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Plumas Bancorp – ‘10KSB’ for 12/31/02

On:  Friday, 3/28/03, at 2:02pm ET   ·   For:  12/31/02   ·   Accession #:  936392-3-373   ·   File #:  0-49883

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/28/03  Plumas Bancorp                    10KSB      12/31/02    2:1.2M                                   Bowne - BSD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Form 10KSB Year Ended December 31, 2002             HTML   1.12M 
 2: EX-23.01    Consent of Experts or Counsel                          1      4K 

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-KSB

For the fiscal year ended December 31, 2002

or

Commission file number: 000-49883

PLUMAS BANCORP

Registrant’s telephone number, including area code: (530) 283-7305

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value.

     Check whether the issuer: (1) filed all reports required to be filed under Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No p

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     Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB p

     For the year ending December 31, 2002, the Registrant’s revenues were $21,667,000.

     As of March 24, 2003, the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within the past 60 days: $52,916,000, based on a value of $16.42 per share

     As of March 24, 2003 there were 3,222,636 shares outstanding of the Registrant’s common stock.

Documents Incorporated by Reference

     Portions of the Company’s Definitive Proxy Statement for the 2003 Annual Shareholders’ Meeting to be filed with the Securities and Exchange Commission pursuant to Regulation 14 A are incorporated by reference in Part III, Items 9-11.

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Forward-Looking Information

     This Annual Report on Form 10-KSB includes forward-looking information which is subject to the “safe harbor” created by the Securities Act of 1933 and Securities Exchange Act of 1934. These forward-looking statements (which involve the Plumas Bancorp’s (the “Company’s”) plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:

     The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. For additional information concerning risks and uncertainties related to the Company and its operations please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 6 and other information in this Report.

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PART I

Item 1. Description of Business

     General. Plumas Bancorp (the “Company”) was incorporated under the laws of the State of California on January 17, 2002. The Company was organized pursuant to a plan of reorganization for the purpose of becoming the parent corporation of Plumas Bank (the “Bank”), and on June 21, 2002, the reorganization was effected and shares of the Company common stock were issued to the shareholders of Plumas Bank in exchange for the like number of common shares held by Plumas Bank’s shareholders. The Company has two subsidiaries, Plumas Bank and Plumas Statutory Trust I, a nonbank trust subsidiary organized on September 26, 2002 for the sole purpose of issuing trust preferred securities. This trust subsidiary is discussed in the section titled “Trust Preferred Securities.” The Company is a registered bank holding company under the Bank Holding Company Act. The Company conducts its operations at 35 S. Lindan Avenue, Quincy, Ca. 95971. The Company’s Internet address is the same as its subsidiary Bank’s, “www.plumasbank.com.”

     Plumas Bank was incorporated as a banking corporation under the laws of the State of California on July 30, 1980 and commenced operations as a California state-chartered bank on December 13, 1980. Plumas Bank is an insured bank under the Federal Deposit Insurance Act and is not a member of the Federal Reserve System. Plumas Bank’s head office is located at 35 S. Lindan Avenue, Quincy, California. Plumas Bank does not have any subsidiaries.

     Banking Services. The Company is a locally owned and operated bank holding company, and its primary service area is the Northeastern California’s Plumas, Lassen, Modoc, Shasta, and Nevada counties. The Company through its subsidiary Plumas Bank, maintains nine full service branches in the communities of Quincy, Portola, Greenville, Westwood, Truckee, Fall River Mills, Alturas, Susanville and Chester. The Bank is in the process of opening a new full service branch in the community of Tahoe City. In addition, the Company maintains fourteen automated teller machines (ATMs) tied in with major statewide and national networks. The Company’s primary business is servicing the banking needs of these communities and its marketing strategy stresses its local ownership and commitment to serve the banking needs of individuals living and working in the Company’s primary service areas and local businesses, including retail, professional and real estate-related activities, in those service areas.

     The Company offers a broad range of services to individuals and businesses in its primary service areas with an emphasis upon efficiency and personalized attention. The Company offers a full line of consumer services and also offers specialized services to small businesses, middle market companies and professional firms. The Company offers personal and business checking and savings accounts (including individual interest-bearing negotiable orders of withdrawal, money market accounts and/or accounts combining checking and savings accounts with automatic transfer), IRA accounts, time certificates of deposit and direct deposit of social security, pension and payroll checks and internet banking. The Company also provides commercial, construction, inventory, automobile, home improvement, real estate, commercial real estate, single family mortgage, agricultural, Small Business Administration, office equipment, leasehold improvement, installment and credit card loans (as well as overdraft protection lines of credit), issues drafts and standby letters of credit, sells travelers’ checks (issued by an independent entity), extends special considerations to senior citizens and offers other customary commercial banking services.

     Other special services and products include both personal and business checking products, business cash management products and mortgage products and services.

     Business Concentrations. No individual or single group of related accounts is considered material in relation to the Banks’ assets or deposits, or in relation to the overall business of the Company. However, at December 31, 2002 approximately 51.7% of the Company’s total loan portfolio consisted of real estate-related loans, including real estate mortgage loans, real estate construction loans, consumer

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equity lines of credit, and agricultural loans secured by real estate. Moreover, the business activities of the Company currently are focused in the California counties of Plumas, Lassen, Modoc, Shasta, and Nevada. Consequently, the results of operations and financial condition of the Company are dependent upon the general trends in these California economies and, in particular, the residential and commercial real estate markets. In addition, the concentration of the Company’s operations in these areas of California exposes it to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and floods in these regions in California.

     Competition. The banking business in California generally is highly competitive with respect to both loans and deposits, and is dominated by major banks with many offices operating over a wide geographic area. The Bank competes for deposits and loans principally with other commercial banks, savings and loan associations, finance companies, money market funds, credit unions and other financial institutions, including a number that are much larger than Plumas Bank. As of December 31, 2002 there were 19 banking offices, including 11 offices of 4 major chain banks, operating within Plumas Bank’s primary market areas in the Plumas, Lassen, Nevada, Modoc, Shasta and Sierra counties. As of June 30, 2002, the Federal Deposit Insurance Corporation estimated the Company’s market share of insured deposits within the communities it serves to be: Quincy 60%, Chester 71%, Fall River Mills 42%, Portola 40%, Alturas 34%, Susanville 28%, Truckee 8% and both the communities of Greenville and Westwood 100%.

     There has been increased competition for deposit and loan business over the last several years as a result of deregulation. Many of the major commercial banks operating in Plumas Bank’s market areas offer certain services, such as trust and international banking services, which Plumas Bank does not offer directly. Additionally, banks with larger capitalization have larger lending limits and are thereby able to serve larger customers.

     In addition to competition from insured depository institutions, principal competitors for deposits and loans have been mortgage brokerage companies, insurance companies, brokerage houses, credit card companies and even retail establishments offering investment vehicles such as mutual funds, annuities and money market funds, as well as traditional bank-like services such as check access to money market funds, or cash advances on credit card accounts. Also, other entities (both public and private) seeking to raise capital through the issuance and sale of debt or equity securities also represent a source of competition for the Bank with respect to acquisition of deposits.

     In order to compete with the other financial institutions in its principal marketing area, Plumas Bank relies principally upon local promotional activities, extended hours and specialized services, personal contacts by its officers, directors and employees, and other relationships within its community. For customers whose loan demands exceed the Bank’s lending limit, the Bank attempts to arrange for such loans on a participation basis with other community banks. The Bank also assists customers requiring other services not offered by the Plumas Bank in obtaining such services from its correspondent banks.

     Employees. At December 31, 2002, the Company and its subsidiaries employed 170 persons. On a full-time equivalent basis, the Company employed 148 persons. The Company believes its employee relations are excellent.

     Supervision and Regulation. The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended, and is registered as such with and is subject to the supervision of the Board of Governors of the Federal Reserve System (the FRB). Generally, a bank holding company is required to obtain the approval of the FRB before it may acquire all or substantially all of the assets of any bank, or ownership or control of the voting shares of any bank if, after giving effect to such acquisition of shares, the bank holding company would own or control more than 5% of the voting shares of such bank. The FRB’s approval is also required for the merger or consolidation of bank holding companies.

     The Company is required to file reports with the FRB and provide such additional information as the FRB may require. The FRB also has the authority to examine the Company and each of its subsidiaries,

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as well as any arrangements between the Company and any of its subsidiaries, with the cost of any such examination to be borne by the Company.

     Banking subsidiaries of bank holding companies are also subject to certain restrictions imposed by federal law in dealings with their holding companies and other affiliates. Subject to certain restrictions set forth in the Federal Reserve Act, a bank can loan or extend credit to an affiliate, purchase or invest in the securities of an affiliate, purchase assets from an affiliate, or issue a guarantee, acceptance, or letter of credit on behalf of an affiliate, provided that the aggregate amount of the above transactions of the bank and its subsidiaries does not exceed 10 percent of the capital stock and surplus of the bank on a per affiliate basis or 20 percent of the capital stock and surplus of the bank on an aggregate affiliate basis. In addition, such transactions must be on terms and conditions that are consistent with safe and sound banking practices and, in particular, a bank and its subsidiaries generally may not purchase from an affiliate a low-quality asset, as defined in the Federal Reserve Act. Such restrictions also prevent a bank holding company and its other affiliates from borrowing from a banking subsidiary of the bank holding company unless the loans are secured by marketable collateral of designated amounts. Further, the Company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services.

     A bank holding company is generally prohibited from engaging in or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company engaged in nonbanking activities. One of the principal exceptions to the prohibition is for activities found by the FRB by order or regulation to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making these determinations, the FRB considers whether the performance of such activities by a bank holding company would offer advantages to the public which outweigh possible adverse effects.

     Federal Reserve Regulation Y sets out those activities which are regarded as closely related to banking or managing or controlling banks, and thus, are permissible activities that may be engaged in by bank holding companies subject to approval in individual cases by the FRB. There has been litigation challenging the validity of certain activities authorized by the FRB for bank holding companies, and the FRB has various regulations in this regard still under consideration. The future scope of permitted activities is uncertain.

     Plumas Bank is subject to primary supervision, examination and regulation by the Federal Deposit Insurance Corporation (the FDIC), the California Department of Financial Institutions (DFI) and is subject to applicable regulations of the FRB. Plumas Bank’s deposits are insured by the FDIC to applicable limits. As a consequence of the extensive regulation of commercial banking activities in California and the United States, banks are particularly susceptible to changes in California and federal legislation and regulations, which may have the effect of increasing the cost of doing business, limiting permissible activities or increasing competition.

     Various other requirements and restrictions under the laws of the United States and the State of California affect the operations of Plumas Bank. Federal and California statutes and regulations relate to many aspects of the banks’ operations, including reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, branching, capital requirements and disclosure obligations to depositors and borrowers. California law presently permits a bank to locate a branch office in any locality in the state. Additionally, California law exempts banks from California usury laws.

     Impact of Monetary Policies. The earnings and growth of the Company are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment. The earnings of the Company are affected not only by general economic conditions but also by the monetary and fiscal policies of the United States and federal agencies, particularly the Federal Reserve. The Federal Reserve can and does implement national monetary policy, such as seeking to curb inflation and combat recession, by its open market operations in United State Government securities and by its control of the discount rates applicable to borrowings by banks from the Federal Reserve System. The

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actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits and affect the interest rates charged on loans and paid on deposits. As demonstrated over the past several years by the Federal Reserve’s actions regarding interest rates, its policies have had a significant effect on the operating results of commercial banks and are expected to continue to do so in the future. The nature and timing of any future changes in monetary policies are not predictable.

     Recent and Proposed Legislation. The operations of the Company are subject to extensive regulation by federal, state and local governmental authorities and are subject to the various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of its operations. The Company believes that it is in substantial compliance in all material respects with applicable federal, state and local laws, rules and regulations. Because the business of the Company and its subsidiaries are highly regulated, the laws, rules and regulations applicable to each of them are subject to regular modification and change.

     From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks and other financial institutions are frequently made in Congress, in the California legislature and before various bank regulatory agencies. Certain of the potentially significant changes which have been enacted recently and others, which are currently under consideration by Congress or various regulatory agencies, are discussed below.

     The terrorist attacks in September, 2001, have impacted the financial services industry and have already led to federal legislation that attempts to address certain issues involving financial institutions. The International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (USA Patriot Act) was signed into law on October 26, 2001. The USA Patriot Act which became effective July 23, 2002, places particular focus on account relationships between banks and accounts maintained for foreign persons and financial institutions and gives the Secretary of the Treasury significant new authority to detect and combat financial crime.

     Among its other provisions, USA Patriot Act requires each financial institution to: (i) establish an anti-money laundering program; (ii) establish due diligence policies, procedures and controls with respect to its private banking accounts and correspondent banking accounts involving foreign individuals and certain foreign banks; and (iii) avoid establishing, maintaining, administering, or managing correspondent accounts in the United States for, or on behalf of, a foreign bank that does not have a physical presence in any country. In addition, USA Patriot Act contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities. USA Patriot Act expands the circumstances under which funds in a bank account may be forfeited and requires applicable financial institutions to respond under certain circumstances to requests for information from federal banking agencies within 120 hours. USA Patriot Act also amends the Bank Holding Company Act and the Bank Merger Act to require the federal banking agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing an application under these acts.

     Additional USA Patriot Act regulations have been adopted in 2002 to implement minimum standards to verify customer identity, to encourage cooperation among financial institutions, federal banking agencies, and law enforcement authorities regarding possible money laundering or terrorist activities, to prohibit the anonymous use of “concentration accounts,” and to require all covered financial institutions to maintain a Bank Secrecy Act compliance program.

     The Company has developed appropriate policies and procedures to meet its responsibilities regarding the applicable provisions of the USA Patriot Act.

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     The Gramm-Leach-Bliley Act, signed into law on November 12, 1999, is the result of a decade of debate in the Congress regarding a fundamental reformation of the nations’ financial system. The law is subdivided into seven titles, by functional area. Title I acts to facilitate affiliations among banks, insurance companies and securities firms. Title II narrows the exemptions from the securities laws previously enjoyed by banks, requires the Federal Reserve and the SEC to work together to draft rules governing certain securities activities of banks and creates a new, voluntary investment bank holding company. Title III restates the proposition that the states are the functional regulators for all insurance activities, including the insurance activities of federally-chartered banks. The law bars the states from prohibiting insurance activities by depository institutions. The law encourages the states to develop uniform or reciprocal rules for the licensing of insurance agents. Title IV prohibits the creation of additional unitary thrift holding companies. Title V imposes significant requirements on financial institutions related to the transfer of nonpublic personal information. These provisions require each institution to develop and distribute to accountholders an information disclosure policy, and require that the policy allow customers to, and for the institution to, honor a customer’s request to “opt-out” of the proposed transfer of specified nonpublic information to third parties. Title VI reforms the Federal Home Loan Bank system to allow broader access among depository institutions to the systems advance programs, and to improve the corporate governance and capital maintenance requirements for the system. Title VII addresses a multitude of issues including disclosure of ATM surcharging practices, disclosure of agreements among non-governmental entities and insured depository institutions which donate to non-governmental entities regarding donations made in connection with the Community Reinvestment Act, and disclosure by the recipient non-governmental entities of how such funds are used. Additionally, the law extends the period of time between Community Reinvestment Act examinations of community banks.

     The Company has developed appropriate policies and procedures to meet its responsibilities regarding all provisions of the Gramm-Leach-Bliley Act.

     It is impossible to predict what effect the enactment of certain of the above-mentioned legislation will have on Plumas Bank and on the financial institutions industry in general. Moreover, it is likely that other bills affecting the business of banks may be introduced in the future by the United States Congress or California legislature.

     During July, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The purpose of the Sarbanes-Oxley Act is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.

     The Sarbanes-Oxley Act amends the Securities Exchange Act of 1934 to prohibit a registered public accounting firm from performing specified non-audit services contemporaneously with a mandatory audit. The Sarbanes-Oxley Act also vests the audit committee of an issuer with responsibility for the appointment, compensation, and oversight of any registered public accounting firm employed to perform audit services. It requires each committee member to be a member of the board of directors of the issuer, and to be otherwise independent. The Sarbanes-Oxley Act further requires the chief executive officer and chief financial officer of an issuer to make certain certifications as to each annual or quarterly report.

     In addition, the Sarbanes-Oxley Act requires officers to forfeit certain bonuses and profits under certain circumstances. Specifically, if an issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer, as a result of misconduct, with any financial reporting requirement under the securities laws, the chief executive officer and chief financial officer of the issuer shall be required to reimburse the issuer for (1) any bonus or other incentive-based or equity-based compensation received by that person from the issuer during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission (SEC) of the financial document embodying such financial reporting requirement; and (2) any profits realized from the sale of securities of the issuer during that 12-month period.

     The Sarbanes-Oxley Act also instructs the SEC to require by rule:

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     The Sarbanes-Oxley Act also prohibits insider transactions in the company’s stock during lock out periods of the company’s pension plans, and any profits on such insider transactions are to be disgorged. In addition, there is a prohibition of company loans to its executives, except in certain circumstances. The Sarbanes-Oxley Act also provides for mandated internal control report and assessment with the annual report and an attestation and a report on such report by the company’s auditor. The SEC is also required to issue a code of ethics for senior financial officers of the company. Further, the Sarbanes-Oxley Act adds a criminal penalty of fines and imprisonment of up to 10 years for securities fraud.

     The FRB on October 31, 2002 approved a final Regulation W that comprehensively implements sections 23A and 23B of the Federal Reserve Act. Sections 23A and 23B and Regulation W restrict loans by a depository institution to its affiliates, asset purchases by a depository institution from its affiliates, and other transactions between a depository institution and its affiliates. Regulation W unifies in one public document the Board’s interpretations of sections 23A and 23B. Regulation W will have an effective date of April 1, 2003.

     In December of 2001 and January of 2002, the Office of the Comptroller of the Currency, FRB and the FDIC on the adopted final rules governing the regulatory capital treatment of equity investments in nonfinancial companies held by banks, bank holding companies and financial holding companies. The final rules became effective on April 1, 2002. The new capital requirements apply symmetrically to equity investments made by banks and their holding companies in nonfinancial companies under the legal authorities specified in the final rules. Among others, these include the merchant banking authority granted by the Gramm-Leach-Bliley Act and the authority to invest in small business investment companies (SBICs) granted by the Small Business Investment Act. Covered equity investments will be subject to a series of marginal Tier 1 capital charges, with the size of the charge increasing as the organization’s level of concentration in equity investments increases. The highest marginal charge specified in the final rules requires a 25 percent deduction from Tier 1 capital for covered investments that aggregate more than 25 percent of an organization’s Tier 1 capital. Equity investments through SBICs will be exempt from the new charges to the extent such investments, in the aggregate, do not exceed 15 percent of the banking organization’s Tier 1 capital. The new charges would not apply to individual investments made by banking organizations prior to March 13, 2000. Grandfathered investments made by state banks under section 24(f) of the Federal Deposit Insurance Act also are exempted from coverage.

     Other legislation which has been or may be proposed to the United States Congress and the California Legislature and regulations which may be proposed by the SEC, FRB, FDIC and the DFI may affect the business of the Company. It cannot be predicted whether any pending or proposed legislation or regulations will be adopted or the effect such legislation or regulations may have upon the business or the Company.

     Consumer Protection Laws and Regulations. The bank regulatory agencies are focusing greater attention on compliance with consumer protection laws and regulations. Examination and enforcement have become more intense in nature and insured institutions have been advised to carefully monitor compliance with such laws and regulations. The Company is subject to many federal consumer protection statutes and regulations, some of which are discussed below.

     The Community Reinvestment Act (CRA) is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities. The CRA specifically directs the federal regulatory agencies, in examining insured depository institutions, to assess a bank’s record of helping meet the credit needs of its entire community, including low and

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moderate-income neighborhoods, consistent with safe and sound banking practices. The CRA further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or holding company formations. The agencies use the CRA assessment factors in order to provide a rating to the financial institution. The four point rating scale ranges from a high of “outstanding” to a low of “substantial noncompliance.”

     The Equal Credit Opportunity Act (ECOA) generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act. The Truth in Lending Act (TILA) is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably. As a result of the TILA, all creditors must use the same credit terminology to express rates and payments, including but not limited to the annual percentage rate, the finance charge, the amount financed, the total of payments and the payment schedule.

     The Fair Housing Act (FH Act) regulates many practices, including making it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race color, religion, national origin, sex, handicap or familial status. The Home Mortgage Disclosure Act (HMDA), in response to public concern over credit shortages in certain urban neighborhoods, requires public disclosure of information that shows whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. The HMDA also includes a “fair lending” aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.

     The Right to Financial Privacy Act (RFPA) imposes a new requirement for financial institutions to provide new privacy protections to consumers. Financial institutions must provide disclosures to consumers of its privacy policy, and state the rights of consumers to direct their financial institution not to share their nonpublic personal information with third parties.

     The Real Estate Settlement Procedures Act (RESPA) requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements. Also, RESPA prohibits certain abusive practices, such as kickbacks, and places limitations on the amount of escrow accounts.

     Penalties for noncompliance or violations under the above laws may include fines, reimbursement and other penalties. Due to heightened regulatory concern related to compliance with CRA, TILA, FH Act, ECOA, HMDA, RFPA and RESPA generally, the Company may incur additional compliance costs or be required to expend additional funds for investments in its local community.

     Recent Accounting Pronouncements. In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This Statement is effective for fiscal years beginning after May 15, 2002. Adoption of this statement is not expected to have a material effect on the Company’s consolidated financial statements.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement addresses financial accounting and reporting for costs associated with

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exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This Statement is effective for exit or disposal activities initiated after December 31, 2002. Adoption of this statement is not expected to have a material effect on the Company’s consolidated financial statements.

     In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions. This statement, which addresses financial accounting and reporting matters for the acquisition of all or part of a financial institution, applies to all such transactions except those between two or more mutual enterprises. This statement removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of SFAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and related interpretations. This statement requires a financial institution to apply SFAS No. 144 and evaluate long-term customer relationship intangible assets (core deposit intangible) for impairment. Under SFAS No. 72, a financial institution may have recorded an unidentifiable intangible asset arising from a business combination. If certain criteria in SFAS No. 147 are met, the amount of the unidentifiable intangible asset will be reclassified to goodwill upon adoption of this Statement and any amortization amounts that were incurred after the adoption of SFAS No. 142 must be reversed. Reclassified goodwill would then be measured for impairment under the provisions of SFAS No. 142. Provisions of this statement are applicable on or after October 1, 2002. In management’s opinion, the adoption of this Statement did not have a material effect on the Company’s consolidated financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123. This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reporting containing financial statements for interim periods beginning after December 15, 2002. Because the Company accounts for the compensation cost associated with its stock option plan under the intrinsic value method, the alternative methods of transition will not apply to the Company. The additional disclosure requirements of the statement are included in these financial statements. In management’s opinion, the adoption of this Statement did not have a material impact on the Company’s consolidated financial position or results of operations.

     Trust Preferred Securities. During the third quarter, the Company formed a wholly owned Connecticut statutory business trust, Plumas Statutory Trust I (the “Trust”). On September 26, 2002, the Company issued to the Trust Floating Rate Junior Subordinated Deferrable Interest Debentures due 2032 (Debentures) in the aggregate principal amount of $6,000,000. In exchange for these debentures the Trust paid the Company $6,000,000. The Trust funded its purchase of debentures by issuing $6,000,000 in floating rate capital securities (capital securities), which were sold to a third party. These capital securities qualify as Tier I capital under Federal Reserve Board guidelines. The Debentures are the only asset of the Trust. The interest rate and terms on both instruments are substantially the same. The rate is the three month LIBOR (London Interbank Offered Rate) plus 3.40% not to exceed 11.9% adjustable quarterly. A portion of the proceeds ($2,500,000) from the sale of the Debentures were used by the Company to inject capital into Plumas Bank, the remaining proceeds are being held for the planned growth of the Company.

     The Debentures and capital securities accrue and pay distributions quarterly based on the floating rate described above on the stated liquidation value of $1,000 per security. The Company has entered into contractual agreements which, taken collectively, fully and unconditionally guarantee payment of: (1) accrued and unpaid distributions required to be paid on the capital securities; (2) the redemption price

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with respect to any capital securities called for redemption by the Trust, and (3) payments due upon voluntary or involuntary dissolution, winding up, or liquidation of the Trust.

     The capital securities are mandatorily redeemable upon maturity of the Debentures on September 26, 2032, or upon earlier redemption as provided in the indenture.

     Other Information Concerning the Company. The Company holds no material patents, trademarks, licenses, franchises or concessions. No expenditures were made by the Company since inception on material research activities relating to the development of services or the improvement of existing services. Based upon present business activities, compliance with federal, state and local provisions regulating discharge of materials into the environment will have no material effects upon the capital expenditures, earnings and competitive position of the Company.

     Public Filings. On March 19, 2002 the Company filed a registration statement on Form S-4EF with the Securities and Exchange Commission (SEC) to register the common stock under the Securities Act of 1933. Subsequent to the reorganization of the Company on June 21, 2002, the Company registered the common stock of Plumas Bancorp under the Securities Exchange Act of 1934 as a successor issuer on Form 8-A. Throughout 2002, the Company has regularly filed current reports and quarterly reports on Forms 8-K and 10-QSB. The filings for Plumas Bancorp may be obtained at the SEC website address: “www.sec.gov.”

Item 2. Description of Properties

     The Company owns eight depository branches and leases one other depository branch as well as four automated teller machine locations used in the normal course of business throughout five counties in the Company’s service area. In addition, the Company owns two administrative buildings in Quincy California.

Owned Properties

Leased Properties

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     There are no contingent rental payments. Total rental expenses under all leases, including premises, totaled $85,000, $97,000 and $44,000, in 2002, 2001 and 2000 respectively. The expiration dates of the leases vary, with the first such lease expiring during 2003 and the last such lease expiring during 2005. The Company maintains insurance coverage on its premises, leaseholds and equipment, including business interruption and record reconstruction coverage. The branch properties and non-branch offices are adequate, suitable, in good condition and have adequate parking facilities for customers and employees. The Company and Bank are limited in their investments in real property under Federal and state banking laws. Generally, investments in real property are either for the Company and Bank use or are in real property and real property interests in the ordinary course of the Bank’s business.

Item 3. Legal Proceedings

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

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to vote of the security holders during the fourth quarter of the period covered by this report.

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PART II

Item 5. Market for Common Equity and Related Stockholder Matters

     The Company’s common stock is quoted on the Over-The-Counter (OTC) Bulletin Board under the ticker symbol “PLBC”. As of December 31, 2002, there were 3,209,396 shares of the Company’s stock outstanding held by approximately 1,600 shareholders of record as of the same date. The following table shows the high and low prices for the common stock, for each quarter as reported by Yahoo Finance. The stock prices and per share cash dividends presented below have been adjusted to reflect the three-for-two stock split issued in November 2002.

Plumas Bancorp
Common Stock Sale Prices

     2002 Dividends. Prior to the Company’s reorganization on June 21, 2002, the Company’s predecessor, Plumas Bank paid a $.22 per share cash dividend to shareholders of record as of April 24, 2002. The cash dividend was paid on May 3, 2002 and totaled $703,000. After the re-organization the Company issued a three-for-two stock split and paid a special $.05 per share cash dividend to shareholders of record as of November 12, 2002. The cash dividend was paid on shares outstanding following the three-for-two stock split on November 26, 2002 and totaled $162,000.

     2001 Dividends. The Company’s predecessor, Plumas Bank paid a $.20 per share cash dividend to shareholders of record as of April 10, 2001. The cash dividend was paid on April 24, 2001 and totaled $635,000.

     Other Dividend Information. The Company’s primary source of revenue to pay dividends to its shareholders is dividends from Plumas Bank. The amount and payment of dividends by the Company is set by the Company’s Board of Directors. Any further dividends will be decided based on a number of factors including results of operations, general business conditions, capital requirements, general financial conditions, and other factors deemed relevant by the Board of Directors.

     The California Financial Code restricts without the prior consent of the Commissioner the total dividend payment of any California bank in any calendar year to the lesser of (1) the bank’s retained earnings or (2) the bank’s net income for its last three fiscal years, less distributions made to shareholders during the same three-year period. At December 31, 2002, Plumas Bank had $5,113,000 in retained earnings available for dividend payments to the Company.

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Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Summary of Consolidated Financial Data and Performance Ratios

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     General. The Board of Directors and Management believe that the Company plays an important role in the economic well being of the communities it serves. Its subsidiary bank has a continuing responsibility to provide a wide range of lending and deposit services to both individuals and businesses. These services are tailored to meet the needs of the communities served by the Company and Plumas Bank.

     Various loan products are offered which promote home ownership and affordable housing, fuel job growth and support community economic development. Types of loans offered range from personal and commercial loans to real estate, construction, agricultural, and mortgage loans. Banking decisions are made locally with the goal of maintaining customer satisfaction.

     Various deposit products are offered which are geared to provide both individual and business customers with a wide range of choices. These products include both high and low volume transaction accounts, savings and money market products, certificate of deposit accounts with a wide range of maturities, and IRA accounts including Roth and Educational IRAs.

     The following discussion is designed to provide a better understanding of significant trends related to the Company’s financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. It pertains to the Company’s financial condition, changes in financial condition and results of operations as of December 31, 2002 and 2001 and for each of the three years in the period ended December 31, 2002. The discussion should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto and the other financial information appearing elsewhere herein.

OVERVIEW

     The Company’s net income increased $396,000, or 14.4%, to $3,154,000 for the year ended December 31, 2002 from $2,758,000 for the same period in 2001. The primary contributors to the increase in net income for 2002 were a $1.6 million increase in net interest income before provision for loan losses and a $393 thousand increase in non-interest income, partially offset by a $1.1 million increase in non-interest expenses, a $379 thousand increase in income tax expense and a $100 thousand increase in the provision for loan losses.

     Total assets at December 31, 2002 increased $50.4 million, or 18.3%, to $325.5 million from $275.1 million at December 31, 2001. Growth in total assets was primarily concentrated in the loan portfolio, which grew $24.0 million, or 13.1%, to $207.7 million during the same period. Additional asset growth was the result of proceeds from the Company’s issuance of $6 million in trust preferred securities in September 2002. The growth in the loans was primarily funded by growth in deposits. Deposits grew $41.7 million, or 16.5%, to $293.9 million at December 31, 2002 from $252.2 million at December 31, 2001.

     The return on average assets was 1.07% for both years ended December 31, 2002 and 2001. The return on average equity was 14.2% for both years ended December 31, 2002 and 2001. The Company’s continued growth offset the positive affects of the Company’s improved earnings resulting in no change in the return on average asset and equity ratios.

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RESULTS OF OPERATIONS

Net Interest Income before Provision for Loan Losses

     2002 compared to 2001. Net interest income before provision for loan losses is the difference between interest earned on assets and interest paid on liabilities. Net interest income, on a nontax-equivalent basis, was $14.2 million for 2002, an increase of $1.6 million, or 12.7%, from $12.6 million for 2001. The increase in net interest income was attributed to declines in rates paid on deposits combined with volume increases in average loan balances, partially offset by declines in the yields on interest-earning assets. The average loan balances were $197.9 million for 2002, up $21.2 million, or 12.0%, from the $176.7 million for 2001. Offsetting the benefits of the increased loan volume was the continuing impact of the 2001 falling interest rate environment. The average loan yield was 8.04% for 2002, down 117 basis points, or 12.7%, from the 9.21% for 2001.

     Interest expense decreased $2.3 million, or 36.7%, to $4.0 million for 2002, down from $6.4 million for 2001. The decrease in interest expense was primarily attributed to rate decreases for both time and money market deposits, slightly offset by volume increases in deposits. The average rate paid on time deposits was 3.12% for 2002, down 193 basis points, or 38.2%, from the 5.05% paid for 2001. The average rate paid on money market deposits was 1.50% for 2002, down 156 basis points, or 51.0%, from the 3.06% paid for 2001. The average money market deposit balances were $51.8 million for 2002, up $9.7 million, or 23.1%, from the $42.0 million for 2001.

     Net interest margin is net interest income expressed as a percentage of average interest-earning assets. The net interest margin for 2002 decreased 7 basis points to 5.43%, down from 5.50% for 2001. The adverse effects of the 2001 falling interest rate environment on the Company’s interest-earning assets offset the positive affects of the declining cost of funds and increasing loan volumes and resulted in the slight decrease in the net interest margin when comparing the periods of 2002 and 2001.

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

     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:

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     2001 compared to 2000. Net interest income, on a nontax-equivalent basis, was $12.6 million for 2001, an increase of $1.1 million, or 9.1%, from $11.6 million for 2000. The increase in net interest income was attributed to volume increases in the average loan balances combined with declines in rates paid on the deposits, partially offset by declines in the yields on the interest-earning assets and volume increases in the average interest-bearing deposit balances. The average loan balances were $176.7 million for 2001, up $35.2 million, or 24.9%, from the $141.6 million for 2000. Offsetting the benefits of the increased loan volume was the impact of the 2001 falling interest rate environment. The average loan yield was 9.21% for 2001, down 129 basis points, or 12.3%, from the 10.50% for 2000.

     Interest expense decreased $351,000, or 5.2%, to $6.4 million for 2001, down from $6.7 million for 2000. The decrease in interest expense was primarily attributed to rate decreases for both money market, time and savings deposits, somewhat offset by volume increases in time and money market deposits. The average rate paid on money market deposits was 3.06% for 2001, down 147 basis points, or 32.5%, from the 4.53% paid for 2000. The average rate paid on time deposits was 5.05% for 2001, down 50 basis points, or 9.0%, from the 5.55% paid for 2000. The average time deposit balances were $85.3 million for 2001, up $12.4 million, or 17.0%, from the $72.9 million for 2000.

     The net interest margin for 2001 decreased 33 basis points to 5.50%, down from 5.83% for 2000. The adverse effects of the 2001 falling interest rate environment on the Company’s interest-earning assets were not entirely offset by the positive affects of the increasing loan volumes and declining cost of funds. As a result, the net interest margin decreased when comparing the periods of 2002 and 2001.

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