Plumas Bancorp: Form 10-Q for the period ended Jun 30, 2025

Certain matters discussed in this Quarterly Report are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, among others, (1) significant increases in competitive pressures in the financial services industry; (2) changes in the interest rate environment resulting in reduced margins; (3) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality; (4) changes in regulatory environment; (5) loss of key personnel; (6) fluctuations in the real estate market; (7) changes in business conditions and inflation; (8) operational risks including data processing systems failures or fraud; and (9) changes in securities markets. Therefore, the information set forth herein should be carefully considered when evaluating the business prospects of Plumas Bancorp (the “Company”).

When the Company uses in this Quarterly Report the words “anticipate”, “estimate”, “expect”, “project”, “intend”, “commit”, “believe” and similar expressions, the Company intends to identify forward-looking statements. Such statements are not guarantees of performance and are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. The future results and stockholder values of the Company may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company’s ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

INTRODUCTION

The following discussion and analysis sets forth certain statistical information relating to the Company as of June 30, 2025 and December 31, 2024 and for the three and six-month periods ended June 30, 2025 and 2024. This discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto included in Plumas Bancorp’s Annual Report filed on Form 10-K for the year ended December 31, 2024.

Plumas Bancorp trades on The NASDAQ Capital Market under the ticker symbol “PLBC”.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no changes to the Company’s critical accounting policies from those disclosed in the Company’s 2024 Annual Report to Shareholders on Form 10-K.

SALES/LEASEBACK AND INVESTMENT RESTRUCTURING - February 2024

On January 19, 2024, Plumas Bank entered into a purchase and sale of real property (the “Sale Agreement”). The Sale Agreement provided for the sale to MountainSeed of nine properties owned and operated by Plumas Bank as branches (the “Branches”) for an aggregate cash purchase price of approximately $25.7 million. 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.

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. During the three months ended March 31, 2024, we sold $115 million in investment securities having a weighted average tax equivalent yield of 2.24% recording a $19.8 million net 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%.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED June 30, 2025

Net Income. The Company recorded net income of $13.5 million for the six months ended June 30, 2025, up from net income of $13.0 million for the six months ended June 30, 2024. Increases of $860 thousand in net interest income and $1.2 million in non-interest income and a decline of $636 thousand in the provision for credit losses were partially offset by increases of $1.7 million in non-interest expense and $583 thousand in the provision for income tax expense. The annualized return on average assets was 1.67% for the six months ended June 30, 2025, up from 1.61% for the six months ended June 30, 2024. The annualized return on average equity decreased from 16.7% during the six months ended June 30, 2024, to 14.7% during the current period.

Net-interest income increased by $860 thousand from $35.9 million during the six months ended June 30, 2024, to $36.7 million during the current quarter. The provision for credit losses decreased from $1.7 million during the first half of 2024 to $1.1 million during the current six-month period.

Non-interest income increased by $1.2 million from $4.3 million during the six months ended June 30, 2024 to $5.5 million during the first half of 2025 mostly related to a legal settlement totaling $1.1 million received in the first quarter of 2025. This settlement related to the Dixie Fire in August of 2021 which swept through the town of Greenville, California. The fire caused severe damage to the Greenville area, including the telecommunications infrastructure which adversely affected our ability to service our customers in this area during the last few years.

Non-interest expense increased by $1.7 million from $20.8 million during the first half of 2024 to $22.5 million during the current six-month period. Of this amount $1.1 million relates to costs associated with our acquisition of Cornerstone Community Bancorp. We signed a definitive agreement to acquire Cornerstone Community Bancorp on January 28, 2025, and completed the acquisition on July 1, 2025. Merger transaction costs that facilitate the merger are not deductible for income tax purposes. Of the $1.1 million in merger related costs, $801 thousand is estimated to be not deductible for state and federal income tax.

The provision for income taxes increased by $583 thousand from $4.6 million, or 26.2% of pre-tax income, during the six months ended June 30, 2024 to $5.2 million, or 27.8% of pre-tax income, during the current six-month period.

The following is a detailed discussion of each component of the change in net income.

Net interest income before provision for credit losses. Driven mostly by growth in the loan portfolio and the repayment of Bank Term Funding Program (BTFP) borrowings, net interest income increased by $860 thousand from $35.9 million during the six months ended June 30, 2024, to $36.7 million for the six months ended June 30, 2025. The increase in net interest income includes an increase of $36 thousand in interest income and a decline of $824 thousand in interest expense. See "Short-term Borrowing Arrangements" for a discussion of BTFP borrowing activity.

Interest and fees on loans increased by $1.0 million related to an increase in average balance partially offset by a decline in yield. The average balance of loans during the six months ended June 30, 2025 was $1.0 billion, an increase of $44 million from $972 million during the same period in 2024. The average yield on loans decreased by 6 basis points from 6.21% during the first six months of 2024 to 6.15% during the current period.

Interest on investment securities increased by $84 thousand related to an increase in yield of 21 basis points to 4.10% partially offset by a decline in average balance. The increase in investment yields is consistent with the increase in market rates and the restructuring of the investment portfolio in February of 2024. Average investment securities declined from $462 million during the six months ended June 30, 2024 to $443 million during the current period.

Interest on cash balances declined by $1.1 million related to both a decline in balance and a decline in yield. The rate earned on cash balances declined by 104 basis points to 4.5% and the average balance declined from $81.8 million during the first six months of 2024 to $53.8 million during the current period.

Related to a $2.5 million decline in interest on BTFP borrowings partially offset by an increase in interest bearing deposits and an increase in the cost of these deposits, interest expense decreased from $5.3 million during the six months ended June 30, 2024 to $4.5 million during the current period. The average rate paid on interest bearing liabilities decreased from 1.39% during the 2024 period to 1.24% in 2025.

Interest paid on deposits increased by $1.7 million and is broken down by product type as follows: money market accounts - $1.6 million and savings deposits - $109 thousand. The average rate paid on interest-bearing deposits increased from 0.79% during the six months ended June 30, 2024 to 1.21% during the current period. Average interest-bearing deposits totaled $698 million during the first half of 2025, an increase of $62 million from $636 million during the first half of 2024.

Net interest margin for the six months ended June 30, 2025 increased 13 basis points to 4.89%, up from 4.76% for the same period in 2024.

The following table presents for the six-month periods 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 annualized yields expressed in both dollars and annualized yield percentages, as well as the amounts of interest expense on interest bearing liabilities and the resultant cost expressed in both dollars and annualized rate percentages. Average balances are based on daily averages. Nonaccrual loans are included in the calculation of average loans while nonaccrued interest thereon is excluded from the computation of yields earned:

(in thousands)

(in thousands)

(in thousands)

(in thousands)

(1) Not computed on a tax-equivalent basis.

(2) Average nonaccrual loan balances of $3.9 million for 2025 and $4.8 million for 2024 are included in average loan balances for computational purposes.

(3) Net costs included in loan interest income for the six-month period ended June 30, 2025 and 2024 were $471,000 and $682,000, respectively.

(4) Total annualized interest expense divided by the average balance of total earning assets.

(5) Annualized net interest income divided by the average balance of total earning assets.

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The following table sets forth changes in interest income and interest expense for the six-months ended June 30, 2025, 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:

(in thousands)

(1) The volume change in net interest income represents the change in average balance divided by the previous year’s rate.

(2) The rate change in net interest income represents the change in rate divided by the previous year’s average balance.

(3) The mix change in net interest income represents the change in average balance multiplied by the change in rate.

Provision for credit losses. During the first half of 2025 we recorded a provision for credit losses of $1,110,000 consisting of a provision for credit losses on loans of $1,150,000 and a decrease in the reserve for unfunded commitments of $40,000. This compares to a provision for credit losses of $1,746,000 consisting of a provision for credit losses on loans of $1,825,000 and a decrease in the reserve for unfunded commitments of $79,000 during the first half of 2024. See “Analysis of Asset Quality and Allowance for Loan Losses” for a discussion of loan quality trends and the provision for credit losses.

Non-interest income. During the six months ended June 30, 2025, non-interest income totaled $5.6 million, an increase of $1.2 million from the six months ended June 30, 2024. The largest component of this increase was a legal settlement totaling $1.1 million related to the Dixie Fire in August of 2021. This settlement is included in Other in the following table.

The following table describes the components of non-interest income for the six-month periods ended June 30, 2025 and 2024, dollars in thousands:

27

Non-interest expense. During the six months ended June 30, 2025, total non-interest expense increased by $1.7 million from $20.8 million during the first half of 2024 to $22.5 million during the current period. The largest components of this increase were merger related expenses of $1.1 million, salary and benefit expenses of $784 thousand and occupancy and equipment expenses of $425 thousand. The increase in salary and benefit expense included an increase in salary expense of $484 thousand related primarily to merit and promotional salary increases. A decrease in deferred loan origination fees of $257 thousand was offset by a decline in commission expense of $317 thousand. Both items mostly relate to a decline in SBA loan production during the comparison periods. The increase in occupancy and equipment expense mostly relates to an increase in rent expense of $374 thousand related to the February 2024 sales/leaseback transaction. Partially offsetting these increases in expense were several reductions in non-interest expense the largest of which was a reduction in professional fees of $320 thousand. Included in professional fees during the six months ended June 30, 2024 were legal expenses totaling $188 thousand related to a litigation matter that was settled in the second half of 2024.

The following table describes the components of non-interest expense for the three-month periods ended June 30, 2025 and 2024, dollars in thousands:

Provision for income taxes. The provision for income taxes increased by $583 thousand from $4.6 million, or 26.2% of pre-tax income, during the six months ended June 30, 2024 to $5.2 million, or 27.8% of pre-tax income, during the current period. The percentages for 2025 and 2024 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 while non-deductible merger transaction costs incurred during the current period increase taxable income.

RESULTS OF OPERATIONS FOR THE three MONTHS ENDED June 30, 2025

Net Income. The Company recorded net income of $6.3 million for the three months ended June 30, 2025, down from net income of $6.8 million for the three months ended June 30, 2024. An increase of $159 thousand in non-interest income and declines of $149 thousand in the provision for income taxes and $65 thousand in the provision for credit losses were offset by a decline in net interest income of $222 thousand and an increase of $616 thousand in non-interest expense. The annualized return on average assets was 1.56% for the three months ended June 30, 2025, down from 1.67% for the three months ended June 30, 2024. The annualized return on average equity decreased from 17.1% during the second quarter of 2024 to 13.4% during the current quarter.

Net interest income decreased by $222 thousand from $18.4 million during the three months ended June 30, 2024, to $18.2 million during the current quarter. The provision for credit losses decreased from $925 thousand during the second quarter of 2024 to $860 thousand during the current quarter.

Non-interest income increased by $159 thousand from $2.2 million during the three months ended June 30, 2024 to $2.4 million during the second quarter of 2025.

Non-interest expense increased by $616 thousand from $10.4 million during the second quarter of 2024 to $11.0 million during the current quarter. Of this amount, $481 thousand relates to costs associated with our acquisition of Cornerstone Community Bancorp. Merger transaction costs that facilitate the merger are not deductible for income tax purposes. Of the $481 thousand in merger related costs, $239 thousand is estimated to be not deductible for state and federal income tax.

The provision for income taxes decreased by $149 thousand from $2.5 million, 26.9% of pre-tax income, during the three months ended June 30, 2024 to $2.4 million, or 27.1% of pre-tax income, during the current quarter.

The following is a detailed discussion of each component of the change in net income.

Net interest income before provision for credit losses. Net interest income was $18.2 million for the three months ended June 30, 2025, a decrease of $222 thousand from the same period in 2024. The decrease in net interest income includes a decrease of $527 thousand in interest income partially offset by a decrease of $305 thousand in interest expense. Interest and fees on loans increased by $200 thousand related to growth in the loan portfolio partially offset by a decline in yield.

Average loan balances increased by $39 million, while the average yield on these loans decreased by 18 basis points from 6.32% during the second quarter of 2024 to 6.14% during the current quarter. Of the 18 basis points decrease, 13 basis points relate to the reversal of $344 thousand in interest income related to fifteen loans which were placed on nonaccrual status during the current quarter. The average prime interest rate decreased from 8.5% during the second quarter of 2024 to 7.5% during the current quarter. Approximately 16% of the Company's loans are tied to the prime interest rate, and most of these reprice within one to three months with a change in prime. Additionally, during the second quarter of 2024, we recovered $316 thousand in interest on loans that were classified as nonaccrual and which were paid off in full during the quarter which elevated loan yield during the 2024 quarter. The effect of these items was partially offset by an increase in average yield on the bank’s fixed rate portfolio which includes growth in fixed rate SBA loans which totaled $75 million at June 30, 2025, and $62 million at June 30, 2024. The weighted average rate earned on this portfolio at June 30, 2025, was 8.3%. The Bank is also benefiting from the repricing of a portion of our Commercial Real Estate loans. Most of these loans are indexed to the 5-year Treasury note and reprice every five years.

Interest on investment securities decreased by $30 thousand as yield on these securities decreased slightly from 4.11% during the 2024 quarter to 4.08% during the current quarter and average investment securities declined from $444 million during the three months ended June 30, 2024 to $442 million during the current quarter.

Interest on cash balances decreased by $697 thousand related to a decline in average balance of $42 million and a decrease in average rate paid on cash balances of 104 basis points from 5.51% during the second quarter of 2024 to 4.47% during the current quarter. This decline in yield was mostly related to a decline in rate paid on balances held at the FRB. The average rate earned on FRB balances decreased from 5.40% during the second quarter of 2024 to 4.40% during the current quarter.

Interest expense decreased by $305 thousand, related to the repayment of the BTFP borrowings. The average rate paid on interest bearing liabilities decreased from 1.44% during the 2024 quarter to 1.33% in 2025 related to the decrease in these borrowings.

Interest paid on deposits increased by $968 thousand and is broken down as follows: money market accounts - $815 thousand, savings deposits - $83 thousand and time deposits - $70 thousand. The increase in interest paid on money market accounts mostly relates to an increase in public entity balances and the rate earned on these balances. During the second half of 2024 and continuing into 2025, we have offered a premium money market rate on large balances of public entities in our service area, matching the rate they could earn from the California local agency investment fund. This has led to the significant increase in balances and rate paid on money market accounts. The average balance of money market accounts during the current quarter was $288 million, an increase of $72 million from $216 million during the three months ended June 30, 2024. The average rate paid on money market accounts increased 92 basis points to 1.79%. The increase in interest on savings accounts was driven by an increase in the average rate paid of 12 basis points to 34 basis points. The increase in interest on time deposits includes an increase in average balance of $23 million partially offset by a decline in average rate paid of 33 basis points to 2.53% as promotional time deposits issued in 2024 matured. Many of these promotional time deposits were renewed at lower rates. The average rate paid on interest-bearing deposits increased from 0.84% during the second quarter of 2024 to 1.30% during the current quarter. The average balance of interest-bearing deposits increased from $633 million during the three months ended June 30, 2024 to $705 million during the quarter.

Net interest margin for the three months ended June 30, 2025 decreased 6 basis points to 4.83%, down from 4.89% for the same period in 2024. Excluding the $344 thousand in interest reversed described earlier, net interest margin for the three months ended June 30, 2025 would have been 4.93%.

The following table presents for the three-month periods 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 annualized yields expressed in both dollars and annualized yield percentages, as well as the amounts of interest expense on interest bearing liabilities and the resultant cost expressed in both dollars and annualized rate percentages. Average balances are based on daily averages. Nonaccrual loans are included in the calculation of average loans while nonaccrued interest thereon is excluded from the computation of yields earned:

(in thousands)

(in thousands)

(in thousands)

(in thousands)

(1) Not computed on a tax-equivalent basis.

(2) Average nonaccrual loan balances of $4.1 million for 2025 and $4.2 million for 2024 are included in average loan balances for computational purposes.

(3) Net costs included in loan interest income for the three-month period ended June 30, 2025 and 2024 were $196,000 and $338,000, respectively.

(4) Total annualized interest expense divided by the average balance of total earning assets.

(5) Annualized net interest income divided by the average balance of total earning assets.

30

The following table sets forth changes in interest income and interest expense for the three-months ended June 30, 2025, 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:

(in thousands)

(1) The volume change in net interest income represents the change in average balance divided by the previous year’s rate.

(2) The rate change in net interest income represents the change in rate divided by the previous year’s average balance.

(3) The mix change in net interest income represents the change in average balance multiplied by the change in rate.

Provision for credit losses. During the second quarter of 2025 we recorded a provision for credit losses of $860 thousand consisting of a provision for credit losses on loans of $900 thousand and a reduction in the provision for unfunded loan commitments of $40 thousand. This compares to a provision for credit losses of $925 thousand, all of which represented a provision for credit losses on loans, during the second quarter of 2024. See “Analysis of Asset Quality and Allowance for Loan Losses” for a discussion of loan quality trends and the provision for credit losses.

Non-interest income. Non-interest income increased by $159 thousand to $2.4 million during the current quarter. The largest increase was related to a $184 thousand adjustment to the value of our stock holdings in one of our correspondent banks. This adjustment is included in Other in the following table.

The following table describes the components of non-interest income for the three-month periods ended June 30, 2025 and 2024, dollars in thousands:

31

Non-interest expense. During the three months ended June 30, 2025, total non-interest expense increased by $616 thousand from $10.4 million during the second quarter of 2024 to $11.0 million during the current quarter. The largest components of this increase were merger related expenses of $481 thousand and salary and benefit expense of $270 thousand. The increase in salary and benefit expense includes an increase in salary expense of $216 thousand related primarily to merit and promotional salary increases. A decrease in deferred loan origination fees of $144 thousand was offset by a decline in commission expense of $180 thousand. Both items mostly relate to a decline in SBA loan production during the comparison quarters.

The following table describes the components of non-interest expense for the three-month periods ended June 30, 2025 and 2024, dollars in thousands:

Provision for income taxes. The provision for income taxes decreased by $149 thousand from $2.5 million, or 26.9% of pre-tax income, during the three months ended June 30, 2024 to $2.4 million, or 27.1% of pre-tax income, during the current quarter. The percentages for 2025 and 2024 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 while non-deductible merger transaction costs incurred during the current quarter effectively increase taxable income.

FINANCIAL CONDITION

Total assets on June 30, 2025, were $1.6 billion, an increase of $5 million from December 31, 2024. The largest components of this increase were increases in accrued interest receivable and other assets of $5.1 million, investment securities of $1.9 million and net loans of $1.5 million. These increases were partially offset by a decrease of $2.7 million in cash equivalents. Accrued interest payable and other liabilities increased by $1.4 million and shareholders’ equity increased by $15.2 million from $177.9 million on December 31, 2024, to $193.1 million on June 30, 2025. The largest declines in liabilities were decreases in repurchase agreements of $7.1 million and total deposits which decreased by $4.3 million and totaled $1.4 billion on June 30, 2025. A detailed discussion of each of these changes follows.

Loan Portfolio. Gross loans increased by approximately $2.4 million, or 0.2%, and totaled $1.0 billion on June 30, 2025, and December 31, 2024. The largest increases in loans were $26.7 million in commercial real estate loans, $3.7 million in commercial loans and $3.7 million in equity lines of credit. These were offset by declines of $12.7 million in construction and land development loans, $13.2 million in auto loans, $5.0 million in agricultural loans and $0.8 million in all other 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.

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

(dollars in thousands)

33

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 83% of the total loan portfolio at June 30, 2025. 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”) comprised 66% of the lending portfolio at June 30, 2025. CRE loans were 40% investor-owned, 44% owner-occupied, and 16% multi-family. Concentrations by real estate type within the CRE portfolio, excluding multi-family, were 13% Retail, 13% Mixed Commercial Real Estate, 12% Office, 8% Hospitality, 8% Special Purpose, 8% Gas Stations, 8% Industrial, 6% Mini Storage Facilities, 6% Residential, 5% Senior Care Facilities, and 5% Mixed Commercial and Residential, 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. 29% of CRE loans were located in northern Nevada and 49% were located in northern California. Of the $13.7 million in non-accrual balances at June 30, 2025, approximately 9% were CRE. Of the $22.0 million in substandard balances at June 30, 2025 approximately 24% 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 June 30, 2025, and December 31, 2024, approximately 78% and 77%, 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 June 30, 2025; 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

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.

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 the Allowance for Credit Loss (ACL), the Company elected to use the Discounted Cash Flow (DCF) methodology. This method uses loan level repayment terms to determine expected cash flows which are then discounted by various assumptions such as prepayment or curtailment rates, Probability of Default and Loss Given Default rates.

The ACL is measured on the loan’s amortized cost over the remaining contractual lives of the loan portfolios, adjusted for industry average prepayment and curtailment rates. The Company established a 12-month term for forecasting economic conditions followed by a 24-month straight line reversion to historical average conditions as its basis for the probability of loan default. The probability of default rate is determined by reviewing loans with similar risk characteristics that are combined to form loan pools which are statistically correlated with historical credit losses, defaults and various economic metrics, including California Unemployment rates, California Housing Prices and California Gross Domestic Product. Pool balances that are determined to have probable default are then adjusted for expected Loss Given Default. The Company selected the Frye Jacobs Index as its basis for Loss Given Default. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and annual back-testing of model performance to actual realized results.

At January 1, 2023, the adoption and implementation date of ASC Topic 326, June 30, 2025, 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 June 30, 2025, 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 June 30, 2025 and 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. Nonaccrual loans with a balance less than or equal to $100,000 are evaluated collectively and consist primarily of automobile loans.

The following table provides certain information for the dates indicated with respect to the Company's allowance for credit losses as well as charge-off and recovery activity.

(dollars in thousands)

The following table provides a breakdown of the allowance for credit losses at June 30, 2025,and December 31, 2024:

(dollars in thousands)

35

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

(dollars in thousands)

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 assets (which are comprised of nonperforming loans, other real estate owned (“OREO”) and repossessed vehicle holdings) at June 30, 2025, were $13.7 million, up from $4.3 million at December 31, 2024. Nonperforming assets as a percentage of total assets increased to 0.84% at June 30, 2025, up from 0.27% at December 31, 2024. OREO totaled $91 thousand at June 30, 2025, and December 31, 2024. Nonperforming loans were $13.7 million at June 30, 2025 and $4.1 million at December 31, 2024. Nonperforming loans as a percentage of total loans increased to 1.34% at June 30, 2025, up from 0.40% at December 31, 2024. The increase in nonperforming loans is related to one agricultural loan relationship of 15 loans totaling $9.9 million. The borrower on these loans was unable to meet his commitments under modified loan agreements, and therefore during the quarter, we placed the loans on nonaccrual status. Interest reversed on these loans during the current quarter totaled $344 thousand and specific loan loss reserves totaling $931 thousand were applied against the loans.

During the first half of 2025, we recorded a provision for credit losses of $1.1 million consisting of a provision for credit losses on loans of $1.1 million and a decrease in the reserve for unfunded commitments of $40 thousand. The $1.1 million mostly relates to the specific loan loss reserves noted in the previous paragraph. This compares to a provision for credit losses of $1.7 million consisting of a provision for credit losses on loans of $1.8 million and a decrease in the reserve for unfunded commitments of $79 thousand during the six months ended June 30, 2024.

Net charge-offs totaled $137 thousand and $610 thousand during the six months ended June 30, 2025 and 2024, respectively. The allowance for credit losses totaled $14.2 million at June 30, 2025 and $13.2 million at December 31, 2024. The allowance for credit losses as a percentage of total loans was 1.39% and 1.30% at June 30, 2025 and December 31, 2024.

The following table provides a summary of the change in the number and balance of OREO properties for the six months ended June 30, 2025 and 2024 (dollars in thousands):

Investment Portfolio and Federal Reserve Balances. Total investment securities were $439.7 million as of June 30, 2025, and $437.7 million at December 31, 2024. Unrealized losses on available-for-sale investment securities totaling $29.4 million were recorded, net of $8.7 million in tax benefits, as accumulated other comprehensive loss within shareholders' equity at June 30, 2025. 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. During the three and six-months ending June 30, 2025 we sold $1.2 million in available for sale investment securities recording a net gain on sale of $3 thousand.

The investment portfolio at June 30, 2025, consisted of $351.8 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies, and 169 municipal securities totaling $87.9 million. 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.

There were no Federal funds sold at June 30 2025, and December 31, 2024; however, the Bank maintained interest earning balances at the Federal Reserve Bank totaling $41.1 million at June 30, 2025, and $47.2 million at December 31, 2024. The balance, on June 30, 2025, 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.

Deposits. Deposits totaled $1.4 billion on June 30, 2025, a decrease of $4 million from December 31, 2024. The decrease in deposits includes decreases of $19.5 million in savings accounts and $31.3 million in demand deposits mostly offset by increases of $13.9 in money market accounts and $32.6 million in time deposits. At June 30, 2025, 49% of the Company’s deposits were in the form of non-interest-bearing demand deposits. The Company has no brokered deposits.

The following table shows the distribution of deposits by type at June 30, 2025 and December 31, 2024.

(dollars in thousands)

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 $516 million in uninsured deposits which includes uninsured deposits of Plumas Bancorp. Of this amount, $206 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.

(dollars in thousands)

Short-term Borrowing Arrangements. The Company is a member of the Federal Home Loan Bank of San Francisco (FHLB) and can borrow up to $255 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $439 million. The Company is also eligible to borrow at the Federal Reserve Bank (FRB) Discount Window. At June 30, 2025, the Company could borrow up to $98 million at the Discount Window secured by investment securities with a fair value of $101 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 June 30, 2025 and 2024.

The Federal Reserve Board, on March 12, 2023, announced the creation of the BTFP. At June 30, 2024, the Company had outstanding borrowings under the BTFP totaling $105 million. All BTFP borrowings were paid off during 2024. Interest expense recognized on the BTFP borrowings for the three and six-months ended June 30, 2024, was $1.3 million and $2.5 million, respectively.

Note Payable. The Company's borrowing at June 30, 2025, and December 31, 2024, consist of a Term Note entered into on January 25, 2022, which matures on January 25, 2035, and can be prepaid at any time. 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 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. The Company was in compliance with all covenants related to the Term Note at June 30, 2025. Interest expense recognized on the Term Note for the six-months ended June 30, 2025 and 2024 totaled $290,000 and $313,000, 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 $14.9 million and $22.1 million at June 30, 2025, and December 31, 2024, respectively, are secured by U.S. Government agency securities with a carrying amount of $38.5 million at June 30, 2025, and December 31, 2024. 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. Interest expense recognized on repurchase agreements for the six-months ended June 30, 2025 and 2024 totaled $30 thousand and $18 thousand, respectively.

Shareholders’ Equity. Shareholders’ equity increased by $15.2 million from $177.9 million at December 31, 2024 to $193.1 million at June 30, 2025. The $15.2 million increase was related to net income during the current period of $13.5 million, a decline in accumulated other comprehensive loss of $4.5 million and stock option and restricted stock activity of $760 thousand partially offset by shareholder dividends of $3.5 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 $0.30 per share on May 15, 2025 and February 17, 2025 and a quarterly cash dividend of $0.27 per share on February 15, 2024, May 15, 2024, August 15, 2024, and November 15, 2024.

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 June 30, 2025, the Company’s and the Bank’s capital ratios exceeded the thresholds necessary to be considered “well capitalized” under the Basel III framework.

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 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):

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

Management believes that Plumas Bank currently meets all its capital adequacy requirements.

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 June 30, 2025, the Company had $152.2 million in unfunded loan commitments and no letters of credit. This compares to $155.4 million in unfunded loan commitments at December 31, 2024. Of the $152.2 million in unfunded loan commitments, $89.7 million and $62.5 million represent commitments to commercial and consumer customers, respectively. Of the total unfunded commitments at June 30, 2025, $82.5 million were secured by real estate, of which $28.6 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.

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 one administrative office 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 six months ended June 30, 2025, and 2024 was $1,723,000 and $1,349,000, respectively.

Liquidity

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

The Company is a member of the Federal Home Loan Bank of San Francisco (FHLB) and can borrow up to $255 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $439 million. The Company is also eligible to borrow at the FRB Discount Window. At June 30, 2025, the Company could borrow up to $98 million at the Discount Window secured by investment securities with a fair value of $101 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 June 30, 2025, and December 31, 2024.

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. The Company estimates that it has approximately $516 million in uninsured deposits which includes uninsured deposits of Plumas Bancorp. Of this amount, $206 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 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.

Disclosure Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of June 30, 2025. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2025.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2025 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

In addition to the other information set forth in this Form 10-Q you should carefully consider the risk factors that appeared under Item 1A, “Risk Factors” in the Company’s 2024 Annual Report. There are no material changes from the risk factors included within the Company’s 2024 Annual Report.