Oak Valley Bancorp

Previous wording

Certain matters discussed in this Quarterly Report on Form 10-Q are“forward-looking statements”* within the meaning of the Private Securities Litigation Reform Act of 1995 and therefore may involve risks, uncertainties and other factors which may cause the Company*’s actual results to be materially different from the results expressed or implied by the Company’s forward-looking statements. * These statements generally appear with words such as*“will,”* “anticipate,” “target,” “believe,” “estimate,” “forecast”,“enhance,” “may,” “intend,” “plan,” “goal,” “believe,“forecast,” “project,” “outlook,” “expect” or other words of similar meaning.* * Forward-looking statements are not statements of historical fact and may include those that discuss, among others, our strategies, goals, plans, outlook, forecasts, expectations, intentions or other non-historical matters; future operations, financial condition, results of operations, or business developments; and the assumptions that underlie these matters. Although management believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.* * Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: the credit exposure of certain loan products and other components of our business that could be impacted by the changing economic and business conditions; changes in monetary, fiscal or tax policy to address changing economic conditions including interest rate policies of the Federal Reserve Board, any of which could cause us to incur additional loan losses and adversely affect our results of operations in the future; economic conditions (both generally and in the markets where the Company operates) including unemployment levels, energy prices, increased energy costs in California, inflation, supply chain issues, a decline in housing prices or collateral values, trade policies and tensions (including as a result of tariffs and other trade disruptions), geopolitical instability, market volatility associated with the political and economic environment and uncertainty surrounding the potential legal, regulatory, and policy changes by the current U.S. presidential administration and the risk of a recession or slowed economic growth in the United States economy; the continuing impact of the changing economic conditions on our employees and customers, including consumer income, creditworthiness, confidence, spending and savings; the credit quality of borrowers; the success of our efforts to mitigate the impact of the changing economic conditions; competition from other providers of financial services offered by the Company and our response to competitive pressures; changes in government regulation and legislation; the impact of any failure by the U.S. government to increase the debt ceiling or any federal government shutdown; c…

Excerpt shortened here; the source contains the full paragraph.

Current wording

Certain matters discussed in this Quarterly Report on Form 10-Q are“forward-looking statements”* within the meaning of the Private Securities Litigation Reform Act of 1995 and therefore may involve risks, uncertainties and other factors which may cause the Company*’s actual results to be materially different from the results expressed or implied by the Company’s forward-looking statements. * These statements generally appear with words such as*“will,”* “anticipate,” “target,” “believe,” “estimate,” “forecast”,“enhance,” “may,” “intend,” “plan,” “goal,” “believe,” “forecast,” “project,” “outlook,” “expect” or other words of similar meaning.* * Forward-looking statements are not statements of historical fact and may include those that discuss, among others, our strategies, goals, plans, outlook, forecasts, expectations, intentions or other non-historical matters; future operations, financial condition, results of operations, or business developments; and the assumptions that underlie these matters. Although management believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.* * Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: the credit exposure of certain loan products and other components of our business that could be impacted by the changing economic and business conditions; changes in monetary, fiscal or tax policy to address changing economic conditions including interest rate policies of the Federal Reserve Board, any of which could cause us to incur additional loan losses and adversely affect our results of operations in the future; economic conditions (both generally and in the markets where the Company operates) including unemployment levels, energy prices, increased energy costs in California, inflation, supply chain issues, a decline in housing prices or collateral values, trade policies and tensions (including as a result of tariffs and other trade disruptions), geopolitical instability, market volatility associated with the political and economic environment and uncertainty surrounding potential legal, regulatory, and policy changes by the current U.S. presidential administration and the risk of a recession or slowed economic growth in the United States economy; the continuing impact of the changing economic conditions on our employees and customers, including consumer income, creditworthiness, confidence, spending and savings; the credit quality of borrowers; the success of our efforts to mitigate the impact of the changing economic conditions; competition from other providers of financial services offered by the Company and our response to competitive pressures; changes in government regulation and legislation; the impact of any failure by the U.S. government to increase the debt ceiling or impacts of the ongoing federal gover…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Management believes the following were important factors in the Company’s performance during the three and six-month periods ended June 30, 2025:

Current wording

Management believes the following were important factors in the Company’s performance during the three and nine-month periods ended September 30, 2025:

Previous wording

For the three and six-month periods ended June 30, 2025, the Company recorded net income of $5,588,000 and $10,885,000, respectively, representing decreases of $301,000 and $731,000, as compared to the same periods in 2024. Return on average assets (annualized) was 1.18% and 1.15% for the three and six-months ended June 30, 2025, respectively, as compared to 1.30% and 1.28% for the same periods in 2024. Annualized return on average common equity was 12.21% and 11.89% for the three and six-months ended June 30, 2025, respectively, as compared to 14.19% and 14.03% for the same periods in 2024. Net income before provisions for income taxes decreased by $267,000 and $702,000 for the three and six-month periods ended June 30, 2025, respectively, from the same periods in 2024. The income statement components of these variances are as follows:

Current wording

For the three and nine-month periods ended September 30, 2025, the Company recorded net income of $6,693,000 and $17,578,000, respectively, representing decreases of $631,000 and $1,362,000, as compared to the same periods in 2024. Return on average assets (annualized) was 1.35% and 1.22% for the three and nine-months ended September 30, 2025, respectively, as compared to 1.56% and 1.38% for the same periods in 2024. Annualized return on average common equity was 14.30% and 12.71% for the three and nine-months ended September 30, 2025, respectively, as compared to 16.54% and 14.90% for the same periods in 2024. Net income before provisions for income taxes decreased by $1,267,000 and $1,969,000 for the three and nine-month periods ended September 30, 2025, respectively, from the same periods in 2024. The income statement components of these variances are as follows:

Previous wording

Net interest income is the largest source of the Company’s operating income. For the three and six-month periods ended June 30, 2025, net interest income was $18,154,000 and $35,961,000, respectively, which represents increases of $862,000 and $1,428,000, from the comparable periods in 2024. The increase was due to growth of earning assets and upward repricing of our loan yield in spite of short-term rate cuts by the FOMC during 2024.

Current wording

Net interest income is the largest source of the Company’s operating income. For the three and nine-month periods ended September 30, 2025, net interest income was $19,197,000 and $55,158,000, respectively, which represents increases of $1,542,000 and $2,970,000, from the comparable periods in 2024. The increase was due to growth of earning assets and upward repricing of our loan yield in spite of short-term rate cuts by the FOMC during 2024 and 2025.

Previous wording

The FOMC hiked rates significantly during 2022 and 2023 and due to a timing lag, those rate hikes led to rising interest rates on deposit accounts, as the average cost of funds increased to 0.77% and 0.78% for the three and six-months ended June 30, 2025, respectively, as compared to 0.73% and 0.71% in the same periods of 2024. The Company increased rates on certain accounts and deposit products during 2023 in order to remain competitive with our peer group and to maintain current liquidity levels, which remains at a high level. Towards the end of 2024 and into 2025, the Company reduced the interest rates on certain deposit accounts, which resulted in a slight decrease in the average cost of funds as compared to 0.86% in the fourth quarter of 2024.

Current wording

In response to FOMC hiked rates during 2022 and 2023, the Company increased rates on certain accounts and deposit products during 2023 in order to remain competitive with our peer group and to maintain current liquidity levels, which remain at a high level. Towards the end of 2024 and into 2025, the Company reduced the interest rates on certain deposit accounts, which resulted in average cost of funds of 0.75% and 0.77% for the three and nine-months ended September 30, 2025, respectively, as compared to 0.83% and 0.75% in the same periods of 2024.

Previous wording

The net interest margin (net interest income as a percentage of average interest earning assets) was 4.11% and 4.10% for the three and six-month periods ended June 30, 2025, respectively, as compared to 4.11% and 4.10% for the same periods in 2024. The net interest margin was unchanged primarily due to the increase in interest rates on deposit accounts that offset the rising loan yields and earning asset growth, as discussed above. The earning asset yield increased by 4 and 7 basis points for the three and six-month periods ended June 30, 2025, respectively, as compared to the same periods of 2024.

Current wording

The net interest margin (net interest income as a percentage of average interest earning assets) was 4.16% and 4.12% for the three and nine-month periods ended September 30, 2025, respectively, as compared to 4.04% and 4.08% for the same periods in 2024. The net interest margin increased compared to prior year due to the rising loan yields, earning asset growth and downward trend of the deposit interest rates. The earning asset yield increased by 5 and 6 basis points for the three and nine-month periods ended September 30, 2025, respectively, as compared to the same periods of 2024.

Previous wording

The following table shows the relative impact of changes in average balances of interest earning assets and interest-bearing liabilities, and interest rates earned and paid by the Company on those assets and liabilities for the three and six-month periods ended June 30, 2025 and 2024:

Current wording

The following table shows the relative impact of changes in average balances of interest earning assets and interest-bearing liabilities, and interest rates earned and paid by the Company on those assets and liabilities for the three and nine-month periods ended September 30, 2025 and 2024:

Previous wording

(2) Yields and interest income on municipal securities and loans have been adjusted to their fully-taxable equivalents, based on a federal marginal tax rate of 21.0%.

Current wording

(2) Yields and interest income on tax-exempt municipal securities and loans have been adjusted to their fully-taxable equivalents, based on a federal marginal tax rate of 21.0%. Non-GAAP tax benefit adjustments of $18 thousand and $482 thousand have been added to GAAP interest income on gross loans and investment securities, respectively, for the three-months ended September 30, 2025, as compared to $19 thousand and $454 thousand in the comparable period of 2024.

Previous wording

Shown in the following tables is the relative impact on net interest income of changes in the average outstanding balances (volume) of earning assets and interest-bearing liabilities and the rates earned and paid by the Company on those assets and liabilities for the three and six-month periods ended June 30, 2025 and 2024. Changes in interest income and expense that are not attributable specifically to either rate or volume are allocated to the rate column below.

Current wording

Shown in the following tables is the relative impact on net interest income of changes in the average outstanding balances (volume) of earning assets and interest-bearing liabilities and the rates earned and paid by the Company on those assets and liabilities for the three and nine-month periods ended September 30, 2025 and 2024. Changes in interest income and expense that are not attributable specifically to either rate or volume are allocated to the rate column below.

Previous wording

The table above reflects an increase of $670,000 in net interest income due to changes in volume combined with the overall change in mix of balances during the second quarter of 2025, as compared to the same period of 2024. Changes in earning asset yields and rates on interest-bearing liabilities resulted in an increase of $173,000 to net interest income, over the same period. This increase was mainly due to higher loan yields as our loan portfolio continues to reprice upward.

Current wording

The table above reflects an increase of $940,000 in net interest income due to changes in volume combined with the overall change in mix of balances during the third quarter of 2025, as compared to the same period of 2024. Changes in earning asset yields and rates on interest-bearing liabilities resulted in an increase of $630,000 to net interest income, over the same period. This increase was mainly due to higher loan yields as our loan portfolio continues to reprice upward.

Previous wording

The table above reflects an increase of $1,041,000 in net interest income due to changes in volume combined with the overall change in mix of balances during the first six months of 2025, as compared to the same period of 2024. Changes in earning asset yields and rates on interest-bearing liabilities resulted in an increase of $305,000 to net interest income, over the same period. This increase was mainly due to higher loan yields as our loan portfolio continues to reprice upward.

Current wording

The table above reflects an increase of $1,950,000 in net interest income due to changes in volume combined with the overall change in mix of balances during the first nine months of 2025, as compared to the same period of 2024. Changes in earning asset yields and rates on interest-bearing liabilities resulted in an increase of $965,000 to net interest income, over the same period. This increase was mainly due to higher loan yields as our loan portfolio continues to reprice upward.

Previous wording

The Company did not record provisions for credit losses during the three and six-month periods ended June 30, 2025 and 2024. Credit quality remained stable and our ACL amount was adequate as determined by the output of our CECL internal credit risk model. Non-accrual loans remained at a zero balance throughout the six-month period ending June 30, 2025, and all of 2024. Management will continue to closely monitor the credit risks to our loan portfolio and may need to make qualitative adjustments depending on factors that may impact the economy and the financial condition of our borrowers.

Current wording

The Company recorded a reversal of provisions for credit losses of $60,000 during the three and nine-month periods ended September 30, 2025 and 2024, related to a decrease in unfunded loan commitments. Credit quality remained stable and our ACL amount was adequate as determined by the output of our CECL internal credit risk model. Non-accrual loans remained at a zero balance throughout the nine-month period ending September 30, 2025, and all of 2024. Management will continue to closely monitor the credit risks to our loan portfolio and may need to make qualitative adjustments depending on factors that may impact the economy and the financial condition of our borrowers.

Previous wording

Non-interest income represents service charges on deposit accounts and other non-interest related charges and fees, including fees from mortgage commissions and investment service fee income. For the three and six-month periods ended June 30, 2025, non-interest income was $1,703,000 and $3,316,000, respectively, representing a decrease of $57,000 or 3.2%, and an increase of $37,000 or 1.1%, compared to the same periods in 2024.

Current wording

Non-interest income represents service charges on deposit accounts and other non-interest related charges and fees, including fees from mortgage commissions and investment service fee income. For the three and nine-month periods ended September 30, 2025, non-interest income was $1,973,000 and $5,289,000, respectively, representing increases of $127,000 or 6.9% and $164,000 or 3.2%, compared to the same periods in 2024.

Previous wording

Service charges on deposits increased by $15,000 and $56,000 for the three and six-months ended June 30, 2025, respectively, compared to the same periods in 2024. The increase was mainly due to overdraft fee income attributable to the growth in consumer demand deposits accounts.

Current wording

Service charges on deposits increased by $20,000 and $75,000 for the three and nine-months ended September 30, 2025, respectively, compared to the same periods in 2024. The increase was mainly due to overdraft fee income attributable to the growth in consumer demand deposit accounts.

Previous wording

Debit card transaction fee income decreased by $2,000 and $29,000 for the three and six-months ended June 30, 2025, respectively, compared to the same periods in 2024, due to debit card network costs that are included in the net revenue received by the bank.

Current wording

Debit card transaction fee income decreased by $21,000 and $50,000 for the three and nine-months ended September 30, 2025, respectively, compared to the same periods in 2024, due to debit card network costs that are included in the net revenue received by the bank.

Previous wording

Earnings on cash surrender value of life insurance increased by $45,000 and $110,000 for the three and six-months ended June 30, 2025, respectively, compared to the same periods in 2024, corresponding to higher yields earned in 2025 and three additional policies that were purchased during the second quarter of 2024.

Current wording

Earnings on cash surrender value of life insurance increased by $12,000 and $122,000 for the three and nine-months ended September 30, 2025, respectively, compared to the same periods in 2024, corresponding to higher yields earned in 2025 and three additional policies that were purchased during the second quarter of 2024.

Previous wording

Mortgage commissions increased by $2,000 for the three and six-months ended June 30, 2025, compared to the same periods in 2024. Overall, the demand for home purchases and refinancing has decreased in 2024 and 2025, mainly due to rising housing prices and interest rates.

Current wording

Mortgage commissions increased by $10,000 and $12,000 for the three and nine-months ended September 30, 2025, respectively, compared to the same periods in 2024. Overall, the demand for home purchases and refinancing has decreased in 2024 and 2025, mainly due to rising housing prices and interest rates.

Previous wording

Gains on sales and calls of available-for-sale securities decreased by $32,000 and $112,000 for the three and six-months ended June 30, 2025, respectively, compared to the same periods in 2024, as there were no sales during the first six months of 2025, as compared to 17 securities sold during the same period of 2024.

Current wording

Gain on sales and calls of available-for-sale securities decreased by $2,000 and $114,000 for the three and nine-months ended September 30, 2025, respectively, compared to the same periods in 2024, as there were no sales during the first nine months of 2025, as compared to 17 securities sold during the same period of 2024.

Previous wording

Non-interest expenses increased by $1,072,000 or 9.2% and $2,167,000 or 9.4% for the three and six-months ended June 30, 2025, respectively, as compared to the same periods of 2024. Salaries and employee benefits increased by $492,000 and $920,000 for the three and six-months ended June 30, 2025, respectively, as compared to the same periods of 2024, mainly due to additional staffing expense required to support the continued growth of our business portfolios.

Current wording

Non-interest expenses increased by $1,376,000 or 12.2% and $3,543,000 or 10.3% for the three and nine-months ended September 30, 2025, respectively, as compared to the same periods of 2024. Salaries and employee benefits increased by $680,000 and $1,599,000 for the three and nine-months ended September 30, 2025, respectively, as compared to the same periods of 2024, mainly due to additional staffing expense required to support the continued growth of our business portfolios.

Previous wording

Occupancy expenses decreased by $9,000 and $46,000 for the three and six-months ended June 30, 2025, respectively, as compared to the same periods of 2024, due to a decline in general operating costs related to branch facilities.

Current wording

Occupancy expenses increased by $126,000 and $80,000 for the three and nine-months ended September 30, 2025, respectively, as compared to the same periods of 2024, due to increases in rent and maintenance costs related to branch facilities.

Previous wording

Data processing fees decreased by $18,000 and increased by $23,000 for the three and six-months ended June 30, 2025, respectively, as compared to the same periods of 2024. The second quarter decrease relates to non-recurring charges in the prior year for online banking upgrades. The year-to-date increase was primarily due to servicing costs on the growing number of loan and deposit accounts.

Current wording

Data processing fees decreased by $86,000 and $110,000 for the three and nine-months ended September 30, 2025, respectively, as compared to the same periods of 2024, due to servicing costs on the growing number of loan and deposit accounts.

Previous wording

Federal Deposit Insurance Corporation (“FDIC”) and California Department of Financial Protection and Innovation (“DFPI”) regulatory assessments increased by $20,000 and $15,000 for the three and six-months ended June 30, 2025, respectively, as compared to the same periods in 2024, which was primarily related to deposit growth. The FDIC base rate remained at 0.05%, on an annual basis, for both periods, which is the lowest possible assessment rate for comparable banks. The Company’s risk profile and the related assessment rate remains at a relatively low level due to our strong credit quality, earnings and risk-based capital ratios. Management recognizes that assessments could increase further depending on deposit growth throughout the remainder of 2025, as the FDIC assessment rates are applied to average quarterly total liabilities as the primary basis, and based on FDIC’s discretion to increase the base assessment rate as needed to replenish the Deposit Insurance Fund. Moreover, the FDIC retains the authority and discretion to increase base assessment rates for banking entities in the future, as circumstances warrant.

Current wording

Federal Deposit Insurance Corporation (“FDIC”) and California Department of Financial Protection and Innovation (“DFPI”) regulatory assessments increased by $30,000 and $45,000 for the three and nine-months ended September 30, 2025, respectively, as compared to the same periods in 2024, which was primarily related to deposit growth. The FDIC base rate remained at 0.05%, on an annual basis, for both periods, which is the lowest possible assessment rate for comparable banks. The Company’s risk profile and the related assessment rate remains at a relatively low level due to our strong credit quality, earnings and risk-based capital ratios. Management recognizes that assessments could increase further depending on deposit growth throughout the remainder of 2025, as the FDIC assessment rates are applied to average quarterly total liabilities as the primary basis, and based on FDIC’s discretion to increase the base assessment rate as needed to replenish the Deposit Insurance Fund. Moreover, the FDIC retains the authority and discretion to increase base assessment rates for banking entities in the future, as circumstances warrant.

Previous wording

Other expense increased by $587,000 and $1,255,000 for the three and six-months ended June 30, 2025, respectively, as compared to the same periods in 2024. The increase was partially due to provisions to the reserve for off-balance sheet items, in combination with various general operating expense increases, which is expected given the expansion of the Company’s business portfolios.

Current wording

Other expense increased by $454,000 and $1,709,000 for the three and nine-months ended September 30, 2025, respectively, as compared to the same periods in 2024. The increase was due to various general operating expense increases, which were expected given the expansion of the Company’s business portfolios.

Previous wording

Management anticipates that non-interest expense will continue to increase as the Company continues to grow. However, management remains committed to cost-control and expects to keep these increases to a minimum relative to growth.

Current wording

Management anticipates that non-interest expense will continue to increase as the Company continues to grow. However, management remains committed to cost-control and intends to keep these increases to a minimum relative to growth.

Previous wording

The Company recorded provisions for income taxes of $1,581,000 and $3,080,000 for the three and six-month ended June 30, 2025, respectively, representing increases of $34,000 and $29,000, respectively, compared to the provisions recorded in the comparable periods of 2024. The effective income tax rate on income from continuing operations was 22.1% for the three and six-months ended June 30, 2025, compared to 20.8% for the comparable periods of 2024. These provisions reflect accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income, and adjusted for the effects of all permanent differences between income for tax and financial reporting purposes (such as earnings on qualified municipal securities, bank owned life insurance and certain tax-exempt loans). The disparity between the effective tax rates for the year-to-date period of 2024 as compared to 2025 is primarily due to tax credits from low-income housing projects as well as tax-free income on municipal securities and loans that comprised a larger proportion of pre-tax income in 2024 as compared to 2025.

Current wording

The Company recorded provisions for income taxes of $1,837,000 and $4,917,000 for the three and nine-month ended September 30, 2025, respectively, representing decreases of $636,000 and $607,000, respectively, compared to the provisions recorded in the comparable periods of 2024. The effective income tax rate on income from continuing operations was 21.5% and 21.9% for the three and nine-months ended September 30, 2025, respectively, compared to 25.2% and 22.6% for the comparable periods of 2024. These provisions reflect accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income, and adjusted for the effects of all permanent differences between income for tax and financial reporting purposes (such as earnings on qualified municipal securities, bank owned life insurance and certain tax-exempt loans). The disparity between the effective tax rates for the year-to-date period of 2024 as compared to 2025 is primarily due to tax credits from low-income housing projects as well as tax-free income on municipal securities and loans that comprised a larger proportion of pre-tax income in 2025 as compared to 2024.

Previous wording

Non-accrual loans totaled $0 as of June 30, 2025 and December 31, 2024. At June 30, 2025 and December 31, 2024, there were no loan modifications pursuant to ASU 2022-02, and therefore there were no payment delinquencies on modified loans during the three and six-months ended June 30, 2025.

Current wording

Non-accrual loans totaled $0 as of September 30, 2025 and December 31, 2024. At September 30, 2025 and December 31, 2024, there were no loan modifications pursuant to ASU 2022-02, and therefore there were no payment delinquencies on modified loans during the three and nine-months ended September 30, 2025.

Previous wording

As of June 30, 2025 and December 31, 2024, there were no OREO properties. There were no sales, acquisitions or fair value adjustments of OREO properties during the three and six-months ended June 30, 2025 and 2024.

Current wording

As of September 30, 2025 and December 31, 2024, there were no OREO properties. There were no sales, acquisitions or fair value adjustments of OREO properties during the three and nine-months ended September 30, 2025 and 2024.

Previous wording

Due to credit risk inherent in the lending business, the Company routinely sets aside allowances through charges to earnings. Such charges are not only made for the outstanding loan portfolio, but also for off-balance sheet items, such as commitments to extend credits or letters of credit. Charges for the outstanding loan portfolio have been credited to the allowance for credit losses, whereas charges for off-balance sheet items have been credited to the reserve for off-balance sheet items, which is presented as a component of other liabilities. The Company did not record any credit loss provisions during the three and six-months ended June 30, 2025 and 2024. The Company recorded provisions of $245,000 and $519,000 for off-balance sheet items during the three and six-months ended June 30, 2025, respectively, as compared to provisions of $0 and provision reversals of $78,000 recorded during the same periods of 2024, respectively.

Current wording

Due to credit risk inherent in the lending business, the Company routinely sets aside allowances through charges to earnings. Such charges are not only made for the outstanding loan portfolio, but also for off-balance sheet items, such as commitments to extend credits or letters of credit. Charges for the outstanding loan portfolio have been credited to the allowance for credit losses, whereas charges for off-balance sheet items have been credited to the reserve for off-balance sheet items, which is presented as a component of other liabilities. The Company recorded a reversal of credit loss provisions of $60,000 during the three and nine-months ended September 30, 2025, as compared to a reversal of $1,620,000 for the same periods of 2024. The reversal of $60,000 recorded in the third quarter of 2025 was related to a decrease in unfunded loan commitments, and the $1,620,000 reversal in the prior year was related to two loan recoveries recorded in the third quarter of 2024.

Previous wording

The allowance for credit losses decreased by $30,000 to $11,430,000 as of June 30, 2025, as compared to $11,460,000 as of December 31, 2024, due to net loan charge-offs of $30,000 during the first six months of 2025. The allowance for credit losses as a percentage of total loans decreased to 1.03% as of June 30, 2025 as compared to 1.04% as of December 31, 2024.

Current wording

The allowance for credit losses decreased by $40,000 to $11,420,000 as of September 30, 2025, as compared to $11,460,000 as of December 31, 2024, due to net loan charge-offs of $40,000 during the first nine months of 2025. The allowance for credit losses as a percentage of total loans decreased to 1.03% as of September 30, 2025 as compared to 1.04% as of December 31, 2024.

Previous wording

The Company holds federal funds sold, unpledged available-for-sale securities and salable government guaranteed loans to help meet liquidity requirements and provide temporary holdings until the funds can be otherwise deployed or invested. As of June 30, 2025, and December 31, 2024, the Company had $198,860,000 and $168,751,000, respectively, in cash and cash equivalents.

Current wording

The Company holds federal funds sold, unpledged available-for-sale securities and salable government guaranteed loans to help meet liquidity requirements and provide temporary holdings until the funds can be otherwise deployed or invested. As of September 30, 2025, and December 31, 2024, the Company had $247,155,000 and $168,751,000, respectively, in cash and cash equivalents.

Previous wording

Management of the investment securities portfolio focuses on providing an adequate level of liquidity and establishing an interest rate-sensitive position, while earning an adequate level of investment income without taking undue risk. Investment securities that the Company intends to hold until maturity are classified as held-to-maturity securities, and all other investment securities are classified as available-for-sale or equity securities. Currently, all of the investment securities are classified as available-for-sale except for one mutual fund classified as an equity security with a carrying value of $3,292,000 as of June 30, 2025. The carrying values of available-for-sale investment securities are adjusted for unrealized gains or losses as a valuation allowance and any gain or loss is reported on an after-tax basis as a component of other comprehensive income. The carrying values of equity securities are adjusted for unrealized gains or losses through noninterest income in the consolidated statement of income.

Current wording

Management of the investment securities portfolio focuses on providing an adequate level of liquidity and establishing an interest rate-sensitive position, while earning an adequate level of investment income without taking undue risk. Investment securities that the Company intends to hold until maturity are classified as held-to-maturity securities, and all other investment securities are classified as available-for-sale or equity securities. Currently, all of the investment securities are classified as available-for-sale except for one mutual fund classified as an equity security with a carrying value of $3,364,000 as of September 30, 2025. The carrying values of available-for-sale investment securities are adjusted for unrealized gains or losses as a valuation allowance and any gain or loss is reported on an after-tax basis as a component of other comprehensive income. The carrying values of equity securities are adjusted for unrealized gains or losses through noninterest income in the consolidated statement of income.

Previous wording

During 2018 and 2022, we committed to invest $5,000,000 and $10,500,000, respectively, in low-income housing tax credit funds (“LIHTC”) to promote our participation in CRA activities. During the three-months ended March 31, 2025, we committed an additional $5,000,000 that included a housing project in our local area that qualified for CRA credit. Unfunded commitments on the LIHTC funds were $7,422,000 and $5,664,000 as of June 30, 2025 and December 31, 2024, respectively. For LIHTC investments, we receive the return in the form of tax credits and tax deductions over a period of approximately 15 years.

Current wording

During 2018 and 2022, we committed to invest $5,000,000 and $10,500,000, respectively, in low-income housing tax credit funds (“LIHTC”) to promote our participation in CRA activities. During the three-months ended March 31, 2025, we committed an additional $5,000,000 that included a housing project in our local area that qualified for CRA credit. Unfunded commitments on the LIHTC funds were $5,391,000 and $5,664,000 as of September 30, 2025 and December 31, 2024, respectively. For LIHTC investments, we receive the return in the form of tax credits and tax deductions over a period of approximately 15 years.

Previous wording

Total deposits as of June 30, 2025 were $1,711,241,000, an increase of $15,551,000 or 0.9% from the deposit total of $1,695,690,000 as of December 31, 2024. Average deposits increased by $69,413,000 to $1,694,808,000 for the six-month period ended June 30, 2025, as compared to the same period in 2024.

Current wording

Total deposits as of September 30, 2025 were $1,774,882,000, an increase of $79,192,000 or 4.7% from the deposit total of $1,695,690,000 as of December 31, 2024. Average deposits increased by $73,712,000 to $1,714,473,000 for the nine-month period ended September 30, 2025, as compared to the same period in 2024.

Previous wording

Because the Company’s client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks. Five clients carry deposit balances of more than 1% of total deposits, one of which had a deposit balance of more than 3% of total deposits as of June 30, 2025. Management believes that the Company’s funding concentration risk is not significant and is mitigated by the ample sources of funds the Bank has access to.

Current wording

Because the Company’s client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks. Four clients carry deposit balances of more than 1% of total deposits, one of which had a deposit balance of more than 3% of total deposits as of September 30, 2025. Management believes that the Company’s funding concentration risk is not significant and is mitigated by the ample sources of funds the Bank has access to.

Previous wording

The Company is regulated by the Federal Reserve Bank (“FRB”) and is subject to the securities registration and public reporting regulations of the Securities and Exchange Commission. As a California state-chartered bank, the Company’s banking subsidiary is subject to primary supervision, examination and regulation by the DFPI and the Federal Reserve Board. The Federal Reserve Board is the primary federal regulator of state-member banks. The Bank is also subject to regulation by the FDIC, which insures the Bank’s deposits as permitted by law. Management is currently reviewing Pub. L. No 119-21, or the One Big Beautiful Bill Act (“OBBBA”), to determine implications for the Company, but is not currently aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on the Company’s or Bank’s liquidity, capital resources, or operations.

Current wording

The Company is regulated by the Federal Reserve Bank (“FRB”) and is subject to the securities registration and public reporting regulations of the Securities and Exchange Commission. As a California state-chartered bank, the Company’s banking subsidiary is subject to primary supervision, examination and regulation by the DFPI and the Federal Reserve Board. The Federal Reserve Board is the primary federal regulator of state-member banks. The Bank is also subject to regulation by the FDIC, which insures the Bank’s deposits as permitted by law. Management continues to monitor the implementation of Pub. L. No. 119-21, or the One Big Beautiful Bill Act, to determine implications for the Company, but is not currently aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on the Company’s or Bank’s liquidity, capital resources, or operations.

Previous wording

Maintenance of adequate liquidity requires that sufficient resources always be available to meet the Company’s cash flow requirements. Liquidity in a banking institution is required primarily to provide for deposit withdrawals and the credit needs of its customers and to take advantage of investment opportunities as they arise. Liquidity management involves the ability to convert assets into cash or cash equivalents without incurring significant loss, and to raise cash or maintain funds without incurring excessive costs. For this purpose, the Company maintains a portion of funds in cash and cash equivalents, salable government guaranteed loans and securities available for sale. The Company obtains funds from the repayment and maturity of loans as well as deposit inflows, investment security maturities and paydowns, Federal funds purchased, FHLB advances, and other borrowings. The Company’s primary use of funds is the origination of loans, the purchase of investment securities, withdrawals of deposits, maturity of certificate of deposits, repayment of borrowings and dividends to common stockholders. The Company’s liquid assets as of June 30, 2025 were $428.1 million compared to $431.8 million as of December 31, 2024. The Company’s liquidity level measured as the percentage of liquid assets to total assets was 22.3% as of June 30, 2025, compared to 22.7% as of December 31, 2024. Liquid assets decreased slightly during the first six months of 2025, mainly due to an increase in the loan portfolio. Management anticipates that cash and cash equivalents on hand and other sources of funds will provide adequate liquidity for operating, investing and financing needs and regulatory liquidity requirements for at least the next twelve months. Management monitors the Company’s liquidity position daily, balancing loan funding/payments with changes in deposit activity and overnight investments.

Current wording

Maintenance of adequate liquidity requires that sufficient resources always be available to meet the Company’s cash flow requirements. Liquidity in a banking institution is required primarily to provide for deposit withdrawals and the credit needs of its customers and to take advantage of investment opportunities as they arise. Liquidity management involves the ability to convert assets into cash or cash equivalents without incurring significant loss, and to raise cash or maintain funds without incurring excessive costs. For this purpose, the Company maintains a portion of funds in cash and cash equivalents, salable government guaranteed loans and securities available for sale. The Company obtains funds from the repayment and maturity of loans as well as deposit inflows, investment security maturities and paydowns, Federal funds purchased, FHLB advances, and other borrowings. The Company’s primary use of funds is the origination of loans, the purchase of investment securities, withdrawals of deposits, maturity of certificate of deposits, and dividends to common stockholders. The Company’s liquid assets as of September 30, 2025 were $494.8 million compared to $431.8 million as of December 31, 2024. The Company’s liquidity level measured as the percentage of liquid assets to total assets was 24.8% as of September 30, 2025, compared to 22.7% as of December 31, 2024. Liquid assets increased during the first nine months of 2025, mainly due to an increase in deposit balances. Management anticipates that cash and cash equivalents on hand and other sources of funds will provide adequate liquidity for operating, investing and financing needs and regulatory liquidity requirements for at least the next twelve months. Management monitors the Company’s liquidity position daily, balancing loan funding/payments with changes in deposit activity and overnight investments.

Previous wording

As a secondary source of liquidity, the Company relies on advances from the FHLB to supplement the supply of lendable funds and to meet deposit withdrawal requirements. Advances from the FHLB are typically secured by a portion of the loan portfolio. The FHLB determines limitations on the amount of advances by assigning a percentage to each eligible loan category that will count towards the borrowing capacity. As of June 30, 2025, the Company’s borrowing capacity from the FHLB was approximately $384.2 million and there were no outstanding advances. The Company also maintains a line of credit with two correspondent banks to purchase up to $70 million in federal funds, and approximately $33.6 million borrowing capacity through the FRB Discount Window, for which there were no advances on either borrowing source as of June 30, 2025.

Current wording

As a secondary source of liquidity, the Company relies on advances from the FHLB to supplement the supply of lendable funds and to meet deposit withdrawal requirements. Advances from the FHLB are typically secured by a portion of the loan portfolio. The FHLB determines limitations on the amount of advances by assigning a percentage to each eligible loan category that will count towards the borrowing capacity. As of September 30, 2025, the Company’s borrowing capacity from the FHLB was approximately $394.9 million and there were no outstanding advances. The Company also maintains a line of credit with two correspondent banks to purchase up to $70 million in federal funds, and approximately $33.6 million borrowing capacity through the FRB Discount Window, for which there were no advances on either borrowing source as of September 30, 2025.

Previous wording

As of June 30, 2025 and December 31, 2024, the Company had commitments to extend credit of $204.9 million and $185.8 million, respectively, which includes obligations under letters of credit of $4.6 million and $4.2 million, respectively.

Current wording

As of September 30, 2025 and December 31, 2024, the Company had commitments to extend credit of $206.9 million and $185.8 million, respectively, which includes obligations under letters of credit of $4.5 million and $4.2 million, respectively.

Previous wording

In October 2024, the Consumer Financial Protection Bureau (“CFPB”) finalized a rule to implement Section 1033 of the Dodd-Frank Act, which would require certain entities, including the Company and the Bank, to, among other things, make available to a consumer, upon request, information in its control or possession concerning the consumer financial product or service that the consumer obtained from that entity. In issuing the rule, the CFPB said that the rule will move the U.S. closer to an “open banking” system and will let consumers more easily switch banks or other providers. In general, the rule also requires, among other things, data providers holding a consumer account, such as the Bank, to establish a developer interface satisfying certain data security specifications and other standards, through which the data provider can receive requests for, and provide, specific types of data covered by the rule in electronic, usable form to authorized third parties, including data aggregators. Under the rule, data providers are prohibited from, among other things, charging consumers or third parties fees for processing these consumer data requests. The rule also places certain data security, authorization and other obligations on third parties accessing covered data from data providers, which could include the Company and the Bank when acting in certain capacities. The rule requires third parties to limit their collection, use, and retention of the data received to only what is reasonably necessary to provide the consumers’ requested product or service. The compliance date for a depository institution data provider that holds at least $1.5 billion in total assets but less than $3 billion in total assets is April 1, 2029; however, in May 2025, the CFPB filed a motion for summary judgment in the litigation, in which the CFPB stated that it had concluded that the final rule exceeds the agency’s statutory authority. As a result, the CFPB requested that the court grant the plaintiffs’ motion for summary judgment and vacate the final rule. The district court has not yet ruled on the CFPB’s motion. We continue to evaluate the final rule, related litigation and the potential impacts on the Company and the Bank.

Current wording

In October 2024, the Consumer Financial Protection Bureau (“CFPB”) finalized a rule to implement Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), which would require certain entities, including the Company and the Bank, to, among other things, make available to a consumer, upon request, information in its control or possession concerning the consumer financial product or service that the consumer obtained from that entity. The compliance date for a depository institution data provider that holds at least $1.5 billion in total assets but less than $3 billion in total assets was April 1, 2029; however, in May 2025, the CFPB filed a motion for summary judgment in the litigation, in which the CFPB stated that it had concluded that the final rule exceeds the agency’s statutory authority. In July 2025, the CFPB filed a motion to stay the proceedings while it conducts a new rulemaking process, which was granted by the district court. In August 2025, the CFPB issued an advanced notice of proposed rulemaking to reconsider its final rule under Section 1033 of the Dodd-Frank Act. Further, in October 2025, the court stayed the compliance dates in the final rule pending the CFPB’s reconsideration rulemaking. We will continue to monitor developments for any potential impact on the Company and the Bank.