Oak Valley Bancorp

OAK VALLEY BANCORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE1 – BASIS OF PRESENTATION

Oak Valley Bancorp (the “Company”, “us”, “our”) is the parent holding company for Oak Valley Community Bank (the “Bank”), a California state-chartered bank. Eastern Sierra Community Bank operates as a division within Oak Valley Community Bank for select branches. The consolidated financial statements include the accounts of the parent company and its wholly-owned bank subsidiary. Unless otherwise stated, the “Company” refers to the consolidated entity, Oak Valley Bancorp, while the “Bank” refers to Oak Valley Community Bank. All material intercompany transactions have been eliminated. The interim consolidated financial statements included in this Quarterly Report on Form10-Q are unaudited but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for thethree andnine-month periods ended* September 30, 2026* arenot necessarily indicative of the results of a full year’s operations. Certain prior period amounts have been reclassified to conform to the current period presentation. There wasno effect on net income or shareholders’ equity as previously reported as a result of reclassifications. For further information, refer to the audited consolidated financial statements and footnotes included in the Company’s Form10-K for the year ended* December 31, 2025*.

The Company was incorporated under the laws of the State of California on* May31,* 1990, and began operations in Oakdale, California on* May28,* 1991. The Company operates branches in Oakdale, Sonora, Bridgeport, Bishop, Mammoth Lakes, Modesto, Manteca, Patterson, Turlock, Ripon, Stockton, Escalon, Roseville, Lodi and Sacramento, California. The Bridgeport, Mammoth Lakes, and Bishop branches operate as a separate division, Eastern Sierra Community Bank. The Company’s primary source of revenue is providing loans to customers who are predominantly middle-market businesses.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s consolidated financial statements include the allowance for credit losses and fair value measurements. The estimates and assumptions* maychange as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results maydiffer from these estimates due to the uncertainty of various qualitative factors. Descriptions of our significant accounting policies are included in Note1.* Summary of Accounting Policies in the Notes to Consolidated Financial Statements in the2025 Annual Report on Form10-K.

NOTE2 – RECENT ACCOUNTING PRONOUNCEMENTS

In* November 2024,the FASB issued ASUNo.* 2024-03, Income Statement–Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic220*-40): Disaggregation of Income Statement Expenses*, to provide investors with more decision-useful information about a public business entity’s expense by improving disclosures on income statement expenses. The amendments in the ASU are effective for public business entities only for annual reporting periods beginning after* December 15, 2026,and for interim reporting periods beginning after December 15, 2027.The Company doesnot* anticipate this ASU will have a material impact on its financial statements.

In* December 2025,the FASB issued ASUNo.* 2025-11, Interim Reporting (Topic270*): Narrow-Scope Improvements*(ASU2025-11). The update clarifies interim financial reporting requirements, including the form and content of interim financial statements and related disclosures. The amendments consolidate existing interim disclosure requirements and establish a principle requiring disclosure of events and changes occurring since the most recent annual reporting period that have a material impact on the entity. ASU2025-11 is effective for interim reporting periods within annual reporting periods beginning after* December 15, 2027,with early adoption permitted. The amendments maybe applied prospectively or retrospectively. The Company doesnot* anticipate this ASU will have a material impact on its financial statements.

In* December 2025,the FASB issued ASUNo.* 2025-12, Codification Improvements (ASU2025-12). The update makes technical corrections, clarifications, and other improvements to various topics within the Accounting Standards Codification to improve consistency and the application of existing accounting guidance. The amendments address several accounting topics, including earnings per share, leases, and financial instruments. ASU2025-12 is effective for annual reporting periods beginning after* December 15, 2026,and interim periods within those annual reporting periods, with early adoption permitted. The amendments related to earnings per share require retrospective application, while the remaining amendments maybe applied prospectively or retrospectively. The Company doesnot* anticipate this ASU will have a material impact on its financial statements.

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NOTE3 – SECURITIES

Equity Securities

The Company held equity securities with fair values of $3,300,000 and $3,424,000 as of* September 30, 2026and December 31, 2025*, respectively. There wereno sales of equity securities during thethree andnine-month periods ended* September 30, 2026and2025*. Consistent with ASC321, Equity Securities,these securities are carried at fair value with the changes in fair value recognized in the condensed consolidated statements of income. Accordingly, the Company recognized losses of $183,000 and $223,000 during thethree andnine-month periods ended* September 30, 2026*, respectively, as compared to gains of $43,000 and $107,000 during the same periods of2025.

Debt Securities

Debt securities have been classified in the financial statements as available for sale. The amortized cost and estimated fair values of debt securities as of* September 30, 2026* are as follows:

The following table details the gross unrealized losses and fair values of debt securities aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position as of* September 30, 2026*.

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For available-for-sale debt securities in an unrealized loss position, management evaluates whether the decline in fair value is a reflection of credit deterioration or other factors. In performing this evaluation, management considers the extent which fair value has fallen below amortized cost, changes in ratings by rating agencies, and other information indicating a deterioration in repayment capacity of either the underlying issuer or the borrowers providing repayment capacity in a securitization. If management’s evaluation indicates that a credit loss exists then a present value of the expected cash flows is calculated and compared to the amortized cost basis of the security in question and, to the degree that the amortized cost basis exceeds the present value, an allowance for credit loss (“ACL”) is established, with the caveat that the maximum amount of the reserve on any individual security is the difference between the fair value and amortized cost balance of the security in question. Any unrealized loss that hasnot been recorded through an ACL is recognized in other comprehensive income. Accrued interest receivable on available-for-sale securities was $4,598,000 and $5,197,000 as of* September 30, 2026and December 31, 2025*, respectively, and isnot included in the tables within this footnote.

The unrealized losses are due primarily to rising market yields andnot due to credit deterioration. As such, no ACL on available-for-sale securities has been established as of* September 30, 2026and December 31, 2025*. The Company doesnot intend to sell the securities and it isnot likely that the Company will be required to sell the securities before the earlier of the forecasted recovery or the maturity of the underlying investment security.

The amortized cost and estimated fair value of debt securities as of* September 30, 2026*, segregated by contractual maturity or call date, are shown below. Expected maturities will differ from contractual maturities because borrowers* may*have the right to call or prepay obligations with or without call or prepayment penalties.

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The amortized cost and estimated fair values of debt securities as of* December 31, 2025* are as follows:

The following tables detail the gross unrealized losses and fair values of debt securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at* December 31, 2025*.

There wereno sales of available-for-sale securities during thethree andnine-months ended* September 30, 2026and2025*. The Company recognized losses of $2,000 and $9,000 on called securities during thethree andnine-month periods ended* September 30, 2026*, respectively, as compared to losses of $2,000 and $0, respectively, on called securities during the same periods of2025.

Debt securities carried at $302,404,000 and $349,507,000 as of* September 30, 2026and December 31, 2025*, respectively, were pledged to secure deposits of public funds.

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NOTE4 – LOANS

The Company’s customers are primarily located in Stanislaus, San Joaquin, Tuolumne, Inyo, and Mono Counties. As of* September 30, 2026*, approximately 88% of the Company’s loans are commercial real estate loans, which include construction loans. Approximately 6% of the Company’s loans are for general commercial use including professional, retail, and small business. Additionally,3% of the Company’s loans are for residential real estate and other consumer loans. The remaining 3% are agriculture loans. Accrued interest receivable on loans was $4,170,000 and $3,510,000 as of* September 30, 2026and December 31, 2025*, respectively, and isnot included in the tables within this footnote. Loan totals were as follows:

*Loan Origination/Risk Management.*The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Company’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however,* may**not* be as expected and the collateral securing these loans* mayfluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and mayincorporate a personal guarantee; however, some short-term loans maybe made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may*be substantially dependent on the ability of the borrower to collect amounts due from its customers.

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Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans* maybe more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. As a general rule, the Company avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk. The Company also utilizesthird*-party experts to provide insight and guidance about economic conditions and trends affecting market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner-occupied loans. As of* September 30, 2026and December 31, 2025*, approximately 24% of the outstanding principal balance of the Company’s commercial real estate loans were secured by owner-occupied properties.

With respect to loans to developers and builders that are secured by non-owner-occupied properties that the Company* may*originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success.

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates* maybe inaccurate. Significant events can affect the construction industry, including: the inherent volatility of real estate markets and vulnerability to delays due to weather, change orders, inability to obtain construction permits, labor or material shortages, and price changes. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may*be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Consumer loans are originated utilizing a computer-based credit scoring analysis to supplement the underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Additionally, trend and outlook reports are reviewed by management on a regular basis. Underwriting standards for home equity loans follow bank policy, which include, but arenot limited to, a maximum loan-to-value percentage of 80%, a maximum housing and total debt ratio of 36% and 42%, respectively, and other specified credit and documentation requirements.

Agricultural loans largely consist of real estate loans, development loans, and operating facilities to support crop production, livestock, dairy, and other agricultural interests. Agricultural loans are especially vulnerable totwo risk factors that are largely outside the control of the Company and borrowers: commodity prices and weather conditions. Other environmental factors such as the availability of water will also affect the production of crops. Underwriting practices include estimating future repayment sources based on information taken from the customer, peer reports, or appraisals. With the cyclicality of agricultural operations, increased focus is placed on access to liquidity and equity to support the operations when faced with unfavorable industry trends as well as the sponsor’s industry experience.

The Company maintains an independent loan review function that validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Non-Accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments havenot been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower* maybe unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans maybe placed on non-accrual status regardless of whether ornot* such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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Non-accrual loans, segregated by class of loans, were as follows:

Had non-accrual loans performed in accordance with their original contract terms, the Company would have recognized additional interest income of approximately $1,000 and $102,000 in thethree andnine-month periods ended* September 30, 2026*, respectively. There wereno non-accrual loans in the same periods of2025.

Average recorded investment in individually evaluated loans outstanding for thethree andnine-month periods ended* September 30, 2026and2025* is set forth in the following table.

The following table analyzes past due loans including any past due non-accrual loans, segregated by class of loans, as of* September 30, 2026* (in thousands):

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The following table analyzes past due loans including any past due non-accrual loans, segregated by class of loans, as of* December 31, 2025* (in thousands):

Collateral Dependent Loans.Management’s evaluation as to the ultimate collectability of loans includes estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers. Under the Current Expected Credit Losses (“CECL”) accounting standard, loans can be determined to be collateral dependent if foreclosure of the loan’s underlying collateral is probable or as a practical expedient if the borrower is experiencing financial difficulties and the repayment is expected to be provided mainly through the operation or sale of the collateral. Loans are written down to the lesser of cost or fair value of underlying collateral, less estimated costs to sell. The Company hadno collateral dependent loans as of September 30, 2026, as compared toone collateral dependent loan with a balance of $4,587,000 as of* December 31, 2025*. The collateral for this loan was a non-owner occupied commercial real estate building, which was foreclosed on, partially charged-off, and transferred to other real estate owned ("OREO") at fair market value during thesecond quarter of2026.

Loan Modification Disclosures Pursuant to ASU 2022-02 - The Company* mayagree to different types of concessions when modifying a loan. There wereno* loan modifications to borrowers experiencing financial difficulty, including principal forgiveness, rate reductions, payment deferral or term extension, during thethree andnine-months ended* September 30, 2026and2025*.

Loan Risk Grades– Quality ratings (Risk Grades) are assigned to all commitments and stand-alone notes. Risk grades define the basic characteristics of commitments or stand-alone note in relation to their risk. All loans are graded using a system that maximizes the loan quality information contained in loan review grades, while ensuring that the system is compatible with the grades used by bank examiners.

The Company grades loans using the following letter system:

1 Exceptional Loan

2 Quality Loan

3A Better Than Acceptable Loan

3B Acceptable Loan

3C Marginally Acceptable Loan

4 (W) Watch Acceptable Loan

5 Special Mention Loan

6 Substandard Loan

7 Doubtful Loan

8 Loss

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1. Exceptional Loan** **- Loans that containno risk or minimal risk. Grade1 loans are considered Pass. To qualify for this rating, the following characteristics must be present:

2. Quality Loan** **- Loans with excellent sources of repayment that conform in all respects to bank policy and regulatory requirements. These are also loans for which little repayment risk has been identified.No credit or collateral exceptions. Grade2 loans are considered Pass. Other factors include:

3A. Better than Acceptable Loan** **- In the interest of better delineating the loan portfolio’s true credit risk for reserve allocation, further granularity has been sought by splitting the grade3 category intothree classifications. The distinction between thethree are bank-defined guidelines and represent a further refinement of the regulatory definition of a pass, or grade3 loan. Grade3A is characterized by:

3B. Acceptable Loan** **-3B loans are simply defined as all loans that are less qualified than3A loans and are stronger than3C loans. These loans are characterized by acceptable sources of repayment that conform to bank policy and regulatory requirements. Repayment risks are acceptable for these loans. Credit or collateral exceptions are minimal, are in the process of correction, and donot represent repayment risk. These loans:

3C. Marginally Acceptable Loan** **-3C loans have similar characteristics as that of3Bs with the following additional characteristics:

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4(W). Watch Acceptable Loan** *- Watch grade will be assigned to any credit that is adequately secured and performing but monitored for a number of indicators. These characteristics may*include:

5. Special Mention Loan** *- A special mention extension of credit is defined as having potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may,*at some future date result in the deterioration of the repayment prospects for the credit or the institution’s credit position. Extensions of credit that might be detailed in this category include the following:

6. Substandard Loan** **- A “substandard” extension of credit is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies arenot corrected. Loss potential, while existing in the aggregate amount of substandard credits, doesnot have to exist in individual extensions of credit classified as substandard.

7. Doubtful Loan** - An extension of credit classified as “doubtful” has all the weaknesses inherent inone classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high but because of certain important and reasonably specific pending factors that maywork to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status maybe determined. Pending factors mayinclude a proposed merger or acquisition, liquidation proceedings, capital injection, and perfection of liens on additional collateral or refinancing plans. The entire loan neednot be classified as doubtful when collection of a specific portion appears highly probable.

8. Loss** - Extensions of credit classified as “loss” are considered uncollectible and of such little value that their continuance as bankable assets isnot warranted. This classification doesnot mean that the credit has absolutelyno recovery or salvage value, but rather that it isnot practical to defer writing off, even though partial recovery maybe affected in the future. It isnot the Company’s practice to attempt long-term recoveries while the credit remains on the books. Losses are taken in the period in which they are determined to be uncollectible.

As of* September 30, 2026and December 31, 2025*, there wereno loans that are classified with risk grades of**8*- Loss.* The risk grades are reviewed every month, at a minimum and on an as-needed basis depending on the specific circumstances of the loan.

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The following table summarizes loan risk grade totals by class and year of origination as of* September 30, 2026*. Risk grades1 through4(W) have been aggregated in the “Pass” line.

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The following table summarizes loan risk grade totals by class and year of origination as of* December 31, 2025*. Risk grades1 through4(W) have been aggregated in the “Pass” line.

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Allowance for Credit Losses (“ACL”). Under ASC Topic326, the allowance for credit losses is a valuation account that is deducted from the related loan’s amortized cost basis to present the net amount expected to be collected on the loans. The measurement of expected credit losses utilizes a CECL model and is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company’s ACL is calculated monthly, with any difference in the calculated ACL and the recorded ACL trued-up through an entry to the provision for credit losses. Management calculates the quantitative portion of collectively evaluated reserves for all loan categories, using a discounted cash flow (“DCF”) methodology. Management generally evaluates collectively evaluated loans by Federal Call code in order to group loans with similar risk characteristics together, however management has grouped loans in selected call codes together in determining portfolio segments, due to similar risk characteristics and reserve methodologies used for certain call code classifications.

The DCF quantitative reserve methodology incorporates the consideration of probability of default (“PD”) and loss given default (“LGD”) estimates to estimate periodic losses. The PD estimates are derived through the application of reasonable and supportable economic forecasts to call code specific regression models, derived from the consideration of historical bank-specific and peer loss-rate data. The loss rate data has been regressed against benchmark economic indicators, for which reasonable and supportable forecasts exist, in the development of the call-code specific regression models. Regression models are generally refreshed on an annual basis, in order to pull in more recent loss rate data. Reasonable and supportable forecasts of the selected economic metric are then input into the regression model to calculate an expected default rate. The expected default rates are then applied to expected monthly loan balances estimated through the consideration of contractual repayment terms and expected prepayments. The Company utilizes afour-quarter forecast period, after which the expected default rates revert to the historical average for each call code, over afour-quarter reversion period, on a straight-line basis. The prepayment assumptions applied to expected cash flow over the contractual life of the loans are estimated based on historical, bank-specific experience, peer data and the consideration of current and expected conditions and circumstances including the level of interest rates. The prepayment assumptions* maybe updated by Management in the event that changing conditions impact Management’s estimate or additional historical data gathered has resulted in the need for a reevaluation. LGD utilized in the DCF is derived from the application of the Frye-Jacobs theory which relates LGD to PD based on historical peer data, as calculated by athird*-party. The call code regression models utilized upon implementation of CECL on* January 1, 2023,and as of September 30, 2026,*were identical, and relied upon reasonable and supportable forecasts of the National Unemployment Rate. Some of the call code regression models also use the Real Gross Domestic Product. Management selected the National Unemployment Rate and the Real Gross Domestic Product as the drivers of quantitative portion of collectively reserves on loan classes reliant upon the DCF methodology, primarily as a result of high correlation coefficients identified in regression modeling, the availability of forecasts including the quarterly Federal Open Market Committee (“FOMC”) forecast, and given the widespread familiarity of stakeholders with this economic metric.

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Management recognizes that there are additional factors impacting risk of loss in the loan portfolio beyond what is captured in the quantitative portion of reserves on collectively evaluated loans. As current and expected conditions change compared to conditions over the historical lookback period, which is utilized in the calculation of quantitative reserves, management considers whether additional or reduced reserve levels on collectively evaluated loans* may*be warranted given the consideration of a variety of qualitative factors. Several of the following qualitative factors (“Q-factors”) considered by management reflect the legacy regulatory guidance on Q-factors, whereas several others represent factors unique to the Company or unique to the current time period.

The qualitative portion of the Company’s reserves on collectively evaluated loans are calculated using a combination of numeric frameworks and management judgement, to determine risk categorizations in each of the Q-factors presented above. The amount of qualitative reserves is also contingent upon the relative weighting of Q-factors according to management’s judgement.

Loans identified as losses by management, internal loan review and/or bank examiners are charged-off. Furthermore, consumer loan accounts are charged-off automatically based on regulatory requirements.

Accrued interest receivable for loans is included in the “Interest receivable and other assets” line item on the Company’s Condensed Consolidated Balance Sheet. The Company electednot to measure an allowance for accrued interest receivable and instead elected to reverse accrued interest income on loans that are placed on nonaccrual status. The Company believes this policy results in the timely reversal of uncollectible interest.

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The following table details activity in the ACL by portfolio segment for thethree andnine-month periods ended* September 30, 2026and2025*. Allocation of a portion of the allowance toone category of loans doesnot preclude its availability to absorb losses in other categories.

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The following table details the ACL and ending gross loan balances as of* September 30, 2026and December 31, 2025*, summarized by collective and individual evaluation methods of impairment.

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The following tables present gross charge-offs for thethree andnine-months ended* September 30, 2026* by portfolio class and origination year:

Changes in the reserve for off-balance-sheet commitments for thethree andnine-months ended* September 30, 2026and2025* were as follows:

The method for calculating the reserve for off-balance-sheet loan commitments is based on a historical funding rate applied to the undisbursed loan amount to estimate an average outstanding amount during the life of the loan commitment. Then, a historic loss rate as computed by our CECL model is applied to the estimated average outstanding balance to calculate the off-balance-sheet reserve amount. The funding rates, historic loss rates and resulting reserve amount for off-balance-sheet commitments are evaluated by management periodically as part of the CECL procedures. Reserves for off-balance-sheet commitments are recorded in interest payable and other liabilities on the condensed consolidated balance sheets.

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NOTE5 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Fair values of financial instruments— The condensed consolidated financial statements include various estimated fair value information as of* September 30, 2026and December 31, 2025*. Such information, which pertains to the Company’s financial instruments, doesnot purport to represent the aggregate net fair value of the Company. Further, the fair value estimates are based on various assumptions, methodologies, and subjective considerations, which vary widely among different financial institutions and which are subject to change.

We determine the fair values of our financial instruments based on the fair value hierarchy established under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value:

Level1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

In certain cases, the inputs used to measure fair value* mayfall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstance that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. There wereno* transfers between levels during thethree andnine-month periods ended* September 30, 2026and2025*.

The estimated fair values of the Company’s financial instrumentsnot measured at fair value as of* September 30, 2026* were as follows:

The estimated fair values of the Company’s financial instrumentsnot measured at fair value as of* December 31, 2025* were as follows:

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The following tables present the carrying value of recurring and nonrecurring financial instruments that were measured at fair value and that were still held in the condensed consolidated balance sheets at each respective period end, by level within the fair value hierarchy as of* September 30, 2026and December 31, 2025*.

Available-for-sale and equity securities -Investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, if available. If quoted market prices arenot available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions, and other factors such as credit loss assumptions. Level1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level3 include asset-backed securities in less liquid markets where significant inputs are unobservable.

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Collateral Dependent Loans- The Company records certain loans at fair value on a non-recurring basis. Individually evaluated loans for which an allowance is established, or a write-down has occurred during the period, based on the fair value of collateral require classification in the fair value hierarchy. The fair value of the loan’s collateral is determined by appraisals, independent valuation and other techniques. When the fair value of the loan’s collateral is based on an observable market price, the Company classifies the fair value of the individually evaluated loans within Level2 of the valuation hierarchy. For loans in which the valuation has unobservable inputs, the Company classifies these within Level3 of the valuation hierarchy. As of* December 31, 2025*, collateral values were estimated using a combination of observable inputs, including recent appraisals, and unobservable inputs, including internally determined adjustments to the loan value for rent payments receivable, and customized discounts of approximately 3.4% of the appraisal value related to selling costs. Due to the significance of unobservable inputs, fair values of individually evaluated loans have been classified as Level3.

Other Real Estate Owned – The Company records OREO at fair value less estimated costs to sell upon acquisition, establishing a new cost basis. Subsequent to acquisition, OREO is carried at the lower of its carrying amount or fair value less estimated costs to sell. Fair value is generally determined using independentthird-party appraisals or other valuation techniques that consider comparable property sales, market conditions, and the characteristics of the underlying property. Management* mayadjust appraised values to reflect changes in market conditions, property-specific factors, and estimated selling costs. Due to the significance of unobservable inputs, OREO is generally classified within Level3* of the fair value hierarchy. Fair value adjustments subsequent to acquisition are recognized in noninterest expense.

There have beenno significant changes in the valuation techniques utilized as of* September 30, 2026*, as compared to* December 31, 2025*.

NOTE6 – EARNINGS PER SHARE

Earnings per share (“EPS”) are based upon the weighted average number of common shares outstanding during each period. The following table shows: (1) weighted average basic shares, (2) effect of dilutive securities related to non-vested restricted stock, and (3) weighted average shares of common stock and common stock equivalents. Net income available to common stockholders is calculated as net income reduced by dividends accumulated on preferred stock, if any. Basic EPS is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock awards. Diluted EPS is calculated using the weighted average diluted shares, which reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The dilutive shares included in year-to-date diluted EPS is a weighted average of the dilutive shares included in each quarterly diluted EPS computation under the treasury stock method. The Company hastwo forms of outstanding common stock: fully vested common stock and unvested restricted stock awards. Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common stockholders and they both share equally in undistributed earnings. Therefore, under thetwo-class method the difference in EPS isnot significant for these participating securities.

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The Company’s calculation of basic and diluted EPS for thethree andnine-month periods ended* September 30, 2026and2025* are reflected in the tables below.

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NOTE7 – REGULATORY CAPITAL

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 isnot 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.

The U.S. Basel III rules contain capital standards regarding the composition of capital, minimum capital ratios and counter-party credit risk capital requirements. The Basel III rules also include a definition of common equity Tier1 capital and require that certain levels of such common equity Tier1 capital be maintained. The rules also include a capital conservation buffer, which imposes a common equity requirement above the new minimum that can be depleted under stress and could result in restrictions on capital distributions and discretionary bonuses under certain circumstances, as well as a new standardized approach for calculating risk-weighted assets. Under the Basel III rules, we must maintain a ratio of common equity Tier1 capital to risk-weighted assets of at least 4.5%, a ratio of Tier1 capital to risk-weighted assets of at least 6%, a ratio of total capital to risk-weighted assets of at least 8% and a minimum Tier1 leverage ratio of 4.0%. In addition to the preceding requirements, all financial institutions subject to the Rules, including the Bank, are required to establish a "conservation buffer," consisting of common equity Tier1 capital, which is at least 2.5% above each of the preceding common equity Tier1 capital ratio, the Tier1 risk-based ratio and the total risk-based ratio. An institution that doesnot meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.

Failure to meet minimum capital requirements can trigger regulatory actions that could have a material adverse effect on the Company’s financial statements and operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that rely on quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The U.S. Basel III minimum capital ratios donot apply to the Company because it has less than*$3* billion in total assets and therefore qualifies as a small bank holding company. The minimum capital ratios apply only to the Bank.

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The following tables present a comparison of our actual capital ratios to the minimum required ratios as of the dates indicated:

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