Summary of Proxy Statement/Prospectus

     This summary is qualified in its entirety by the more detailed information appearing elsewhere in this proxy statement/prospectus.

     Plumas Bank incorporated Plumas Bancorp under California law for the purpose of becoming the holding company for Plumas Bank. Upon completion of the reorganization as described in the Plan of Reorganization and Merger Agreement dated                , 2002 attached to this proxy statement/prospectus as Exhibit A, the business activities of Plumas Bancorp will initially consist solely of the operation of Plumas Bank as a wholly-owned bank subsidiary. It is possible that in the future Plumas Bancorp may acquire or commence additional businesses; however, no specific acquisitions or new business activities are currently planned. Upon completion of the reorganization, Plumas Bancorp may issue trust-preferred securities in an amount up to $6.5 million through a wholly-owned subsidiary of Plumas Bancorp to be formed.

     After the reorganization, Plumas Bank will continue its current business and operations as a California state-chartered bank under its current existing name. The existing charter and bylaws of Plumas Bank will not be substantially affected by the reorganization. See “Bank Holding Company Reorganization and Merger Between Plumas Bank and Plumas Merger Company.”

     The principal executive offices of Plumas Bank are located at 35 S. Lindan Avenue, Quincy, California 95971, and the telephone number is (530) 283-7305. The principal executive offices of Plumas Bancorp are located at 35 S. Lindan Avenue, Quincy, California 95971, and the telephone number is (530) 283-7305.

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Other Information Concerning the Meeting

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Introduction

     Management is furnishing you with this proxy statement/prospectus in connection with the solicitation of proxies for use at the annual meeting of Plumas Bank, to be held at the Parish Hall of St. John’s Catholic Church located at 176 Lawrence Street, Quincy, California on May 29, 2002 at 10:30 a.m., and at any and all adjournments of the meeting.

     It is expected that Plumas Bank will mail this proxy statement/prospectus and accompanying notice and form of proxy to shareholders on or about      , 2002.

     At the meeting, the shareholders will elect ten directors and consider and vote on approval of the plan of reorganization and merger agreement. Under the plan of reorganization and merger agreement, Plumas Bank will become a wholly-owned subsidiary of the newly formed holding company, Plumas Bancorp, as a result of which shareholders of Plumas Bank will receive on a one-for-one basis shares of Plumas Bancorp’s common stock for their shares of Plumas Bank’s common stock. These transactions are more fully described in this proxy statement/prospectus, and in the plan of reorganization and merger agreement attached as Exhibit A.

Revocability of Proxies

     A proxy for use at the meeting is enclosed. Any shareholder who executes and delivers such proxy has the right to revoke it at any time before it is exercised, by filing with the Secretary of Plumas Bank an instrument revoking it, or a duly executed proxy bearing a later date. The Secretary of Plumas Bank is Terrance J. Reeson, and any revocation should be filed with him at Plumas Bank, 35 S. Lindan Avenue, Quincy, California 95971. In addition, the powers of the proxyholders will be revoked if the person executing the proxy is present at the meeting and elects to vote in person. Subject to such revocation or suspension, the proxyholders will vote all shares represented by a properly executed proxy received in time for the meeting in accordance with the instructions on the proxy. If no instruction is specified with regard to the matter to be acted upon, the proxyholders will vote the shares represented by the proxy “FOR” each of the nominees for directors and “FOR” approval of the principal terms of the plan of reorganization and merger agreement. If any other matter is presented at the meeting, the proxyholders will vote in accordance with the recommendations of management.

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Persons Making The Solicitation

     The Board of Directors of Plumas Bank is soliciting these proxies. Plumas Bank will bear the expense of preparing, assembling, printing and mailing this proxy statement/prospectus and the material used in the solicitation of proxies for the meeting. Plumas Bank contemplates that proxies will be solicited principally through the use of the mail, but officers, directors and employees of Plumas Bank may solicit proxies personally or by telephone, without receiving special compensation for the solicitation. Although there is no formal agreement to do so, Plumas Bank will reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for their reasonable expenses in forwarding these proxy materials to their principals. In addition, Plumas Bank may utilize the services of individuals or companies not regularly employed by Plumas Bank in connection with the solicitation of proxies, if management of Plumas Bank determines that this is advisable.

Voting Securities

     Management has fixed March 22, 2002 as the record date for purposes of determining the shareholders entitled to notice of, and to vote at, the meeting. On March 1 , 2002, there were 2,129,519 shares of Plumas Bank’s common stock issued and outstanding. Each holder of Plumas Bank’s common stock will be entitled to one vote for each share of Plumas Bank’s common stock held of record on the books of Plumas Bank as of the record date. In connection with the election of directors, shares may be voted cumulatively if a shareholder present at the meeting gives notice at the meeting, prior to the voting for election of directors, of his or her intention to vote cumulatively. If any shareholder of Plumas Bank gives that notice, then all shareholders eligible to vote will be entitled to cumulate their shares in voting for election of directors. Cumulative voting allows a shareholder to cast a number of votes equal to the number of shares held in his or her name as of the record date, multiplied by the number of directors to be elected. These votes may be cast for any one nominee, or may be distributed among as many nominees as the shareholder sees fit. If cumulative voting is declared at the meeting, votes represented by proxies delivered pursuant to this proxy statement may be cumulated in the discretion of the proxyholders, in accordance with management’s recommendation. The holders of not less than a majority of the outstanding shares of Plumas Bank’s common stock must vote in favor in order to approve the plan of reorganization and merger agreement.

     The effect of broker nonvotes is that such votes are not counted as being voted; however such votes are counted for purposes of determining a quorum. The effect of a vote of abstention on any matter is that such vote is not counted as a vote for or against the matter, but is counted as an abstention.

Shareholdings of Certain Beneficial Owners And Management

     Management of Plumas Bank knows of no person who owns, beneficially or of record, either individually or together with associates, 5 percent or more of the outstanding shares of Plumas Bank’s common stock, except as set forth in the table below. The following table sets forth, as of December 31, 2001, the number and percentage of shares of Plumas Bank’s outstanding common stock beneficially owned, directly or indirectly, by each of Plumas Bank’s directors, named executive officers and principal shareholders and by the directors and executive officers of Plumas Bank as a group. The shares “beneficially owned” are determined under the Securities and Exchange Commission Rules, and do not necessarily indicate ownership for any

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other purpose. In general, beneficial ownership includes shares over which the director, named executive officer or principal shareholder has sole or shared voting or investment power and shares which such person has the right to acquire within 60 days of March 2, 2002. Unless otherwise indicated, the persons listed below have sole voting and investment powers of the shares beneficially owned or acquirable by exercise of stock options. Management is not aware of any arrangements, which may result in a change of control of Plumas Bank other than the proposed reorganization.

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(3)		Mr. Irvine has sole investing powers but no voting powers as to 4,889 shares, shared voting and investment powers as to 85 shares and sole voting and investment powers as to 70 shares. He also has 3,888 shares acquirable by exercise of stock options.
(4)		Mr. Kerr has shared voting and investment powers as to 30,957 shares. He also has 1,296 shares acquirable by exercise of stock options.
(5)		Mr. Blickenstaff has shared voting and investment powers as to 26,656 shares. He also has 1,296 shares acquirable by exercise of stock options.
(6)		Mr. Fletcher has shared voting and investment powers as to 10,766 shares. He also has 1,296 shares acquirable by exercise of stock options.
(7)		Mr. Grohs has shared voting and investment powers as to 18,041 shares. He also has 1,296 shares acquirable by exercise of stock options.
(8)		Ms. McArthur has shared voting and investment powers at to 1,282 shares and sole investment powers but no voting powers as to 400 shares. She also has 500 shares acquirable by exercise of stock options.
(9)		Mr. Reeson has sole voting and investment powers as to 31,193 shares and sole voting powers but no investment powers as to 2,022 shares. He also has 1,296 shares acquirable by exercise of stock options.
(10)		Mr. Sphar has shared voting and investment powers as to 32,312 shares. He also has 1,296 shares acquirable by exercise of stock options.
(11)		Mr. West has sole voting powers but no investment powers as to 7,464 shares, shared voting and investment powers as to 3,000 shares, sole voting and investment powers as to 1,500 shares and sole investment powers but no voting powers as to 300 shares. He also has 3,450 shares acquirable by exercise of stock options.

Section 16(a) Beneficial Ownership Compliance

     Section 16(a) of the Securities Exchange Act of 1934 requires Plumas Bank’s directors and certain executive officers and persons who own more than ten percent of a registered class of Plumas Bank’s equity securities (collectively, the “Reporting Persons”), to file reports of ownership and changes in ownership with the Federal Deposit Insurance Corporation. The Reporting Persons are required by the Federal Deposit Insurance Corporation’s regulation to furnish Plumas Bank with copies of all Section 16(a) forms they file.

     Based solely on its review of the copies of such forms received by it, or written representations from the Reporting Persons that no Forms F-8A were required for those persons, Plumas Bank believes that, during 2001 the Reporting Persons complied with all filing requirements applicable to them.

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Bank Holding Company Reorganization And Merger
Between Plumas Bank and Plumas Merger Company

General

Plumas Bank is asking its shareholders to consider and approve the plan of reorganization and merger agreement. Under the plan of reorganization and merger agreement, the business of Plumas Bank will be conducted as a wholly-owned subsidiary of Plumas Bancorp. If the plan of reorganization and merger agreement is approved, the current shareholders of Plumas Bank will exchange their shares of Plumas Bank’s common stock for shares of Plumas Bancorp’s common stock on a one-for-one basis. Under accounting principles generally accepted in the United States of America, the transaction, as proposed, does not meet the definition of a business combination and is not accounted for under the purchase method. The transaction represents an exchange of shares between entities under common control and is accounted for as a reorganization. Under the reorganization, the assets and liabilities of the Bank shall be recognized at their carrying amounts in the accounts of Plumas Bancorp at the date of transfer, and the consolidated financial statements of Plumas Bancorp will reflect the historical operations of the Bank prior to the reorganization.

     The Board of Directors of Plumas Bank approved the plan of reorganization and merger agreement on February 6, 2002, and directed that the plan of reorganization and merger agreement be submitted to the shareholders of Plumas Bank. The Board of Directors of Plumas Bank recommends that the shareholders approve the plan of reorganization and merger agreement.

     The detailed terms and conditions of the reorganization are set forth in the plan of reorganization and merger agreement attached to this proxy statement/prospectus as Exhibit A. The statements made in this proxy statement/prospectus regarding the plan of reorganization and merger agreement are qualified in their entirety by the more detailed information appearing in the plan of reorganization and merger agreement.

Recommendation of Directors

      The Board of Directors of Plumas Bank has approved the terms and conditions of the plan of reorganization and merger agreement. The Board of Directors of Plumas Bank furthermore recommends that the shareholders of Plumas Bank approve the plan of reorganization and merger agreement.

Reasons for the Reorganization: Benefits of the Use of Holding
Company Form to the Shareholders of Plumas Bank

     As stated above, the Board of Directors of Plumas Bank has approved the plan of reorganization and merger agreement, believes that the reorganization is in the best interests of Plumas Bank and its shareholders, and recommends that the shareholders vote in favor of approval of the plan of reorganization and merger agreement.

     Management and the Board of Directors of Plumas Bank believe that the formation of a bank holding company, under which Plumas Bank will operate, will result in a more flexible entity for operations and growth. The proposed reorganization will result in additional regulatory

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requirements and additional costs and overhead. The additional regulatory requirements include regulatory oversight by the Securities and Exchange Commission and the Federal Reserve Board. The annual cost for the additional costs and overhead in connection with the proposed holding company is estimated to be $25,000.

     Management expects that Plumas Bancorp will facilitate growth within the banking field and in areas related to banking, either by the creation of new subsidiaries or the acquisition of existing companies and banks. For example, in the event an opportunity for the acquisition of another bank were to develop, it might be desirable to maintain the separate existence of the other bank rather than merge it into Plumas Bank. Neither Plumas Bank nor Plumas Bancorp is currently considering any acquisitions.

     The bank holding company structure will also provide a framework for restructuring certain of Plumas Bank’s existing departments or subsidiaries into separate operating subsidiaries of Plumas Bancorp, although no plans for restructuring are being considered at this time. Upon completion of the reorganization, Plumas Bancorp through a wholly-owned trust subsidiary may issue up to $6.5 million in trust-preferred securities. The proceeds from the issuance of any trust preferred securities would be used to provide adequate regulatory capital for growth in Plumas Bank’s deposits and could allow for a stock repurchase plan.

     Many major banking institutions in the United States and in California have reorganized into bank holding companies and Plumas Bank’s Board of Directors believes that the reorganization is desirable for Plumas Bank to maintain and enhance its competitive position.

Description of the Reorganization and Merger
between Plumas Bank and Plumas Merger Company

     At the direction of the Board of Directors of Plumas Bank, management incorporated Plumas Bancorp for the purpose of becoming a bank holding company under the laws of the State of California. Plumas Merger Company, which is wholly-owned by Plumas Bancorp, was also organized as a California corporation. The reorganization will be accomplished by merging Plumas Bank with Plumas Merger Company. Upon completion of the reorganization, Plumas Bank will be the surviving entity and the name will remain Plumas Bank. Upon the completion date of the reorganization, the shares of capital stock of the respective parties to the plan of reorganization and merger agreement will be converted as follows:

•		Each share of Plumas Bank’s outstanding common stock will be converted into one share of Plumas Bancorp’s common stock. Shareholders of Plumas Bank will be entitled to exchange their present share certificates for new certificates evidencing shares of Plumas Bancorp’s common stock. Until the certificates are exchanged, the certificates for shares of Plumas Bank’s common stock after the reorganization will be deemed to represent shares of Plumas Bancorp’s common stock. Options to purchase shares of Plumas Bank’s common stock will be assumed by Plumas Bancorp with the same terms and conditions and for the same number of shares of Plumas Bancorp’s common stock.
•		The shares of common stock of Plumas Merger Company outstanding immediately prior to the reorganization will be converted into an equal number of shares of the surviving bank and be owned by Plumas Bancorp.

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•		The shareholders of Plumas Bank will become shareholders of Plumas Bancorp. There are no anticipated changes in Plumas Bank’s shareholders’ relative equity ownership interest in Plumas Bank’s assets. As shareholders of Plumas Bancorp, Plumas Bank’s shareholders will have essentially the same rights to govern that corporation’s activities as they have with respect to Plumas Bank. However, as shareholders of Plumas Bancorp, they will not be entitled to vote on matters requiring the approval of Plumas Bank’s shareholders, as Plumas Bancorp will own 100 percent of Plumas Bank. Shareholders of Plumas Bancorp will be entitled to vote on those matters affecting Plumas Bancorp. A discussion of those rights is contained in the section entitled, “Bank Holding Company Reorganization and Merger Between Plumas Bank and Plumas Merger Company — Comparison of Plumas Bank and Plumas Bancorp: Analysis of Corporate Structures.”
•		Plumas Bancorp will adopt the Plumas Bank 2001 Stock Option Plan, which will automatically, and without further action on the part of the shareholders, become the stock option plan of Plumas Bancorp. All options previously granted will become an equal number of options to purchase shares of Plumas Bancorp instead of shares of Plumas Bank. The Board of Directors of Plumas Bancorp may grant further options to purchase Plumas Bancorp common stock under the stock option plan, in accordance with the terms of the Plumas Bank 2001 Stock Option Plan.

     Upon the completion of the reorganization, the existing directors of Plumas Bank will serve as the directors of the surviving bank. The surviving bank will operate under the charter of Plumas Bank. The following ten persons who currently serve as directors of Plumas Bank, are expected to serve as directors of the surviving bank after the reorganization:

Ratification and Approval of the Plan of Reorganization
and Merger Agreement: Effective Date

     Approvals of applications in connection with the proposed reorganization must be obtained from the Federal Reserve, the FDIC, and the California Department of Financial Institutions. Applications for the necessary approvals have been made, and are now pending before those regulatory agencies. If any of the above regulatory agencies should fail to give the required approval for this transaction within a reasonable time, the Board of Directors of Plumas Bank reserves the right, in its sole discretion, to terminate and cancel the plan of reorganization and merger agreement. It is presently contemplated that the completion date of the reorganization will be in the second or third quarter of 2002.

     Completion of the reorganization between Plumas Bank and Plumas Merger Company is conditioned upon obtaining the required shareholder and regulatory approvals. Approval of the reorganization by Plumas Bank’s shareholders can only be obtained if the affirmative vote of the holders of not less than a majority of the outstanding shares of Plumas Bank’s common stock is

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obtained. The directors of Plumas Bank, Plumas Merger Company and Plumas Bancorp have approved the plan of reorganization and merger agreement. However, if any action, suit, or proceeding should be threatened or instituted with respect to the proposed reorganization, the Board of Directors of Plumas Bank reserves the right, in its sole discretion, to terminate the transaction at any time before the effective date.

     If the shareholders of Plumas Bank should fail to approve the plan of reorganization and merger agreement, or if the transaction is otherwise terminated as provided above, then the business of Plumas Bank shall continue to operate under the ownership of its existing shareholders as it has prior to the adoption of the plan of reorganization and merger agreement.

     It is estimated at this time that the total expenses of the reorganization are approximately $35,000.00, and these expenses will be borne appropriately by the respective parties.

     Should the plan of reorganization and merger agreement be terminated or canceled for any of the reasons set forth above or in the attached plan of reorganization and merger agreement, such termination or cancellation will not result in any liability on the part of Plumas Bank, Plumas Bancorp, or any of their respective directors, officers, employees, agents or shareholders.

Federal Income Tax Consequences

     The plan of reorganization and merger agreement has been structured to qualify the reorganization as a tax free reorganization under Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended. The Board of Directors of Plumas Bank has reserved the right and intends to terminate the plan of reorganization and merger agreement unless a satisfactory opinion regarding the nontaxability of the proposed transaction is received from either tax counsel or Plumas Bank’s accountants.

     If the reorganization is treated as a tax-free reorganization, it will have the following federal income tax consequences:

•		No gain or loss will be recognized by Plumas Bank or any of the other parties to the reorganization as a result of the reorganization.
•		No gain or loss will be recognized by the shareholders of Plumas Bank upon the exchange of their shares of Plumas Bank’s common stock solely for shares of Plumas Bancorp’s common stock.
•		The basis and holding periods of the assets exchanged between the parties to the reorganization shall remain the same as those prior to the reorganization.
•		The basis of the shares of Plumas Bancorp’s common stock to be received by shareholders of Plumas Bank will be the same as the basis of the shares of Plumas Bank’s common stock surrendered in exchange for the shares.
•		The holding period of the shares of Plumas Bancorp’s common stock to be received by shareholders of Plumas Bank will include the holding period of the shares of Plumas Bank’s common stock surrendered in exchange for the shares, provided that such stock is held as a capital asset on the date of the completion of the reorganization.

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     Management cannot advise individual shareholders and prospective shareholders of the proper tax consequences or suggest the methods of reporting the reorganization. Each shareholder is advised to contact his or her accountant or tax counsel with respect to the reorganization and the means of reporting the transaction as well as regarding the state and local tax consequences, which may or may not parallel the federal income tax consequences.

Comparison of Plumas Bank and Plumas Bancorp:
Analysis of Corporate Structures

     The following chart constitutes a summarization of a comparison between Plumas Bank and Plumas Bancorp. Reference should be made to the detailed explanations included in this proxy statement/prospectus, and this summary is qualified in its entirety by those detailed explanations.

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Authorized and Outstanding Stock

     Plumas Bank currently has an authorized capitalization of 7,464,960 shares of common stock, no par value and 1,000,000 shares of preferred stock. Of these authorized capital shares as of March 1, 2002, 2,129,519 shares of Plumas Bank’s common stock were issued and outstanding, no shares of preferred stock were issued and outstanding and 528,184 shares of Plumas Bank’s common stock were reserved for issuance upon exercise of options under Plumas Bank’s stock option plans.

     Plumas Bancorp has an authorized capitalization of 10,000,000 shares of common stock, no par value and 10,000,000 shares of preferred stock. Of these authorized capital shares as of March 1, 2002, 100 shares of Plumas Bancorp’s common stock were issued and outstanding and no shares of preferred stock were issued and outstanding.

Voting Rights

     All voting rights are vested in the holders of common stock of Plumas Bank and Plumas Bancorp, each share being entitled to one vote, except with respect to the election of directors, as described below.

     For the election of directors, California law provides that every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder’s shares are entitled, or distribute the shareholder’s votes on the same principal among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected. However, a shareholder may cumulate votes only for a candidate or candidates whose names have been placed in nomination prior to the voting, and only if the shareholder has given notice at the meeting prior to the voting at such meeting of his or her intention to cumulate his or her votes. If any one shareholder has given such notice, all shareholders may cumulate votes for candidates in nomination. The shareholders of Plumas Bank now have cumulative voting rights, and the shareholders of Plumas Bancorp will have the same voting rights, as described above.

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Dividend Rights

     Holders of Plumas Bank common stock are entitled to dividends legally available therefore, when and as declared by Plumas Bank’s Board of Directors. The California Financial Code provides that a bank may not make cash distribution to its shareholders in an amount, which exceeds the lesser of:

•		the retained earnings, or
•		the net income of the bank for its last three fiscal years, less the amount of any distributions made by the bank to its shareholders during such period.

     However, a bank may, with the approval of the Commissioner of Financial Institutions, make a distribution to its shareholders in an amount not exceeding the greatest of:

•		the retained earnings of the bank,
•		the net income of the bank for its last fiscal year, or
•		the net income of the bank for its current fiscal year.

     If the Commissioner of Financial Institutions finds that the shareholders’ equity of a bank is not adequate or that the payment of a dividend would be unsafe or unsound for the bank, the Commissioner of Financial Institutions may order the bank not to pay any dividend to the shareholders.

     In addition, under the Financial Institutions Supervisory Act of 1966, as amended, the FDIC also has the authority and general enforcement powers to prohibit a bank from engaging in practices, which the FDIC considers to be unsafe or unsound. It is possible, depending upon the financial condition of Plumas Bank and other factors, that the FDIC could assert that the payment of dividends or other payments might under some circumstances be such an unsafe or unsound practice and thereby prohibit such payment. The Federal Deposit Insurance Corporation Improvement Act of 1991 further prohibits a bank from paying a dividend if the dividend payment would result in the bank failing to meet any of its minimum capital requirements.

     The shareholders of Plumas Bancorp will be entitled to receive dividends when and as declared by its Board of Directors, out of funds legally available for the payment of dividends, as provided in the California General Corporation Law. The California General Corporation Law provides that a corporation may make a distribution to its shareholders if retained earnings immediately prior to the dividend payout at least equal the amount of the proposed distribution. In the event that sufficient retained earnings are not available for the proposed distribution, a corporation may, nevertheless, make a distribution, if it meets both the “quantitative solvency” and the “liquidity” tests. In general, the quantitative solvency test requires that the sum of the assets of the corporation equal at least 1-1/4 times its liabilities. The liquidity test generally requires that a corporation have current assets at least equal to current liabilities, or, if the average of the earnings of the corporation before taxes on income and before interest expenses for the two preceding fiscal years was less than the average of the interest expense of the corporation for such fiscal years, then current assets must equal at least 1-1/4 times current

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liabilities. In certain circumstances, Plumas Bancorp may be required to obtain the prior approval of the Federal Reserve Board to make capital distributions to shareholders of Plumas Bancorp.

Assessment of Shares

     Shares of Plumas Bank are not subject to assessment and shares of Plumas Bancorp also will not be subject to assessment.

Liquidation Rights

     The holders of Plumas Bank common stock are entitled to share equally in Plumas Bank’s assets legally available for distribution in the event of liquidation or dissolution. Similarly, holders of Plumas Bancorp common stock will have a pro rata right to participate in Plumas Bancorp’s assets legally available for distribution in the event of liquidation or dissolution.

Preemptive Rights

     The holders of Plumas Bank’s common stock do not have preemptive rights to subscribe to any additional shares of Plumas Bank’s common stock being issued. The holders of Plumas Bancorp’s common stock also will not have preemptive rights to subscribe to any additional shares of Plumas Bancorp’s common stock being issued. Therefore, shares of Plumas Bancorp’s common stock or other securities may be offered in the future to the investing public or to shareholders at the discretion of Plumas Bancorp’s Board of Directors.

Special Factors Considered by the Board when Evaluating Certain Transactions

     The Articles of Incorporation of Plumas Bank and Plumas Bancorp each contain an article that establishes criteria to be applied by the board of directors of each entity in evaluating a tender or exchange offer or acquisition proposal. Factors which are to be considered include the following: (i) the adequacy of the offered consideration in relation to the current market price of the entity’s stock and in relation to the historical and present operating results and financial condition of the entity; (ii) whether the shareholders might obtain a more favorable price at the time of the proposed tender offer or in the future from other offerors and whether the entity’s continued existence as an independent entity would affect the future value of the entity’s stock; (iii) the impact the offer would have on the employees, clients and customers of the entity and the communities which it serves; (iv) the present and historical financial position of the offeror, its reputation in the communities which it serves and the social and/or economic effect which the reputation and practices of the offeror or its management and affiliates would have upon the employees and customers of the entity and the communities which the entity serves; (v) an analysis of the value of the securities (if any) offered in exchange for the entity’s securities; and (vi) the legal and regulatory issues presented by the offer. Upon consideration of these factors, the board of directors of Plumas Bank or Plumas Bancorp, as applicable, may oppose, recommend or remain neutral with respect to a tender offer or other acquisition proposal.

     These article provisions could result in the board of directors of Plumas Bank or Plumas Bancorp, as applicable, opposing a proposed acquisition of control that some of the shareholders

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may find financially attractive. These article provisions may also make obtaining board approval of a proposed acquisition of control more difficult, which may delay or discourage acquisition attempts and as a result may have the effect of maintaining the tenure of the incumbent management.

     These article provisions may also have the effect of deterring shareholders who disagree with the response of the board of directors to an acquisition attempt from initiating litigation. Such litigation, which may be costly, time-consuming and disruptive to Plumas Bank or Plumas Bancorp, as applicable, could involve allegations that the board of directors breached an obligation to the shareholders by not limiting its evaluation of a proposed acquisition to the then-current market price of the entity’s stock.

Supermajority Vote Required for Certain Business Acquisitions

     The Articles of Incorporation of Plumas Bank and Plumas Bancorp each contain an article that raises the level required for shareholder approval of certain business combinations from a majority to at least two-thirds of the outstanding voting stock of the respective entity. These supermajority article provisions would exclude from the higher two-thirds level of shareholder approval for a covered business combination if such combination is (i) approved by the directors of the entity who are not associated with the shareholder proposing such transaction, (ii) the combination includes “fair price” provisions providing shareholders a fair price for the entity’s stock, or (iii) if a state regulatory authority having jurisdiction under the circumstances shall have determined specifically, and not by implication, that the proposed business combination is fair to the shareholders. A copy of the Article Eight providing for the supermajority article provisions is included as Exhibit B.

     These supermajority article provisions may make certain business combinations opposed by the incumbent board of directors more difficult to effect. These supermajority article provisions may be altered, amended or repealed only by holders of two-thirds or more of the outstanding shares. Pursuant to the California Corporations Code, these supermajority article provisions must be reapproved by a two-thirds shareholder vote every two years. The supermajority article provisions of Plumas Bank have not been reapproved within the last two years and are no longer effective for Plumas Bank. If the shareholders approve the reorganization, the shareholders will also be approving the supermajority article provisions for Plumas Bancorp.

     In addition to any affirmative vote required by law or by the articles of incorporation, except as otherwise expressly provided, these supermajority article provisions require that no business combination as defined below be consummated unless such consummation shall have been approved by the affirmative vote of the holders of at least two-thirds of the combined voting power of the then outstanding shares of voting stock of the entity voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law, in the articles of incorporation or otherwise.

     A “business combination” is defined to include the following transactions (i) a merger or consolidation of Plumas Bancorp or any subsidiary with an interested shareholder (or a person who is, or would thereby be, an affiliate of an interested shareholder); (ii) the sale, lease,

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exchange, mortgage, pledge, transfer, or other disposition by Plumas Bancorp or a subsidiary of assets valued in excess of one million dollars if an interested shareholder is a party to the transaction; (iii) the issuance of securities of Plumas Bancorp or of a subsidiary to an interested shareholder (other than as part of a stock split or dividend in which all shareholders are treated equally); or (iv) any reclassification of securities, recapitalization of Plumas Bancorp, merger or consolidation of Plumas Bancorp with a subsidiary, or other transaction which has the effect, directly or indirectly, of increasing the proportion of the outstanding shares of any class of any equity securities of Plumas Bancorp or a subsidiary beneficially owned by an interested shareholder or as a result of which the shareholders of Plumas Bancorp would cease to be shareholders of a California corporation which has in its articles of incorporation provisions comparable to these supermajority article provisions.

     An “interested shareholder” is defined as anyone (other than Plumas Bancorp or any subsidiary or employee benefit plan of Plumas Bancorp or any subsidiary or any person who was a director of Plumas Bancorp on February 6, 2002) who is the “beneficial owner” of at least 5% of the voting stock of the entity or who is an “affiliate” or “associate” of any such person or who is a member of a group which is the beneficial owner of at least 5% of the common stock of Plumas Bancorp on or after February 6, 2002.

     A business combination involving the payment of cash or other consideration to the Plumas Bancorp shareholders for all of their shares of common stock will not require a two-thirds shareholder vote if the payments satisfy certain requirements, described below and certain other requirements are met. In all cases the business combination must provide for the payment to holders of common stock of a consideration having a fair market value on the date the business combination is consummated at least equal in value to the highest of the following: (i) the average fair market value per share of Plumas Bancorp common stock during the 90-day period prior to the first public announcement of the business combination or (ii) the fair market value per share of Plumas Bancorp common stock on the last trading day before the announcement date. In addition, if the interested shareholder became such within 5 years of the announcement date, the required price would also have to be higher than the highest per share price paid by the interested shareholder (before or after becoming an interested shareholder) in acquiring any shares of common stock during such period within 5 years prior to the announcement date. The fair market value of the shares will be adjusted to reflect any stock dividend, stock split, recapitalization, reverse stock split, reorganization or similar event affecting the number of outstanding common shares. Payment to shareholders of the required amount of consideration would be required to be made in cash or in the same form as was previously paid by the interested shareholder involved in the business combination to acquire any shares of voting stock beneficially owned by the interested shareholder. If the interested shareholder beneficially owns shares of voting stock, which were acquired with different forms of consideration, then shareholders could be paid either in cash or with the form of noncash consideration used by the interested shareholder to acquire the largest number of shares of voting stock beneficially owned by it.

     Under these supermajority article provisions, the fair market value of any noncash consideration to be received by holders of shares of common stock in a Business Combination must be determined as of the consummation date. These supermajority article provisions use the consummation date as the date for determining the fair market value of any noncash consideration to be paid in a business combination in order to assure that the interested

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shareholder, and not the other shareholders, would bear the risk of a decline in the value of such consideration prior to the receipt of such consideration by the other shareholders.

     In addition, under these supermajority article provisions, unless the business combination is determined to be fair by a state regulatory authority having jurisdiction over Plumas Bancorp or approved by a majority of continuing directors as defined below, the business combination would require approval by a two-thirds shareholder vote, even if it satisfied the fair market value requirements, in each of the situations (i) if Plumas Bancorp, after the interested shareholder became an interested shareholder, fails to pay any required dividends on any outstanding shares of preferred stock or reduces the rate of dividends last paid on its common stock, unless such failure or reduction is approved by a majority of the continuing directors, (ii) if the interested shareholder received at any time after it became an interested shareholder, whether in connection with the proposed business combination or otherwise, the benefit, directly or indirectly, of any loan or other financial assistance or tax advantages provided by, or as a result of its equity position in Plumas Bancorp, other than proportionately as a shareholder on a basis generally available to all shareholders, (iii) if a proxy or information statement describing the proposed business combination and complying with the disclosure and other requirements of the rules promulgated under the Securities Exchange Act of 1934 has not been mailed to all shareholders of Plumas Bancorp at least 60 days prior to the consummation of a business combination, whether or not such proxy or information statement is required to be mailed, which statement includes the recommendation, if any, as to the advisability or inadvisability of the proposed business combination of the continuing directors then in office, if any.

     A “continuing director” with regard to a business combination is defined as any member of the board who is not an affiliate or associate or, and not a nominee of, an interested shareholder involved in the business combination and who (i) was a director before the interested shareholder became an interested shareholder or (ii) is a successor of such a director and was nominated or elected as a director by a majority of the continuing directors on the board at the time of his nomination or election.

     Tender offers or other non-open market acquisitions of stock are usually made at prices above the prevailing market price of an entity’s stock. In addition, acquisitions of stock by persons attempting to acquire control through market purchases may cause the market price of the stock to reach levels that are higher than would otherwise be the case. These supermajority article provisions may discourage such purchases and may therefore deprive some holders of Plumas Bancorp’s stock of an opportunity to sell their shares at a higher market price. Because the higher percentage requirements may apply for shareholder approval of any subsequent business combination and the possibility of having to pay a higher price to other shareholders in such a business combination, it may become more costly for a purchaser to acquire control of Plumas Bancorp. The supermajority article provisions may therefore decrease the likelihood that an offer will be made for less than two-thirds of the voting stock and, as a result, may adversely affect those shareholders who would desire to participate in such an offer. A potential purchaser of stock seeking to obtain control may also be discouraged from purchasing stock because a two-thirds shareholder vote would be required in order to change or eliminate these provisions.

     In certain cases, the fair market value requirements, while providing objective pricing criteria, could be arbitrary and not indicative of value. Another effect of the supermajority article provisions would be to give veto power to the holders of a minority of the voting stock with

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respect to a business combination that is opposed by the board, but which holders of a majority (but less than two-thirds) of the stock may believe to be desirable and beneficial. The supermajority article provisions may tend to insulate incumbent management against the possibility of removal in the event of a takeover bid since only the continuing directors will have the authority to eliminate the 66-2/3% shareholder vote required for business combinations (unless the fair value and procedural requirements are satisfied or the requisite regulatory fairness determination has been made).

Directors

     Plumas Bank’s Bylaws authorize its Board of Directors or shareholders to designate the number of directors at any number from 8 to 15 with certain limitations, and Plumas Bancorp’s Bylaws authorize its Board of Directors or shareholders to designate the number of directors at any number from 8 to 15.

Rights of Dissenting Shareholders of Plumas Bank

     California state law does not provide for exercise of dissenters’ rights in the context of the reorganization.

Corporate Operation and Management

     The Articles of Incorporation and Bylaws of Plumas Bank and of Plumas Bancorp are substantially similar in all material provisions, except with respect to provisions in Plumas Bank’s Articles of Incorporation and Bylaws required by California Financial Code and applicable only to banks.

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Operations Under Plumas Bancorp

Organization

     Plumas Bancorp was organized and incorporated under the laws of the State of California on January 17, 2002, at the direction of the Board of Directors of Plumas Bank for the purpose of becoming a bank holding company to acquire all of the outstanding capital stock of Plumas Bank. The principal location of Plumas Bancorp and its operations will be at the administrative offices of Plumas Bank located at 35 S. Lindan Avenue, Quincy, California 95971.

     In order to effect the reorganization and to initially provide Plumas Bancorp with working capital, Walter Sphar, a director of Plumas Bank and also of Plumas Bancorp, loaned $35,000 to Plumas Bancorp, payable with interest. In addition, Mr. William E. Elliott, President and CEO and a director of Plumas Bank and Plumas Bancorp has purchased 100 shares of the common stock of Plumas Bancorp at an aggregate purchase price of $150. Upon the completion of the reorganization, the loan will be repaid and the 100 shares of Plumas Bancorp’s common stock will be repurchased and canceled by Plumas Bancorp for the sum of $150. Presently, 100 shares of Plumas Bancorp’s common stock are outstanding, and Plumas Bancorp will have no additional stock issued until after the shareholders of Plumas Bank have approved the plan of reorganization and merger agreement and the reorganization is completed.

Management and Directors of Plumas Bancorp

     The present Board of Directors of Plumas Bancorp is composed of the ten current directors of Plumas Bank, and consists of the following individuals:

     Upon completion of the reorganization, the business of Plumas Bank will be conducted as a subsidiary of Plumas Bancorp, and will be carried on with the same directors, officers, personnel, property and name as before the transaction. Plumas Bancorp will not pay its executive officers any amounts in addition to the amounts they receive as executive officers of Plumas Bank.

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     The following directors and officers of Plumas Bank have agreed to serve as the initial directors and officers of Plumas Bancorp:

     The business of Plumas Bank will be carried on after the reorganization, with the same officers, employees, properties and directors.

Supervision and Regulation of Plumas Bancorp

     Upon completion of the reorganization, Plumas Bancorp will become a bank holding company within the meaning of the Bank Holding Company Act, and will become subject to the supervision and regulation of the Federal Reserve Board. A notice application for prior approval to become a bank holding company has previously been filed by Plumas Bancorp with the Federal Reserve Board.

     As a bank holding company, Plumas Bancorp will be required to register with the Federal Reserve Board within 180 days after the reorganization is completed, and, thereafter, to file annual reports and other information concerning its business operations and those of its subsidiaries as the Federal Reserve Board may require. The Federal Reserve Board also has the authority to examine Plumas Bancorp and each of its respective subsidiaries, as well as any arrangements between Plumas Bancorp and any of its respective subsidiaries, with the cost of any such examination to be borne by Plumas Bancorp.

     In the future, Plumas Bancorp will be required to obtain the prior approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank, or ownership or control of voting securities of any bank if, after giving effect to such acquisition, Plumas Bancorp would own or control more than 5 percent of the voting shares of such bank.

     A bank holding company and its subsidiaries are also prohibited from engaging in certain tie-in arrangements in connection with extensions of credit, leases, sales, or the furnishing of services. For example, Plumas Bank will generally be prohibited from extending credit to a customer on the condition that the customer also obtain other services furnished by Plumas Bancorp, or any of its subsidiaries, or on the condition that the customer promise not to obtain financial services from a competitor. Plumas Bancorp and its subsidiaries will also be subject to

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certain restrictions with respect to engaging in the underwriting, public sale and distribution of securities.

     Plumas Bancorp and any subsidiaries, which it may acquire or organize after the reorganization, will be deemed affiliates of Plumas Bank within the meaning of the Federal Reserve Act. Loans by Plumas Bank to affiliates, investments by Plumas Bank in affiliates’ stock, and taking affiliates’ stock by Plumas Bank as collateral for loans to any borrower will be limited to 10 percent of Plumas Bank’s capital, in the case of each affiliate, and 20 percent of Plumas Bank’s capital, in the case of all affiliates. In addition, these 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 that term is 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.

     A bank holding company is also prohibited from itself 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 this prohibition is for activities found by the Federal Reserve Board 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 Federal Reserve Board considers whether the performance of such activities by a bank holding company or a bank holding company subsidiary would offer advantages to the public, which outweigh possible adverse effects.

     After the consummation of the reorganization, Plumas Bancorp will be subject to the regulatory capital requirements of the Federal Reserve Board with respect to a bank holding company, and these requirements are similar to the regulatory capital requirements of the FDIC as applied to Plumas Bank. If the capital of Plumas Bancorp falls below the minimum levels established by Federal Reserve Board, Plumas Bancorp may be denied approval to acquire or establish additional banks or non-bank businesses. In addition, the failure to satisfy applicable capital guidelines could subject Plumas Bancorp to a variety of enforcement actions.

     In the calculation of risk-based capital, assets and off-balance sheet items are assigned to broad risk categories. Off-balance sheet items are also taken into account in the calculation of risk-based capital, with each class of off-balance sheet item being converted to a balance sheet equivalent. From these computations, the total of risk-weighted assets is derived. Risk-based capital ratios therefore state capital as a percentage of total risk-weighted assets and off-balance sheet items. The ratios established by guidelines are minimums only.

     Current risk-based capital guidelines require all bank holding companies to maintain a minimum risk-based total capital ratio equal to 8% and a Tier 1 capital ratio of 4%. Intangibles other than readily marketable mortgage servicing rights are generally deducted from capital. Tier 1 capital includes common shareholder’s equity, qualifying perpetual preferred stock (within limits and subject to certain conditions), and minority interests in equity accounts of consolidated subsidiaries, less intangibles. Tier 2 capital includes: (i) the allowance for loan losses up to 1.25% of risk-weighted assets; (ii) any qualifying perpetual preferred stock exceeding the amount includable in Tier 1 capital; (iii) hybrid capital instruments; (iv) perpetual debt; (v) mandatory convertible securities and (vi) subordinated debt and intermediate term preferred stock of up to

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50% of Tier 1 capital. Total capital is the sum of Tier 1 and Tier 2 capital, less reciprocal holdings of other banking organizations and capital instruments. Plumas Bancorp is expected to be “well capitalized” as to all of the regulatory capital ratios using the definition of “well capitalized” as applied to banks at the time of the reorganization.

     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 certain cases by the Federal Reserve Board. The Gramm-Leach-Bliley Act (“GLBA”) allows for a new type of bank holding company under the Bank Holding Company Act. The new bank holding company is allowed to engage in insurance and securities underwriting, merchant banking and insurance company portfolio investment activities. GLBA also allows bank holding companies to engage in any activity considered “financial” in nature or incidental to such financial activities.

     Although Plumas Bancorp has no present plans, agreements or arrangements to engage in any nonbanking activities, Plumas Bancorp may consider in the future engaging in one or more of the above activities, subject to the approval of the Federal Reserve Board.

     Directors, executive officers, and principal shareholders of Plumas Bancorp will be subject to restrictions on the sale of their Plumas Bancorp stock under Rule 144 as promulgated under the Securities Act of 1933.

Indemnification of Plumas Bancorp’s
Directors and Officers

     Plumas Bancorp’s Articles of Incorporation and Bylaws provide for indemnification of agents including directors, officers and employees to the maximum extent allowed by California law. The indemnification law of the State of California generally allows indemnification, in matters not involving the right of the corporation, to an agent of the corporation if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the corporation, and in the case of a criminal matter had no reasonable cause to believe the conduct of such person was unlawful. California law, with respect to matters involving the right of a corporation, allows indemnification of an agent of the corporation, if such person acted in good faith, in a manner such person believed to be in the best interests of the corporation and its shareholders; provided that there shall be no indemnification for: amounts paid in settling or otherwise disposing of a pending action without court approval; expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval; or matters which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which the proceeding is or was pending shall determine that such person is entitled to be indemnified.

     The Bylaws provide that Plumas Bancorp will indemnify its directors, officers and employees and that such right to indemnification shall be a contract right. The Bylaws also provide that Plumas Bancorp may purchase and maintain insurance covering its directors, officers and employees against any liability asserted against any of them and incurred by any of them, whether or not Plumas Bancorp would have the power to indemnify them against such liability under the provisions of applicable law or the provisions of the Bylaws.

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     Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling Plumas Bancorp pursuant to the foregoing, Plumas Bancorp has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.

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Plumas Merger Company

General Background

     At the direction of the Board of Directors of Plumas Bank, Plumas Merger Company was incorporated on February 1, 2002. It was organized to facilitate the reorganization. On the date of the reorganization, Plumas Bank will merge with Plumas Merger Company, with Plumas Bank as the surviving entity.

Initial Capitalization

     Plumas Merger Company was initially capitalized through the purchase of 100 shares of its common stock by Plumas Bancorp for an aggregate sum of $100.00. The 100 shares of capital stock of Plumas Merger Company issued and outstanding immediately prior to the date of reorganization shall be converted into and exchanged by Plumas Bancorp for 100 shares of Plumas Bank common stock. Plumas Merger Company will disappear and all of the outstanding shares of Plumas Bank common stock will be owned by Plumas Bancorp.

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Plumas Bank

General

     Plumas Bank (the “Bank”) was incorporated under the laws of the State of California on July 30, 1980 and, with the approval of the California State Banking Department, opened for business on December 13, 1980. The Bank’s primary business is to provide financial services to the local families and businesses of Plumas, Lassen, Sierra, Nevada, Shasta and Modoc Counties. The Bank has no parents, affiliates or subsidiaries. The Bank is a state chartered banking institution, which has chosen not to become a member of the Federal Reserve System. The Bank’s deposits are insured to the maximum amount permitted by law under the Federal Deposit Insurance Act.

     At December 31, 2001, the Bank had total assets of $275.1 million, composed primarily of loans, investment securities (principally U.S. government and agency securities), cash and due from banks and other non-interest earning assets. For the year ended December 31, 2001, the Bank’s total revenues amounted to $22.0 million. The principal sources of the Bank’s revenues are: interest and fees on loans, interest on investments and deposit account and other service charges and fees. For the year ended December 31, 2001, these sources comprised 74%, 11%, and 7% respectively, of the Bank’s total revenues.

Bank Services

     Plumas Bank is a locally owned and operated full-service community bank offering a broad range of consumer and commercial banking and investment services. Management is committed to running the Bank as a relationship-based, community bank serving the needs of individuals and small to medium-sized businesses in the local market areas surrounding the Bank’s branches. The strategy for serving the Bank’s target markets is the delivery of value-added products and services that satisfy the primary needs of the Bank’s customers, emphasizing superior service and relationships rather than transaction volume. The Bank’s operations, like those of other financial institutions operating in California, are significantly influenced by economic conditions in California, including energy and energy-related issues, the strength of the real estate market, and the fiscal and regulatory policies of the federal government and of the regulatory authorities that govern financial institutions. See - Supervision and Regulation.

     The Bank is headquartered in Quincy, California and it maintains nine full-service branches in Northeastern California, providing financial services to the communities of Quincy, Portola, Greenville, Westwood, Susanville, Chester, Alturas, Fall River Mills and Truckee and their surrounding communities. The Truckee branch was opened on February 12, 2001. In addition to the full-service branches, the Bank operates four independent ATM sites in the Northeastern California communities of Graeagle, Lake Almanor, Susanville and Cedarville.

     The Bank offers a broad range of services to individuals and businesses in its primary service area with an emphasis upon efficiency and personalized attention. The Bank provides a full line of consumer and business products and services, such as, personal and business checking accounts and savings accounts, individual interest-bearing negotiable order of withdrawal accounts (“NOW” accounts), money market accounts, accounts combining checking and savings

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accounts with automatic transfers, IRA accounts, and time certificates of deposit. Most of the Bank’s deposits are attracted from individuals and small and medium-sized business-related sources. The Bank also attracts some deposits from municipalities and other governmental agencies. In connection with the deposits of municipalities or other governmental agencies or entities, the Bank is required to pledge securities to secure such deposits.

     As of December 31, 2001, the Bank had 10,961 accounts representing $53.5 million in non-interest bearing demand deposits, with an average balance of $4,885. It also had 3,944 accounts representing $32.5 million in interest bearing demand deposits, with an average balance of $8,230. The Bank had 10,590 accounts representing $35.2 million in savings deposits, with an average balance of $3,326. The Bank had 1,323 accounts representing $44.4 million in money market deposits, with an average balance of $33,595. In addition, it had 3,495 accounts representing $86.5 million in time deposits with an average balance of $24,760.

     The Bank also engages in a full complement of lending activities with particular emphasis on short and medium-term obligations. Some of the Bank’s lending activities include, real estate mortgage, commercial and industrial, real estate construction, Government guaranteed financing, agricultural, consumer loans, as well as overdraft protection lines of credit and standby letters of credit. The Bank’s loan portfolio is not concentrated in any one industry, although approximately 46% of the Bank’s loans are secured by real estate. A loan may be secured (in whole or in part) by real estate even thought the purpose of the loan is not to facilitate the purchase or development of real estate. At December 31, 2001, the Bank had loans outstanding of $183.7 million, which represented 72.8% of the Bank’s total deposits and 66.8% of its total assets.

     Real estate mortgage loans are secured by deeds of trust on residential or commercial property. Repayment of real estate mortgage loans is generally from the cash flow of the borrower. Commercial and industrial loans have a high degree of industry diversification. A substantial portion of the commercial and industrial loans not secured by real estate are secured by accounts receivable, inventory, leases or other collateral. The remainder are unsecured; however, extensions of credit are predicated on the financial capacity of the borrower. Repayment of commercial loans is generally from the cash flow of the borrower. Real estate construction loans consist primarily of loans to individuals and residential contractors, which are secured by single-family residential properties. All real estate loans have established equity requirements. Repayment of real estate construction loans is generally from long-term mortgages with other lending institutions. Agricultural loans are generally secured by land, equipment, inventory and receivables. Repayment of this loan category is from the cash flow of the borrower. At December 31, 2001, real estate mortgage loans, commercial and industrial loans, consumer loans, agricultural loans and real estate construction loans constituted approximately 27.7%, 27.2%, 25.7%, 11.9% and 7.5%, respectively of the Bank’s total loan portfolio.

     In the normal course of business, the Bank makes various loan commitments and incurs certain contingent liabilities. At December 31, 2001, these financial instruments included commitments to extend credit of $35.8 million, and standby letters of credit of $279,000. Of the $35.8 million in loan commitments outstanding at December 31, 2001, $20.2 million were on loans with maturities of one year or less. Due to the nature of the business of Plumas Bank’s

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customers, there are no seasonal patterns or absolute predictability to the utilization of unused loan commitments; therefore the Bank is unable to forecast the extent to which these commitments will be exercised within the current year. The Bank does not believe that any such utilization will constitute a material liquidity demand. In addition, neither the Bank’s business or liquidity is seasonal, and there has been no material effect upon the Bank’s capital expenditures, earnings or competitive position as a result of federal, state or local environmental regulation.

     In addition to the loan and deposit services discussed above, the Bank also offers a wide range of specialized services designed to attract and service the needs of retail and commercial customers and account holders. These services include ATMs tied in with major statewide and national networks, honoring merchant drafts for both VISA and MasterCard, as well as offering MasterCard and Visa credit cards to its customers, internet banking, cashier’s checks, traveler’s checks, money orders, foreign drafts, and direct deposit of social security, pension and payroll checks. Plumas Bank does not operate a trust department; however, it makes arrangements with its correspondent bank to offer trust services to its customers on request.

Employees

     As of December 31, 2001, the Bank employed 164 persons, with a full-time equivalent (FTE) of 146, including 4 executive officers. The Bank’s employees are not represented by a union or covered by a collective bargaining agreement. Management of the Bank believes that, in general, its employee relations are excellent.

Properties

     The Bank’s administrative office is located at 35 S. Lindan Avenue, Quincy, California. In total, as of February 28, 2002, the Bank had fifteen properties consisting of nine branch offices, four off-site ATM’s, the administrative office and a loan service office. The loan service office is currently under construction with an expected completion date in the spring of 2002.

     Management believes that its existing and proposed facilities are adequate for its present purposes and anticipated growth in the foreseeable future.

LEASED PROPERTIES

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OWNED PROPERTIES