Oak Valley Bancorp

Previous wording

Management believes the following were important factors in the Company’s performance during the three and six-month periods ended June 30, 2026:

Current wording

Management believes the following were important factors in the Company’s performance during the three and nine-month periods ended September 30, 2026:

Previous wording

For the three and six-month periods ended June 30, 2026, the Company recorded net income of $5,114,000 and $10,423,000, respectively, representing decreases of $474,000 and $462,000, as compared to the same periods in 2025. Return on average assets (annualized) was 1.04% and 1.05% for the three and six-months ended June 30, 2026, respectively, as compared to 1.18% and 1.15% for the same periods in 2025. Annualized return on average common equity was 9.74% and 9.98% for the three and six-months ended June 30, 2026, respectively, as compared to 12.21% and 11.89% for the same periods in 2025. Net income before provisions for income taxes decreased by $738,000 and $728,000 for the three and six-month periods ended June 30, 2026, respectively, from the same periods in 2025. The income statement components of these variances are as follows:

Current wording

For the three and nine-month periods ended September 30, 2026, the Company recorded net income of $6,450,000 and $16,873,000, respectively, representing decreases of $243,000 and $705,000, respectively, as compared to the same periods in 2025. Return on average assets (annualized) was 1.28% and 1.13% for the three and nine-months ended September 30, 2026, respectively, as compared to 1.35% and 1.22%, respectively, for the same periods in 2025. Annualized return on average common equity was 12.16% and 10.72% for the three and nine-months ended September 30, 2026, respectively, as compared to 14.30% and 12.71%, respectively, for the same periods in 2025. Net income before provisions for income taxes decreased by $339,000 and $1,067,000 for the three and nine-month periods ended September 30, 2026, respectively, from the same periods in 2025. 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, 2026, net interest income was $18,944,000 and $37,768,000, respectively, which represents increases of $790,000 and $1,807,000, from the comparable periods in 2025. 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 2025.

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, 2026, net interest income was $19,802,000 and $57,570,000, respectively, which represents increases of $605,000 and $2,412,000, respectively, from the comparable periods in 2025. 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 2025. The earning asset yield increased by 11 basis points and 7 basis points for thethree and nine-month periods ended September 30, 2026, respectively, as compared to the same periods of 2025.

Previous wording

Due to the current interest rate environment, the Bank has experienced a modest increase in the average interest rate paid on deposit accounts as it continues to competitively price deposits to meet customer demand, maintain deposit relationships, and support liquidity. The Company’s average cost of funds was 0.81% and 0.80% for the three and six-months ended June 30, 2026, respectively, as compared to 0.77% and 0.78% in the same periods of 2025.

Current wording

Due to the current interest rate environment, the Bank has experienced a modest increase in the average interest rate paid on deposit accounts as it continues to competitively price deposits to meet customer demand, maintain deposit relationships, and support liquidity. The Company’s average cost of funds was 0.80% for the three and nine-months ended September 30, 2026 as compared to 0.75% and 0.77%, respectively, in the same periods of 2025.

Previous wording

The net interest margin (net interest income as a percentage of average interest earning assets) was 4.15% and 4.13% for the three and six-month periods ended June 30, 2026, respectively, as compared to 4.11% and 4.10% for the same periods in 2025. The net interest margin increased compared to the prior year due to the rising loan yields and earning asset growth, which was partially offset by the slight increase to deposit interest rates. The earning asset yield increased by 7 basis points and 4 basis points for the three and six-month periods ended June 30, 2026, as compared to the same periods of 2025.

Current wording

The net interest margin (net interest income as a percentage of average interest earning assets) was 4.24% and 4.17% for the three and nine-month periods ended September 30, 2026, respectively, as compared to 4.16% and 4.12%, respectively, for the same periods in 2025. The net interest margin increased compared to the prior year due to the rising loan yields and earning asset growth, which was partially offset by the slight increase to deposit interest rates.

Previous wording

The following tables show 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, 2026 and 2025:

Current wording

The following tables show 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, 2026 and 2025:

Previous 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 $529 thousand have been added to GAAP interest income on gross loans and investment securities, respectively, for the three-months ended June 30, 2026, as compared to $18 thousand and $480 thousand, respectively, in the comparable periods of 2025. These non-GAAP adjustments are used by management to assess the Company’s performance and provide additional information and transparency to investors with respect to the Company’s gross loans and investment securities. Non-GAAP performance measures do not have a standardized meaning and such measures may not be comparable to similar measures presented by other companies. Non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

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 $519 thousand have been added to GAAP interest income on gross loans and investment securities, respectively, for the three-months ended September 30, 2026, as compared to $18 thousand and $482 thousand, respectively, in the comparable periods of 2025. These non-GAAP adjustments are used by management to assess the Company’s performance and provide additional information and transparency to investors with respect to the Company’s gross loans and investment securities. Non-GAAP performance measures do not have a standardized meaning and such measures may not be comparable to similar measures presented by other companies. Non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

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%. Non-GAAP tax benefit adjustments of $35 thousand and $1.05 million have been added to GAAP interest income on gross loans and investment securities, respectively, for the six-months ended June 30, 2026, as compared to $38 thousand and $959 thousand in the comparable periods of 2025. These non-GAAP adjustments are used by management to assess the Company’s performance and provide additional information and transparency to investors with respect to the Company’s gross loans and investment securities. Non-GAAP performance measures do not have a standardized meaning and such measures may not be comparable to similar measures presented by other companies. Non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

Current 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%. Non-GAAP tax benefit adjustments of $53 thousand and $1.568 million have been added to GAAP interest income on gross loans and investment securities, respectively, for the nine-months ended September 30, 2026, as compared to $54 thousand and $1.441 million in the comparable periods of 2025. These non-GAAP adjustments are used by management to assess the Company’s performance and provide additional information and transparency to investors with respect to the Company’s gross loans and investment securities. Non-GAAP performance measures do not have a standardized meaning and such measures may not be comparable to similar measures presented by other companies. Non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

Previous wording

Shown in the following table 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, 2026 and 2025. 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 table 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, 2026 and 2025. 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 $519,000 in net interest income due to changes in volume combined with the overall change in mix of balances during the second quarter of 2026, as compared to the same period of 2025. Changes in earning asset yields and rates on interest-bearing liabilities resulted in an increase of $320,000 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 $75,000 in net interest income due to changes in volume combined with the overall change in mix of balances during the third quarter of 2026, as compared to the same period of 2025. Changes in earning asset yields and rates on interest-bearing liabilities resulted in an increase of $567,000 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 $1,301,000 in net interest income due to changes in volume combined with the overall change in mix of balances during the first six months of 2026, as compared to the same period of 2025. Changes in earning asset yields and rates on interest-bearing liabilities resulted in an increase of $594,000 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 $1,378,000 in net interest income due to changes in volume combined with the overall change in mix of balances during the first nine months of 2026, as compared to the same period of 2025. Changes in earning asset yields and rates on interest-bearing liabilities resulted in an increase of $1,160,000 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

During the three and six-month periods ended June 30, 2026, the Company recorded provisions for credit losses of $21,000 and $485,000, respectively, consisting of a provision for loan losses of $15,000 and provisions for off balance sheet items of $6,000 during the second quarter of 2026, and a provision for loan losses of $554,000 and a reversal of provisions for off balance sheet items of $69,000 during the year-to-date period of 2026. In comparison, during the three-month period ended June 30, 2025, the Company recorded a provision for credit losses of $245,000, related to the reserve for off balance sheet items. For the year-to-date period of 2025, the Company recorded a provision for credit losses of $519,000, related to the reserve for off balance sheet items. There was one home equity non-accrual loan with a balance of $50,000 that was individually evaluated resulting in no specific reserve as of June 30, 2026, as compared to one non-owner occupied commercial real estate loan with a balance of $4,587,000 as of December 31, 2025 that had a specific reserve included in the ACL.

Current wording

During the three and nine-month periods ended September 30, 2026, the Company recorded provisions for credit losses of $42,000 and $527,000, respectively, consisting of a provision for loan losses of $0 and provisions for off balance sheet items of $42,000 during the third quarter of 2026, and a provision for loan losses of $554,000 and a reversal of provisions for off balance sheet items of $27,000 during the year-to-date period of 2026. In comparison, during the three-month period ended September 30, 2025, the Company recorded a reversal of provision for credit losses of $60,000, related to the reserve for off balance sheet items. For the year-to-date period of 2025, the Company recorded a provision for credit losses of $459,000, related to the reserve for off balance sheet items. There were no loans requiring individual evaluation as of September 30, 2026, as compared to one non-owner occupied commercial real estate loan with a balance of $4,587,000 as of December 31, 2025 that was individually evaluated and had a specific reserve included in the ACL.

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, 2026, non-interest income was $1,665,000 and $3,617,000, respectively, representing a decrease of $38,000, or 2.2% and an increase of $301,000 or 9.1%, compared to the same periods in 2025.

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, 2026, non-interest income was $1,851,000 and $5,468,000, respectively, representing a decrease of $122,000, or 6.2%, and an increase of $179,000, or 3.4%, compared to the same periods in 2025.

Previous wording

Service charges on deposits increased by $13,000 and $7,000 for the three and six-months ended June 30, 2026, respectively, compared to the same periods in 2025. The increase was mainly due to the growth in the number of demand deposit accounts.

Current wording

Service charges on deposits decreased by $1,000 and increased by $7,000 for the three and nine-months ended September 30, 2026, respectively, compared to the same periods in 2025. The year-to-date increase was mainly due to the growth in the number of demand deposit accounts.

Previous wording

Debit card transaction fee income decreased by $85,000 and $73,000 for the three and six-months ended June 30, 2026, respectively, compared to the same periods in 2025, mainly due to a one-time correction from Mastercard for network processing fees. Excluding this one-time correction, the growth in the number of demand deposit accounts and the continuing industry shift to electronic payment methods continues to increase revenue at a steady pace.

Current wording

Debit card transaction fee income increased by $203,000 and $130,000 for the three and nine-months ended September 30, 2026, respectively, compared to the same periods in 2025, mainly due to the growth in the number of demand deposit accounts and the steady pace of the industry shift to electronic payment methods.

Previous wording

Earnings on cash surrender value of life insurance increased by $50,000 and $67,000 for the three and six-months ended June 30, 2026, respectively, compared to the same periods in 2025, corresponding to higher yields earned in 2026 and two new life insurance policies that were purchased during the second quarter of 2026.

Current wording

Earnings on cash surrender value of life insurance decreased by $6,000 and increased by $61,000 for the three and nine-months ended September 30, 2026, respectively, compared to the same periods in 2025, corresponding to higher yields earned in 2026 and two new life insurance policies that were purchased during the nine -months ended September 30, 2026.

Previous wording

Losses on called available-for-sale securities of $2,000 and $7,000 were recorded during the three and six-months ended June 30, 2026, respectively, compared gains on called available-for-sale securities of $2,000 for the same periods in 2025. There were no sales during the first six months of 2026 and 2025.

Current wording

Losses on called available-for-sale securities of $2,000 and $9,000 were recorded during the three and nine-months ended September 30, 2026, respectively, compared to losses on called available-for-sale securities of $2,000 for the same periods in 2025. There were no sales during the first nine months of 2026 and 2025.

Previous wording

Other income decreased by $12,000 for the three-months ended June 30, 2026, and increased by $309,000 for the six-months ended June 30, 2026, as compared to the same periods of 2025. The quarter-to-date decrease was related to a market value adjustment on a limited partnership equity investment and the year-to-date increase was mainly due to higher production from investment advisory services and a non-recurring special dividend paid by the Federal Home Loan Bank during the first quarter of 2026.

Current wording

Other income decreased by $318,000 and $10,000 for the three and nine-months ended September 30, 2026, respectively, as compared to the same periods of 2025, mainly due to a market value adjustment on an equity security. These decreases were partially offset by higher production from investment advisory services and an increase in dividends paid by the Federal Home Loan Bank.

Previous wording

Non-interest expenses increased by $1,714,000, or 13.8% and $2,870,000 or 11.6%, for the three and six-months ended June 30, 2026, respectively, as compared to the same periods of 2025. Salaries and employee benefits increased by $1,324,000 and $2,135,000 for the three and six-months ended June 30, 2026, respectively, as compared to the same periods of 2025, mainly due to additional staffing expense required to support the continued growth of our business portfolios.

Current wording

Non-interest expenses increased by $720,000, or 5.7%, and $3,590,000, or 9.6%, for the three and nine-months ended September 30, 2026, respectively, as compared to the same periods of 2025. Salaries and employee benefits increased by $475,000 and $2,611,000 for the three and nine-months ended September 30, 2026, respectively, as compared to the same periods of 2025, mainly due to additional staffing expense required to support the continued growth of our business portfolios.

Previous wording

Occupancy expenses increased by $231,000 and $498,000 for the three and six-months ended June 30, 2026, respectively, as compared to the same periods of 2025, due to increases in rent and maintenance costs related to branch facilities. Our new Lodi branch was opened in October 2025, and contributed to the increase in overhead expense.

Current wording

Occupancy expenses increased by $148,000 and $646,000 for the three and nine-months ended September 30, 2026, respectively, as compared to the same periods of 2025, due to increases in rent and maintenance costs related to branch facilities. Our new Lodi branch was opened in October 2025, and contributed to the increase in overhead expense.

Previous wording

Data processing fees increased by $136,000 and $269,000 for the three and six-months ended June 30, 2026, respectively, as compared to the same periods of 2025, due to servicing costs on the growing number of loan and deposit accounts.

Current wording

Data processing fees increased by $263,000 and $532,000 for the three and nine-months ended September 30, 2026, respectively, as compared to the same periods of 2025, due to servicing costs on the growing number of loan and deposit accounts, and normal annual cost adjustments from our core provider.

Previous wording

Advertising and marketing expenses increased by $127,000 and $83,000 for the three and six-months ended June 30, 2026, respectively, as compared to the same periods of 2025, due to various advertising campaigns designed to promote the Company including a direct mailing campaign.

Current wording

Advertising and marketing expenses decreased by $29,000 and increased by $54,000 for the three and nine-months ended September 30, 2026, respectively, as compared to the same periods of 2025, due to normal fluctuations from various advertising campaigns designed to promote the Company including a direct mailing campaign.

Previous wording

Federal Deposit Insurance Corporation (“FDIC”) and California Department of Financial Protection and Innovation (“DFPI”) regulatory assessments increased by $11,000 and $21,000 for the three and six-months ended June 30, 2026, respectively, as compared to the same periods in 2025, 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 2026, 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 $13,000 and $34,000 for the three and nine-months ended September 30, 2026, respectively, as compared to the same periods in 2025, 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 2026, 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 decreased by $115,000 and $136,000 for the three and six-months ended June 30, 2026, respectively, as compared to the same periods in 2025, mainly due to a decrease in audit expenses.

Current wording

Other expense decreased by $150,000 and $287,000 for the three and nine-months ended September 30, 2026, respectively, as compared to the same periods in 2025, mainly due to a decrease in audit expenses.

Previous wording

The Company recorded provisions for income taxes of $1,317,000 and $2,814,000 for the three and six-months ended June 30, 2026, respectively, representing decreases of $264,000 and $266,000, compared to the provisions recorded in the comparable periods of 2025. The effective income tax rate on income from continuing operations was 20.5% and 21.3% for the three and six-months ended June 30, 2026, compared to 22.1% for the comparable periods of 2025. 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 2026 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 2026 as compared to 2025.

Current wording

The Company recorded provisions for income taxes of $1,741,000 and $4,555,000 for the three and nine-months ended September 30, 2026, respectively, representing decreases of $96,000 and $362,000, respectively, compared to the provisions recorded in the comparable periods of 2025. The effective income tax rate on income from continuing operations was 21.3% for the three and nine-months ended September 30, 2026, compared to 21.5% and 21.9%, respectively, for the comparable periods of 2025. 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 2026 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 2026 as compared to 2025.

Previous wording

Non-accrual loans totaled $50,000 as of June 30, 2026, consisting of one home equity line of credit loan, as compared to $4,587,000 as of December 31, 2025, consisting of one non-owner occupied commercial real estate loan. The non-accrual loan at December 31, 2025 was partially charged-off and the remaining fair value balance was transferred to OREO during the second quarter of 2026. At June 30, 2026 and December 31, 2025, 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, 2026.

Current wording

Non-accrual loans totaled $0 as of September 30, 2026, as compared to $4,587,000 as of December 31, 2025, consisting of one non-owner occupied commercial real estate loan. The non-accrual loan at December 31, 2025 was partially charged-off and the remaining fair value balance was transferred to OREO during the secondq uarter of 2026. At September 30, 2026 and December 31, 2025, 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, 2026.

Previous wording

As of June 30, 2026 there was one OREO property with a balance of $2,581,000, as compared to no OREO properties owned as of December 31, 2025. The OREO property owned as of June 30, 2026 is a commercial real estate property that was acquired during the second quarter of 2026 through a foreclosure. Except for the acquisition of that property, there were no sales, acquisitions or fair value adjustments of OREO properties during the three and six-months ended June 30, 2026 and 2025.

Current wording

As of September 30, 2026 there was one OREO property with a balance of $2,581,000, as compared to no OREO properties owned as of December 31, 2025. The OREO property owned as of September 30, 2026 is a commercial real estate property that was acquired during the second quarter of 2026 through a foreclosure. Except for the acquisition of that property, there were no sales, acquisitions or fair value adjustments of OREO properties during the three and nine-months ended September 30, 2026 and 2025.

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 recorded a provision for credit losses of $15,000 and $554,000 during the three and six-months ended June 30, 2026, respectively, as compared to no provisions during the same periods of 2025. The provisions recorded during 2026 were primarily related to the specific allowance of the commercial real estate non-accrual loan that was individually evaluated, in addition to loan growth and qualitative risk factors within our credit risk model. The Company recorded a provision for off balance sheet items of $6,000 and a reversal of $69,000 during the three and six-months ended June 30, 2026, respectively, due to normal fluctuations in the unfunded loan commitments, as compared to provisions of $245,000 and $519,000 during the same periods of 2025.

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 provision for credit losses of $0 and $554,000 during the three and nine-months ended September 30, 2026, respectively, as compared to no provisions during the same periods of 2025. The provisions recorded during 2026 were primarily related to the specific allowance of the commercial real estate non-accrual loan that was individually evaluated, in addition to loan growth and qualitative risk factors within our credit risk model. The Company recorded a provision for off balance sheet items of $42,000 and a reversal of $27,000 during the three and nine-months ended September 30, 2026, respectively, due to normal fluctuations in the unfunded loan commitments, as compared to a reversal of $60,000 and a provision of $459,000 during the same periods of 2025.

Previous wording

The allowance for credit losses decreased by $1,209,000 to $11,172,000 as of June 30, 2026, as compared to $12,381,000 as of December 31, 2025, due to the charge-offs of $1,769,000 and the offsetting provision for credit losses of $554,000 during the first six months of 2026. The allowance for credit losses as a percentage of total loans decreased to 0.96% as of June 30, 2026 as compared to 1.08% as of December 31, 2025, due to the charge-offs of $1,769,000.

Current wording

The allowance for credit losses decreased by $1,167,000 to $11,214,000 as of September 30, 2026, as compared to $12,381,000 as of December 31, 2025, due to the charge-offs of $1,789,000 and the offsetting provision for credit losses of $554,000 during the first nine months of 2026. The allowance for credit losses as a percentage of total loans decreased to 0.97% as of September 30, 2026 as compared to 1.08% as of December 31, 2025, due to the charge-offs of $1,789,000.

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, 2026, and December 31, 2025, the Company had $194,803,000 and $232,179,000, 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, 2026, and December 31, 2025, the Company had $179,669,000 and $232,179,000, 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 $3,449,000 as of June 30, 2026. 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 $3,300,000 as of September 30, 2026. 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 $4,394,000 and $4,598,000 as of June 30, 2026 and December 31, 2025, 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 $3,822,000 and $4,598,000 as of September 30, 2026 and December 31, 2025, 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, 2026 were $1,763,551,000, a decrease of $29,411,000, or 1.6%, from the deposit total of $1,792,962,000 as of December 31, 2025. Average deposits increased by $65,345,000 to $1,760,153,000 for the six-month period ended June 30, 2026, as compared to the same period in 2025.

Current wording

Total deposits as of September 30, 2026 were $1,762,583,000, a decrease of $30,379,000, or 1.7%, from the deposit total of $1,792,962,000 as of December 31, 2025. Average deposits increased by $48,074,000 to $1,762,546,000 for the nine-month period ended September 30, 2026, as compared to the same period in 2025.

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. Three 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, 2026. 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. Two 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, 2026. 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

In the past two years, our primary source of capital has been internally generated operating income through retained earnings. At June 30, 2026, total shareholders’ equity increased to $217.0 million, representing an increase of $9.0 million from December 31, 2025. The increase was due to net income of $10.4 million recorded to retained earnings, and other comprehensive income of $1.1 million, net of income taxes, due to the positive impact of the unrealized market value adjustment of our available-for-sale investment portfolio. Also, retained earnings was reduced by the common stock dividend payments totaling $3.1 million during the first six months of 2026. As of June 30, 2026, we had no material commitments for capital expenditures.

Current wording

In the past two years, our primary source of capital has been internally generated operating income through retained earnings. At September 30, 2026, total shareholders’ equity decreased to $191,099,000, representing a decrease of $16,876,000 from December 31, 2025. The decrease was due to other comprehensive loss of $28,249,000, net of income taxes, due to the negative impact of the unrealized market value adjustment to the available-for-sale investment portfolio. Also, retained earnings was reduced by the common stock dividend payments totaling $6.3 million during the first nine months of 2026, and these decreases were offset by net income of $16,873,000 recorded to retained earnings. As of September 30, 2026, we had no material commitments for capital expenditures.

Previous wording

As of June 30, 2026, we were qualified as a “well capitalized institution” under the regulatory framework for prompt corrective action. For more information on our capital resources and capital adequacy requirements, see Note 7 to the Consolidated Financial Statements of this report.

Current wording

As of September 30, 2026, we were qualified as a “well capitalized institution” under the regulatory framework for prompt corrective action. For more information on our capital resources and capital adequacy requirements, see Note 7 to the Condensed Consolidated Financial Statements of this report.

Previous wording

Proposed rules for U.S. implementation of capital requirements under Basel IV rules, commonly referred to as the “Basel III Endgame”, were initially issued by the U.S. federal banking agencies on July 27, 2023, but such proposed rules were met with strong objections from the banking industry. As a result, on March 19, 2026, the Office of the Comptroller of the Currency, (the “OCC”), FDIC and the Federal Reserve rescinded the Basel III Endgame 2023 proposal and concurrently issued three revised notices of proposed rulemaking. The three proposals include (i) a revised Basel III Endgame proposal that would apply an expanded risk-based approach to Category I and Category II banking organizations, thus narrowing the mandatory scope from the 2023 proposal, with all other banking organizations permitted to opt in; (ii) a revised standardized approach proposal that would reduce risk weights for traditional lending activities for banking organizations not subject to the expanded risk-based approach; and (iii) a revised capital surcharge proposal for globally systemically important bank holding companies. The OCC, FDIC and the Federal Reserve estimate that the revised proposals would decrease aggregate common equity tier 1 capital requirements by approximately 4.8% for Category I and Category II banking organizations, in contrast to the significant capital increases that would have resulted under the Basel III Endgame 2023 proposal. Additionally, the revised proposal would eliminate the requirement to deduct mortgage servicing assets from common equity tier 1 capital, instead assigning a 250% risk weight, which is designed to promote mortgage origination and servicing by banking organizations. The Federal Reserve voted 6-to-1 to advance all three proposals and the FDIC board voted unanimously in favor of the revised Basel III Endgame and standardized approach proposals. The public comment period closed on June 18, 2026. As of the date of this report, the federal banking agencies are reviewing the comments received, and no final rules have been adopted. Accordingly, the ultimate form, scope, timing, and impact of the revised capital framework remain uncertain.

Current wording

Proposed rules for U.S. implementation of capital requirements under Basel IV rules, commonly referred to as the “Basel III Endgame”, were initially issued by the U.S. federal banking agencies on July 27, 2023, but such proposed rules were met with strong objections from the banking industry. As a result, on March 19, 2026, the Office of the Comptroller of the Currency, (the “OCC”), FDIC and the Federal Reserve rescinded the Basel III Endgame 2023 proposal and concurrently issued three revised notices of proposed rulemaking. The three proposals include (i) a revised Basel III Endgame proposal that would apply an expanded risk-based approach to Category I and Category II banking organizations, thus narrowing the mandatory scope from the 2023 proposal, with all other banking organizations permitted to opt in; (ii) a revised standardized approach proposal that would reduce risk weights for traditional lending activities for banking organizations not subject to the expanded risk-based approach; and (iii) a revised capital surcharge proposal for globally systemically important bank holding companies. The OCC, FDIC and the Federal Reserve estimate that the revised proposals would decrease aggregate common equity tier 1 capital requirements by approximately 4.8% for Category I and Category II banking organizations, in contrast to the significant capital increases that would have resulted under the Basel III Endgame 2023 proposal. Additionally, the revised proposal would eliminate the requirement to deduct mortgage servicing assets from common equity tier 1 capital, instead assigning a 250% risk weight, which is designed to promote mortgage origination and servicing by banking organizations. The Federal Reserve voted 6-to-1 to advance all three proposals and the FDIC board voted unanimously in favor of the revised Basel III Endgame and standardized approach proposals. The public comment period closed on June 18, 2026, with the Federal Reserve indicating that they hope to release the final rule by the end of 2026. As of the date of this report, the federal banking agencies are reviewing the comments received, and no final rules have been adopted. Accordingly, the ultimate form, scope, timing, and impact of the revised capital framework remain uncertain.

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 uses of funds are 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 June 30, 2026 were $485.8 million compared to $517.6 million as of December 31, 2025. The Company’s liquidity level measured as the percentage of liquid assets to total assets was 24.3% as of June 30, 2026, compared to 25.6% as of December 31, 2025. Liquid assets decreased during the first six months of 2026, mainly due to a decrease 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.

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 uses of funds are 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, 2026 were $489,242,000 compared to $517,621,000 as of December 31, 2025. The Company’s liquidity level measured as the percentage of liquid assets to total assets was 24.8% as of September 30, 2026, compared to 25.6% as of December 31, 2025. Liquid assets decreased during the first nine months of 2026, mainly due to a decrease 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, 2026, the Company’s borrowing capacity from the FHLB was approximately $400.6 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 $18.9 million borrowing capacity through the FRB Discount Window, for which there were no advances on either borrowing source as of June 30, 2026.

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, 2026, the Company’s borrowing capacity from the FHLB was approximately $420,197,000 and there were no outstanding advances. The Company also maintains a line of credit with two correspondent banks to purchase up to $70,000,000 in federal funds, and approximately $18,917,000 borrowing capacity through the FRB Discount Window, for which there were no advances on either borrowing source as of September 30, 2026.

Previous wording

As of June 30, 2026 and December 31, 2025, the Company had commitments to extend credit of $186.9 million and $219.0 million, respectively, which includes obligations under letters of credit of $4.0 million and $4.1 million, respectively.

Current wording

As of September 30, 2026 and December 31, 2025, the Company had commitments to extend credit of $212,265,000 and $218,992,000, respectively, which includes obligations under letters of credit of $3,910,000 and $4,115,000, respectively.