Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

plbc20240930_10q.htm

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(in thousands, except shares)

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Continued on next page.

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

(Continued)

See notes to unaudited condensed consolidated financial statements.

PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. THE BUSINESS OF PLUMAS BANCORP

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

The Bank operates thirteen branches in California, including branches in Alturas, Chester, Chico, Fall River Mills, Greenville, Kings Beach, Portola, Quincy, Redding, Susanville, Tahoe City, Truckee and Yuba City. The Bank's newest branch was opened in April 2023 and is located in Chico, California. The Bank's administrative headquarters are in Quincy, California. In December 2015 the Bank opened a branch in Reno, Nevada, its first branch outside of California, and in 2018 the Bank purchased a branch located in Carson City, Nevada. In addition, the Bank operates a lending office specializing in government-guaranteed lending in Auburn, California, and a commercial/agricultural lending office in Klamath Falls, Oregon. The Bank's primary source of revenue is generated from providing loans to customers who are predominately small and middle market businesses and individuals residing in the surrounding areas.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and the consolidated accounts of its wholly-owned subsidiary, Plumas Bank. All significant intercompany balances and transactions have been eliminated.

The accounting and reporting policies of Plumas Bancorp and subsidiary conform with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company's financial position at September 30, 2024 and the results of its operations and its cash flows for the three and nine-month periods. Our condensed consolidated balance sheet at December 31, 2023 is derived from audited financial statements.

The unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim reporting on Form 10-Q. Accordingly, certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2023 Annual Report to Shareholders on Form 10-K. The results of operations for the three and nine-month periods ended September 30, 2024, may not necessarily be indicative of future operating results. In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the periods reported. Actual results could differ significantly from those estimates.

Segment Information

Management has determined that since all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment. No customer accounts for more than 10 percent of revenues for the Company or the Bank.

Reclassification

Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders' equity.

3. INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost and estimated fair value of investment securities at September 30, 2024 and December 31, 2023 consisted of the following, in thousands:

Available-for-Sale		September 30, 2024
						Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
		Cost			Gains			Losses			Value
Debt securities:
U.S. Treasury securities		$	3,998			$	-			$	(7	)		$	3,991
U.S. Government-sponsored agencies collateralized by mortgage obligations - residential			243,643				2,287				(10,244	)			235,686
U.S. Government-agencies collateralized by mortgage obligations - commercial			134,642				1,609				(8,867	)			127,384
Obligations of states and political subdivisions			95,330				1,137				(6,808	)			89,659
		$	477,613			$	5,033			$	(25,926	)		$	456,720

Unrealized losses on available-for-sale investment securities totaling $20,893,000 were recorded, net of $6,176,000 in tax benefit, as accumulated other comprehensive loss within shareholders' equity at September 30, 2024. During the nine months ended September 30, 2024, the Company sold 157 available-for-sale investment securities for proceeds of $116,285,000 recording a $19,817,000 net loss on sale. The Company realized a gain on sale from tenof these securities totaling $115,000 and a loss on sale of 147 securities totaling $19,932,000. During the three months ended September 30, 2024, the Company sold twoavailable-for-sale investment securities for proceeds of $1,447,000 recording a $9,000 net gain on sale. The Company realized a gain on sale from oneof these securities totaling $29,000 and a loss on sale of one security totaling $20,000.

Available-for-Sale		December 31, 2023
						Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
		Cost			Gains			Losses			Value
Debt securities:
U.S. Treasury securities		$	6,978			$	-			$	(98	)		$	6,880
U.S. Government-sponsored agencies collateralized by mortgage obligations - residential			256,694				351				(21,114	)			235,931
U.S. Government-agencies collateralized by mortgage obligations - commercial			129,321				465				(13,834	)			115,952
Obligations of states and political subdivisions			142,276				1,067				(12,925	)			130,418
		$	535,269			$	1,883			$	(47,971	)		$	489,181

Unrealized losses on available-for-sale investment securities totaling $46,088,000 were recorded, net of $13,624,000 in tax benefit, as accumulated other comprehensive loss within shareholders' equity at December 31, 2023. No securities were sold during the nine months ended September 30, 2023.

There were no transfers of available-for-sale investment securities during the nine months ended September 30, 2024 and twelve months ended December 31, 2023. There were no securities classified as held-to-maturity at September 30, 2024 or December 31, 2023.

Investment securities with unrealized losses at September 30, 2024 and December 31, 2023 are summarized and classified according to the duration of the loss period as follows, in thousands:

September 30, 2024		Less than 12 Months			12 Months or More			Total
		Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
		Value			Losses			Value			Losses			Value			Losses
Debt securities:
U.S. Treasury securities		$	-			$	-			$	3,991			$	7			$	3,991			$	7
U.S. Government-sponsored agencies collateralized by mortgage obligations - residential			4,357				2				101,187				10,242				105,544				10,244
U.S. Government-agencies collateralized by mortgage obligations - commercial			9,310				106				60,454				8,761				69,764				8,867
Obligations of states and political subdivisions			1,941				11				50,544				6,797				52,485				6,808
		$	15,608			$	119			$	216,176			$	25,807			$	231,784			$	25,926

December 31, 2023		Less than 12 Months			12 Months or More			Total
		Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
		Value			Losses			Value			Losses			Value			Losses
Debt securities:
U.S. Treasury securities		$	-			$	-			$	6,880			$	98			$	6,880			$	98
U.S. Government-sponsored agencies collateralized by mortgage obligations - residential			43,924				279				160,383				20,835				204,307				21,114
U.S. Government-agencies collateralized by mortgage obligations - commercial			16,533				295				71,782				13,539				88,315				13,834
Obligations of states and political subdivisions			9,306				151				82,764				12,774				92,070				12,925
		$	69,763			$	725			$	321,809			$	47,246			$	391,572			$	47,971

At September 30, 2024, the Company held 309 securities of which sixwere in a loss position for less than twelve months and 180 were in a loss position for twelve months or more. Of the 309 securities oneis a U.S. Treasury security, 92 are U.S. Government-sponsored agencies collateralized by residential mortgage obligations, 46 were U.S. Government agencies collateralized by commercial mortgage obligations and 170 were obligations of states and political subdivisions. The unrealized losses relate principally to market rate conditions. All of the securities continue to pay as scheduled. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized costs basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. At September 30, 2024, neither of the criteria regarding intent or requirement to sell was met for any of the securities in an unrealized loss position.

Unrealized losses on investments in obligations of U.S. government agencies and U.S. government sponsored agencies are caused by interest rate increases. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no allowance for credit losses recorded.

Obligations of states and political subdivisions: The unrealized losses on investments in obligations of states and political subdivisions were caused by increases in required yields by investors in these types of securities. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no allowance for credit losses recorded.

		Amortized Cost			Estimated Fair Value
Within one year		$	4,818			$	4,809
After one year through five years			5,793				5,824
After five years through ten years			17,544				17,765
After ten years			71,173				65,252
Investment securities not due at a single maturity date:
Government- agencies commercial mortgage-backed securities			134,642				127,384
Government-sponsored agencies residential mortgage-backed securities			243,643				235,686
		$	477,613			$	456,720

Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

Investment securities with amortized costs totaling $327,379,000 and $316,733,000 and estimated fair values totaling $314,662,000 and $285,534,000 at September 30, 2024 and December 31, 2023, respectively, were pledged to secure deposits, repurchase agreements and Federal Reserve Bank borrowings.

4. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

Outstanding loans are summarized below, in thousands:

		September 30,			December 31,
		2024			2023
Commercial		$	82,192			$	74,271
Agricultural			121,709				129,389
Real estate - residential			11,672				11,914
Real estate - commercial			618,236				544,339
Real estate - construction and land development			54,287				57,717
Equity lines of credit (Equity LOC)			37,652				37,871
Auto			72,388				98,132
Other			5,352				4,931
Total loans			1,003,488				958,564
Deferred loan costs, net			3,188				2,907
Loans, amortized cost basis			1,006,676				961,471
Allowance for credit losses			(13,606	)			(12,867	)
Total net loans		$	993,070			$	948,604

Salaries and employee benefits totaling $2,062,000 and $1,765,000 have been deferred as loan origination costs during the nine months ended September 30, 2024 and 2023, respectively. Salaries and employee benefits totaling $599,000 and $694,000 have been deferred as loan origination costs during the three months ended September 30, 2024 and 2023, respectively.

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

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

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

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

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

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

For other loans, which are primarily consumer loans and automobile loans the Company evaluates credit quality based on the aging status of the loan and by payment activity. Non-performing loans consist of nonaccrual loans and loans past due 90 days or more and still accruing.

Other Real Estate Owned

Other real estate owned relates to real estate acquired in full or partial settlement of loan obligations. At September 30, 2024 other real estate owned totaled $141,000, consisting of onesingle family residential real estate (SFR) property. At December 31, 2023 other real estate owned totaled $357,000 also consisting of oneSFR property. There was one commercial real estate loan with a balance of $53,000 secured by a SFR property for which formal foreclosure proceedings were in process at September 30, 2024 and one consumer mortgage loan with a balance of $122,000 secured by a SFR property for which formal foreclosure proceedings were in process at December 31, 2023.

The following table presents the amortized cost basis of the loan portfolio allocated by management's internal risk ratings or payment activity at the dates indicated, in thousands:

		Amortized Cost Basis by Origination Year and Risk Grades - As of September 30, 2024
(in thousands)		2024			2023			2022			2021			2020			Prior			Revolving Loans Book Amortized Cost Basis			Revolving Loans Converted to Term Amortized Cost Basis			Total - Amortized Cost Basis
Commercial
Pass		$	14,545			$	13,303			$	17,492			$	9,541			$	2,107			$	7,839				15,065			$	-			$	79,892
Special Mention			83				16				177				464				-				39				48				-				827
Substandard			-				293				995				263				485				33				165				-				2,234
Total Commercial loans		$	14,628			$	13,612			$	18,664			$	10,268			$	2,592			$	7,911			$	15,278			$	-			$	82,953
Current period gross charge-offs		$	-			$	-			$	43			$	-			$	-			$	22			$	-			$	-			$	65
Agricultural
Pass		$	5,465			$	8,398			$	15,322			$	11,482			$	14,351			$	28,761			$	14,067			$	-			$	97,846
Special Mention			2,159				56				1,237				358				1,400				1,476				2,097				-				8,783
Substandard			-				2,710				5,225				3,772				-				1,281				2,358				-				15,346
Total Agricultural		$	7,624			$	11,164			$	21,784			$	15,612			$	15,751			$	31,518			$	18,522			$	-			$	121,975
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Real Estate - Residential
Pass		$	384			$	1,111			$	-			$	2,087			$	2,380			$	4,954			$	521			$	-			$	11,437
Substandard			-				-				-				-				-				262				-				-				262
Total Real Estate - Residential		$	384			$	1,111			$	-			$	2,087			$	2,380			$	5,216			$	521			$	-			$	11,699
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Real Estate -Commercial
Pass		$	64,859			$	83,296			$	137,108			$	83,211			$	74,350			$	161,143			$	6,724			$	-			$	610,691
Special Mention			255				-				173				-				-				3,356				452				-				4,236
Substandard			-				-				620				-				742				2,511				-				-				3,873
Total Real Estate -Commercial		$	65,114			$	83,296			$	137,901			$	83,211			$	75,092			$	167,010			$	7,176			$	-			$	618,800
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Real Estate -Construction
Pass		$	12,858			$	26,111			$	9,181			$	3,679			$	959			$	854			$	-			$	-			$	53,642
Special Mention			-				-				210				-				-				-				-				-				210
Substandard			112				-				-				-				-				-				-				-				112
Total Real Estate -Construction		$	12,970			$	26,111			$	9,391			$	3,679			$	959			$	854			$	-			$	-			$	53,964
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Equity LOC
Pass		$	-			$	-			$	-			$	-			$	-			$	-			$	34,479			$	3,483			$	37,962
Substandard			-				-				-				-				-				-				259				287				546
Total Equity LOC		$	-			$	-			$	-			$	-			$	-			$	-			$	34,738			$	3,770			$	38,508
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Total
Pass		$	98,111			$	132,219			$	179,103			$	110,000			$	94,147			$	203,551			$	70,856			$	3,483			$	891,470
Special Mention			2,497				72				1,797				822				1,400				4,871				2,597				-				14,056
Substandard			112				3,003				6,840				4,035				1,227				4,087				2,782				287				22,373
Total		$	100,720			$	135,294			$	187,740			$	114,857			$	96,774			$	212,509			$	76,235			$	3,770			$	927,899
Current period gross charge-offs		$	-			$	-			$	43			$	-			$	-			$	22			$	-			$	-			$	65
Auto
Performing		$	-			$	25,247			$	24,649			$	11,642			$	5,548			$	5,175			$	-			$	-			$	72,261
Non-performing			-				242				247				255				225				154				-				-				1,123
Total Auto		$	-			$	25,489			$	24,896			$	11,897			$	5,773			$	5,329			$	-			$	-			$	73,384
Current period gross charge-offs		$	-			$	296			$	519			$	154			$	104			$	219			$	-			$	-			$	1,292
Other
Performing		$	2,248			$	1,481			$	936			$	436			$	112			$	11			$	155			$	-			$	5,379
Non-performing			-				-				14								-				-				-				-				14
Total Other		$	2,248			$	1,481			$	950			$	436			$	112			$	11			$	155			$	-			$	5,393
Current period gross charge-offs		$	-			$	4			$	11			$	31			$	6			$	12			$	1			$	-			$	65
Total
Performing		$	2,248			$	26,728			$	25,585			$	12,078			$	5,660			$	5,186			$	155			$	-			$	77,640
Non-performing			-				242				261				255				225				154				-				-				1,137
Total		$	2,248			$	26,970			$	25,846			$	12,333			$	5,885			$	5,340			$	155			$	-			$	78,777
Total Loans		$	102,968			$	162,264			$	213,586			$	127,190			$	102,659			$	217,849			$	76,390			$	3,770			$	1,006,676
Total gross charge-offs		$	-			$	300			$	573			$	185			$	110			$	253			$	1			$	-			$	1,422

		Term Loans
		Amortized Cost Basis by Origination Year and Risk Grades - As of December 31, 2023
(in thousands)		2023			2022			2021			2020			2019			Prior			Revolving Loans Book Balance Basis			Revolving loans converted to term Book Balance Basis			Total
Commercial
Pass		$	15,549			$	18,995			$	11,603			$	3,472			$	4,291			$	5,165			$	13,079			$	-			$	72,154
Special Mention			-				-				302				-				31				68				170				-				571
Substandard			-				1,532				289				340				-				24				23				-				2,208
Total Commercial loans		$	15,549			$	20,527			$	12,194			$	3,812			$	4,322			$	5,257			$	13,272			$	-			$	74,933
Current period gross charge-offs		$	-			$	34			$	40			$	14			$	-			$	10			$	25			$	-			$	123
Agricultural
Pass		$	12,028			$	17,382			$	13,182			$	15,550			$	11,495			$	20,704			$	18,925			$	-			$	109,266
Special Mention			1,852				813				97				1,017				16				817				621				-				5,233
Substandard			6,226				6,878				1,075				-				752				248				-				-				15,179
Total Agricultural		$	20,106			$	25,073			$	14,354			$	16,567			$	12,263			$	21,769			$	19,546			$	-			$	129,678
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Real Estate - Residential
Pass		$	1,127			$	-			$	2,143			$	2,447			$	524			$	4,676			$	201				-			$	11,118
Substandard			-				-				-				-				59				765				-				-				824
Total Real Estate - Residential		$	1,127			$	-			$	2,143			$	2,447			$	583			$	5,441			$	201				-			$	11,942
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Real Estate -Commercial
Pass		$	74,595			$	115,890			$	90,436			$	76,401			$	40,256			$	133,958			$	6,246				-			$	537,782
Special Mention			-				-				-				199				-				3,316				-				-				3,515
Substandard			-				12				-				281				353				2,271				-				-				2,917
Total Real Estate -Commercial		$	74,595			$	115,902			$	90,436			$	76,881			$	40,609			$	139,545			$	6,246				-			$	544,214
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Real Estate -Construction
Pass		$	18,878			$	30,825			$	3,717			$	1,672			$	619			$	281			$	1,368			$	-			$	57,360
Total Real Estate -Construction		$	18,878			$	30,825			$	3,717			$	1,672			$	619			$	281			$	1,368			$	-			$	57,360
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Equity LOC
Pass		$	-			$	-			$	-			$	-			$	-			$	-			$	35,122			$	3,018			$	38,140
Substandard			-				-				-				-				-				-				319				254				573
Total Equity LOC		$	-			$	-			$	-			$	-			$	-			$	-			$	35,441			$	3,272			$	38,713
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Total
Pass		$	122,177			$	183,092			$	121,081			$	99,542			$	57,185			$	164,784			$	74,941			$	3,018			$	825,820
Special Mention			1,852				813				399				1,216				47				4,201				791				-				9,319
Substandard			6,226				8,422				1,364				621				1,164				3,308				342				254				21,701
Total		$	130,255			$	192,327			$	122,844			$	101,379			$	58,396			$	172,293			$	76,074			$	3,272			$	856,840
Current period gross charge-offs		$	-			$	34			$	40			$	14			$	-			$	10			$	25			$	-			$	123
Auto
Performing		$	31,880			$	31,913			$	16,246			$	8,554			$	6,329			$	3,689			$	-			$	-			$	98,611
Non-performing			167				228				179				210				228				37				-				-				1,049
Total Auto		$	32,047			$	32,141			$	16,425			$	8,764			$	6,557			$	3,726			$	-			$	-			$	99,660
Current period gross charge-offs		$	-			$	367			$	569			$	237			$	255			$	122			$	-			$	-			$	1,550
Other
Performing		$	2,411			$	1,354			$	719			$	252			$	57			$	15			$	159			$	-			$	4,967
Non-performing			-				4				-				-				-				-				-				-				4
Total Other		$	2,411			$	1,358			$	719			$	252			$	57			$	15			$	159			$	-			$	4,971
Current period gross charge-offs		$	-			$	70			$	33			$	9			$	12			$	3			$	2			$	-			$	129
Total
Performing		$	34,291			$	33,267			$	16,965			$	8,806			$	6,386			$	3,704			$	159			$	-			$	103,578
Non-performing			167				232				179				210				228				37				-				-				1,053
Total		$	34,458			$	33,499			$	17,144			$	9,016			$	6,614			$	3,741			$	159			$	-			$	104,631
Total Loans		$	164,713			$	225,826			$	139,988			$	110,395			$	65,010			$	176,034			$	76,233			$	3,272			$	961,471
Total gross charge-offs		$	-			$	471			$	642			$	260			$	267			$	135			$	27			$	-			$	1,802

The following table shows the ending balance of nonaccrual loans by loan category as of the date indicated:

		Non Performing Loans
		September 30, 2024			December 31, 2023
(in thousands)		Nonaccrual with no allowance for credit losses			Total nonaccrual			Past due 90 days or more and still accruing			Nonaccrual with no allowance for credit losses			Total nonaccrual			Past due 90 days or more and still accruing
Commercial		$	333			$	387			$	-			$	75			$	132			$	-
Agricultural			567				567				-				2,066				2,066				-
Real estate - residential			89				89				-				223				223				-
Real estate - commercial			1,729				1,729				-				774				774				-
Real estate - construction & land development			-				-				-				-				-				-
Equity lines of credit			546				546				-				572				572				-
Auto			1,123				1,123				-				1,049				1,049				-
Other			14				14				-				4				4				-
Total Gross Loans		$	4,401			$	4,455			$	-			$	4,763			$	4,820			$	-

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

The following tables show interest reversed against interest income for loans placed on nonaccrual status during the three and nine months ended September 30, 2024 and 2023.

Three months ended:
(in thousands)		September 30, 2024			September 30, 2023
Commercial		$	6			$	4
Agricultural			29				-
Real estate - commercial			26				4
Auto			12				8
Other			-				1
Total		$	73			$	17

Nine months ended:
(in thousands)		September 30, 2024			September 30, 2023
Commercial		$	10			$	6
Agricultural			29				41
Real estate - residential			9				-
Real estate - commercial			40				23
Equity Lines of Credit			10				5
Auto			21				28
Other			-				1
Total		$	119			$	104

On September 30, 2024, there was one commercial nonaccrual loan with an amortized cost of $54,000 that had an allowance for credit losses totaling $26,000. On December 31, 2023, there was one commercial nonaccrual loan with an amortized cost of $57,000 that had an allowance for credit losses totaling $28,000. No income was recognized on nonaccrual loans accounted on a cash basis during the nine months ended September 30, 2024 and 2023.

The following table presents the amortized cost basis of loans at September 30, 2024, that were both experiencing financial difficulty and modified during the three months ended September 30, 2024, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financial receivable is also presented below.

		Term Extension
(in thousands)		Amortized Cost Basis			Total Class of Financing Receivable
Agricultural			2,357				1.93	%

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty as of September 30, 2024:

		Weighted-Average Term Extension (in months)
Agricultural			6.0

The following table presents the amortized cost basis of loans at September 30, 2024, that were both experiencing financial difficulty and modified during then nine months ended September 30, 2024, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financial receivable is also presented below.

		Term Extension
(in thousands)		Amortized Cost Basis			Total Class of Financing Receivable
Commercial			32				0.04	%
Agricultural			2,413				1.98	%
Total		$	2,445				0.24	%

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty as of September 30, 2024:

		Weighted-Average Term Extension (in months)
Commercial			6.0
Agricultural			7.3
Total			7.2

The following table presents the amortized cost basis of loans at September 30, 2023, that were both experiencing financial difficulty and modified during then three months ended September 30, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financial receivable is also presented below.

		Term Extension
(in thousands)		Amortized Cost Basis			Total Class of Financing Receivable
Agricultural			837				0.64%

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty as of September 30, 2023:

		Weighted-Average Term Extension (in months)
Agricultural			7.0

The following table presents the amortized cost basis of loans at September 30, 2023, that were both experiencing financial difficulty and modified during then nine months ended September 30, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financial receivable is also presented below.

		Term Extension
(in thousands)		Amortized Cost Basis			Total Class of Financing Receivable
Commercial			1,489				1.92	%
Agricultural			4,367				3.32	%
Total		$	5,856				0.62	%

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty as of September 30, 2023:

		Weighted-Average Term Extension (in months)
Commercial			6.0
Agricultural			10.0
Total			9.1

Loans with payment defaults by borrowers experiencing financial difficulty during the nine months ended September 30, 2024, which had material modifications in rate, term or principal forgiveness during the twelve months prior to default totaled $4.8 million in agricultural loans which were 46 days past due at September 30, 2024, and one commercial loan totaling $32,000 which was 70 days past due at September 30, 2024. The commercial loan experienced a payment default in the current three-month period while the agricultural loans experienced payment defaults during the six months ended June 30, 2024, as well as in the current three-month period. Additionally, $1.3 million in agricultural loans that were in payment default earlier in the year, paid off in the current quarter. There were no loans payment defaults by borrowers experiencing financial difficulty during the nine months ended September 30, 2023, which had material modifications in rate, term or principal forgiveness during the twelve months prior to default.

The following tables show the allocation of the allowance for credit losses at the dates indicated, in thousands:

Nine Months Ended September 30, 2024:		Commercial			Agricultural			Real Estate-Residential			Real Estate-Commercial			Real Estate-Construction			Equity LOC			Auto			Other			Total
Allowance for credit losses
Beginning balance		$	1,134			$	1,738			$	137			$	6,678			$	797			$	439			$	1,865			$	79			$	12,867
Charge-offs			(65	)			-				-				-				-				-				(1,292	)			(65	)			(1,422	)
Recoveries			21				-				3				-				-				-				642				20				686
(Recovery of) provision for credit losses			269				32				(30	)			830				51				17				253				53				1,475
Ending balance		$	1,359			$	1,770			$	110			$	7,508			$	848			$	456			$	1,468			$	87			$	13,606
Three Months Ended September 30, 2024:
Allowance for credit losses
Beginning balance		$	1,426			$	1,780			$	121			$	7,581			$	973			$	458			$	1,654			$	89			$	14,082
Charge-offs			-				-				-				-				-				-				(396	)			(16	)			(412	)
Recoveries			6				-				1				-				-				-				266				13				286
(Recovery of) provision for credit losses			(73	)			(10	)			(12	)			(73	)			(125	)			(2	)			(56	)			1				(350	)
Ending balance		$	1,359			$	1,770			$	110			$	7,508			$	848			$	456			$	1,468			$	87			$	13,606
Nine Months Ended September 30, 2023:
Allowance for credit losses
Beginning balance		$	892			$	1,086			$	138			$	4,980			$	1,500			$	687			$	1,289			$	145			$	10,717
Impact of CECL Adoption			354				148				2				1,488				(951	)			(421	)			9				(100	)			529
Charge-offs			(108	)			-				-				-				-				-				(1,042	)			(102	)			(1,252	)
Recoveries			17				-				2				2				-				-				458				49				528
(Recovery of) provision for credit losses			461				(73	)			29				597				311				143				900				57				2,425
Ending balance		$	1,616			$	1,161			$	171			$	7,067			$	860			$	409			$	1,614			$	49			$	12,947
Three Months Ended September 30, 2023:
Allowance for credit losses
Beginning balance		$	1,547			$	1,478			$	169			$	6,862			$	866			$	401			$	1,566			$	496			$	13,385
Charge-offs			(59	)			-				-				-				-				-				(438	)			(17	)			(514	)
Recoveries			5				-				-				1				-				-				153				42				201
(Recovery of) provision for credit losses			123				(317	)			2				204				(6	)			8				333				(472	)			(125	)
Ending balance		$	1,616			$	1,161			$	171			$	7,067			$	860			$	409			$	1,614			$	49			$	12,947

The following tables summarize the activity in the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities for the three and nine months ended September 30, 2024, and 2023.

Three months ended:
(in thousands)		September 30, 2024			September 30, 2023
Beginning balance		$	720			$	924
Recovery of provision for credit losses			(50	)			(75	)
Ending balance		$	670			$	849

Nine months ended:
(in thousands)		September 30, 2024			September 30, 2023
Beginning balance		$	799			$	341
Impact of CECL Adoption			-				258
(Recovery of) provision for credit losses			(129	)			250
Ending balance		$	670			$	849

The following tables show an aging analysis of the loan portfolio by the time past due, in thousands:

																		Total
September 30, 2024										90 Days							Past Due
		30-59 Days			60-89 Days			and Still							and
		Past Due			Past Due			Accruing			Nonaccrual			Nonaccrual			Current			Total
Commercial		$	491			$	118			$	-			$	387			$	996			$	81,957			$	82,953
Agricultural			4,833				2,966				-				567				8,366				113,609				121,975
Real estate - residential			174				-				-				89				263				11,436				11,699
Real estate - commercial			923				709				-				1,729				3,361				615,439				618,800
Real estate - construction & land			857				110				-				-				967				52,997				53,964
Equity Lines of Credit			274				150				-				546				970				37,538				38,508
Auto			1,147				434				-				1,123				2,704				70,680				73,384
Other			59				7				-				14				80				5,313				5,393
Total		$	8,758			$	4,494			$	-			$	4,455			$	17,707			$	988,969			$	1,006,676

																		Total
December 31, 2023										90 Days							Past Due
		30-89 Days			60-89 Days			and Still							and
		Past Due			Past Due			Accruing			Nonaccrual			Nonaccrual			Current			Total
Commercial		$	21			$	254			$	-			$	132			$	407			$	74,526			$	74,933
Agricultural			82				-				-				2,066				2,148				127,530				129,678
Real estate - residential			348				423				-				223				994				10,948				11,942
Real estate - commercial			587				-				-				774				1,361				542,853				544,214
Real estate - construction & land			-				-				-				-				-				57,360				57,360
Equity Lines of Credit			473				53				-				572				1,098				37,615				38,713
Auto			1,729				405				-				1,049				3,183				96,477				99,660
Other			19				3				-				4				26				4,945				4,971
Total		$	3,259			$	1,138			$	-			$	4,820			$	9,217			$	952,254			$	961,471

The following tables present the amortized cost basis of collateral dependent loans by class of loans at September 30, 2024 in thousands:

										Commercial -1st			SFR-1st			SFR-2nd			SFR-3rd
		Equipment			Crops			Deed			Deed			Deed			Deed			Total
Commercial		$	257			$	-			$	-			$	-			$	-			$	-			$	257
Agricultural			-				535				-				-				-				-				535
Real estate - residential			-				-				-				-				-				-				-
Real estate - commercial			-				-				1,500				53				27				50				1,630
Real estate - construction & land			-				-				-				-				-				-				-
Equity Lines of Credit			-				-				-				-				178				-				178
Auto			-				-				-				-				-				-				-
Other			-				-				-				-				-				-				-
Total		$	257			$	535			$	1,500			$	53			$	205			$	50			$	2,600

The following tables present the amortized cost basis of collateral dependent loans by class of loans at December 31, 2023 in thousands:

										Commercial -1st			SFR-1st			SFR-2nd			SFR-3rd
		Equipment			Crops			Deed			Deed			Deed			Deed			Total
Commercial		$	55			$	-			$	-			$	-			$	-			$	-			$	55
Agricultural			-				2,066								-				-				-				2,066
Real estate - residential			-				-								122				-				-				122
Real estate - commercial			-				-				634				-				28				-				662
Real estate - construction & land			-				-								-				-				-				-
Equity Lines of Credit			-				-								105				190				-				295
Auto			-				-								-				-				-				-
Other			-				-								-				-				-				-
Total		$	55			$	2,066			$	634			$	227			$	218			$	-			$	3,200

5. COMMITMENTS AND CONTINGENCIES

The Company is party to claims and legal proceedings arising in the ordinary course of business. In the opinion of the Company's management, the amount of ultimate liability with respect to such proceedings will not have a material adverse effect on the financial condition or result of operations of the Company taken as a whole. In the normal course of business, there are various outstanding commitments to extend credit, which are not reflected in the financial statements, including loan commitments of $158.7 million and $174.6 million and stand-by letters of credit of $0 and $108,000 at September 30, 2024 and December 31, 2023, respectively.

Of the loan commitments outstanding at September 30, 2024, $23.9 million are real estate construction loan commitments that are expected to fund within the next twelve months. The remaining commitments primarily relate to revolving lines of credit or other commercial loans, and many of these are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. Each loan commitment and the amount and type of collateral obtained, if any, are evaluated on an individual basis. Collateral held varies, but may include real property, bank deposits, debt or equity securities or business assets. The reserve for unfunded commitments at September 30, 2024 and December 31, 2023 totaled $670,000 and $799,000, respectively.

Stand-by letters of credit are conditional commitments written to guarantee the performance of a customer to a third party. These guarantees are primarily related to the purchases of inventory by commercial customers and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to customers and accordingly, evaluation and collateral requirements similar to those for loan commitments are used.

6. EARNINGS PER SHARE

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted earnings per share.

		For the Three Months Ended			For the Nine Months Ended
		September 30,			September 30,
(In thousands, except per share data)		2024			2023			2024			2023
Net Income:
Net income		$	7,830			$	7,970			$	20,870			$	22,255
Earnings Per Share:
Basic earnings per share		$	1.33			$	1.36			$	3.54			$	3.80
Diluted earnings per share		$	1.31			$	1.34			$	3.50			$	3.75
Weighted Average Number of Shares Outstanding:
Basic shares			5,896				5,866				5,893				5,861
Effect of dilutive of stock options and restricted stock			72				66				63				71
Diluted shares			5,968				5,932				5,956				5,932

There were no stock options having an antidilutive effect during the three-month and nine-month periods ended September 30, 2024, and 2023.

7. STOCK-BASED COMPENSATION

In May 2022, the Company's shareholders approved the 2022 Equity Incentive Plan (the "2022 Plan"), which provides for the grant of up to 576,550 shares of common stock, including 126,550 shares that remained available for grant under the 2013 Stock Option Plan when the 2022 Plan was adopted. The 2022 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. The frequency, amount and terms of stock-based awards may be determined by the Board of Directors or its compensation committee, consistent with the terms and purposes of the 2022 plan.

In May 2013, the Company established the 2013 Stock Option Plan for which 139,847 shares of common stock are reserved. With the establishment of the Company's 2022 Equity Incentive Plan, no further options may be issued under the 2013 Stock Option Plan, though options previously granted continue to be outstanding and governed by the 2013 Stock Option Plan.

107,200 options were granted under the 2022 Plan during the nine months ended September 30, 2024. The fair value of each option was estimated on the date of grant using the following assumptions.

		2024
Expected life of stock options (in years)			6.2
Risk free interest rate			3.98	%
Annualized Volatility			32.3	%
Dividend yields			3.17	%
Weighted-average fair value of options granted during the nine months ended September 30, 2024		$	9.25

No options were granted during 2023.

A summary of the activity within the 2013 Plan follows:

		Shares			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term in Years			Intrinsic Value
Options outstanding at January 1, 2023			189,917			$	21.14
Options exercised			(24,400	)			18.59
Options outstanding at December 31, 2023			165,517			$	21.52
Options exercised			(25,670	)			15.75
Options outstanding at September 30, 2024			139,847			$	22.58				2.5			$	2,545,215
Options exercisable at September 30, 2024			139,847			$	22.58				2.5			$	2,545,215

A summary of the activity within the 2022 Plan follows:

		Shares			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term in Years			Intrinsic Value
Options outstanding at January 1, 2023			117,200			$	31.00
Options cancelled			(10,400	)			31.00
Options exercised			(1,300	)			31.00
Options outstanding at December 31, 2023			105,500			$	31.00
Options granted			107,200				34.07
Options cancelled			(1,200	)			34.07
Options exercised			(1,300	)			31.00
Options outstanding at September 30, 2024			210,200			$	32.55				8.5			$	1,729,946
Options exercisable at September 30, 2024			43,600			$	31.00				7.4			$	426,408
Expected to vest after September 30, 2024			143,576			$	32.95				8.7			$	1,124,200

As of September 30, 2024, there was $1.4 million in total unrecognized compensation cost related to non-vested stock options under the 2022 plan. That cost is expected to be recognized over a weighted average period of 3.7 years. There were no unrecognized costs remaining under the 2013 plan as of September 30, 2024.

Information related to the stock options plans during the three months ended September 30, 2024, and 2023.

		2024			2023
Fair value of options vested		$	192,000			$	215,000
Intrinsic value of options exercised		$	25,000			$	72,000
Cash received from option exercises		$	-			$	93,000
Tax benefit from option exercises		$	5,000			$	12,000
Compensation cost		$	131,000			$	87,000
Tax benefit associated with compensation cost		$	13,000			$	7,000

Information related to the stock options plans during the nine months ended September 30, 2024, and 2023.

		2024			2023
Fair value of options vested		$	199,000			$	222,000
Intrinsic value of options exercised		$	561,000			$	457,000
Cash received from option exercises		$	367,000			$	261,000
Tax benefit from option exercises		$	74,000			$	75,000
Compensation cost		$	350,000			$	260,000
Tax benefit associated with compensation cost		$	33,000			$	19,000

During the nine months ended September 30, 2024, the Company granted 3,033 restricted stock units with a fair value of $34.07 per share and a one-year vesting period. Compensation costs related to these units during the three and nine months ended September 30, 2024 were $26,000 and $63,000, respectively. As of September 30, 2024, there was $40,000 of total unrecognized compensation cost related to restricted stock units. That cost is expected to be recognized over a weighted average period of 0.4 years.

During 2022, the Company granted 1,650 shares of restricted stock with a fair value of $31 per share and a one-year vesting period. Compensation costs related to these shares during the three and nine-months ended September 30, 2023 totaled $(21,000) and $4,000,respectively. There were no compensation costs related to these shares in 2024.

8. INCOME TAXES

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

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

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

Interest expense and penalties associated with unrecognized tax benefits, if any, are classified as income tax expense in the consolidated statements of income. There have been no significant changes to unrecognized tax benefits or accrued interest and penalties for the nine months ended September 30, 2024, and 2023.

9. FAIR VALUE MEASUREMENT

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

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

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

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

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

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

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

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments, at September 30, 2024 follows, in thousands:

						Fair Value Measurements at September 30, 2024, Using:
		Carrying Value			Level 1			Level 2			Level 3			Total Fair Value
Financial assets:
Cash and cash equivalents		$	117,959			$	117,959			$	-			$	-			$	117,959
Investment securities			456,720				-				456,720				-				456,720
Loans, net			993,070				-				-				973,768				973,768
FHLB stock			6,234				-				-				-				N/A
FRB Stock			1,377				-				-				-				N/A
Financial liabilities:
Deposits			1,350,996				1,248,755				102,354				-				1,351,109
Repurchase agreements			16,992				-				16,992				-				16,992
Borrowings			75,000				-				-				72,734				72,734

The carrying amounts and estimated fair values of financial instruments, at December 31, 2023 follows, in thousands:

						Fair Value Measurements at December 31, 2023 Using:
Financial assets:			Carrying Value				Level 1				Level 2				Level 3				Total Fair Value
Cash and cash equivalents		$	85,655			$	85,655											$	85,655
Investment securities			489,181								489,181								489,181
Loans, net			948,604											$	923,500			$	923,500
FHLB stock			6,234																N/A
FRB Stock			1,371																N/A
Financial liabilities:
Deposits			1,333,655				1,242,003				92,311								1,334,314
Repurchase agreements			23,054								23,054								23,054
Borrowings			90,000												86,100				86,100

Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. Those estimates that are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision are included in Level 3. Changes in assumptions could significantly affect the fair values presented.

These estimates do not reflect any premium or discount that could result from offering the Company's entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of September 30, 2024 and December 31, 2023, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

Assets and liabilities measured at fair value on a recurring basis at September 30, 2024 are summarized below, in thousands:

						Fair Value Measurements at
						September 30, 2024 Using
						Quoted
						Prices in
						Active			Significant
						Markets for			Other			Significant
						Identical			Observable			Unobservable
						Assets			Inputs			Inputs
		Total Fair Value			(Level 1)			(Level 2)			(Level 3)
Assets:
U.S. Treasury securities		$	3,991			$	-			$	3,991			$	-
U.S. Government-sponsored agencies collateralized by mortgage obligations- residential			235,686				-				235,686				-
U.S. Government agencies collateralized by mortgage obligations-commercial			127,384				-				127,384				-
Obligations of states and political subdivisions			89,659				-				89,659				-
		$	456,720			$	-			$	456,720			$	-

Assets and liabilities measured at fair value on a recurring basis at December 31, 2023 are summarized below, in thousands:

						Fair Value Measurements at
						December 31, 2023 Using
						Quoted
						Prices in
						Active			Significant
						Markets for			Other			Significant
						Identical			Observable			Unobservable
						Assets			Inputs			Inputs
		Total Fair Value			(Level 1)			(Level 2)			(Level 3)
Assets:
U.S. Treasury securities		$	6,880			$	-			$	6,880			$	-
U.S. Government-sponsored agencies collateralized by mortgage obligations - residential			235,931				-				235,931				-
U.S. Government-agencies collateralized by mortgage obligations - commercial			115,952				-				115,952				-
Obligations of states and political subdivisions			130,418				-				130,418				-
		$	489,181			$	-			$	489,181			$	-

The fair value of securities available-for-sale equals quoted market price, if available. If quoted market prices are not available, fair value is determined using quoted market prices for similar securities or matrix pricing. There were no changes in the valuation techniques used during 2024 or 2023. Transfers between hierarchy measurement levels are recognized by the Company as of the beginning of the reporting period. Changes in fair market value are recorded in other comprehensive income.

Assets and liabilities measured at fair value on a non-recurring basis at September 30, 2024 are summarized below, in thousands:

						Fair Value Measurements at
						September 30, 2024 Using
						Quoted
						Prices in
						Active			Significant
						Markets for			Other			Significant
						Identical			Observable			Unobservable
						Assets			Inputs			Inputs
		Total Fair Value			(Level 1)			(Level 2)			(Level 3)
Assets:
Collateral-dependent loans
Commercial		$	28			$	-			$	-			$	28
Other Real Estate Owned:
RE - Residential		$	141			$	-			$	-			$	141

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2023 are summarized below, in thousands:

Fair Value Measurements at

December 31, 2023 Using

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Total

Assets

Inputs

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

Assets:

Collateral-dependent loans

Commercial

$

27

$

-

$

-

$

27

Other Real Estate Owned:

RE - Residential

$

357

$

-

$

-

$

357

The following methods were used to estimate fair value.

Collateral-Dependent Loans: The Bank does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect partial write-downs, through charge-offs or specific reserve allowances, that are based on fair value estimates of the underlying collateral. The fair value estimates for collateral-dependent loans are generally based on recent real estate appraisals or broker opinions, obtained from independent third parties, which are frequently adjusted by management to reflect current conditions and estimated selling costs (Level 3). No impairment charges were recognized during the nine months ended September 30, 2024, related to the above collateral-dependent loan. Impairment charges of $28,000 were recognized during the nine months ended September 30, 2023, related to the above collateral dependent loans. The collateral-dependent loans at September 30, 2024 and December 31, 2023 consist solely of loans which have been allocated a specific credit reserve. Collateral-dependent loans consisted of one loan on September 30, 2024, and December 31, 2023.

Other Real Estate:Nonrecurring adjustments to certain real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. Fair values are generally based on third party appraisals of the property which are commonly adjusted by management to reflect current conditions and selling costs (Level 3).

Appraisals for both collateral-dependent loans and other real estate are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Loan Administration Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On a quarterly basis, the Company compares the actual selling price of similar collateral that has been liquidated to the most recent appraised value for unsold properties to determine what additional adjustment, if any, should be made to the appraisal value to arrive at fair value. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2024 and December 31, 2023 (dollars in thousands):

												Range			Range
		Fair Value			Fair Value		Valuation			(Weighted Average)			(Weighted Average)
Description		9/30/2024			12/31/2023		Technique	Significant Unobservable Input		9/30/2024			12/31/2023
Collateral-dependent loans
Commercial		$	28			$	27		Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs			48	%			48	%
Other Real Estate:
RE - Residential		$	141			$	357		Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs			39	%			11	%

10. OTHER COMPREHENSIVE LOSS

The changes in the accumulated balances for each component of other comprehensive loss, net of tax for the nine months ended September 30, 2023 and September 30, 2024 were as follows:

		Unrealized			Unrealized			Accumulated
		Gains (Losses)			Gain (loss)			Comprehensive
		on AFS Securities			Cash Flow Hedge			Loss, net of tax
Beginning Balance, January 1, 2023		$	(54,183	)		$	2,002			$	(36,756	)
Current year-to-date other comprehensive loss			(22,003	)			(2,002	)			(16,909	)
Ending balance, September 30, 2023		$	(76,186	)		$	-			$	(53,665	)
Beginning Balance, January 1, 2024		$	(46,088	)		$	-			$	(32,464	)
Current year-to-date other comprehensive income			25,195				-				17,747
Ending balance, September 30, 2024		$	(20,893	)		$	-			$	(14,717	)

Reclassifications out of accumulated other comprehensive loss for the nine months ended September 30, 2024 and September 30, 2023, were as follows:

Amounts Reclassified from Accumulated Other Comprehensive Loss
Details about Accumulated Other Comprehensive (Loss) Components		Nine Months Ended September 30, 2024			Nine Months Ended September 30, 2023		Affected Line Item on the Statement of Income
Cash flow hedge:
Termination of cash flow hedge		$	-			$	1,707		Non-Interest Income
Tax effect			-				(505	)	Provision for income taxes
Investment securities:
Loss on sale of investment securities			19,817				-		Non-Interest Income
Tax effect			(5,858	)			-		Provision for income taxes
Total reclassifications for the period		$	13,959			$	1,202		Net income

PART I - FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 September 30, 2024 and December 31, 2023 and for the three and nine-month periods ended September 30, 2024 and 2023. 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, 2023.

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 2023 Annual Report to Shareholders on Form 10-K.

SALES/LEASEBACK AND INVESTMENT RESTRUCTURING

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

Concurrently with the closing of the sale of the branch properties, we entered into triple net lease agreements (the "Lease Agreements") pursuant to which Plumas Bank leased back each of the properties sold. Each Lease Agreement has an initial term of fifteen years with one 15-year renewal option. The Lease Agreements provide for an annual rent of approximately $2.4 million in the aggregate for the nine properties increased by two percent (2%) per annum for each year during the initial Term. During the renewal term, the initial rent will be the basic rent during the last year of the initial term, increased by two percent (2%) per annum for each year during the renewal term.

The gain on sales of the branches was offset by losses on the sale of approximately $115 million in investment securities. During the nine months ended September 30, 2024 we sold $115 million in investment securities having a weighted average tax equivalent yield of 2.24% recording a $19.8 million loss on the sales. As part of the restructuring, beginning in December 2023 and ending on March 27, 2024, we purchased $120 million in investment securities having a weighted average tax equivalent yield of 5.25%.

RESULTS OF OPERATIONS FOR THE Nine MONTHS ENDED September 30, 2024

Net Income. The Company recorded net income of $20.9 million for the nine months ended September 30, 2024, down from net income of $22.3 million for the nine months ended September 30, 2023. An increase of $2.6 million in net interest income and declines of $1.3 million in the provision for credit losses and $336,000 in the provision for income taxes were offset by a decline of $1.8 million in non-interest income and an increase of $3.9 million in non-interest expense. The annualized return on average assets was 1.69% for the nine months ended September 30, 2024, down from 1.88% for the nine months ended September 30, 2023. The annualized return on average equity decreased from 23.3% during the first nine months of 2023 to 17.2% during the current 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 by an increase in market rates, growth in the loan portfolio, growth in cash balances and the restructuring of a portion of our investment portfolio partially offset by an increase in interest expense, net interest income increased by $2.6 million from $52.1 million during the nine months ended September 30, 2023, to $54.7 million for the nine months ended September 30, 2024. The increase in net interest income includes an increase of $8.0 million in interest income partially offset by an increase of $5.4 million in interest expense.

Interest and fees on loans increased by $5.3 million related to an increase in average balance and yield. The average balance of loans during the nine months ended September 30, 2024 was $982 million, an increase of $56 million from $926 million during the same period in 2023. The average yield on loans increased by 38 basis points from 5.83% during the first nine months of 2023 to 6.21% during the current period.

Interest on investment securities increased by $2.0 million related to an increase in yield of 67 basis points to 3.92%. The increase in investment yields is consistent with an increase in market rates and the restructuring of the investment portfolio during the first quarter of 2024. Average investment securities declined from $469 million during the nine months ended September 30, 2023 to $457 million during the current period. Interest on cash balances increased by $712 thousand related to an increase in yield of 54 basis points and an increase in average balance of $8.4 million from $88.8 million during the first nine months of 2023 to $97.2 million in the current period. Cash balances primarily relate to cash held at the Federal Reserve Bank of San Francisco (FRB). The average rate earned on FRB balances was 5.38% during the nine months ended September 30, 2024 and 4.99% during the nine months ended September 30, 2023.

Interest expense increased from $2.9 million during the nine months ended September 30, 2023 to $8.3 million during the current period related to an increase in rate paid on interest bearing liabilities and an increase in borrowings. The average rate paid on interest bearing liabilities increased from 0.55% during the 2023 period to 1.43% in 2024 related to an increase in borrowings and an increase in market interest rates. The average balance of borrowings increased by $107 million from $10 million during the nine months ended September 30, 2023 to $117 million during the current period. Interest incurred on borrowings totaled $4.2 million and $396 thousand during the nine months ended September 30, 2024 and 2023, respectively.

Interest paid on deposits increased by $1.6 million and is broken down by product type as follows: money market accounts - $556 thousand, and time deposits - $1.1 million. Related to a decline in average balance of $57 million, interest on savings deposits declined by $75 thousand. The average rate paid on interest-bearing deposits increased from 0.49% during the nine months ended September 30, 2023 to 0.85% during the current period.

Net interest margin for the nine months ended September 30, 2024 increased 6 basis points to 4.76%, up from 4.70% for the same period in 2023.

The following table presents for the nine-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.

		For the Nine Months Ended			For the Nine Months Ended
		September 30, 2024			September 30, 2023
		Average											Average
		Balance			Interest			Yield/			Balance			Interest			Yield/
		(in thousands)			(in thousands)			Rate			(in thousands)			(in thousands)			Rate
Interest-earning assets:
Loans (2) (3)		$	982,191			$	45,639				6.21	%		$	926,148			$	40,363				5.83	%
Taxable investment securities			369,893				11,423				4.13	%			343,868				8,641				3.36	%
Non-taxable investment securities (1)			87,051				1,989				3.05	%			124,879				2,763				2.96	%
Interest-bearing deposits			97,196				3,998				5.49	%			88,819				3,286				4.95	%
Total interest-earning assets			1,536,331				63,049				5.48	%			1,483,714				55,053				4.96	%
Cash and due from banks			26,978												25,943
Other assets			85,536												75,771
Total assets		$	1,648,845											$	1,585,428
Interest-bearing liabilities:
Money market deposits		$	216,699			$	1,501				0.93	%		$	229,914			$	945				0.55	%
Savings deposits			327,263				532				0.22	%			383,790				607				0.21	%
Time deposits			95,350				2,041				2.86	%			69,256				959				1.85	%
Total deposits			639,312				4,074				0.85	%			682,960				2,511				0.49	%
Junior subordinated debentures			-				-				-	%			3,033				141				6.22	%
Other borrowings			117,136				4,210				4.80	%			7,143				255				4.77	%
Repurchase agreements & other			18,820				33				0.23	%			18,230				18				0.13	%
Total interest-bearing liabilities			775,268				8,317				1.43	%			711,366				2,925				0.55	%
Non-interest-bearing deposits			678,057												729,044
Other liabilities			33,845												17,293
Shareholders' equity			161,675												127,725
Total liabilities & equity		$	1,648,845											$	1,585,428
Cost of funding interest-earning assets (4)											0.72	%											0.26	%
Net interest income and margin (5)						$	54,732				4.76	%						$	52,128				4.70	%

(1)	Not computed on a tax-equivalent basis.
(2)	Average nonaccrual loan balances of $4.4 million for 2024 and $3.1 million for 2023 are included in average loan balances for computational purposes.
(3)	Net costs included in loan interest income for the nine-month period ended September 30, 2024 and 2023 were $1,090,000 and $927,000, 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.

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

		2024 over 2023 change in net interest income
		for the nine months ended September 30,
		(in thousands)
		Volume (1)			Rate (2)			Mix (3)			Total
Interest-earning assets:
Loans		$	2,445			$	2,635			$	196			$	5,276
Taxable investment securities			655				1,970				157				2,782
Non-taxable investment securities			(838	)			88				(24	)			(774	)
Interest-bearing deposits			310				364				38				712
Total interest income			2,572				5,057				367				7,996
Interest-bearing liabilities:
Money market deposits			(54	)			646				(36	)			556
Savings deposits			(90	)			16				(1	)			(75	)
Time deposits			362				523				197				1,082
Junior subordinated debentures			(141	)			-				-				(141	)
Other borrowings			3,930				2				23				3,955
Repurchase agreements & other			1				14				-				15
Total interest expense			4,008				1,201				183				5,392
Net interest income		$	(1,436	)		$	3,856			$	184			$	2,604

	(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 nine months of 2024 we recorded a provision for credit losses of $1,346,000 consisting of a provision for credit losses on loans of $1,475,000 and a decrease in the reserve for unfunded commitments of $129,000. This compares to a provision for credit losses of $2,675,000 consisting of a provision for credit losses on loans of $2,425,000 and an increase in the reserve for unfunded commitments of $250,000 during the nine months ended September 30, 2023. As time progresses the results of economic conditions will require CECL model assumption inputs to change and further refinements to the estimation process may also be identified. See "Analysis of Asset Quality and Allowance for Credit Losses" for a discussion of loan quality trends and the provision for credit losses.

The following tables present the activity in the allowance for credit losses and the reserve for unfunded commitments during the nine months ended September 30, 2024 and 2023 (in thousands).

Allowance for Credit Losses		September 30, 2024			September 30, 2023
Balance, beginning of period		$	12,867			$	10,717
Impact of CECL adoption			-				529
Provision charged to operations			1,475				2,425
Losses charged to allowance			(1,422	)			(1,252	)
Recoveries			686				528
Balance, end of period		$	13,606			$	12,947

Reserve for Unfunded Commitments		September 30, 2024			September 30, 2023
Balance, beginning of period		$	799			$	341
Impact of CECL adoption			-				258
Provision charged to operations			(129	)			250
Balance, end of period		$	670			$	849

Non-interest income. During the nine months ended September 30, 2024, non-interest income totaled $6.6 million, a decrease of $1.8 million from the nine months ended September 30, 2023. The largest component of this decrease was a $1.7 million gain on termination of our interest rate swaps during 2023. As discussed earlier, during the first quarter of 2024, a $19.9 million gain on the sale of buildings was offset by a $19.8 million loss on sale of investment securities.

The following table describes the components of non-interest income for the nine-month periods ended September 30, 2024 and 2023, dollars in thousands:

		For the Nine Months Ended
		September 30,
		2024			2023			Dollar Change			Percentage Change
Gain on sale of buildings		$	19,854			$	-			$	19,854				100.0	%
Interchange income			2,340				2,458				(118	)			(4.8	)%
Service charges on deposit accounts			2,224				2,051				173				8.4	%
Loan servicing fees			564				678				(114	)			(16.8	)%
FHLB Dividends			409				289				120				41.5	%
Earnings on life insurance policies			305				313				(8	)			(2.6	)%
Gain on termination of interest rate swaps			-				1,707				(1,707	)			(100.0	)%
Loss on sale of investment securities			(19,817	)			-				(19,817	)			(100.0	)%
Other			700				884				(184	)			(20.8	)%
Total non-interest income		$	6,579			$	8,380			$	(1,801	)			(21.5	)%

Non-interest expense. During the nine months ended September 30, 2024 non-interest expense increased by $3.9 million to $31.6 million. The largest components of this increase were a $1.1 million increase in salary and benefit expenses and a $1.7 million increase in occupancy and equipment expenses. The largest increases in salary and benefit expense were $524 thousand in salary expense and $404 thousand in commission expense. These were partially offset by an increase in the deferral of loan origination costs of $297 thousand related to an increase in SBA production. The increase in occupancy and equipment costs relates to a $1.7 million increase in rent expense associated with the sales/leaseback transaction. The increase in other non-interest expense includes a $300 thousand accrual related to a litigation matter. In addition, professional fees include $265 thousand related to this matter, mostly legal fees. While portions of this matter are still being litigated these amounts represent our best estimate of potential costs to Plumas Bank related to this matter.

The following table describes the components of non-interest expense for the nine-month periods ended September 30, 2024 and 2023, dollars in thousands:

		For the Nine Months Ended
		September 30,
		2024			2023			Dollar Change			Percentage Change
Salaries and employee benefits		$	16,129			$	15,047			$	1,082				7.2	%
Occupancy and equipment			5,627				3,945				1,682				42.6	%
Outside service fees			3,430				3,345				85				2.5	%
Professional fees			1,113				854				259				30.3	%
Advertising and shareholder relations			706				693				13				1.9	%
Armored car and courier			651				558				93				16.7	%
Telephone and data communication			614				606				8				1.3	%
Director compensation and expense			569				603				(34	)			(5.6	)%
Deposit insurance			562				552				10				1.8	%
Business development			506				457				49				10.7	%
Loan collection expenses			323				308				15				4.9	%
Amortization of Core Deposit Intangible			153				180				(27	)			(15.0	)%
Other			1,234				616				618				100.3	%
Total non-interest expense		$	31,617			$	27,764			$	3,853				13.9	%

Provision for income taxes. The Company recorded an income tax provision of $7.5 million, or 26.4% of pre-tax income, for the nine months ended September 30, 2024. This compares to an income tax provision of $7.8 million, or 26.0% of pre-tax income, for the nine months ended September 30, 2023. The percentages for 2024 and 2023 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal securities interest decrease taxable income.

RESULTS OF OPERATIONS FOR THE three MONTHS ENDED September 30, 2024

Net Income. The Company recorded net income of $7.8 million for the three months ended September 30, 2024, down from net income of $8.0 million for the three months ended September 30, 2023. An increase of $1.1 million in net interest income and a decline of $200,000 in the provision for credit losses were offset by increases of $1.4 million in non-interest expense and a decline of $76,000 in non-interest income. Included in non-interest expense were nonrecurring costs related to a litigation matter totaling $376,000. The annualized return on average assets was 1.84% for the three months ended September 30, 2024, down from 2.00% for the three months ended September 30, 2023. The annualized return on average equity decreased from 24.4% during the third quarter of 2023 to 18.1% 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 $18.9 million for the three months ended September 30, 2024, an increase of $1.1 million from the same period in 2023. The increase in net interest income includes an increase of $2.8 million in interest income partially offset by an increase of $1.7 million in interest expense.

Interest and fees on loans increased by $1.4 million related to growth in the loan portfolio and an increase in yield on the portfolio. Average loan balances increased by $58 million, while the average yield on these loans increased by 21 basis points from 6.00% during the third quarter of 2023 to 6.21% during the current quarter. The increase in loan yield includes an increase in SBA fixed rate loans which currently yield approximately 8.1% and the repricing of loans that are priced off the 5 year Treasury. These loans are primarily commercial real estate loans and are repriced every five years.

Interest on investment securities increased by $670 thousand related to an increase in yield of 71 basis points to 3.99%. The increase in investment yields is consistent with the increase in market rates and the restructuring of the investment portfolio during the first quarter of 2024. Average investment securities declined from $462 million during the three months ended September 30, 2023 to $447 million during the current quarter. Interest on cash balances increased by $791 thousand related to an increase in average balance of $57 million and an increase in rate earned on these balances of 7 basis points from 5.37% during the three months ended September 30, 2023 to 5.44% during the current quarter. Cash balances primarily relate to cash held at the FRB. The average rate earned on FRB balances was 5.33% during both the third quarter of 2024 and 2023.

Interest expense increased by $1.7 million from $1.3 million during the three months ended September 30, 2023 to $3.0 million during the current period related to an increase in rate paid on interest bearing liabilities and an increase in borrowings. The average rate paid on interest bearing liabilities increased from 0.73% during the 2023 quarter to 1.52% in 2024 related mainly to an increase in market interest rates, and an increase in borrowings.

Interest paid on deposits increased by $391 thousand and is broken down by product type as follows: money market accounts - $266 thousand, and time deposits - $146 thousand. Related to a decline in average balance of $43 million, interest on savings deposits declined by $21 thousand. The average rate paid on interest-bearing deposits increased from 0.69% during the third quarter of 2023 to 0.97% during the current quarter.

Mostly related to an increase in average borrowings outstanding from $10 million during the three months ended September 30, 2023 to $117 million during the current quarter, interest incurred on borrowings increased by $1.3 million from $114 thousand during the three months ended September 30, 2023 to $1.4 million during the three months ended September 30, 2024.

Net interest margin for the three months ended September 30, 2024 was 4.76%, down slightly from 4.77% for the same period in 2023.

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:

		For the Three Months Ended			For the Three Months Ended
		September 30, 2024			September 30, 2023
		Average											Average
		Balance			Interest			Yield/			Balance			Interest			Yield/
		(in thousands)			(in thousands)			Rate			(in thousands)			(in thousands)			Rate
Interest-earning assets:
Loans (2) (3)		$	1,001,505			$	15,635				6.21	%		$	943,348			$	14,276				6.00	%
Taxable investment securities			370,051				3,885				4.18	%			337,702				2,888				3.39	%
Non-taxable investment securities (1)			76,817				596				3.09	%			123,877				923				2.96	%
Interest-bearing deposits			127,640				1,746				5.44	%			70,545				955				5.37	%
Total interest-earning assets			1,576,013				21,862				5.52	%			1,475,472				19,042				5.12	%
Cash and due from banks			27,480												27,049
Other assets			86,001												77,221
Total assets		$	1,689,494											$	1,579,742
Interest-bearing liabilities:
Money market deposits		$	223,229			$	657				1.17	%			224,128			$	391				0.69	%
Savings deposits			323,347				178				0.22	%			365,869				199				0.22	%
Time deposits			99,815				736				2.93	%			91,290				590				2.56	%
Total deposits			646,391				1,571				0.97	%			681,287				1,180				0.69	%
Other borrowings			117,065				1,413				4.80	%			10,000				114				4.52	%
Repurchase agreements & other			17,943				8				0.18	%			19,300				9				0.19	%
Total interest-bearing liabilities			781,399				2,992				1.52	%			710,587				1,303				0.73	%
Non-interest-bearing deposits			697,079												719,725
Other liabilities			39,249												20,012
Shareholders' equity			171,767												129,418
Total liabilities & equity		$	1,689,494											$	1,579,742
Cost of funding interest-earning assets (4)											0.76	%											0.35	%
Net interest income and margin (5)						$	18,870				4.76	%						$	17,739				4.77	%

(1)	Not computed on a tax-equivalent basis.
(2)	Average nonaccrual loan balances of $3.7 million for 2024 and $3.4 million for 2023 are included in average loan balances for computational purposes.
(3)	Net costs included in loan interest income for the three-month period ended September 30, 2024 and 2023 were $408,000 and $346,000, 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.

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

		2024 over 2023 change in net interest income
		for the three months ended September 30,
		(in thousands)
		Volume (1)			Rate (2)			Mix (3)			Total
Interest-earning assets:
Loans		$	878			$	490			$	(9	)		$	1,359
Taxable investment securities			276				665				56				997
Non-taxable investment securities			(350	)			41				(18	)			(327	)
Interest-bearing deposits			771				13				7				791
Total interest income			1,575				1,209				36				2,820
Interest-bearing liabilities:
Money market deposits			(1	)			269				(2	)			266
Savings deposits			(23	)			3				(1	)			(21	)
Time deposits			55				85				6				146
Other borrowings			1,217				7				75				1,299
Repurchase agreements & other			(1	)			0				-				(1	)
Total interest expense			1,247				364				78				1,689
Net interest income		$	328			$	845			$	(42	)		$	1,131

	(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 third quarter of 2024 we recorded a provision for credit losses of ($400,000) consisting of a provision for credit losses on loans of ($350,000) and a decrease in the reserve for unfunded commitments of $50,000. This compares to a provision for credit losses of ($200,000) during the 2023 quarter consisting of a provision for credit losses on loans of ($125,000) and a decrease in the reserve for unfunded commitments of $75,000. As time progresses the results of economic conditions will require CECL model assumption inputs to change and further refinements to the estimation process may also be identified. See "Analysis of Asset Quality and Allowance for Credit Losses" for a discussion of loan quality trends and the provision for credit losses.

Non-interest income. Non-interest income decreased by $76 thousand to $2.2 million during the current quarter. Increases of $29 thousand in service charge income, $21 thousand in Federal Home Loan Bank dividends and $6 thousand in other non-interest income were offset by declines in interchange income of $101 thousand, loan servicing fees of $27 thousand and earnings on insurance policies of $4 thousand. Interchange income can fluctuate period to period mostly based on the volume of debit card transactions.

The following table describes the components of non-interest income for the three-month periods ended September 30, 2024 and 2023, dollars in thousands:

		For the Three Months Ended
		September 30,
		2024			2023			Dollar Change			Percentage Change
Interchange income		$	818			$	919			$	(101	)			(11.0	)%
Service charges on deposit accounts			766				737				29				3.9	%
Loan servicing fees			176				203				(27	)			(13.3	)%
FHLB Dividends			136				115				21				18.3	%
Earnings on life insurance policies			104				108				(4	)			(3.7	)%
Other			237				231				6				2.6	%
Total non-interest income		$	2,237			$	2,313			$	(76	)			(3.3	)%

Non-interest expense. During the three months ended September 30, 2024, total non-interest expense increased by $1.4 million from $9.4 million during the third quarter of 2023 to $10.8 million during the current quarter. The largest components of this increase were an increase in salary and benefit expense of $367 thousand, an increase in occupancy and equipment costs of $636 thousand, an increase in professional fees of $117 thousand and an increase in other non-interest expense of $262 thousand. The increase in salary and benefit expense primarily relates to an increase in salary expense and a decrease in the deferral of loan origination costs. Salary expenses increased by $138 thousand, which we attribute primarily to merit and promotional salary increases and an increase in employees. Our full time equivalent employee count has increased from 180 at September 30, 2023 to 189 at September 30, 2024. Deferred loan origination cost declined by $95 thousand from $694 thousand during the three months ended September 30, 2023 to $599 thousand during the current period. The amount of loan origination costs deferred is primarily related to loan volume, both new originations and renewals, during the period. Occupancy and equipment costs increased by $636 thousand related to an increase in rent expense of $705 thousand mostly related to the sales/leaseback transaction completed during the first quarter of 2024. This increase in rent expense was offset by additional income resulting from the restructuring of our investment portfolio which also took place during the first quarter of 2024. The increase in other non-interest expense includes a $300 thousand accrual related to a litigation matter. In addition, professional fees include $76 thousand related to this matter, mostly legal fees. While portions of this matter are still being litigated these amounts represent our best estimate of potential costs to Plumas Bank related to this matter.

The following table describes the components of non-interest expense for the three-month periods ended September 30, 2024 and 2023, dollars in thousands:

		For the Three Months Ended
		September 30,
		2024			2023			Dollar Change			Percentage Change
Salaries and employee benefits		$	5,481			$	5,114			$	367				7.2	%
Occupancy and equipment			1,988				1,352				636				47.0	%
Outside service fees			1,114				1,170				(56	)			(4.8	)%
Professional fees			345				228				117				51.3	%
Advertising and shareholder relations			247				233				14				6.0	%
Armored car and courier			228				211				17				8.1	%
Director compensation and expense			203				165				38				23.0	%
Deposit insurance			191				182				9				4.9	%
Telephone and data communication			188				203				(15	)			(7.4	)%
Business development			143				152				(9	)			(5.9	)%
Loan collection expenses			102				91				11				12.1	%
Amortization of Core Deposit Intangible			51				60				(9	)			(15.0	)%
Other			543				281				262				93.2	%
Total non-interest expense		$	10,824			$	9,442			$	1,382				14.6	%

Provision for income taxes. The Company recorded an income tax provision of $2.9 million, or 26.7% of pre-tax income, for the three months ended September 30, 2024. This compares to an income tax provision of $2.8 million, or 26.3% of pre-tax income, for the three months ended September 30, 2023. The percentages for 2024 and 2023 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal securities interest decrease taxable income.

FINANCIAL CONDITION

Total assets on September 30, 2024, were $1.6 billion, an increase of $54 million from December 31, 2023. Net loans increased by $44 million from $949 million on December 31, 2023, to $993 million at September 30, 2024. Cash and cash equivalents increased by $32 million to $118 million on September 30, 2024. Related to the sales/leaseback transaction right-of use assets increased by $22 million. These increases were offset by declines of $32 million in investment securities, $6 million in property and equipment and $6 million in all other assets.

Deposits totaled $1.4 billion at September 30, 2024, an increase of $17 million from December 31, 2023. Lease liabilities increased by $22 million and other liabilities increased by $1 million. Partially offsetting these increases in liabilities were decreases in borrowings and repurchase agreements. Borrowings decreased by $15 million from $90 million on December 31, 2023, to $75 million on September 30, 2024. Repurchase agreements decreased by $6 million to $17 million. Shareholders' equity increased by $35 million from $147 million on December 31, 2023, to $182 million on September 30, 2024. A detailed discussion of each of these changes follows.

Loan Portfolio. Gross loans increased by $45 million, or 4%, from $959 million at December 31, 2023, to $1 billion at September 30, 2024. Increases in loans included $74 million in commercial real estate loans and $8 million in commercial loans. These items were offset by declines of $26 million in automobile loans, $8 million in agricultural loans and $3 million in all other categories. Although the Company offers a broad array of financing options, it continues to concentrate its focus on small to medium sized commercial businesses. These loans offer diversification as to industries and types of businesses, thus limiting material exposure in any industry concentrations. The Company offers both fixed and floating rate loans and obtains collateral in the form of real property, business assets and deposit accounts, but looks to business and personal cash flows as its primary source of repayment. In the fourth quarter of 2023 we terminated our indirect auto loan program. Ending this program, which was our lowest yielding loan segment, also improved our loan loss risk profile since this program had historically higher charge-off rates. Terminating this program also improved our consumer compliance risk profile.

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

						Percent of							Percent of
						Loans in Each							Loans in Each
		Balance at End			Category to			Balance at End			Category to
(dollars in thousands)		of Period			Total Loans			of Period			Total Loans
		09/30/2024			09/30/2024			12/31/2023			12/31/2023
Commercial		$	82,192				8.2	%		$	74,271				7.8	%
Agricultural			121,709				12.1	%			129,389				13.5	%
Real estate - residential			11,672				1.2	%			11,914				1.2	%
Real estate - commercial			618,236				61.6	%			544,339				56.8	%
Real estate - construction & land			54,287				5.4	%			57,717				6.0	%
Equity Lines of Credit			37,652				3.8	%			37,871				4.0	%
Auto			72,388				7.2	%			98,132				10.2	%
Other			5,352				0.5	%			4,931				0.5	%
Total Gross Loans		$	1,003,488				100	%		$	958,564				100	%

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 80% of the total loan portfolio at September 30, 2024. Moreover, the business activities of the Company currently are focused in the California counties of Butte, Lassen, Modoc, Nevada, Placer, Plumas, Shasta and Sutter and in Washoe and Carson City Counties in Northern Nevada. Consequently, the results of operations and financial condition of the Company are dependent upon the general trends in these economies and, in particular, the commercial real estate markets. In addition, the concentration of the Company's operations in these areas of Northeastern California and Northwestern Nevada exposes it to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and floods in these regions.

Commercial real estate loans ("CRE"), which comprised 61% of the lending portfolio at September 30, 2024, included 26% investor-owned, 26% owner-occupied, and 9% multi-family. Concentrations by real estate type within the CRE portfolio included 15% multi-family, 11% retail, 11% office, 10% mixed commercial real estate, 8% hospitality, 6% industrial, 6% special purpose, 6% gas stations and 5% mini storage facilities, with all remaining concentrations below 5%. There were no rent-controlled properties within the multi-family category. Office facilities are typically small and located in more rural areas. 28% of CRE loans were located in northern Nevada and 47% were located in northern California, including the Sacramento area. Of the $4.5 million in non-accrual balances at September 30, 2024, approximately 39% were CRE. Of the $22.4 million in substandard balances at September 30, 2024, 17% 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 September 30, 2024 and December 31, 2023, approximately 77% and 78%, respectively, of the Company's loan portfolio was comprised of variable rate loans. Loans indexed to the prime interest rate were approximately 22% of the Company's variable rate loan portfolio on September 30, 2024; these loans reprice within one day to three months of a change in the prime rate. The remainder of the Company's variable rate loans mostly consist of commercial real estate loans tied to U.S. Treasury rates and reprice every five years. Approximately 75% 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 expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various economic metrics including California unemployment rates, California Housing Prices and California gross domestic product. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. At both December 31, 2023 and September 30, 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, imprecision in its economic forecasts, and other risk factors that might influence its loss estimation process. Management believes that the allowance for credit losses at September 30, 2024, appropriately reflected expected credit losses inherent in the loan portfolio at that date.

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company's policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans are individually evaluated for reserves. As of September 30, 2024, the Bank's nonaccrual loans comprised the entire population of loans individually evaluated. The Company's policy is that nonaccrual loans also represent the subset of loans in which borrowers are experiencing financial difficulty such that an evaluation of the source of repayment is required to determine if the nonaccrual loans should be categorized as collateral dependent.

The 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.

		For the Nine Months Ended			For the Year Ended
(dollars in thousands)		September 30,			December 31,
		2024			2023			2023			2022			2021
Balance at beginning of period		$	12,867			$	10,717			$	10,717			$	10,352			$	9,902
Impact of CECL Adoption			-				529				529				-				-
Adjusted balance			12,867				11,246				11,246				10,352				9,902
Charge-offs:
Commercial			65				108				123				207				188
Agricultural			-				-				-				-				-
Real estate - residential			-				-				-				-				-
Real estate - commercial			-				-				-				19				-
Real estate - construction & land			-				-				-				-				-
Equity Lines of Credit			-				-				-				-				-
Auto			1,292				1,042				1,550				1,195				703
Other			65				102				129				40				47
Total charge-offs			1,422				1,252				1,802				1,461				938
Recoveries:
Commercial			21				17				44				27				72
Agricultural			-				-				-				-				-
Real estate - residential			3				2				3				3				3
Real estate - commercial			-				2				1				2				8
Real estate - construction & land			-				-				-				-				-
Equity Lines of Credit			-				-				-				-				4
Auto			642				458				746				482				136
Other			20				49				54				12				40
Total recoveries			686				528				848				526				263
Net charge-offs			736				724				954				935				675
Provision for credit losses - loans			1,475				2,425				2,575				1,300				1,125
Balance at end of period		$	13,606			$	12,947			$	12,867			$	10,717			$	10,352
Net charge-offs during the period to average loans (annualized for the nine-month periods)			0.10	%			0.10	%			0.10	%			0.11	%			0.09	%
Allowance for credit losses to total loans			1.35	%			1.35	%			1.34	%			1.18	%			1.23	%

The following table provides a breakdown of the allowance for credit losses at September 30, 2024 and December 31, 2023:

						Percent of							Percent of
						Loans in Each							Loans in Each
		Balance at End			Category to			Balance at End			Category to
(dollars in thousands)		of Period			Total Loans			of Period			Total Loans
		9/30/2024			9/30/2024			12/31/2023			12/31/2023
Commercial		$	1,359				8.2	%		$	1,134				7.8	%
Agricultural			1,770				12.1	%			1,738				13.5	%
Real estate - residential			110				1.2	%			137				1.2	%
Real estate - commercial			7,508				61.6	%			6,678				56.8	%
Real estate - construction & land development			848				5.4	%			797				6.0	%
Equity Lines of Credit			456				3.8	%			439				4.0	%
Auto			1,468				7.2	%			1,865				10.2	%
Other			87				0.5	%			79				0.5	%
Total		$	13,606				100	%		$	12,867				100	%

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

		At
		September 30,			At December 31,
		2024			2023			2022			2021
		(dollars in thousands)
Nonaccrual loans		$	4,455			$	4,820			$	1,172			$	4,863
Loans past due 90 days or more and still accruing			-				-				-				-
Total nonperforming loans			4,455				4,820				1,172				4,863
Other real estate owned			141				357				-				487
Other vehicles owned			157				138				18				47
Total nonperforming assets		$	4,753			$	5,315			$	1,190			$	5,397
Interest income forgone on nonaccrual loans		$	251			$	257			$	121			$	381
Interest income recorded on a cash basis on nonaccrual loans		$	-			$	-			$	-			$	-
Nonperforming loans to total loans			0.44	%			0.50	%			0.13	%			0.58	%
Nonperforming assets to total assets			0.29	%			0.33	%			0.07	%			0.33	%

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

Nonperforming loans at September 30, 2024 were $4.5 million, a decrease of $0.3 million from $4.8 million at December 31, 2023.

A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or the value of the collateral pledged, if any. Total substandard loans increased by $0.7 million from $21.7 million on December 31, 2023, to $22.4 million on September 30, 2024. Loans classified as special mention increased by $4.8 million from $9.3 million on December 31, 2023, to $14.1 million on September 30, 2024.

It is the policy of management to make additions to the allowance for credit losses so that it remains appropriate to absorb the inherent risk of loss in the portfolio. Management believes that the allowance on September 30, 2024, is appropriate. However, the determination of the amount of the allowance is judgmental and subject to economic conditions which cannot be predicted with certainty. Accordingly, the Company cannot predict whether charge-offs of loans in excess of the allowance may occur in future periods.

OREO represent real property acquired by the Bank either through foreclosure or through a deed in lieu thereof from the borrower. Repossessed assets include vehicles and other commercial assets acquired under agreements with delinquent borrowers. OREO holdings represented one property totaling $141,000 on September 30, 2024, and one property totaling $357,000 at December 31, 2023.

Nonperforming assets as a percentage of total assets were 0.29% at September 30, 2024 and 0.33% at December 31, 2023.

The following table provides a summary of the change in the number and balance of OREO properties for the nine months ended September 30, 2024 and 2023 (dollars in thousands):

		Nine Months Ended September 30,
		#			2024			#			2023
Beginning Balance			1			$	357				-			$	-
Additions			1				141				2				440
Dispositions			1				(357	)			-				-
Provision from change in OREO valuation			-				-				-				-
Ending Balance			1			$	141				2			$	440

Investment Portfolio and Federal Funds Sold. Total investment securities were $456.7 million as of September 30, 2024, and $489.2 million at December 31, 2023. Unrealized losses on available-for-sale investment securities totaling $20.9 million were recorded, net of $6.2 million in tax benefit, as accumulated other comprehensive loss within shareholders' equity at September 30, 2024. Net unrealized losses on available-for-sale investment securities totaling $46.1 million were recorded, net of $13.6 million in tax benefit, as accumulated other comprehensive loss within shareholders' equity at December 31, 2023. During the first quarter of 2024 we sold $116 million in investment securities having a weighted average tax equivalent yield of 2.24% recording a $19.8 million loss on sale. Beginning in December 2023 and ending on March 27, 2024 we purchased $120 million in investment securities having a weighted average tax equivalent yield of 5.25%. These sales and purchases were made as part of the investment restructure described earlier. No securities were sold during the nine months ended September 30, 2023.

The investment portfolio at September 30, 2024, consisted of $4.0 million in U.S. Treasury securities, $363.1 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies, and 170 municipal securities totaling $89.6 million. The investment portfolio at December 31, 2023 consisted of $6.9 million in U.S. Treasury securities, $351.9 million in securities of U.S. Government-sponsored agencies and U.S. Government agencies and 244 municipal securities totaling $130.4 million.

There were no Federal funds sold at September 30, 2024, and December 31, 2023; however, the Bank maintained interest earning balances at the Federal Reserve Bank totaling $82.3 million at September 30, 2024 and $52.9 million at December 31, 2023. The balance, on September 30, 2024, earns interest at the rate of 4.90%.

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.

The following table shows the distribution of deposits by type at September 30, 2024 and December 31, 2023.

						Percent of							Percent of
						Deposits in Each							Deposits in Each
		Balance at End			Category to			Balance at End			Category to
(dollars in thousands)		of Period			Total Deposits			of Period			Total Deposits
Distribution of Deposits by Type			09/30/2024				09/30/2024				12/31/2023				12/31/2023
Non-interest bearing		$	703,005				52.0	%		$	692,768				51.9	%
Money Market			229,267				17.0	%			214,185				16.1	%
Savings			316,483				23.4	%			335,050				25.1	%
Time			102,241				7.6	%			91,652				6.9	%
Total Deposits		$	1,350,996				100	%		$	1,333,655				100	%

Deposits totaled $1.4 billion September 30, 2024, an increase of $17 million from December 31, 2023. The increase in deposits includes increases of $15 million in money market accounts, $11 million in time deposits and $10 million in demand deposits. Partially offsetting these increases was a decrease in savings deposits of $19 million. At September 30, 2024, 52% of the Company's deposits were in the form of non-interest-bearing demand deposits. The Company has no brokered deposits.

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

Estimated uninsured deposits totaled $456 million and $416 million at September 30, 2024, and December 31, 2023, respectively. Uninsured amounts are estimated based on the portion of the account balances in excess of FDIC insurance limits.

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

Maturity Distribution of Estimated Uninsured Time Deposits
		September 30,			December 31,
(dollars in thousands)		2024			2023
Remaining maturity:
Three months or less		$	4,491			$	6,044
After three through nine months			10,921				10,097
After six through twelve months			9,107				5,428
After twelve months			14				757
Total		$	24,533			$	22,326

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 $17.0 million and $23.1 million at September 30, 2024 and December 31, 2023, respectively, are secured by U.S. Government agency securities with a carrying amount of $30.4 million and $34.1 million at September 30, 2024 and December 31, 2023, respectively. Interest paid on this product is similar to, but less than, that which is paid on the Bank's money market accounts; however, these are not deposits and are not FDIC insured.

Short-term Borrowing Arrangements. The Company is a member of the Federal Home Loan Bank of San Francisco (FHLB) and can borrow up to $240 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $426 million. The Company is required to hold FHLB stock as a condition of membership. At September 30, 2024, the Company held $6.2 million of FHLB stock which is recorded as a component of other assets.

The Federal Reserve Board, on March 12, 2023, announced the creation of the Bank Term Funding Program (BTFP). The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. At December 31, 2023, the Company had outstanding borrowings under the Bank Term Funding Program (BTFP) totaling $80 million. In January 2024, the Company borrowed an additional $25 million under the BTFP and during September 2024 we made a $45 million payment resulting in a balance of $60 million outstanding at September 30, 2024. This borrowing bears interest at the rate of 4.85% and is payable on January 17, 2025. Borrowings under the BTFP can be prepaid without penalty. There were no borrowings under the BTFP during the nine months ended September 30, 2023. Interest expense recognized on the BTFP borrowings for the nine months ended September 30, 2024 totaled $3.7 million. In addition to its FHLB borrowing line and the BTFP, the Company has unsecured short-term borrowing agreements with two of its correspondent banks in the amounts of $50 million and $20 million. There were no outstanding borrowings from the FHLB or the correspondent banks at September 30, 2024, and December 31, 2023.

Note Payable. On January 25, 2022 the Company replaced its existing $15 million line of credit facility with a $15 million Loan Agreement (the "Loan Agreement") and Promissory Note (the "Term Note"). The Term Note matures on January 25, 2035 and can be prepaid at any time. During the initial three years of the Loan Agreement the Term Note functions as an interest only revolving line of credit. Beginning on year four the Term Note converts into a term loan requiring semi-annual principal and interest payments and no further advances can be made. The proceeds of this lending facility shall be used by the Company for general corporation purposes, and to provide capital injections into the Bank. The Term Note bears interest at a fixed rate of 3.85% for the first 5 years and then at a floating interest rate linked to WSJ Prime Rate for the remaining eight year term. The Loan Agreement provides for a $187,500 loan fee. The Note is secured by the common stock of the Bank. The Loan Agreement contains certain financial and non-financial covenants, which include, but are not limited to, a minimum leverage ratio at the Bank, a minimum total risk-based capital ratio at the Bank, a maximum Texas Ratio at the Bank, a minimum level of Tier 1 capital at the Bank and a return on average assets needed to generate a 1.25X debt service coverage ratio. The Loan Agreement also contains customary events of default, including, but not limited to, failure to pay principal or interest, the commencement of certain bankruptcy proceedings, and certain adverse regulatory events affecting the Company or the Bank. Upon the occurrence of an event of default under the Loan Agreement, the Company's obligations under the Loan Agreement may be accelerated. In March 2023 the Company borrowed $10 million on this note and used the proceeds to redeem its Trust Preferred securities. During January of 2024 the Company borrowed an additional $5 million under this note for general corporate purposes. The Company was in compliance with all covenants related to the Term Note at September 30, 2024. Interest expense recognized on the Term Note for the nine months ended September 30, 2024 and 2023 totaled $477,000 and $255,000, respectively.

Capital Resources

Shareholders' equity increased by $34.6 million from $147.3 million at December 31, 2023 to $181.9 million at September 30, 2024. The $34.6 million increase was related to net income during the nine months ended September 30, 2024, of $20.9 million, stock option activity of $780,000 and a decrease of other comprehensive loss of $17.7 million related to the investment portfolio restructuring and a decline in market interest rates. These items were partially offset by shareholder dividends of $4.8 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 is subject to various restrictions on the payment of dividends. The Company paid a quarterly cash dividend of $0.27 per share on August 15, 2024, May 15, 2024 and February 15, 2024, and a quarterly cash dividend of $0.25 per share on November 15, 2023, August 15, 2023, May 15, 2023, and February 15, 2023.

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

In July, 2013, the federal bank regulatory agencies adopted rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. depository organizations, sometimes called "Basel III," that increased the minimum regulatory capital requirements for bank holding companies and depository institutions and implemented strict eligibility criteria for regulatory capital instruments. The Basel III capital rules include a minimum common equity Tier 1 ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of 4.0% (calculated as Tier 1 capital to average consolidated assets). The minimum capital levels required to be considered "well capitalized" include a common equity Tier 1 ratio of 6.5%, a Tier 1 risk-based capital ratio of 8.0%, a total risk-based capital ratio of 10.0% and a leverage ratio of 5.0%. In addition, the Basel III capital rules require that banking organizations maintain a capital conservation buffer of 2.5% above the minimum capital requirements in order to avoid restrictions on their ability to pay dividends, repurchase stock or pay discretionary bonuses. Including the capital conservation buffer of 2.5%, the Basel III capital rules require the following minimum ratios for a bank holding company or bank to be considered well capitalized: a common equity Tier 1 capital ratio of 7.0%; a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. At September 30, 2024 and December 31, 2023, 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.

										Minimum Amount of Capital Required
																		To be Well-Capitalized
										For Capital			Under Prompt
		Actual			Adequacy Purposes (1)			Corrective Provisions
		Amount			Ratio			Amount			Ratio			Amount			Ratio
September 30, 2024
Common Equity Tier 1 Ratio		$	193,710				16.9	%		$	51,481				4.5	%		$	74,362				6.5	%
Tier 1 Leverage Ratio			193,710				11.3	%			68,498				4.0	%			85,622				5.0	%
Tier 1 Risk-Based Capital Ratio			193,710				16.9	%			68,642				6.0	%			91,522				8.0	%
Total Risk-Based Capital Ratio			207,986				18.2	%			91,522				8.0	%			114,403				10.0	%
December 31, 2023
Common Equity Tier 1 Ratio		$	179,194				15.7	%		$	51,294				4.5	%		$	74,092				6.5	%
Tier 1 Leverage Ratio			179,194				10.8	%			66,348				4.0	%			82,935				5.0	%
Tier 1 Risk-Based Capital Ratio			179,194				15.7	%			68,392				6.0	%			91,190				8.0	%
Total Risk-Based Capital Ratio			192,860				16.9	%			91,190				8.0	%			113,987				10.0	%

(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 September 30, 2024, the Company had $158.7 million in unfunded loan commitments and no letters of credit. This compares to $174.6 million in unfunded loan commitments and $108,000 in letters of credit at December 31, 2023. Of the $158.7 million in unfunded loan commitments, $95.7 million and $63.0 million represent commitments to commercial and consumer customers, respectively. Of the total unfunded commitments at September 30, 2024, $94.4 million were secured by real estate, of which $40.4 million was secured by commercial real estate and $54.0 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.

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 FHLB and can borrow up to $240 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $426 million. In addition to its FHLB borrowing line, the Company has unsecured short-term borrowing agreements with two of its correspondent banks in the amounts of $50 million and $20 million. There were no outstanding borrowings to the FHLB, or the correspondent banks at September 30, 2024, and December 31, 2023.

Customer deposits are the Company's primary source of funds. Deposits totaled $1.4 billion September 30, 2024, an increase of $17 million from December 31, 2023. Deposits are held in various forms with varying maturities. The Company estimates that it has approximately $456 million in uninsured deposits. Of this amount, $104 million represents deposits that are collateralized such as deposits of states, municipalities and tribal accounts.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4. CONTROLS AND PROCEDURES

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 September 30, 2024. 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 September 30, 2024.

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 September 30, 2024 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

Item 1A. RISK FACTORS

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 2023 Annual Report. There are no material changes from the risk factors included within the Company's 2023 Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None.

(b) None.

(c) None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 6. EXHIBITS

The following documents are included or incorporated by reference in this Quarterly Report on Form 10Q:

3.1	Articles of Incorporation as amended of Registrant included as Exhibit 3.1 to the Registrant's Form S-4, File No. 333-84534, which is incorporated by reference herein.
3.2	Bylaws of Registrant as amended on August 16, 2023 included as Exhibit 3.1 to the Registrant's Form 8-K for August 17, 2023, which is incorporated by reference herein.
3.3	Amendment of the Articles of Incorporation of Registrant dated November 1, 2002, is included as Exhibit 3.3 to the Registrant's 10-Q for September 30, 2005, which is incorporated by this reference herein.
3.4	Amendment of the Articles of Incorporation of Registrant dated August 17, 2005, is included as Exhibit 3.4 to the Registrant's 10-Q for September 30, 2005, which is incorporated by this reference herein.
4	Specimen form of certificate for Plumas Bancorp included as Exhibit 4 to the Registrant's Form S-4, File No. 333-84534, which is incorporated by reference herein.
4.1	Description of Securities of Plumas Bancorp Registered Under Section 12 of the Exchange Act, is included as Exhibit 4.1 to the Registrant's 10-K for December 31, 2023, which is incorporated by this reference herein.
10.1	Termination Agreement 2024 by and between Plumas Bank and Mountainseed Real Estate Services, LLC is included as Exhibit 10.3 to the Registrant's 8-K filed August 15, 2024, which is incorporated by this reference herein.
31.1*	Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated November 6, 2024.
31.2*	Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated November 6, 2024.
32.1*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 6, 2024.
32.2*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 6, 2024.

101.INS*	Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PLUMAS BANCORP
(Registrant)
Date: November 6, 2024
	/s/ Richard L. Belstock
	Richard L. Belstock
	Chief Financial Officer
	/s/ Andrew J. Ryback
	Andrew J. Ryback
	Director, President and Chief Executive Officer