the year ended December 31, 2023. The largest component of this decrease was a $1.7 million gain on termination of our interest rate swaps during 2023. Related to the sale/leaseback transaction and the partial restructuring of our investment portfolio, a $19.9 million gain on sale of buildings was offset by a $19.8 million loss on investment securities. Other changes in non-interest income include a decline in interchange income of $289 thousand and an increase in service charges on deposit accounts of $199 thousand.

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 2023 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.

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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, 2024, 2023 and 2022.

Years Ended December 31, Change during Year

(dollars in thousands)

2024 compared to 2023. During 2024 non-interest expense increased by $4.7 million to $42.3 million. The largest components of this increase were a $1.4 million increase in salary and benefit expenses, a $2.3 million increase in occupancy and equipment expenses and a $643 thousand increase in other non-interest expenses. The largest increases in salary and benefit expense were $695 thousand in salary expense and $401 thousand in commission expense. The increase in salary expense relates to both an increase in FTE and merit and promotional increases, while the increase in commission is related to increased SBA loan production. These were partially offset by an increase in the deferral of loan origination costs of $414 thousand related to an increase in SBA loan production. The increase in occupancy and equipment costs relates to a $2.4 million increase in rent expense related to the sales/leaseback transaction. The increase in other non-interest expense includes $277 thousand related to a recently concluded litigation.

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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.

Provision for Income Taxes. The Company recorded an income tax provision of $10.4 million, or 26.6% of pre-tax income for the year ended December 31, 2024. This compares to an income tax provision of $10.4 million, or 26.0% of pre-tax income during 2023. The percentages for 2024 and 2023 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, 2024 and 2023 will be fully realized and therefore no valuation allowance was recorded.

Financial Condition

Total assets at December 31, 2024 were $1.6 billion, an increase of $13 million from December 31, 2023. The largest component of this increase was an increase in net loans of $57 million. This was mostly offset by a decrease of $51 million in investment securities. Cash and cash equivalents decreased by $4 million to $82 million on December 31, 2024. Related to the sales/leaseback transaction right-of use assets increased by $21 million. These increases were offset by declines of $51 million in investment securities, $6 million in property and equipment and $4 million in all other assets. Deposits totaled $1.4 billion at December 31, 2024, an increase of $37 million from December 31, 2023. Lease liabilities increased by $22 million to $25 million. Partially offsetting these increases in liabilities were decreases in borrowings, interest payable and other liabilities and repurchase agreements. Borrowings decreased by $75 million from $90 million on December 31, 2023, to $15 million on December 31, 2024. Interest payable and other liabilities and repurchase agreements each decreased by $1 million. Shareholders’ equity increased by $30.6 million from $147.3 million at December 31, 2023 to $177.9 million at December 31, 2024. A detailed discussion of each of these changes follows.

Loan Portfolio. Gross loans increased by approximately $57 million, or 6%, from $959 million at December 31, 2023, to $1.0 billion at December 31, 2024. Increases in loans included $102 million in commercial real estate loans and $3 million in commercial loans. These items were partially offset by decreases of $33 million in auto loans, $11 million in agricultural loans and $4 million in construction 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 automobile 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 53,503 5.3 % 57,717 6.0 %

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 82% of the total loan portfolio at December 31, 2024. 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.

Commercial real estate loans (“CRE”), which comprised 64% of the lending portfolio at December 31, 2024, included 27% investor-owned, 28% owner-occupied, and 9% multi-family. Concentrations by real estate type within the CRE portfolio included 15% multi-family, 12% retail, 11% mixed commercial real estate, 11% office, 7% hospitality, 7% special purpose, 6% industrial, 6% gas stations and 5% mini storage facilities, with all remaining concentrations below 5%. There were no rent-controlled properties within the multi-family category. Office facilities are typically small and located in more rural areas. 28% of CRE loans were located in northern Nevada and 48% were located in northern California. Of the $4.1 million in non-accrual balances at December 31, 2024, approximately 38% were CRE. Of the $19.8 million in substandard balances at December 31, 2024 9% were CRE.

CRE loans consist of term loans secured by a mortgage lien on real property and include both owner occupied CRE loans as well as investor-owned loans. Investor- owned CRE loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, multi-family, industrial, office, retail and other specific use properties. The primary risk characteristics in the investor-owned portfolio include impacts of overall leasing rates, absorption timelines, levels of vacancy rates and operating expenses. The Company requires collateral values in excess of the loan amounts, cash flows in excess of expected debt service requirements and equity investment in the project. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. Inherent lending risks are monitored on a continuous basis through quarterly monitoring and the Bank’s annual underwriting process, incorporating an analysis of cash flow, collateral, market conditions and guarantor liquidity, if applicable. CRE loan policies are specific to individual product types and underwriting parameters vary depending on the risk profile of each asset class. CRE loan policies are reviewed no less than annually by management and approved by the Company’s Board of Directors to ensure they align with current market conditions and the Company’s moderate risk appetite. CRE concentration limits have been established by product type and are monitored quarterly by the Company’s Board of Directors.

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, 2024 and December 31, 2023, approximately 77% and 78%, respectively, of the Company's loan portfolio was comprised of variable rate loans. Loans indexed to the prime interest rate were approximately 21% of the Company’s variable rate loan portfolio on December 31, 2024; 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. Approximately 76% of the variable rate loans are indexed to the five-year T-Bill rate 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, 2024. 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 3,233

Real estate – commercial 79,098

Real estate – construction & land development 2,548

Equity Lines of Credit 1,654

Amount due after one year at variable interest rates:

(in thousands)

Real estate – residential 5,661

Real estate – commercial 510,810

Real estate – construction & land development 41,277

Equity Lines of Credit 32,244

Auto -

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.

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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 December 31, 2024, 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 and other risk factors that might influence its loss estimation process. Management believes that the allowance for credit losses at December 31, 2024, 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, 2024, the Bank's nonaccrual loans in excess of $100,000 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.

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The following table provides selected credit ratios as of December 31, 2024, 2023 and 2022:

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

Allowance for credit losses to total loans outstanding 1.30 % 1.34 % 1.18 %

Nonaccrual loans to total loans outstanding 0.40 % 0.50 % 0.13 %

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

Net charge-off during the period $ 277 $ 79 $ 180

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

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

Net charge-off during the period $ (4 ) $ (3 ) $ (3 )

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

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 %) (0.00 %)

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

Net charge-off during the period $ 715 $ 804 $ 713

Net charge-off during the period $ 59 $ 75 $ 28

Net charge-off during the period $ 1,046 $ 954 $ 935

The allowance for credit losses totaled $13.2 million at December 31, 2024, and $12.9 million at December 31, 2023. 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 $29,000 and $28,000 at December 31, 2024, and December 31, 2023, respectively. The allowance for credit losses as a percentage of total loans was 1.30% on December 31, 2024, and 1.34% on December 31, 2023.

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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 815 5.3 % 797 6.0 %

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.

Nonperforming loans at December 31, 2024 were $4.1 million, a decrease of $0.7 million from $4.8 million at December 31, 2023.

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 - - -

Other real estate owned 91 357 0

Interest income forgone on nonaccrual loans $ 301 $ 257 $ 121

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

Nonperforming loans to total loans 0.40 % 0.50 % 0.13 %

Nonperforming assets to total assets 0.27 % 0.33 % 0.07 %

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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 $1.3 million from $21.7 million on December 31, 2023, to $23.0 million on December 31, 2024. Loans classified as special mention increased by $2.7 million from $9.3 million on December 31, 2023, to $12.0 million on December 31, 2024.

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, 2024, 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.

OREO represent 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 $91,000 on December 31, 2024, and one property totaling $357,000 at December 31, 2023.

Nonperforming assets as a percentage of total assets were 0.27% at December 31, 2024 and 0.33% at December 31, 2023.

The following table provides a summary of the change in the number and balance of OREO properties for the years ended December 31, 2024 and 2023, dollars in thousands:

Year Ended December 31,

Beginning Balance 1 $ 357 - $ -

Provision from change in OREO valuation - (50 ) - -

Investment Portfolio and Federal Reserve Balances. Total investment securities were $437.7 million as of December 31, 2024, and $489.2 million at December 31, 2023. Unrealized losses on available-for-sale investment securities totaling $35.7 million were recorded, net of $10.6 million in tax benefits, as accumulated other comprehensive loss within shareholders' equity at December 31, 2024. During the first quarter of 2024 we sold $116 million in investment securities having a weighted average tax equivalent yield of 2.24% recording a $19.8 million loss on sale. Beginning in December 2023 and ending on March 27, 2024 we purchased $120 million in investment securities having a weighted average tax equivalent yield of 5.25%. These sales and purchases were made as part of the investment restructure described earlier. No securities were sold during 2023.

The investment portfolio at December 31, 2024, consisted of $350.2 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies, and 170 municipal securities totaling $87.5 million. The investment portfolio at December 31, 2023 consisted of $6.9 million in U.S. Treasury securities, $351.9 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies and 244 municipal securities totaling $130.4 million.

There were no Federal funds sold at December 31, 2024, and December 31, 2023; however, the Bank maintained interest earning balances at the Federal Reserve Bank totaling $47.2 million at December 31, 2024 and $52.9 million at December 31, 2023. The balance, on December 31, 2024, earns interest at the rate of 4.40%.

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, 2024. 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

Deposits. Deposits totaled $1.4 billion on December 31, 2024, an increase of $37 million from December 31, 2023. The increase in deposits includes increases of $7 million in demand deposits, $53 million in money market accounts and $2 million in time deposits. Partially offsetting these increases was a $25 million decrease in savings deposits. At December 31, 2024, 51% 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, 2024 and 2023 and the average balance and rates paid on deposits for the three years ending December 31, 2024:

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.

The Company estimates that it has approximately $496 million in uninsured deposits which includes uninsured deposits of Plumas Bancorp. Of this amount, $128 million represents deposits that are collateralized such as deposits of states, municipalities and tribal accounts. 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 six through twelve months 4,452 5,428

After twelve months 61 757

Short-term Borrowing Arrangements. The Company is a member of the Federal Home Loan Bank of San Francisco (FHLB) and can borrow up to $248 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $433 million. The Company is required to hold FHLB stock as a condition of membership. At December 31, 2024, the Company held $6.2 million of FHLB stock which is recorded as a component of other assets. The Company is also eligible to borrow at the FRB Discount Window. At December 31, 2024 the Company could borrow up to $116 million at the Discount Window secured by investment securities with a fair value of $120 million. In addition to its FHLB borrowing line and the Discount Window, 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, FRB Discount Window or the correspondent banks at December 31, 2024, and December 31, 2023.

The Federal Reserve Board, on March 12, 2023, announced the creation of the Bank Term Funding Program (BTFP). The BTFP offered 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 where valued at par. At December 31, 2023, the Company had outstanding borrowings under the Bank Term Funding Program (BTFP) totaling $80 million. In January 2024, the Company borrowed an additional $25 million under the BTFP. During September 2024 we made a $45 million payment resulting in a balance of $60 million and in November 2024 we paid off the $60 million balance. Interest expense recognized on the BTFP borrowings for the twelve months ended December 31, 2024, and 2023 totaled $4.0 million and $527,000, respectively.

Note Payable. On January 25, 2022 the Company replaced its $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. During January of 2024 the Company borrowed an additional $5 million under this note for general corporate purposes. The Company was in compliance with all covenants related to the Term Note at December 31, 2024. Interest expense recognized on the Term Note for the twelve months ended December 31, 2024 and 2023 totaled $641 thousand and $369 thousand, respectively.

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 $22.1 million and $23.1 million at December 31, 2024 and December 31, 2023, respectively, are secured by U.S. Government agency securities with a carrying amount of $38.5 million and $34.1 million at December 31, 2024 and December 31, 2023, 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 represented 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 and 2022 related to the subordinated debentures was $141,000 and $359,000, respectively.

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 had a 10-year maturity and fix the libor rate on the Subordinated Debentures at approximately 75 basis points. These agreements had 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.

Interest income recorded on these swap transactions totaled $25,000 for the year ended December 31, 2023, and $104,000 for the year ended December 31, 2022, and is reported as a component of interest expense on the Subordinated Debentures.

Capital Resources

Shareholders’ equity increased by $30.6 million from $147.3 million at December 31, 2023 to $177.9 million at December 31, 2024. The $30.6 million increase was related to net income during 2024 of $28.6 million, a decline in accumulated other comprehensive loss of $7.3 million and stock option and restricted stock activity of $1.0 million partially offset by shareholder dividends of $6.3 million.

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 $0.27 per share on November 15, 2024, August 15, 2024, May 15, 2024 and February 15, 2024, and a quarterly cash dividend of $0.25 per share on November 15, 2023, August 15, 2023, May 15, 2023, and February 15, 2023.

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, 2024, 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, 2024.

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, 2024, the Company had $155.4 million in unfunded loan commitments and no letters of credit. This compares to $174.6 million in unfunded loan commitments and $108,000 in letters of credit at December 31, 2023. Of the $155.4 million in unfunded loan commitments, $92.7 million and $62.7 million represent commitments to commercial and consumer customers, respectively. Of the total unfunded commitments at December 31, 2024, $91.7 million were secured by real estate, of which $37.8 million was secured by commercial real estate and $53.9 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’s leases eleven branches. Our Yuba City branch is classified as owned; however, it is subject to a long-term land lease. The Company also leases two lending offices and four administrative offices and owns three administrative facilities. The expiration dates of the leases vary, with the first such lease expiring during 2025 and the last such lease expiring during 2044. Including variable lease expense, total rent expense for the years ended December 31, 2024, 2023 and 2022 was $3.1 million, $635 thousand and $611 thousand, 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 $248 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $433 million. The Company is also eligible to borrow at the FRB Discount Window. At December 31, 2024 the Company could borrow up to $116 million at the Discount Window secured by investment securities with a fair value of $120 million. In addition to its FHLB borrowing line and the Discount Window, 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, FRB Discount Window or the correspondent banks at December 31, 2024, and December 31, 2023.

Customer deposits are the Company’s primary source of funds. Total deposits increased by $37 million from $1.3 billion at December 31, 2023 to $1.4 billion at December 31, 2024. Deposits are held in various forms with varying maturities. The Company estimates that it has approximately $496 million in uninsured deposits which includes uninsured deposits of Plumas Bancorp. Of this amount, $128 million represents deposits that are collateralized such as deposits of states, municipalities and tribal accounts.

The Company’s securities portfolio, Discount Window advances, 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 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 28, 2025, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Cornerstone Community Bancorp (“Cornerstone”), pursuant to which Cornerstone will merge with and into the Company, with the Company as the surviving corporation (the “Merger”). The Merger Agreement contemplates that immediately after the Merger, Cornerstone’s wholly-owned subsidiary, Cornerstone Community Bank, a California state-chartered bank, will merge with and into Plumas Bank, a California state-chartered bank and wholly-owned subsidiary of the Company, with Plumas Bank as the surviving bank.

Merger Consideration

At the effective time of the Merger (the “Effective Time”), each outstanding share of Cornerstone common stock, excluding certain specified shares, will be converted into the right to receive 0.6608 shares of Plumas common stock, plus up to $9.75 in cash consideration, as may be reduced in accordance with the terms of the Merger Agreement (the “Cash Consideration”) If Cornerstone’s Adjusted Tangible Common Equity (as determined in accordance with the Merger Agreement) as of the month end prior to the Effective Time, as adjusted to reflect certain merger-related costs, is less than $42,586,066, then the Cash Consideration will be reduced by such difference on a pro rata basis based on the number of shares of Cornerstone common stock outstanding immediately prior to the Effective Time. In addition, if Cornerstone’s merger-related costs (as determined in accordance with the Merger Agreement and giving credit for any recoveries on a specific Cornerstone Bank loan) exceed $7,000,000, then the Cash Consideration will be reduced by such excess on a pro rata basis based on the number of shares of Cornerstone common stock outstanding immediately prior to the Effective Time.

The transaction is valued at approximately $64.6 million based on the closing price of $47.76 for Plumas shares on January 28, 2025. On a pro forma consolidated basis, the combined company would have approximately $2.3 billion in assets, $2.0 billion in deposits, $1.5 billion in loans, and operate 19 branches throughout Northern California and Western Nevada.

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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On January 28, 2025, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Cornerstone Community Bancorp (“Cornerstone”), pursuant to which Cornerstone will merge with and into the Company, with the Company as the surviving corporation (the “Merger”). The Merger Agreement contemplates that immediately after the Merger, Cornerstone’s wholly-owned subsidiary, Cornerstone Community Bank, a California state-chartered bank, will merge with and into Plumas Bank, a California state-chartered bank and wholly-owned subsidiary of the Company, with Plumas Bank as the surviving bank.

Merger Consideration

At the effective time of the Merger (the “Effective Time”), each outstanding share of Cornerstone common stock, excluding certain specified shares, will be converted into the right to receive 0.6608 shares of Plumas common stock, plus up to $9.75 in cash consideration, as may be reduced in accordance with the terms of the Merger Agreement (the “Cash Consideration”) If Cornerstone’s Adjusted Tangible Common Equity (as determined in accordance with the Merger Agreement) as of the month end prior to the Effective Time, as adjusted to reflect certain merger-related costs, is less than $42,586,066, then the Cash Consideration will be reduced by such difference on a pro rata basis based on the number of shares of Cornerstone common stock outstanding immediately prior to the Effective Time. In addition, if Cornerstone’s merger-related costs (as determined in accordance with the Merger Agreement and giving credit for any recoveries on a specific Cornerstone Bank loan) exceed $7,000,000, then the Cash Consideration will be reduced by such excess on a pro rata basis based on the number of shares of Cornerstone common stock outstanding immediately prior to the Effective Time.

The transaction is valued at approximately $64.6 million based on the closing price of $47.76 for Plumas shares on January 28, 2025. On a pro forma consolidated basis, the combined company would have approximately $2.3 billion in assets, $2.0 billion in deposits, $1.5 billion in loans, and operate 19 branches throughout Northern California and Western Nevada.

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, 2024, 2023 and 2022.

Page

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

Consolidated Balance Sheets as of December 31, 2024 and 2023 F-7

Notes to Consolidated Financial Statements F-15

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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, 2024, 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, 2024, is effective.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Plumas Bancorp and Subsidiary

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Plumas Bancorp and Subsidiary (the Company) as of December 31, 2024, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, 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, 2024, and the results of its operations and its cash flows for the year then ended, 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 the Company’s financial statements based on our audit. 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks 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 audit 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 audit provides a reasonable basis for our opinion.

Critical AuditMatters

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) involvedour 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 they relate.

elliottdavis.com

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Allowance for Credit Losses - Collectively Evaluated Loans

As described in Note 5 to the Company’s financial statements, the Company has a gross loan portfolio of approximately $1.0 billion and related allowance for credit losses of $13.2 million as of December 31, 2024. As described by the Company in Note 2 to the Company’s financial statements, the Company uses discounted cash flow method to estimate expected credit losses. In addition to its own loss experience, the Company also includes peer bank historical loss experience in its assessment of expected credit losses to determine the allowance for credit losses. The Company utilized call report data to measure its and its peers' historical credit losses experience with similar risk characteristics within the segments over an economic cycle. Also considered were further adjustments to historical loss information to appropriately adjust for 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.

We identified the Company’s estimate of the allowance for credit losses for collectively evaluated loans as a critical audit matter. The principal considerations for our determination of the allowance for credit losses as a critical audit matter related to the high degree of subjectivity in the Company’s determination of significant model assumptions, including the determination of qualitative factor adjustments and macroeconomic data in the reasonable and supportable forecasts. Auditing these complex judgments and assumptions by the Company 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 we performed to address this critical audit matter included the following:

/s/ Elliott Davis, LLC

We have served as the Company's auditor since 2024.

Greenville, South Carolina

March 19, 2025

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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 sheet of Plumas Bancorp and Subsidiary (the “Company”) as of December 31, 2023, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows, for each of the years in the two-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 the results of its operations and its cash flows for each of the years in the two-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 audits 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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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.

/s/ Eide Bailly LLP

We served as the Company’s auditor from 2013 to 2023. 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, 2024 and 2023

ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

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, 2024, 2023 and 2022

Interest income:

Interest on investment securities:

Interest expense:

Interest on junior subordinated deferrable interest debentures - 141,000 359,000

Non-interest income:

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

Loss on sale of investment securities (19,817,000 ) - -

(Continued)

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Continued)

For the Years Ended December 31, 2024, 2023 and 2022

Non-interest expenses:

Basic earnings per common share $ 4.85 $ 5.08 $ 4.53

Diluted earnings per common share $ 4.80 $ 5.02 $ 4.47

Common dividends per share $ 1.08 $ 1.00 $ 0.64

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, 2024, 2023 and 2022

Other comprehensive income (loss):

Related tax effect:

Reclassification of (loss) gain included in net income (5,858,000 ) 505,000 -

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, 2024, 2023 and 2022

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 ) - - - -

Grants of restricted stock 435 - - -

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, 2024, 2023 and 2022

Cash flows from operating activities:

Provision from change in OREO valuation 50,000 - -

Net loss on sale of investment securities 19,817,000 - -

Gain on sale of buildings (19,854,000 ) - -

(Continued)

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

For the Years Ended December 31, 2024, 2023 and 2022

Cash flows from investing activities:

Proceeds from sale of available-for-sale securities 116,285,000 - -

Purchases of Federal Home Loan Bank stock - (2,540,000 ) (514,000 )

Purchase of Federal Reserve Bank stock (9,000 ) (8,000 ) (6,000 )

Proceeds from sale of buildings 25,690,000 - -

Cash flows from financing activities:

Decrease in other borrowings (185,000,000 ) - -

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

(Continued)

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PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

For the Years Ended December 31, 2024, 2023 and 2022

Supplemental disclosure of cash flow information:

Cash paid during the year for:

Supplemental noncash disclosures:

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.

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