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What changed in Oak Valley Bancorp's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Oak Valley Bancorp's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+204 added−189 removedSource: 10-K (2026-03-25) vs 10-K (2025-03-31)

Top changes in Oak Valley Bancorp's 2025 10-K

204 paragraphs added · 189 removed · 174 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

44 edited+15 added−6 removed201 unchanged
Biggest changeAs of December 31, 2024, we owned $5,531,000 in FHLB stock. Advances from the Federal Home Loan Bank are typically secured by our entire real estate loan portfolio, which includes residential and commercial loans. As of December 31, 2024, our borrowing limit with the Federal Home Loan Bank was approximately $364 million.
Biggest changeFHLB stock is a restricted equity security that can only be sold to other FHLB members or redeemed by the FHLB. As of December 31, 2025, we owned $6,307,000 in FHLB stock. Advances from the FHLB are typically secured by our entire real estate loan portfolio, which includes residential and commercial loans.
ITEM 1. BUSINESS OF OAK VALLEY BANCORP Overview of the Business Oak Valley Bancorp. Oak Valley Bancorp (the “Company”) serves as the parent bank holding company of Oak Valley Community Bank (the “Bank”), a California state-chartered bank. The Bank and the Company may be generally referred to as “we”, “us” or “our”).
ITEM 1. BUSINESS Overview of the Business Oak Valley Bancorp. Oak Valley Bancorp (the “Company”) serves as the parent bank holding company of Oak Valley Community Bank (the “Bank”), a California state-chartered bank. The Bank and the Company may be generally referred to as “we”, “us” or “our”).
The operations of the Bank are also subject to the: ● Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; ● Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; ● Check Clearing for the 21st Century Act, which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and ● The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended (the “USA Patriot Act”), which requires financial institutions to, among other things, establish broadened anti-money laundering compliance programs, and due diligence policies and controls to ensure the detection and reporting of money laundering.
The operations of the Bank are also subject to the: ● Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; ● Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; ● Check Clearing for the 21st Century Act, which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and 19 Table of Contents ● The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended (the “USA Patriot Act”), which requires financial institutions to, among other things, establish broadened anti-money laundering compliance programs, and due diligence policies and controls to ensure the detection and reporting of money laundering.
On September 29, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued a final rule establishing a beneficial ownership information reporting requirement under the Corporate Transparency Act (“CTA”), which was passed as part of the Anti-Money Laundering Act of 2020.
On September 29, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued a final rule establishing a beneficial ownership information (“BOI”) reporting requirement under the Corporate Transparency Act (“CTA”), which was passed as part of the Anti-Money Laundering Act of 2020.
We will continue to monitor for updates related to the CRA regulatory framework and are currently evaluating the impact of the modified CRA regulations, but do not anticipate any resulting material impact to its operations or compliance objectives. 16 Table of Contents Anti-Money Laundering Regulations A series of banking laws and regulations beginning with the Bank Secrecy Act in 1970 require banks to prevent, detect, and report illicit or illegal financial activities to the federal government to prevent money laundering, international drug trafficking, and terrorism.
We will continue to monitor for updates related to the CRA regulatory framework and are currently evaluating the impact of the modified CRA regulations, but do not anticipate any resulting material impact to its operations or compliance objectives, if implemented. 16 Table of Contents Anti-Money Laundering Regulations A series of banking laws and regulations beginning with the Bank Secrecy Act in 1970 require banks to prevent, detect, and report illicit or illegal financial activities to the federal government to prevent money laundering, international drug trafficking, and terrorism.
Its implementation may also cause changes in the financial markets which may affect the Company. Dividends The payment of cash dividends by the Bank to the Company is subject to restrictions set forth in the Financial Code.
Its implementation may also cause changes in the financial markets which may affect the Company. 1 Dividends The payment of cash dividends by the Bank to the Company is subject to restrictions set forth in the Financial Code.
The banking business in California generally, and in our primary service area, specifically, is competitive with respect to both loans and deposits and is dominated by a relatively small number of major banks, which have many offices operating over wide geographic areas. These include Wells Fargo Bank, Bank of America, JP Morgan Chase Bank, U.S.
The banking business in California generally, and in our primary service area, specifically, is competitive with respect to both loans and deposits and is dominated by a relatively small number of major banks, which have many offices operating over wide geographic areas. These include Wells Fargo Bank, Bank of America, JP Morgan Chase Bank, U.S. Bank, BMO Bank and Citibank.
Checking accounts are generally non-interest and interest-bearing accounts, respectively, and may include service fees based on activity and balances. Other Sources of Funds Federal Home Loan Bank Borrowings. To supplement our deposits as a source of funds for lending or investment, we borrow funds in the form of advances from the Federal Home Loan Bank (“FHLB”).
Checking accounts are generally non-interest and interest-bearing accounts, respectively, and may include service fees based on activity and balances. Other Sources of Funds Federal Home Loan Bank Borrowings. To supplement our deposits as a source of funds for lending or investment, we have the option to borrow funds in the form of advances from the Federal Home Loan Bank (“FHLB”).
The Company and the Bank held no investment positions at December 31, 2024 or 2023 that were subject to the final rule. Therefore, while these new rules may require us to conduct certain internal analysis and reporting, we believe that they will not require any material changes in our operations or business.
The Company and the Bank held no investment positions at December 31, 2025 or 2024 that were subject to the final rule. Therefore, while these new rules may require us to conduct certain internal analysis and reporting, we believe that they will not require any material changes in our operations or business.
In light of recent conditions in the United States economy and the financial services industry, the Biden administration, Congress, the regulators and various states continue to focus attention on the financial services industry. Additional proposals that affect the industry have been and will likely continue to be introduced.
In light of recent conditions in the United States economy and the financial services industry, the Trump administration, Congress, the regulators and various states continue to focus attention on the financial services industry. Additional proposals that affect the industry have been and will likely continue to be introduced.
Federal Reserve Regulation W combines statutory restrictions on transactions between the Bank and the Company with FRB interpretations in an effort to simplify compliance with Sections 23A and 23B. 19 Table of Contents Securities Laws and Corporate Governance The Company is subject to the disclosure and regulatory requirements of the 1933 Act and the 1934 Act, both as administered by the SEC.
Federal Reserve Regulation W combines statutory restrictions on transactions between the Bank and the Company with FRB interpretations in an effort to simplify compliance with Sections 23A and 23B. Securities Laws and Corporate Governance The Company is subject to the disclosure and regulatory requirements of the 1933 Act and the 1934 Act, both as administered by the SEC.
An analysis under the 2023 Merger Guidelines and 2024 Banking Addendum may include consideration of theories of harm and relevant markets not considered under the 1995 Bank Merger Guidelines, which focused primarily on concentrations of deposits and branches. 18 Table of Contents Other Consumer Protection Laws and Regulations Bank regulatory agencies are increasingly focusing on compliance with consumer protection laws and regulations.
An analysis under the 2023 Merger Guidelines and 2024 Banking Addendum may include consideration of theories of harm and relevant markets not considered under the 1995 Bank Merger Guidelines, which focused primarily on concentrations of deposits and branches. Other Consumer Protection Laws and Regulations Bank regulatory agencies are increasingly focusing on compliance with consumer protection laws and regulations.
On March 2, 2025, the Treasury Department announced it will not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, and further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the rule changes take effect.
On March 2, 2025, the Treasury Department announced it will not enforce any penalties or fines associated with the BOI reporting rule under the existing regulatory deadlines, and further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the rule changes take effect.
We continue to monitor these developments and integrate applicable requirements into our operation and compliance frameworks. In February 2024, the National Institute of Standards and Technology ( “ NISTU”) released Cybersecurity Framework 2.0, expanding its original guidance to emphasize cybersecurity governance and supply chain risk management.
We continue to monitor these developments and integrate applicable requirements into our operation and compliance frameworks. In February 2024, the National Institute of Standards and Technology (“NISTU”) released Cybersecurity Framework 2.0, expanding its original guidance to emphasize cybersecurity governance and supply chain risk management.
Although, Basel IV seeks to regulate banks with over $100 billion in assets and likely will not be applicable to the Company once implemented, proposed rules which would affect banks below $100 billion in assets have been proposed in the past and the final form of the rules is still undetermined.
Although, Basel IV seeks to regulate banks with over $100 billion in assets and likely will not be applicable to the Company if implemented in its proposed form, proposed rules which would affect banks below $100 billion in assets have been proposed in the past and the final form of the rules is still undetermined.
Most of the final CRA rule’s requirements were to become be applicable beginning January 1, 2026, with certain requirements, including the data reporting requirements, applicable as of January 1, 2027. However, on March 29, 2024, a federal court enjoined the enforcement of the new CRA regulations.
Most of the final CRA rules requirements were to become applicable beginning January 1, 2026, with certain requirements, including the data reporting requirements, applicable as of January 1, 2027. However, on March 29, 2024, a federal court enjoined the enforcement of the new CRA regulations.
We offer commercial real estate loans to finance the acquisition of new or the refinancing of existing commercial properties, such as office buildings, industrial buildings, warehouses, hotels, shopping centers, automotive industry facilities and multiple dwellings. As of December 31, 2024, consumer and commercial real estate loans constituted 90% of our loan portfolio, of which 97% were commercial real estate loans.
We offer commercial real estate loans to finance the acquisition of new or the refinancing of existing commercial properties, such as office buildings, industrial buildings, warehouses, hotels, shopping centers, automotive industry facilities and multiple dwellings. As of December 31, 2025, consumer and commercial real estate loans constituted 91% of our loan portfolio, of which 97% were commercial real estate loans.
We cannot predict whether, or in what form, any such legislation or regulations may be enacted or the extent to which our business would be affected thereby. 20 Table of Contents Available Information The Company maintains an Internet website at www.ovcb.com.
We cannot predict whether, or in what form, any such legislation or regulations may be enacted or the extent to which our business would be affected thereby. Available Information The Company maintains an Internet website at www.ovcb.com.
There can be no assurance that the Bank will maintain its competitive position against current and potential competitors, especially those with greater resources than the Bank. The four largest competing banks had 134 total branches and deposits averaged approximately $481 million per office as of June 30, 2024 within the Bank’s primary service area.
There can be no assurance that the Bank will maintain its competitive position against current and potential competitors, especially those with greater resources than the Bank. The four largest competing banks had 132 total branches and deposits averaged approximately $499 million per office as of June 30, 2025 within the Bank’s primary service area.
Bank, BMO Harris Bank and Citibank. We compete for deposits and loans principally with these banks, as well as with savings and loan associations, thrift and loan associations, credit unions, mortgage companies, insurance companies, offerors of money market accounts and other lending institutions.
We compete for deposits and loans principally with these banks, as well as with savings and loan associations, thrift and loan associations, credit unions, mortgage companies, insurance companies, offerors of money market accounts and other lending institutions.
However, approximately 90% of our loan portfolio held for investment as of December 31, 2024 consisted of real estate-related loans, including construction loans, mini-perm loans, real estate mortgage loans and commercial loans secured by real estate.
However, approximately 91% of our loan portfolio held for investment as of December 31, 2025 consisted of real estate-related loans, including construction loans, mini-perm loans, real estate mortgage loans and commercial loans secured by real estate.
The portfolio is stratified by owner classification (either owner-occupied or non-owner occupied), product type, geography and size. As of December 31, 2024, the aggregate loan-to-value of the entire commercial real estate portfolio was 45.3%, based on the most recent appraisals as of the time of origination or renewal.
The portfolio is stratified by owner classification (either owner-occupied or non-owner occupied), product type, geography and size. As of December 31, 2025, the aggregate loan-to-value of the entire commercial real estate portfolio was 44.9%, based on the most recent appraisals as of the time of origination or renewal.
In addition, the concentration of our operations in Central California exposes us to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and floods in this region. Employees As of December 31, 2024, we had 231 employees (199 full-time employees and 32 part-time employees).
In addition, the concentration of our operations in Central California exposes us to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and floods in this region. Employees As of December 31, 2025, we had 245 employees (217 full-time employees and 28 part-time employees).
The Bank’s primary capital plus allowance for credit losses as of December 31, 2024 totaled $214.9 million. We seek to mitigate the risks inherent in our loan portfolio by adhering to certain underwriting practices.
The Bank’s primary capital plus allowance for credit losses as of December 31, 2025 totaled $236.0 million. We seek to mitigate the risks inherent in our loan portfolio by adhering to certain underwriting practices.
Historical data suggests that the Bank continues to maintain strong loan-to-value which has served as a cushion against precipitous reductions in real estate values during economic downturns. Non-owner occupied commercial real estate comprises 66.5% of the Bank’s total commercial real estate commitments, as of December 31, 2024.
Historical data suggests that the Bank continues to maintain strong loan-to-value which has served as a cushion against precipitous reductions in real estate values during economic downturns. Non-owner occupied commercial real estate comprised 69.9% of the Bank’s total commercial real estate commitments, as of December 31, 2025.
These loans require joint approval from two of the following officers: Chief Executive Officer, President, Chief Credit Officer, Senior Lending Officer or Credit Administrator. As of December 31, 2024, the Bank’s authorized legal lending limits were $32.2 million for unsecured loans plus an additional $21.5 million for specific secured loans.
These loans require joint approval from two of the following officers: Chief Executive Officer, President, Chief Credit Officer, Senior Lending Officer or Credit Administrator. As of December 31, 2025, the Bank’s authorized legal lending limits were $35.4 million for unsecured loans plus an additional $23.6 million for specific secured loans.
In 2024, federal regulators, including the Federal Reserve and the OCC, proposed amendments to update the requirements to establish, implement and maintain effective, risk-based and reasonably designed anti-money laundering programs, including the identification, evaluation and documentation of money laundering risks. We continue to monitor for updates related to the CTA and Anti-Money Laundering Act of 2020.
In 2024, federal regulators, including the Federal Reserve and the OCC, proposed amendments to update the requirements to establish, implement and maintain effective, risk-based and reasonably designed anti-money laundering programs, including the identification, evaluation and documentation of money laundering risks.
Privacy, Data Security and Cybersecurity We are, or may become, subject to a variety of continuously evolving and developing laws and regulations in the United States at the federal, state and local level regarding privacy, data protection and data security, including those related to the collection, storage, handling, use, disclosure, transfer, security and other processing of personal information.
We continue to monitor for updates related to the CTA and Anti-Money Laundering Act of 2020. 17 Table of Contents Privacy, Data Security and Cybersecurity We are, or may become, subject to a variety of continuously evolving and developing laws and regulations in the United States at the federal, state and local level regarding privacy, data protection and data security, including those related to the collection, storage, handling, use, disclosure, transfer, security and other processing of personal information.
While we are not mandated to adopt this updated framework, our cybersecurity policies, governance structures, vendor risk management practices, and employee training programs align substantively with the principles of the NIST Cybersecurity Framework 2.0. We continue to leverage this framework as a guiding best practice to enhance our cybersecurity posture and manage risks effectively.
While we are not mandated to adopt this updated framework, our cybersecurity policies, governance structures, vendor risk management practices, and employee training programs align substantively with the principles of the NIST Cybersecurity Framework 2.0.
The loan-to-value on the non-owner occupied CRE segment was 46.5%, as of December 31, 2024. The highest concentration by product type is CRE Retail, which comprised 27.1% of total CRE loan commitments, as of December 31, 2024.
The loan-to-value on the non-owner occupied CRE segment was 45.6%, as of December 31, 2025. The highest concentration by product type is CRE Retail, which comprised 29.4% of total CRE loan commitments, as of December 31, 2025.
As of June 30, 2024, our primary service areas contained 279 banking offices, with approximately $88.2 billion in total deposits. As of June 30, 2024, we had total deposits of approximately $1.6 billion, which represented approximately 1.9% of the total deposits in the Bank’s primary service area.
As of June 30, 2025, our primary service areas contained 277 banking offices, with approximately $90.8 billion in total deposits. As of June 30, 2025, we had total deposits of approximately $1.7 billion, which represented approximately 1.9% of the total deposits in the Bank’s primary service area.
Internet and Mobile Banking We offer Internet banking services, which allows our customers to access their deposit accounts through the Internet. Customers are able to obtain transaction history and account information, transfer funds between accounts, make person-to-person payments and make online bill payments.
As of December 31, 2025, our borrowing limit with the FHLB was approximately $402 million. Internet and Mobile Banking We offer Internet banking services, which allows our customers to access their deposit accounts through the Internet. Customers are able to obtain transaction history and account information, transfer funds between accounts, make person-to-person payments and make online bill payments.
Since opening the doors of our main Oakdale branch in 1991, our network of branches have been expanded geographically. As of December 31, 2024, we maintained eighteen full-service branch offices (in addition to our corporate headquarters) located in the cities of Oakdale, Sonora, Modesto, Bridgeport, Mammoth Lakes, Bishop, Escalon, Patterson, Turlock, Ripon, Stockton, Manteca, Tracy, Sacramento, and Roseville in California.
As of December 31, 2025, we maintained nineteen full-service branch offices (in addition to our corporate headquarters) located in the cities of Oakdale, Sonora, Modesto, Bridgeport, Mammoth Lakes, Bishop, Escalon, Patterson, Turlock, Ripon, Stockton, Manteca, Tracy, Sacramento, Roseville and Lodi in California.
The Bank also offers commercial and real estate loans, as well as lines of credit. Real estate loans are generally of a short-term nature for both residential and commercial lending purposes. Longer-term real estate loans are generally made with adjustable interest rates and contain customary provisions for acceleration. Traditional residential mortgages are available to Bank customers through a third party.
Longer-term real estate loans are generally made with adjustable interest rates and contain customary provisions for acceleration. Traditional residential mortgages are available to Bank customers through a third party.
On March 6, 2024, the SEC adopted new rules that require public companies to disclose substantial information about the material impacts of climate-related risks on their business, financial condition, and governance. These new rules require disclosure of a range of climate-related matters. The new rules are currently being challenged in the Eighth Circuit Court of Appeals.
On March 6, 2024, the SEC adopted new rules that require public companies to disclose substantial information about the material impacts of climate-related risks on their business, financial condition, and governance. These new rules would require disclosure of a range of climate-related matters. Various states and private parties have challenged the rules. The litigation was consolidated in the U.S.
Management anticipates that there will be sufficient earnings at the Bank level to provide dividends to the Company to meet its cash requirements for 2025. 15 Table of Contents Safety and Soundness Standards Federal banking agencies have also adopted guidelines establishing safety and soundness standards for all insured depository institutions.
Management anticipates that there will be sufficient earnings at the Bank level to provide dividends to the Company to meet its cash requirements for 2026. 1 https://www.fdic.gov/news/speeches/2023/spjul2723b.html. https://www.federalreserve.gov/aboutthefed/boardmeetings/fact-sheet-basel-20230727.pdf. 15 Table of Contents Safety and Soundness Standards Federal banking agencies have also adopted guidelines establishing safety and soundness standards for all insured depository institutions.
The focus of the Bank is to offer a range of commercial banking services designed for both individuals and small to medium-sized businesses in the two main areas of service of the Bank: the Central Valley and the Eastern Sierras. The Bank offers a complement of business checking and savings accounts for its business customers.
The focus of the Bank is to offer a range of commercial banking services designed for both individuals and small to medium-sized businesses in the two main areas of service of the Bank: the Central Valley and the Eastern Sierras. The three branches in the Eastern Sierras operate as Eastern Sierra Community Bank, a division of the Bank.
Mergers and Acquisitions On September 17, 2024, the Board of Directors of the FDIC approved a final Statement of Policy on Bank Merger Transactions (“FDIC Statement of Policy”), and the OCC approved a final rule updating its regulations for business combinations involving national banks and federal savings associations (“OCC Final Rule”).
We continue to leverage this framework as a guiding best practice to enhance our cybersecurity posture and manage risks effectively. 18 Table of Contents Mergers and Acquisitions On September 17, 2024, the Board of Directors of the FDIC approved a final Statement of Policy on Bank Merger Transactions (“FDIC Statement of Policy”), and the OCC approved a final rule updating its regulations for business combinations involving national banks and federal savings associations (“OCC Final Rule”).
The rule, which became effective January 1, 2024, requires most entities created in or registered to do business in the United States, subject to certain exceptions, to report information about their beneficial owners to FinCEN. The compliance date was January 1, 2025, but the beneficial ownership information reporting requirement under the CTA is currently subject to ongoing litigation.
The rule, which became effective January 1, 2024, as originally contemplated, would have required most entities created in or registered to do business in the United States, subject to certain exceptions, to report information about their beneficial owners to FinCEN.
The U.S. targeted implementation of Basel IV to begin on July 1, 2025, subject to a three-year transition period with full compliance expected by July 1, 2028.
Although U.S. regulators originally targeted implementation of Basel IV to begin on July 1, 2025, subject to a three-year transition period with full compliance expected by July 1, 2028, the federal banking agencies indicated in September 2025 that they intend to unveil a re-proposal of the Basel IV capital rules by early 2026.
Other Pending and Proposed Legislation Other legislative and regulatory initiatives which could affect us and the banking industry, in general, are pending and additional initiatives may be proposed or introduced before the United States Congress, the California legislature and other governmental bodies in the future.
Furthermore, the SEC notified the court that the SEC would cease its involvement in the defense of the rule, leaving it uncertain as to whether it will become effective. 20 Table of Contents Other Pending and Proposed Legislation Other legislative and regulatory initiatives which could affect us and the banking industry, in general, are pending and additional initiatives may be proposed or introduced before the United States Congress, the California legislature and other governmental bodies in the future.
In addition, the CPRA significantly modifies the CCPA, including by expanding California residents’ rights with respect to certain sensitive personal information. We will continue to monitor developments related to the CPRA.
In addition, the CPRA significantly modifies the CCPA, including by expanding California residents’ rights with respect to certain sensitive personal information. We will continue to monitor developments related to the CPRA. The full impact of the CPRA on our business is yet to be determined. Like other lenders, we use credit bureau data in their underwriting activities.
We regularly make use of Federal Home Loan Bank advances as part of our interest rate risk management, primarily to extend the duration of funding to match the longer-term fixed rate loans held in the loan portfolio as part of our growth strategy.
FHLB advances can be used as part of our interest rate risk management, primarily to extend the duration of funding to match the longer-term fixed rate loans held in the loan portfolio as part of our growth strategy. As a member of the FHLB system, we are required to invest in FHLB stock based on a predetermined formula.
As a result, the previous CRA regulations continue to govern and the effective date will be extended each day the injunction remains in place.
As a result, the previous CRA regulations continue to govern.
Removed
As a member of the Federal Home Loan Bank system, we are required to invest in Federal Home Loan Bank stock based on a predetermined formula. Federal Home Loan Bank stock is a restricted equity security that can only be sold to other Federal Home Loan Bank members or redeemed by the Federal Home Loan Bank.
Added
The Bank offers a complement of business checking and savings accounts for its business customers. The Bank also offers commercial and real estate loans, as well as lines of credit. Real estate loans are generally of a short-term nature for both residential and commercial lending purposes.
Removed
The public comment period concluded in January 2024 for the proposed rules set forth by the U.S. banking regulators, with comment periods on ancillary rules and documentation ongoing throughout 2024, making it unlikely that any rule will be finalized or effective by July 1, 2025.
Added
Since opening the doors of our main Oakdale branch in 1991, our network of branches have been expanded geographically.
Removed
In addition, in light of the change in the presidential administration, it is unclear whether the banking agencies will pursue the proposal or issue a revised proposal for comment.
Added
Accordingly, the previously established implementation dates for Basel IV are no longer definitive, and the timing, scope, and final form of the re-proposed Basel IV framework remains uncertain.
Removed
Treasury Department intends to further issue a proposed rulemaking that will narrow the scope of the rule for foreign reporting companies only.
Added
On July 16, 2025, the OCC, the FRB, and the FDIC issued a joint Notice of Proposed Rulemaking proposing to rescind the new CRA regulations and replace it with regulations substantively identical to those in effect on March 29, 2024, as originally adopted by the agencies in 1995 and reinstated by the OCC in 2021.
Removed
The full impact of the CPRA on our business is yet to be determined. 17 Table of Contents Like other lenders, we use credit bureau data in their underwriting activities.
Added
The CTA aims to combat money laundering, securities and tax fraud, terrorism financing, human and drug trafficking, counterfeiting, and other corrupt, nefarious activities by preventing bad actors from concealing their ownership of U.S. entities to advance their illicit operations.
Removed
The current SEC Chairman instructed staff to request that the court not schedule oral arguments, suggesting that the SEC may abandon its defense of the new rules.
Added
Although FinCEN originally set a deadline of January 1, 2025, for entities to file BOI reports, on March 26, 2025, FinCEN issued an Interim Final Rule that removed the requirement for U.S. companies and U.S. persons to report BOI to FinCEN under the CTA, meaning only foreign entities formed outside the U.S. that are registered to do business in the U.S. are currently subject to the CTA’s BOI reporting obligations.
Added
On February 20, 2024, the CTA’s access rule, which implements the CTA’s access and safeguard provisions, took effect, under which a reporting company’s BOI is deemed confidential but can be disclosed by FinCEN to six categories of recipients, including financial institutions that are subject to customer due diligence obligations and have received the reporting company’s consent to access its BOI.
Added
As a result of the Interim Final Rule, while the CTA’s access rule remains in effect, its practical applicability is limited to BOI submitted to FinCEN by foreign reporting companies that continue to have reporting obligations under the CTA.
Added
Overall, the status of the CTA and related BOI reporting requirements remains in flux due to ongoing litigation and regulatory developments concerning the constitutionality and implementation of the CTA. Legislation to repeal the CTA has also been brought before Congress, and it is unclear the extent to which the CTA will be enforced.
Added
The Interim Final Rule stated that FinCEN was accepting comments to the Interim Final Rule through May 27, 2025, would evaluate the rule Interim Final Rule’s exemptions to BOI reporting in light of the comments received, and expected to issue a final rule addressing BOI requirements under the CTA during 2025.
Added
However, as of December 2025, FinCEN was still in the process of reviewing comments to the Interim Final Rule, and no final rule has been issued by FinCEN to date.
Added
Although we are not currently subject to the CTA’s BOI reporting requirements as a result of the Interim Final Rule, we will continue to monitor FinCEN’s guidance, and any final rules or other regulatory developments relating to the CTA and will assess the applicability of any resulting reporting obligations.
Added
While it is presently unclear if, when and to what extent the CFPB will resume its activities, other governmental authorities, including state attorneys general or banking regulators, may seek to increase their regulation, supervision, and enforcement of providers of consumer financial products and services in response to changes at the CFPB.
Added
Moreover, changes at the CFPB may lead to federal legislative efforts to alter the framework for consumer financial services regulation.
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Eighth Circuit Court of Appeals, and the SEC previously stayed effectiveness of the rules pending completion of that litigation.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

22 edited+5 added−3 removed205 unchanged
Biggest changeWe may be required to expend significant additional resources to continue to modify or enhance our information security infrastructure or to investigate and remediate any information security vulnerabilities in response to continuing information systems security threats. 29 Table of Contents The occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability.
Biggest changeThreats to information security also exist in the processing of customer information through various other vendors and their personnel. 29 Table of Contents We may be required to expend significant additional resources to continue to modify or enhance our information security infrastructure or to investigate and remediate any information security vulnerabilities in response to continuing information systems security threats.
Technology Risks Our security measures may not be sufficient to mitigate the risk of a cyber-attack or cyber theft. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business.
Risks Related to Technology Our security measures may not be sufficient to mitigate the risk of a cyber-attack or cyber theft. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business.
In addition, we expect the Trump administration will seek to implement a regulatory reform agenda that is significantly different than that of the Biden administration, thereby impacting the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies.
In addition, we expect the Trump administration will continue to seek to implement a regulatory reform agenda that is significantly different than that of the Biden administration, thereby impacting the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies.
Similar state laws may impose additional requirements on us. 30 Table of Contents Regulatory Risks We operate in a highly regulated environment and our operations and income may be affected adversely by changes in laws, rules and regulations governing our operations. We are subject to extensive regulation and supervision by the DFPI, FRB and the FDIC.
Similar state laws may impose additional requirements on us. 30 Table of Contents Risks Related to Regulations We operate in a highly regulated environment and our operations and income may be affected adversely by changes in laws, rules and regulations governing our operations. We are subject to extensive regulation and supervision by the DFPI, FRB and the FDIC.
Our inability to service our debt, pay our other obligations or pay dividends to our stockholders could have a material adverse impact on our financial condition and the value of your investment in our securities. We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed.
Our inability to service our debt, pay our other obligations or pay dividends to our stockholders could have a material adverse impact on our financial condition and the value of your investment in our securities. 28 Table of Contents We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed.
The assessment of qualitative factors at the most recent Measurement Date (December 31, 2024), indicated that it was not more likely than not that impairment existed; as a result, no further testing was performed.
The assessment of qualitative factors at the most recent Measurement Date (December 31, 2025), indicated that it was not more likely than not that impairment existed; as a result, no further testing was performed.
New lines of business and/or new products or services also could subject us to additional regulatory requirements, increased scrutiny by our regulators and other legal risks. Additionally, from time to time we undertake strategic project initiatives. Significant effort and resources are necessary to manage and oversee the successful completion of these initiatives.
New lines of business and/or new products or services also could subject us to additional regulatory requirements, increased scrutiny by our regulators and other legal risks. 26 Table of Contents Additionally, from time to time we undertake strategic project initiatives. Significant effort and resources are necessary to manage and oversee the successful completion of these initiatives.
We may pay higher FDIC premiums in the future and increases in deposit insurance premiums and special FDIC assessments will negatively impact our earnings. 32 Table of Contents Tax and Financial Risks The Company has a deferred tax asset that may or may not be fully realized.
We may pay higher FDIC premiums in the future and increases in deposit insurance premiums and special FDIC assessments will negatively impact our earnings. 32 Table of Contents Risks Related to Tax and Financial Matters The Company has a deferred tax asset that may or may not be fully realized.
Risks Associated with Our Business Our business strategy includes sustainable growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. We intend to pursue an organic growth strategy for our business.
Risks Related to Our Business Our business strategy includes sustainable growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. We intend to pursue an organic growth strategy for our business.
If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. 28 Table of Contents Climate change manifesting as physical or transition risks could adversely affect our operations, businesses and customers.
If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. Climate change manifesting as physical or transition risks could adversely affect our operations, businesses and customers.
At December 31, 2024, the Company had a net deferred tax asset of $15.5 million. For additional information, see Note 10 to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. We may experience future goodwill impairment.
At December 31, 2025, the Company had a net deferred tax asset of $13.6 million. For additional information, see Note 9 to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. We may experience future goodwill impairment.
At December 31, 2024, we held bank owned life insurance (“BOLI”) on certain key and former employees and executives and our directors, with a cash surrender value of $37,558,000.
At December 31, 2025, we held bank owned life insurance (“BOLI”) on certain key and former employees and executives and our directors, with a cash surrender value of $36,899,000.
As of December 31, 2024, consumer and commercial real estate loans constituted 90% of our loan portfolio, of which 97% were commercial real estate loans.
As of December 31, 2025, consumer and commercial real estate loans constituted 91% of our loan portfolio, of which 97% were commercial real estate loans.
These initiatives often place significant demands on a limited number of employees with subject matter expertise and management and may involve significant costs to implement as well as increase operational risk as employees learn to process transactions under new systems.
These initiatives often place significant demands on a limited number of employees with subject matter expertise and management and may involve significant costs to implement as well as increase operational risk as employees learn to process transactions under new systems. The failure to properly execute on these strategic initiatives could adversely impact our business and results of operations.
An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.
Managing reputational risk is important to attracting and maintaining customers, investors and employees. Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, regulatory investigations, cybersecurity breaches, marketplace rumors and questionable or fraudulent activities of our customers.
Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, regulatory investigations, cybersecurity breaches, marketplace rumors and questionable or fraudulent activities of our customers. We have policies and procedures in place to promote ethical conduct and protect our reputation.
In our market areas, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere.
Strong competition within our market areas may limit our growth and profitability. Competition in the banking and financial services industry is intense. In our market areas, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere.
We continue to enhance our enterprise risk management program to support our risk culture, ensuring that it is sustainable and appropriate to our role as a major financial institution. Nonetheless, if we fail to create the appropriate environment that sensitizes all of our employees to managing risk, our business could be adversely impacted.
We continue to enhance our enterprise risk management program to support our risk culture, ensuring that it is sustainable and appropriate to our role as a major financial institution.
We rely heavily on third party service providers for much of our communications, information, operating and financial control systems technology, including our online banking services and data processing systems. We also rely on third party vendors, who may experience unauthorized access to and disclosure of client or customer information or the destruction or theft of such information.
We also rely on third party vendors, who may experience unauthorized access to and disclosure of client or customer information or the destruction or theft of such information.
Any of these occurrences could have a material adverse effect on our financial condition and results of operations. We rely on communications, information, operating and financial control systems technology from third party service providers, and we may suffer an interruption in those systems.
We rely on communications, information, operating and financial control systems technology from third party service providers, and we may suffer an interruption in those systems. We rely heavily on third party service providers for much of our communications, information, operating and financial control systems technology, including our online banking services and data processing systems.
Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental oversight. 27 Table of Contents Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business.
However, these policies and procedures may not be fully effective and cannot adequately protect against all threats to our reputation. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental oversight.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients. Risks Related to Our Operations We face significant operational risks.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients. In addition, transactions utilizing digital assets, including cryptocurrencies, stablecoins and other similar assets have increased over the past few years and continue to gain wider market acceptance.
Removed
The failure to properly execute on these strategic initiatives could adversely impact our business and results of operations. 26 Table of Contents Strong competition within our market areas may limit our growth and profitability. Competition in the banking and financial services industry is intense.
Added
Additionally, changes to the size, structure, and operation of the federal government, including the workforce reduction, elimination or curtailment of federal agencies, delivery of government services and distribution of federal program funds and benefits may cause economic disruption that could adversely impact our customers and our business, results of operations and financial condition.
Removed
We have policies and procedures in place to promote ethical conduct and protect our reputation. However, these policies and procedures may not be fully effective and cannot adequately protect against all threats to our reputation.
Added
Certain characteristics of digital asset transactions, including their speed and anonymity are appealing to certain consumers notwithstanding the various risks posed by such transactions. In addition, certain cryptocurrency exchanges and other market participants may pay yield on digital asset holdings in the same manner as interest-bearing deposit accounts which may result in loss of deposits.
Removed
Threats to information security also exist in the processing of customer information through various other vendors and their personnel.
Added
Accordingly, digital asset service providers, who currently are not subject to the same extensive regulation as banking organizations and other financial institutions, have become potential competitors for our customers' banking business. Risks Related to Our Operations We face significant operational risks.
Added
Nonetheless, if we fail to create the appropriate environment that sensitizes all of our employees to managing risk, our business could be adversely impacted. 27 Table of Contents Managing reputational risk is important to attracting and maintaining customers, investors and employees.
Added
The occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeAs of the date of this report, other than the risks discussed in “Risk Factors,” the Company knows of no risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition. 36 Table of Contents
Biggest changeThe Incident Response Plan is tested annually and includes technical and executive management in simulated crisis management cybersecurity tabletop exercises. 36 Table of Contents As of the date of this report, other than the risks discussed in “Risk Factors,” the Company knows of no risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition.
Removed
The Incident Response Plan is tested annually and includes technical and executive management in simulated crisis management cybersecurity tabletop exercises.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Removed
Although the results of any such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of any such claims and proceedings will not have a material adverse impact on the Company’s financial position, liquidity, or results of operations.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeTrading Symbol and Holders of Common Stock Our common stock is traded on the Nasdaq Capital Market under the symbol “OVLY.” On March 18, 2025, there were approximately 349 shareholders of record of the common stock and 8,382,062 outstanding shares of common stock.
Biggest changeTrading Symbol and Holders of Common Stock Our common stock is traded on the Nasdaq Capital Market under the symbol “OVLY.” On March 13, 2026, there were approximately 338 shareholders of record of the common stock and 8,413,458 outstanding shares of common stock.
Share Repurchases The Company has no repurchase plans or programs with respect to its common stock or equity securities in place and therefore there were no repurchased shares during the quarter ended December 31, 2024.
Share Repurchases The Company has no repurchase plans or programs with respect to its common stock or equity securities in place and therefore there were no repurchased shares during the quarter ended December 31, 2025.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

101 edited+8 added−4 removed70 unchanged
Biggest changeThe following table summarizes our commercial real estate loan portfolio by the geographic location in which the property is located as of December 31, 2024 and 2023: (Dollars in Thousands) December 31, 2024 December 31, 2023 Commercial real estate loans by geographic location (County) Amount % of Commercial Real Estate Loans Amount % of Commercial Real Estate Loans Stanislaus $ 209,459 21.8 % $ 209,505 23.4 % San Joaquin 174,615 18.2 % 180,408 20.2 % Sacramento 130,976 13.6 % 107,270 12.0 % Fresno 73,123 7.6 % 64,578 7.2 % Tuolumne 34,852 3.6 % 32,950 3.7 % Merced 28,349 3.0 % 26,620 3.0 % Shasta 28,066 2.9 % 27,979 3.1 % Contra Costa 23,019 2.4 % 13,941 1.6 % Yolo 21,752 2.3 % 19,091 2.1 % Marin 20,454 2.1 % 20,703 2.3 % Solano 18,515 1.9 % 17,942 2.0 % Placer 17,066 1.8 % 11,804 1.3 % Alameda 15,130 1.6 % 13,675 1.5 % Sutter 15,109 1.6 % 12,758 1.4 % Santa Clara 13,961 1.5 % 8,833 1.0 % Sonoma 13,506 1.4 % 14,102 1.6 % Tulare 12,732 1.3 % 10,037 1.1 % Inyo 8,443 0.9 % 5,218 0.6 % San Diego 8,427 0.9 % 9,180 1.0 % Other 92,104 9.6 % 87,158 9.8 % Total $ 959,658 100.0 % $ 893,752 100.0 % 49 Table of Contents Construction and land loans are classified as commercial real estate loans and decreased $45.2 million in 2024 as compared to 2023, mainly due to the completion of construction on existing projects that converted to permanent financing during 2024.
Biggest changeThe following table summarizes our commercial real estate loan portfolio by the geographic location in which the property is located as of December 31, 2025 and 2024: (Dollars in Thousands) December 31, 2025 December 31, 2024 Commercial real estate loans by geographic location (County) Amount % of Commercial Real Estate Loans Amount % of Commercial Real Estate Loans Stanislaus 205,548 20.4 % $ 209,459 21.8 % San Joaquin 178,183 17.6 % 174,615 18.2 % Sacramento 140,987 14.0 % 130,976 13.6 % Fresno 77,083 7.6 % 73,123 7.6 % Tuolumne 34,166 3.4 % 34,852 3.6 % Merced 29,437 2.9 % 28,349 3.0 % Contra Costa 25,685 2.5 % 23,019 2.4 % Yolo 24,355 2.4 % 21,752 2.3 % Shasta 23,212 2.3 % 28,066 2.9 % Placer 22,649 2.2 % 17,066 1.8 % Tulare 20,559 2.0 % 12,732 1.3 % Marin 19,879 2.0 % 20,454 2.1 % Solano 19,696 2.0 % 18,515 1.9 % Santa Clara 18,698 1.9 % 13,961 1.5 % Sutter 16,157 1.6 % 15,109 1.6 % Alameda 14,436 1.4 % 15,130 1.6 % Sonoma 13,033 1.3 % 13,506 1.4 % Napa 10,521 1.0 % 5,057 0.5 % Other 115,882 11.5 % 103,917 10.9 % Total $ 1,010,166 100.0 % $ 959,658 100.0 % 49 Table of Contents Construction and land loans are classified as commercial real estate loans and increased $30.2 million in 2025 as compared to 2024.
If FOMC were to cut rates in 2025 or thereafter, we expect this would have a negative impact on our net interest income, due to repricing of interest-bearing cash balances, existing loans and investment securities. 43 Table of Contents Rate/Volume Analysis The following table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated.
If FOMC were to cut rates in 2026 or thereafter, we expect this would have a negative impact on our net interest income, due to repricing of interest-bearing cash balances, existing loans and investment securities. 43 Table of Contents Rate/Volume Analysis The following table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated.
Additional sources of liquidity may include institutional deposits, advances from the FHLB and other short-term borrowings, such as federal funds purchased. Since our deposit growth strategy emphasizes core deposit growth, we have avoided relying on brokered deposits as a consistent source of funds. The Company had no brokered deposits as of December 31, 2024 and 2023.
Additional sources of liquidity may include institutional deposits, advances from the FHLB and other short-term borrowings, such as federal funds purchased. Since our deposit growth strategy emphasizes core deposit growth, we have avoided relying on brokered deposits as a consistent source of funds. The Company had no brokered deposits as of December 31, 2025 and 2024.
FHLB Borrowings Although deposits are the primary source of funds for our lending and investment activities and for general business purposes, we may obtain advances from the FHLB as an alternative to retail deposit funds. We had no outstanding balances as of December 31, 2024 and 2023. The average balance of FHLB advances outstanding in 2024 and 2023 was $0.
FHLB Borrowings Although deposits are the primary source of funds for our lending and investment activities and for general business purposes, we may obtain advances from the FHLB as an alternative to retail deposit funds. We had no outstanding balances as of December 31, 2025 and 2024. The average balance of FHLB advances outstanding in 2025 and 2024 was $0.
In addition, the Company had lines of credit with its correspondent banks to purchase overnight federal funds totaling $70 million at December 31, 2024 and 2023. No advances were made on these lines of credit as of December 31, 2024 and 2023. The Company’s liquidity depends primarily on dividends paid to it as the sole shareholder of the Bank.
In addition, the Company had lines of credit with its correspondent banks to purchase overnight federal funds totaling $70 million at December 31, 2025 and 2024. No advances were made on these lines of credit as of December 31, 2025 and 2024. The Company’s liquidity depends primarily on dividends paid to it as the sole shareholder of the Bank.
We employ strict guidelines regarding the use of collateral located in less familiar market areas. Positive trends in Northern California real estate values, the low loan-to-value ratios in our commercial real estate portfolio, and the high percentage of owner-occupied properties further solidify our credit quality position.
We employ strict guidelines regarding the use of collateral located in less familiar market areas. Positive trends in Northern California real estate values, the low loan-to-value ratios in our commercial real estate portfolio, and the significant percentage of owner-occupied properties further solidify our credit quality position.
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of financial condition as of December 31, 2024 and 2023 and results of operations for each of the years in the two-year period ended December 31, 2024 should be read in conjunction with our consolidated financial statements and related notes thereto, included in this report.
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of financial condition as of December 31, 2025 and 2024 and results of operations for each of the years in the two-year period ended December 31, 2025 should be read in conjunction with our consolidated financial statements and related notes thereto, included in this report.
Management recognizes that assessments could increase further depending on deposit growth throughout the remainder of 2025, as the FDIC assessment rates are applied to average quarterly total liabilities as the primary basis, and based on FDIC’s discretion to increase the base assessment rate as needed to replenish the Deposit Insurance Fund.
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.
The disparity between the effective tax rates for 2024 as compared to 2023 is primarily due to tax credits from low-income housing projects as well as tax-free income on municipal securities and loans that comprised a larger proportion of pre-tax income in 2024 as compared to 2023.
The disparity between the effective tax rates for 2025 as compared to 2024 is primarily due to tax credits from low-income housing projects as well as tax-free income on municipal securities and loans that comprised a larger proportion of pre-tax income in 2025 as compared to 2024.
(See “Description of Business-Regulation and Supervision-Capital Adequacy Requirements” in this report for exact definitions and regulatory capital requirements.) As of December 31, 2024, we were qualified as a “well capitalized institution” under the regulatory framework for prompt corrective action.
(See “Description of Business-Regulation and Supervision-Capital Adequacy Requirements” in this report for exact definitions and regulatory capital requirements.) As of December 31, 2025, we were qualified as a “well capitalized institution” under the regulatory framework for prompt corrective action.
The value is recorded at fair market value with market gains or losses recorded to other income in the consolidate financial statements. As of December 31, 2024, we have no remaining undisbursed commitments.
The value is recorded at fair market value with market gains or losses recorded to other income in the consolidate financial statements. As of December 31, 2025, we have no remaining undisbursed commitments.
Four of our clients carry deposit balances of more than 1% of our total deposits, one of which had a deposit balance of more than 3% of total deposits at December 31, 2024. The Company had no brokered deposits as of December 31, 2024 and 2023.
Four of our clients carry deposit balances of more than 1% of our total deposits, one of which had a deposit balance of more than 3% of total deposits at December 31, 2025. The Company had no brokered deposits as of December 31, 2025 and 2024.
The net interest margin compression in 2024, is due to the factors discussed above and could worsen if rate indexes on assets were to fall, and/or: 1) deposit interest rates continue to increase due to customer demand, or competitive pressure from peer banks, 2) competition in the lending market restrict significant increases in new loan rates, and 3) deposit growth out-paces loan growth, resulting in higher interest-bearing cash balances, which would offer lower yields than loans and investments depending on the Federal Funds rate as determined by the FOMC.
The net interest margin expansion in 2025, is due to the factors discussed above but could worsen if rate indexes on assets were to fall, and/or: 1) deposit interest rates continue to increase due to customer demand, or competitive pressure from peer banks, 2) competition in the lending market restrict significant increases in new loan rates, and 3) deposit growth out-paces loan growth, resulting in higher interest-bearing cash balances, which would offer lower yields than loans and investments depending on the Federal Funds rate as determined by the FOMC.
For more information on our capital resources and capital adequacy requirements, see Note 19 to the Consolidated Financial Statements in Item 8 of this report. 58 Table of Contents
For more information on our capital resources and capital adequacy requirements, see Note 18 to the Consolidated Financial Statements in Item 8 of this report. 58 Table of Contents
The FOMC rate hikes in 2022 and 2023 continued to have a positive impact on rates of loans that repriced during 2024. The yield on loans recognized an increase of 33 basis points for 2024 as compared to 2023, due to the upward repricing of variable rate loans and higher rate indexes on new loans.
The FOMC rate hikes in 2022 and 2023 continued to have a positive impact on rates of loans that repriced during 2025. The yield on loans recognized an increase of 24 basis points for 2025 as compared to 2024, due to the upward repricing of variable rate loans and higher rate indexes on new loans.
For 2025, management remains focused on the above challenges and opportunities and other factors affecting the business similar to the factors driving the 2024 results as discussed in this section.
For 2026, management remains focused on the above challenges and opportunities and other factors affecting the business similar to the factors driving the 2025 results as discussed in this section.
Federal Deposit Insurance Corporation (“FDIC”) and California Department of Financial Protection and Innovation (“DFPI”) regulatory assessments increased by $70,000 in 2024 over 2023, mainly due to the increase in deposit balances. FDIC increased the base rate to 0.05%, on an annual basis, for all member banks in order to build up the Deposit Insurance Fund.
Federal Deposit Insurance Corporation (“FDIC”) and California Department of Financial Protection and Innovation (“DFPI”) regulatory assessments increased by $30,000 in 2025 over 2024, mainly due to the increase in deposit balances. FDIC increased the base rate to 0.05%, on an annual basis, for all member banks in order to build up the Deposit Insurance Fund.
We currently maintain eighteen full-service offices. We intend to continue our growth strategy in future years through the opening of additional branches and loan production offices as our needs and resources permit. 2025 Outlook As we begin our strategic business plan for 2025, we remained focused on relationship-based expansion throughout our market area.
We currently maintain nineteen full-service offices. We intend to continue our growth strategy in future years through the opening of additional branches and loan production offices as our needs and resources permit. 2026 Outlook As we begin our strategic business plan for 2026, we remained focused on relationship-based expansion throughout our market area.
Consistent with ASU 2016-01, equity securities are carried at fair value with the changes in fair value recognized in the consolidated statement of income. Accordingly, the Company recognized an unrealized loss of $74,000 and an unrealized gain of $41,000 during the years ended December 31, 2024 and 2023, respectively.
Consistent with ASU 2016-01, equity securities are carried at fair value with the changes in fair value recognized in the consolidated statement of income. Accordingly, the Company recognized an unrealized gain of $133,000 and an unrealized loss of $74,000 during the years ended December 31, 2025 and 2024, respectively.
The yields are calculated using a weighted average method based on the investment security balances as of December 31, 2024.
The yields are calculated using a weighted average method based on the investment security balances as of December 31, 2025.
Currently, all of our investment securities are classified as available-for-sale, except for one mutual fund classified as an equity security. 47 Table of Contents The fair value of the equity security was $3,169,000 and $3,132,000 at December 31, 2024 and December 31, 2023, respectively.
Currently, all of our investment securities are classified as available-for-sale, except for one mutual fund classified as an equity security. 47 Table of Contents The fair value of the equity security was $3,424,000 and $3,169,000 at December 31, 2025 and December 31, 2024, respectively.
Cash Equivalents and Interest-bearing Deposits in other Financial Institutions 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 December 31, 2024, and 2023, we had $30,270,000 and $36,500,000, respectively, in federal funds sold.
Cash Equivalents and Interest-bearing Deposits in other Financial Institutions 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 December 31, 2025, and 2024, we had $29,080,000 and $30,270,000, respectively, in federal funds sold.
Mortgage commissions have increased by $11,000 for the year 2024, as compared to 2023, a moderate upward trend but overall demand for home purchases and refinancing remains low due to cost of housing and high interest rates.
Mortgage commissions have increased by $2,000 for the year 2025, as compared to 2024, a moderate upward trend but overall demand for home purchases and refinancing remains low due to cost of housing and high interest rates.
As a result of management’s analysis, a range of the potential amount of the allowance for credit losses is determined. The Company recorded a reversal of provision for credit loss of $1,620,000 and a credit loss provision of $970,000 during the years ended December 31, 2024 and 2023, respectively.
As a result of management’s analysis, a range of the potential amount of the allowance for credit losses is determined. The Company recorded a credit loss provision of $805,000, and a credit loss provision reversal of $1,620,000 during the years ended December 31, 2025 and 2024, respectively.
Data processing fees increased in 2024 over 2023 by $85,000, primarily due to servicing costs on the growing number of loan and deposit accounts, as well as upgrades to our online banking and mobile banking platforms.
Data processing fees increased in 2025 over 2024 by $215,000, primarily due to servicing costs on the growing number of loan and deposit accounts, as well as upgrades to our online banking and mobile banking platforms.
Earnings on the cash surrender value of life insurance recognized an increase of $264,000 in 2024 compared to 2023, due to higher yields and three new life insurance policies purchased during the second quarter of 2024.
Earnings on the cash surrender value of life insurance recognized an increase of $145,000 in 2025 compared to 2024, due to higher yields and three new life insurance policies purchased during the second quarter of 2024.
Based on the current conditions of the loan portfolio, management believes that the $11,460,000 allowance for credit losses at December 31, 2024 is adequate to absorb losses inherent in our loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.
Based on the current conditions of the loan portfolio, management believes that the $12,381,000 allowance for credit losses at December 31, 2025 is adequate to absorb losses inherent in our loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.
As of December 31, 2024 and 2023, our aggregate payment obligations under this plan totaled $14.1 million and $11.4 million, respectively. 56 Table of Contents Liquidity and Asset/Liability Management Management seeks to ascertain optimum and stable utilization of available assets and liabilities as a vehicle to attain our overall business plans and objectives.
As of December 31, 2025 and 2024, our aggregate payment obligations under this plan totaled $13.7 million and $14.1 million, respectively. 56 Table of Contents Liquidity and Asset/Liability Management Management seeks to ascertain optimum and stable utilization of available assets and liabilities as a vehicle to attain our overall business plans and objectives.
The FHLB determines limitations on the amounts of advances by assigning a percentage to each eligible loan category that will count towards the borrowing capacity. As of December 31, 2024 and 2023, the Company had no FHLB advances outstanding and had sufficient collateral to borrow an additional $364.4 million and $333.1 million, respectively.
The FHLB determines limitations on the amounts of advances by assigning a percentage to each eligible loan category that will count towards the borrowing capacity. As of December 31, 2025 and 2024, the Company had no FHLB advances outstanding and had sufficient collateral to borrow an additional $401.7 million and $364.4 million, respectively.
We plan to continue to focus on growth of our loan and deposit portfolios to ease pressure on our net interest margin, while attempting to control expenses and credit losses. 39 Table of Contents Unfavorable trends in inflation prompted the Federal Reserve Open Market Committee, or FOMC, to increase the target federal funds rate in 2022 and 2023, which resulted yield increases on our earning assets.
We plan to continue to focus on growth of our loan and deposit portfolios to ease pressure on our net interest margin, while attempting to control expenses and credit losses. 39 Table of Contents Unfavorable trends in inflation prompted the Federal Reserve Open Market Committee, or FOMC, to increase the target federal funds rate (the interest rate banks charge each other for short-term borrowing) in 2022 and 2023, which resulted in yield increases on our earning assets.
Debit card transaction fee income decreased to $1,738,000 in 2024 as compared to $1,773,000 in 2023, due to debit card network costs that are included in the net revenue received by the bank.
Debit card transaction fee income decreased to $1,673,000 in 2025 as compared to $1,738,000 in 2024, due to debit card network costs that are included in the net revenue received by the bank.
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. Total investment securities as a percentage of total assets increased to 27.9% as of December 31, 2024 compared to 28.3% at December 31, 2023.
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. Total investment securities as a percentage of total assets decreased to 27.0% as of December 31, 2025 compared to 27.9% at December 31, 2024.
Other operating expenses increased by $2,105,000 in 2024 as compared to 2023, primarily due to an increase in advertising expenses from a direct-mail campaign launched in 2024 targeting consumer deposit accounts, and various general operating expense increases required to support our growing business portfolios and compliance mandates. Some of these included audit expenses, software license fees and charitable contributions.
Other operating expenses increased by $1,679,000 in 2025 as compared to 2024, primarily due to an increase in advertising expenses from a direct-mail campaign launched in 2024 targeting consumer deposit accounts, and various general operating expense increases required to support our growing business portfolios and compliance mandates. Some of these included legal expenses, software license fees and charitable contributions.
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, which had unfunded commitments of $5,664,000 and $9,782,000 as of December 31, 2024 and 2023, respectively.
During 2018, 2022 and 2025, we committed to invest $5,000,000, $10,500,000 and $5,000,000, respectively, in low-income housing tax credit funds (“LIHTC”) to promote our participation in CRA activities, which had unfunded commitments of $4,598,000 and $5,664,000 as of December 31, 2025 and 2024, respectively.
Also, retained earnings was reduced by the common stock dividend payments totaling $3.7 million during 2024. As of December 31, 2024, we had no material commitments for capital expenditures. We are subject to various regulatory capital requirements administered by federal banking agencies.
Also, retained earnings was reduced by the common stock dividend payments totaling $5.0 million during 2025. As of December 31, 2025, we had no material commitments for capital expenditures. We are subject to various regulatory capital requirements administered by federal banking agencies.
The percentage of core deposits to total deposits decreased slightly to 97.6% at December 31, 2024 as compared to 98.3% at December 31, 2023. The average rate paid on time deposits in denominations of over $250,000 was 3.35% and 1.35% for the years ended December 31, 2024 and 2023, respectively.
The percentage of core deposits to total deposits decreased slightly to 97.4% at December 31, 2025 as compared to 97.6% at December 31, 2024. The average rate paid on time deposits in denominations of over $250,000 was 3.53% and 3.35% for the years ended December 31, 2025 and 2024, respectively.
In response to moderating inflation and weakening economic conditions, in 2024 the FOMC made minimal interest rates cuts. In spite of this, we expect the upward trend in our earning asset yield will continue to some degree in 2025 due to continued repricing of existing loans.
In response to moderating inflation and weakening economic conditions, in 2024 and 2025 the FOMC approved interest rates cuts. We expect the upward trend in our earning asset yield will continue to some degree in 2026 due to continued repricing of existing loans.
However, management remains committed to cost-control and efficiency, and we expect to keep these increases to a minimum relative to growth. 46 Table of Contents Provision for Income Taxes We reported a provision for income taxes of $7,244,000 and $9,458,000 for the years 2024 and 2023, respectively.
However, management remains committed to cost-control and efficiency, and we expect to keep these increases to a minimum relative to growth. 46 Table of Contents Provision for Income Taxes We reported a provision for income taxes of $6,737,000 and $7,244,000 for the years 2025 and 2024, respectively.
These items, as well as other factors, contributed to the decrease in net income for 2024 to $24.9 million from $30.8 million in 2023, which translates into $3.02 per diluted share in 2024 as compared to $3.75 per diluted share in 2023. Over the past several years, our network of branches and loan production offices have expanded geographically.
These items, as well as other factors, contributed to the decrease in net income for 2025 to $23.9 million from $24.9 million in 2024, which translates into $2.88 per diluted share in 2025 as compared to $3.02 per diluted share in 2024. Over the past several years, our network of branches and loan production offices have expanded geographically.
The allowance for credit losses as a percentage of total loans decreased to 1.04% as of December 31, 2024, as compared to 1.07% as of December 31, 2023, due to changes in the macro-economic indicators and qualitative factors used within our CECL model.
The allowance for credit losses as a percentage of total loans increased to 1.08% as of December 31, 2025, as compared to 1.04% as of December 31, 2024, due to changes in the macro-economic indicators and qualitative factors used within our CECL model.
Our earning asset yield increased 20 basis points in 2024 compared to 2023 despite the FOMC cutting the federal funds target rate from a range of 5.25% to 5.50% at the beginning of 2024, to a range of 4.25% to 4.50% by the end of the year.
Our earning asset yield increased 4 basis points in 2025 compared to 2024 despite the FOMC cutting the federal funds target rate from a range of 4.25% to 4.50% at the beginning of 2025, to a range of 3.50% to 3.75% by the end of the year.
The effective income tax rate on income from continuing operations was 22.5% for the year ended December 31, 2024, compared to 23.5% for the year 2023.
The effective income tax rate on income from continuing operations was 22.0% for the year ended December 31, 2025, compared to 22.5% for the year 2024.
For this purpose, we maintain a portion of our funds in cash and cash equivalents, loans and securities available for sale. Our liquid assets at December 31, 2024 and 2023 totaled approximately $431.8 million and $489.0 million, respectively.
For this purpose, we maintain a portion of our funds in cash and cash equivalents, loans and securities available for sale. Our liquid assets at December 31, 2025 and 2024 totaled approximately $517.6 million and $431.8 million, respectively.
The majority of the Company's noninterest expenses are operating costs that relate to providing a full range of banking services to our customers. 40 Table of Contents Overview We recorded net income for the year ended December 31, 2024 of $24,948,000 or $3.02 per diluted share compared to $30,848,000 or $3.75 per diluted share for the year ended December 31, 2023.
The majority of the Company's noninterest expenses are operating costs that relate to providing a full range of banking services to our customers. 40 Table of Contents Overview We recorded net income for the year ended December 31, 2025 of $23,913,000 or $2.88 per diluted share compared to $24,948,000 or $3.02 per diluted share for the year ended December 31, 2024.
Equity increased due to earnings, and was partially offset by the negative impact interest rates had on our unrealized loss on available-for-sale investment securities. Investment Activities Investments are a key source of interest income. Management of our investment portfolio is set in accordance with strategies developed and overseen by our Investment Committee.
Equity increased due to earnings, and the decrease in the unrealized loss on available-for-sale investment securities due to lower interest rates. Investment Activities Investments are a key source of interest income. Management of our investment portfolio is set in accordance with strategies developed and overseen by our Investment Committee.
The table below shows an analysis of construction and land loans by type and location. Non-owner-occupied land loans of $5.6 million as of December 31, 2024 included loans for land specified for commercial development of $3.9 million and for residential development of $1.7 million, the majority of which are located in Stanislaus County.
The table below shows an analysis of construction and land loans by type and location. Non-owner-occupied land loans of $4.8 million as of December 31, 2025 included loans for land specified for commercial development of $3.9 million and for residential development of $1.0 million, the majority of which are located in Stanislaus County.
Accordingly, the Company had zero non-performing assets recorded on the balance sheet as of December 31, 2024 and 2023. Allowance for credit losses In anticipation of credit risk inherent in our lending business, we set aside allowances through charges to earnings.
Accordingly, the Company had non-performing assets of $4,587,000 and $0 recorded on the balance sheet as of December 31, 2025 and 2024, respectively. Allowance for credit losses In anticipation of credit risk inherent in our lending business, we set aside allowances through charges to earnings.
During 2024, the Company recognized net loan recoveries of $2,184,000 as compared to $112,000 in 2023. Management reviews these conditions with our senior credit officers.
During 2025, the Company recognized net loan charge-offs of $65,000, as compared to net loan recoveries of $2,184,000 in 2024. Management reviews these conditions with our senior credit officers.
The primary other earning assets held by the Company as of December 31, 2024 and 2023, includes the cash surrender value of the BOLI policies, Federal Home Loan Bank stock and Federal Reserve Bank stock. During 2024, we purchased three new life insurance policies on executive officers for a total investment of $5,000,000.
The primary other earning assets held by the Company as of December 31, 2025 and 2024, includes the cash surrender value of the BOLI policies, FHLB stock and Federal Reserve Bank stock. During 2024, we purchased three new life insurance policies on executive officers for a total investment of $5,000,000, compared to no purchases in 2025.
Management closely monitors both total net interest income and the net interest margin. Market rates are in part based on the FOMC target Federal funds interest rate (the interest rate banks charge each other for short-term borrowings). The change in the Federal funds sold rates is the result of target rate changes implemented by the FOMC.
Management closely monitors both total net interest income and the net interest margin. Market rates are in part based on the FOMC target Federal funds interest rate. The change in the Federal funds sold rates is the result of target rate changes implemented by the FOMC.
Our liquidity level measured as the percentage of liquid assets to total assets was 22.7% and 26.5% as of December 31, 2024, and 2023, respectively.
Our liquidity level measured as the percentage of liquid assets to total assets was 25.6% and 22.7% as of December 31, 2025, and 2024, respectively.
The total unrealized loss on debt securities that were in a loss position for greater than 12 continuous months was $31,377,000 with an aggregate fair value of $292,476,000.
The total unrealized loss on debt securities that were in a loss position for greater than 12 continuous months was $27,409,000 with an aggregate fair value of $362,420,000.
Furthermore, consumer loan accounts are charged-off automatically based on regulatory requirements. 53 Table of Contents The table below summarizes, for the periods indicated, loan balances at the end of each period, the daily averages during the period, changes in the allowance for credit losses arising from loans charged off, recoveries on loans previously charged off, additions to the allowance and certain ratios related to the allowance for credit losses: Allowance for Credit Losses December 31, December 31, (Dollars in thousands) 2024 2023 Balances: Average total loans outstanding during period $ 1,058,294 $ 949,429 Total loans outstanding at end of period $ 1,106,535 $ 1,016,579 Net loan recoveries $ 2,184 $ 112 (Reversal of) provision for credit losses $ (1,620 ) $ 970 Allowance for credit losses at end of period $ 11,460 $ 10,896 Ratios: Net loan recoveries to average total loans 0.21 % 0.01 % Allowance for loan losses to total loans at end of period 1.04 % 1.07 % Net loan recoveries to allowance for loan losses at end of period 19.06 % 1.03 % Net loan recoveries to (reversal of) provision for loan losses (134.81% ) 11.55 % Nonperforming loans as a percentage of total loans 0.00 % 0.00 % Allowance for loan losses as a percentage of nonperforming loans NA NA The table below summarizes the allowance for credit loss balance by type of loan balance at the end of each period (See “Loan Portfolio” above for a description of each type of loan balance): Allocation of the Allowance for Credit Losses (Dollars in thousands) December 31, 2024 December 31, 2023 Amount % of Allowance for Loan Losses Amount % of Allowance for Loan Losses Applicable to: Commercial real estate Construction & land $ 258 2.3 % $ 1,227 11.3 % Multi-family 737 6.4 % 667 6.1 % Owner occupied 1,503 13.1 % 1,805 16.6 % Non-owner occupied 6,401 55.9 % 4,805 44.0 % Farmland 1,665 14.5 % 1,468 13.5 % Commercial and Industrial 645 5.6 % 650 6.0 % Consumer 175 1.5 % 227 2.1 % Agriculture 76 0.7 % 47 0.4 % Total Allowance $ 11,460 100.0 % $ 10,896 100.0 % 54 Table of Contents Other Earning Assets For various business purposes, we make investments in earning assets other than the interest-earning securities and loans discussed above.
Furthermore, consumer loan accounts are charged-off automatically based on regulatory requirements. 53 Table of Contents The table below summarizes, for the periods indicated, loan balances at the end of each period, the daily averages during the period, changes in the allowance for credit losses arising from loans charged off, recoveries on loans previously charged off, additions to the allowance and certain ratios related to the allowance for credit losses: Allowance for Credit Losses December 31, December 31, (Dollars in thousands) 2025 2024 Balances: Average total loans outstanding during period $ 1,104,946 $ 1,058,294 Total loans outstanding at end of period $ 1,143,930 $ 1,106,535 Net loan (chargeoffs) recoveries $ (65 ) $ 2,184 Provision for (reversal of) credit losses $ 805 $ (1,620 ) Allowance for credit losses at end of period $ 12,381 $ 11,460 Ratios: Net loan (chargeoffs) recoveries to average total loans (0.01 %) 0.21 % Allowance for loan losses to total loans at end of period 1.08 % 1.04 % Net loan (chargeoffs) recoveries to allowance for loan losses at end of period (0.52 %) 19.06 % Net loan chargeoffs to provision for loan losses 8.07 % NA Nonperforming loans as a percentage of total loans 0.40 % 0.00 % Allowance for loan losses as a percentage of nonperforming loans 269.91 % NA The table below summarizes the allowance for credit loss balance by type of loan balance at the end of each period (See “Loan Portfolio” above for a description of each type of loan balance): Allocation of the Allowance for Credit Losses (Dollars in thousands) December 31, 2025 December 31, 2024 Amount % of Allowance for Loan Losses Amount % of Allowance for Loan Losses Applicable to: Commercial real estate Construction & land $ 913 7.4 % $ 258 2.3 % Multi-family 661 5.3 % 737 6.4 % Owner occupied 1,418 11.4 % 1,503 13.1 % Non-owner occupied 7,027 56.8 % 6,401 55.9 % Farmland 1,522 12.3 % 1,665 14.5 % Commercial and Industrial 533 4.3 % 645 5.6 % Consumer 221 1.8 % 175 1.5 % Agriculture 86 0.7 % 76 0.7 % Total Allowance $ 12,381 100.0 % $ 11,460 100.0 % 54 Table of Contents Other Earning Assets For various business purposes, we make investments in earning assets other than the interest-earning securities and loans discussed above.
Salaries and employee benefits increased by $2,531,000 in 2024, due to expansion of our staff to support loan and deposit growth, combined with normal merit-based and cost-of-living increases. Occupancy expense realized an increase of $69,000 in 2024 compared to the prior year, primarily from property taxes, rent, and utilities expense.
Salaries and employee benefits increased by $2,199,000 in 2025, due to expansion of our staff to support loan and deposit growth, combined with normal merit-based and cost-of-living increases. Occupancy expense realized an increase of $134,000 in 2025 compared to the prior year, primarily from rent and depreciation expense on fixed assets.
The composition remained relatively unchanged as a percentage of total loans, with commercial real estate comprising 87% and 88% of the loan portfolio at December 31, 2024 and 2023, respectively. Deposits increased $45,156,000 or 2.7% to $1,695,690,000 as of December 31, 2024 compared to $1,650,534,000 at December 31, 2023.
The composition remained relatively unchanged as a percentage of total loans, with commercial real estate comprising 88% and 87% of the loan portfolio at December 31, 2025 and 2024, respectively. Deposits increased $97,272,000 or 5.7% to $1,792,962,000 as of December 31, 2025 compared to $1,695,690,000 at December 31, 2024.
The allowance for credit losses increased to $11,460,000 as of December 31, 2024, as compared with $10,896,000 at December 31, 2023.
The allowance for credit losses increased to $12,381,000 as of December 31, 2025, as compared with $11,460,000 at December 31, 2024.
The Fed Funds rate is forecasted to decrease moderately during 2025, which could potentially compress net interest income and net interest margin further, given that our balance sheet is slightly asset sensitive to interest rate changes primarily due to the variable rate loans and interest-earning cash balances.
The Fed Funds rate is forecasted to decrease slightly during 2026, which could have a negative impact on net interest income and net interest margin, given that our balance sheet is slightly asset sensitive to interest rate changes primarily due to the variable rate loans and interest-earning cash balances.
The Company uses short-term borrowings, primarily short-term FHLB advances, to fund short-term liquidity needs, if needed, and manage net interest margin. Equity increased $17,344,000 or 10.4% to $183,436,000 as of December 31, 2024, compared to $166,092,000 at December 31, 2023.
The Company uses short-term borrowings, primarily short-term FHLB advances, to fund short-term liquidity needs, if needed, and manage net interest margin. Equity increased $24,539,000 or 13.4% to $207,975,000 as of December 31, 2025, compared to $183,436,000 at December 31, 2024.
(4) Represents net interest income as a percentage of average interest-earning assets. 42 Table of Contents Net interest income, on a fully tax equivalent basis (“FTE”), decreased $6,278,000 or 8.0% to $72,064,000 for the year ended December 31, 2024, compared to $78,342,000 in 2023.
(4) Represents net interest income as a percentage of average interest-earning assets. 42 Table of Contents Net interest income, on a fully tax equivalent basis (“FTE”), increased $4,556,000 or 6.3% to $76,620,000 for the year ended December 31, 2025, compared to $72,064,000 in 2024.
As of December 31, 2024, $305,513,000 of the investment securities were pledged to secure public deposits. As of December 31, 2024, the total unrealized loss on debt securities that were in a loss position for less than 12 continuous months was $3,262,000 with an aggregate fair value of $177,185,000.
As of December 31, 2025, $349,507,000 of the investment securities were pledged to secure public deposits. As of December 31, 2025, the total unrealized loss on debt securities that were in a loss position for less than 12 continuous months was $782,000 with an aggregate fair value of $75,474,000.
Deposits are the Company’s primary source of funds. Due to strategic emphasis by management, core deposits (based on a definition provided by FDIC’s Uniform Bank Performance Report) increased by $32,564,000 or 2.0% in 2024 to $1,654,700,000 at December 31, 2024.
Deposits are the Company’s primary source of funds. Due to strategic emphasis by management, core deposits (based on a definition provided by FDIC’s Uniform Bank Performance Report) increased by $91,006,000 or 5.5% in 2025 to $1,745,706,000 at December 31, 2025.
Potentially, the most volatile deposits in a financial institution are jumbo certificates of deposit, meaning time deposits with balances that equal or exceed $250,000, as customers with balances of that magnitude are typically more rate-sensitive than customers with smaller balances. 55 Table of Contents The following tables summarize the distribution of average daily deposits and the average daily rates paid for the periods indicated: Distribution of Average Daily Deposits Average Deposits 2024 2023 Average Average Average Average (Dollars in Thousands) Balance Rate Balance Rate Demand $ 1,068,523 0.23 % $ 1,146,198 0.12 % Money market 383,171 1.99 % 374,828 0.72 % Savings 128,203 0.14 % 147,181 0.13 % Time deposits $250,000 and under 47,311 3.57 % 24,172 1.55 % Time deposits over $250,000 28,837 3.35 % 16,443 1.35 % Total deposits $ 1,656,045 0.78 % $ 1,708,822 0.28 % The scheduled maturities of our time deposits in denominations of more than $250,000 at December 31, 2024 are as follows: Maturities of Time Deposits over $250,000 (Dollars in Thousands) Three months or less $ 17,752 Over three months through six months 10,692 Over six months through twelve months 8,858 Over twelve months 290 Total $ 37,592 Because our client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks.
Potentially, the most volatile deposits in a financial institution are jumbo certificates of deposit, meaning time deposits with balances that equal or exceed $250,000, as customers with balances of that magnitude are typically more rate-sensitive than customers with smaller balances. 55 Table of Contents The following tables summarize the distribution of average daily deposits and the average daily rates paid for the periods indicated: Distribution of Average Daily Deposits Average Deposits 2025 2024 Average Average Average Average (Dollars in Thousands) Balance Rate Balance Rate Demand $ 1,124,766 0.26 % $ 1,068,523 0.23 % Money market 387,662 1.71 % 383,171 1.99 % Savings 118,970 0.10 % 128,203 0.14 % Time deposits $250,000 and under 66,341 3.54 % 47,311 3.57 % Time deposits over $250,000 35,245 3.53 % 28,837 3.35 % Total deposits $ 1,732,984 0.77 % $ 1,656,045 0.78 % The scheduled maturities of our time deposits in denominations of more than $250,000 at December 31, 2025 are as follows: Maturities of Time Deposits over $250,000 (Dollars in Thousands) Three months or less $ 10,983 Over three months through six months 24,132 Over six months through twelve months 8,023 Over twelve months 758 Total $ 43,896 Because our client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks.
The increase was due to net income of $24.9 million recorded to retained earnings, which was partially offset by other comprehensive losses of $4.5 million, net of income tax benefit, due to the negative effect that rising long-term treasury yields had on the unrealized market value adjustment of our available-for-sale investment portfolio during 2024.
The increase was due to net income of $23.9 million recorded to retained earnings, and other comprehensive income of $5.0 million, net of income tax benefit, due to the positive effect that lower long-term treasury yields had on the unrealized market value adjustment of our available-for-sale investment portfolio during 2025.
We believe the following were key indicators of our performance during 2024: ● Total assets increased to $1.90 billion at the end of 2024, an increase of 3.2%, from $1.84 billion at the end of 2023. ● Total deposits increased to $1.70 billion at the end of 2024, an increase of 2.7%, from $1.65 billion at the end of 2023. ● Total net loans increased to $1.09 billion at the end of 2024, an increase of 8.9%, from $1.0 billion at the end of 2023. ● Net interest income decreased to $70.0 million in 2024, a decrease of $5.7 million or 7.6%, compared to $75.8 million in 2023, mainly as a result of rising interest rates on deposit accounts. ● A reversal of credit losses provisions totaling $1,620,000 and a provision for credit losses of $970,000 were recorded in 2024 and 2023, respectively.
We believe the following were key indicators of our performance during 2025: ● Total assets increased to $2.02 billion at the end of 2025, an increase of 6.4%, from $1.90 billion at the end of 2024. ● Total deposits increased to $1.79 billion at the end of 2025, an increase of 5.7%, from $1.70 billion at the end of 2024. ● Total net loans increased to $1.13 billion at the end of 2025, an increase of 3.3%, from $1.09 billion at the end of 2024. ● Net interest income increased to $74.6 million in 2025, an increase of $4.6 million or 6.5%, compared to $70.0 million in 2024, mainly as a result of earning asset growth. ● A provision for credit losses of $805,000 and a reversal of credit loss provisions totaling $1,620,000 were recorded in 2025 and 2024, respectively.
The Company continues to evaluate its deposit product offerings with the intention of continuing to expand its offerings to the consumer and business depositors. 45 Table of Contents Noninterest Expense The following table sets forth a summary of noninterest expenses for the periods indicated: (in thousands) For the Year Ended December 31, 2024 2023 Year-Over-Year Amount % Amount % $ Change % Change Salaries and employee benefits $ 28,640 62.2 % $ 26,109 63.4 % $ 2,531 9.7 % Occupancy expenses 4,610 10.0 % 4,541 11.0 % 69 1.5 % Data processing fees 2,814 6.1 % 2,729 6.6 % 85 3.1 % Regulatory assessments (FDIC & DFPI) 1,090 2.4 % 1,020 2.5 % 70 6.9 % Other operating expenses 8,863 19.3 % 6,758 16.5 % 2,105 31.1 % Total non-interest expense $ 46,017 100.0 % $ 41,157 100.0 % $ 4,860 11.8 % Average assets $ 1,853,315 $ 1,879,465 Noninterest expenses as a % of average assets 2.5 % 2.2 % Noninterest expense was $46,017,000 for the year ended December 31, 2024, an increase of $4,860,000 or 11.8% compared to $41,157,000 for the year ended 2023.
The Company continues to evaluate its deposit product offerings with the intention of continuing to expand its offerings to the consumer and business depositors. 45 Table of Contents Noninterest Expense The following table sets forth a summary of noninterest expenses for the periods indicated: (in thousands) For the Year Ended December 31, 2025 2024 Year-Over-Year Amount % Amount % $ Change % Change Salaries and employee benefits $ 30,839 61.3 % $ 28,640 62.2 % $ 2,199 7.7 % Occupancy expenses 4,744 9.4 % 4,610 10.0 % 134 2.9 % Data processing fees 3,029 6.0 % 2,814 6.1 % 215 7.6 % Regulatory assessments (FDIC & DFPI) 1,120 2.2 % 1,090 2.4 % 30 2.8 % Other operating expenses 10,542 21.1 % 8,863 19.3 % 1,679 18.9 % Total non-interest expense $ 50,274 100.0 % $ 46,017 100.0 % $ 4,257 9.3 % YTD average assets $ 1,945,962 $ 1,853,315 Noninterest expenses as a % of average assets 2.6 % 2.5 % Noninterest expense was $50,274,000 for the year ended December 31, 2025, an increase of $4,257,000 or 9.3% compared to $46,017,000 for the year ended 2024.
Changes in volume resulted in decrease in net interest income (on a FTE basis) of $2,641,000 for the year of 2024 compared to the year 2023, and changes in interest rates and the mix resulted in a decrease in net interest income (on a FTE basis) of $3,637,000 for the year 2024 versus the year 2023.
Changes in volume resulted in an increase in net interest income (on a FTE basis) of $3,094,000 for the year of 2025 compared to the year 2024, and changes in interest rates and the mix resulted in an increase in net interest income (on a FTE basis) of $1,462,000 for the year 2025 versus the year 2024.
Growth in average gross loans of $108.9 million, also contributed to net interest margin expansion.
Growth in average gross loans of $46,652,000, also contributed to net interest margin expansion.
The FDIC adopted a final rule in June 2022, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. The final rule became effective as of January 1, 2023, with an invoice payment date of June 30, 2023.
The FDIC adopted a final rule in June 2022, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in 2023.
We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. 57 Table of Contents The following tables summarizes short- and long-term material cash requirements as of December 31, 2024, which we believe that we will be able to fund these obligations through cash generated from our operations and available alternative sources of funds (dollars in thousands): (in thousands) Less than 1 year 1-3 years 3-5 years More than 5 years Total Operating lease obligations $ 1,490 $ 2,380 $ 2,015 $ 2,110 $ 7,995 Supplemental retirement plans 135 366 527 13,048 14,076 Time deposit maturities 88,814 2,467 114 0 91,395 Total $ 90,439 $ 5,213 $ 2,656 $ 15,158 $ 113,466 Capital Resources and Capital Adequacy Requirements In the past two years, our primary source of capital has been internally generated operating income through retained earnings.
We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. 57 Table of Contents The following tables summarizes short- and long-term material cash requirements as of December 31, 2025, which we believe that we will be able to fund these obligations through cash generated from our operations and available alternative sources of funds (dollars in thousands): (in thousands) Less than 1 year 1-3 years 3-5 years More than 5 years Total LIHTC capital contributions payable $ 1,828 $ 2,210 $ 145 $ 415 $ 4,598 Operating lease obligations 1,626 3,051 2,507 1,475 8,659 Supplemental retirement plans 135 578 580 12,420 13,713 Time deposit maturities 110,745 2,292 32 0 113,069 Total $ 114,334 $ 8,131 $ 3,264 $ 14,310 $ 140,039 Capital Resources and Capital Adequacy Requirements In the past two years, our primary source of capital has been internally generated operating income through retained earnings.
Construction and Land Loans Outstanding by Type and Geographic Location (Dollars in Thousands) December 31, 2024 December 31, 2023 Construction and land loans by type Amount % of Construction and Land Loans Amount % of Construction and Land Loans Single family non-owner-occupied $ 1,613 9.1 % $ 2,707 3.8 % Single family owner-occupied 0 0.0 % 533 0.8 % Commercial non-owner-occupied 9,656 54.2 % 40,092 56.4 % Commercial owner-occupied 923 5.2 % 7,181 8.8 % Land non-owner-occupied 5,620 31.5 % 12,547 30.2 % Total $ 17,812 100.0 % $ 63,060 100.0 % Construction and land loans by geographic location (County) Amount % of Construction and Land Loans Amount % of Construction and Land Loans Stanislaus $ 3,116 17.5 % $ 10,665 16.9 % Santa Clara 2,547 14.3 % 0 0.0 % Placer 2,435 13.7 % 2,360 3.7 % Fresno 2,180 12.2 % 7,804 12.4 % Shasta 2,150 12.1 % 7,606 12.1 % San Joaquin 1,734 9.7 % 9,621 15.3 % Merced 1,478 8.3 % 1,626 2.6 % Contra Costa 989 5.6 % 0 0.0 % Yolo 0 0.0 % 6,860 10.9 % Tulare 0 0.0 % 6,125 9.7 % Solano 0 0.0 % 4,109 6.5 % Sacramento 0 0.0 % 2,028 3.2 % Mono 0 0.0 % 1,469 2.3 % Other 1,183 6.6 % 2,787 4.4 % Total $ 17,812 100.0 % $ 63,060 100.0 % 50 Table of Contents Loan Maturities The following table shows the contractual maturity distribution and repricing intervals of the outstanding loans in our portfolio, as of December 31, 2024.
Construction and Land Loans Outstanding by Type and Geographic Location (Dollars in Thousands) December 31, 2025 December 31, 2024 Construction and land loans by type Amount % of Construction and Land Loans Amount % of Construction and Land Loans Single family non-owner-occupied $ 0 0.0 % $ 1,613 9.1 % Commercial non-owner-occupied 38,530 80.2 % 9,656 54.2 % Commercial owner-occupied 4,670 9.7 % 923 5.2 % Land non-owner-occupied 4,837 10.1 % 5,620 31.5 % Total $ 48,037 100.0 % $ 17,812 100.0 % Construction and land loans by geographic location (County) Amount % of Construction and Land Loans Amount % of Construction and Land Loans Fresno $ 13,094 27.3 % $ 2,180 12.2 % Tulare 11,959 24.9 % 0 0.0 % Santa Clara 8,459 17.6 % 2,547 14.3 % San Joaquin 6,487 13.5 % 1,734 9.7 % Sacramento 3,970 8.2 % 0 0.0 % Stanislaus 2,344 4.9 % 3,116 17.5 % Contra Costa 989 2.1 % 989 5.6 % Placer 735 1.5 % 2,435 13.7 % Shasta 0 0.0 % 2,150 12.1 % Merced 0 0.0 % 1,478 8.3 % Other 0 0.0 % 1,183 6.6 % Total $ 48,037 100.0 % $ 17,812 100.0 % 50 Table of Contents Loan Maturities The following table shows the contractual maturity distribution and repricing intervals of the outstanding loans in our portfolio, as of December 31, 2025.
Nonperforming assets consist of loans on non-accrual status, loans 90 days or more past due and still accruing interest, loans restructured, where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal and OREO. 51 Table of Contents Loans are generally placed on non-accrual status when they become 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection.
Nonperforming assets consist of loans on non-accrual status, loans 90 days or more past due and still accruing interest, loans restructured, where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal and OREO.
Each of the recovered loans date back to the recession period when collateral values were considerably depressed, and one of which was acquired in 2015 when we completed a bank acquisition.
The loan recoveries in 2024 were primarily from two loans from different borrowers recovered during third quarter of 2024 totaling $1,992,000. Each of the recovered loans date back to the recession period when collateral values were considerably depressed, and one of which was acquired in 2015 when we completed a bank acquisition.
The average deposits for the year ended December 31, 2024 decreased $52,777,000 or 3.1% to $1,656,045,000 compared to $1,708,822,000 at for the year ended December 31, 2023. Deposit data analysis has resulted in an estimate of $811,351,000 in uninsured deposits, representing the balance that is not covered by FDIC insurance limits as of December 31, 2024.
The average deposits for the year ended December 31, 2025 increased $76,939,000 or 4.6% to $1,732,984,000 compared to $1,656,045,000 for the year ended December 31, 2024. Deposit data analysis has resulted in an estimate of $869,509,000 in uninsured deposits, representing the balance that is not covered by FDIC insurance limits as of December 31, 2025.
The balances of other earning assets as of December 31, 2024 and December 31, 2023 were as follows: (in thousands) December 31, 2024 December 31, 2023 BOLI $ 37,558 $ 31,506 LIHTCs $ 11,354 $ 12,655 Small business private equity partnership $ 1,063 $ 1,029 Federal Reserve Bank Stock $ 755 $ 755 Federal Home Loan Bank Stock $ 5,531 $ 5,202 Deposits and Other Sources of Funds Deposits Total deposits at December 31, 2024 and 2023 were $1,695,690,000 and $1,650,534,000, respectively, representing an increase of $45,156,000 or 2.7% in 2024.
The balances of other earning assets as of December 31, 2025 and December 31, 2024 were as follows: (in thousands) December 31, 2025 December 31, 2024 BOLI $ 36,899 $ 37,558 LIHTCs $ 14,840 $ 11,354 Small business private equity partnership $ 1,099 $ 1,063 Federal Reserve Bank Stock $ 754 $ 755 FHLB Stock $ 6,307 $ 5,531 Deposits and Other Sources of Funds Deposits Total deposits at December 31, 2025 and 2024 were $1,792,962,000 and $1,695,690,000, respectively, representing an increase of $97,272,000 or 5.7% in 2025.
(2) Yields on municipal securities and loans have been adjusted to their fully-taxable equivalents (FTE), based on a federal marginal tax rate of 21.0%. (3) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
(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%.
Loans gross of the allowance for credit losses and deferred fees were $1,106,535,000 as of December 31, 2024, compared to $1,016,579,000 as of December 31, 2023, an increase of $89,956,000 or 8.9%.
Loans gross of the allowance for credit losses and deferred fees were $1,143,930,000 as of December 31, 2025, compared to $1,106,535,000 as of December 31, 2024, an increase of $37,395,000 or 3.4%.
As of December 31, 2024, we had approximately $1.90 billion in total assets, $1.11 billion in total gross loans, and $1.70 billion in total deposits.
As of December 31, 2025, we had approximately $2.02 billion in total assets, $1.14 billion in total gross loans, and $1.79 billion in total deposits.
Demand, Money Market, and Time Deposits increased by $1,925,000, $17,619,000 and $35,873,000, respectively, while Savings decreased by $10,261,000, as of December 31, 2024 as compared to December 31, 2023. There were no short-term borrowing or long-term debt outstanding balances at December 31, 2024 and 2023.
Demand, Money Market, and Time Deposits increased by $79,198,000, $2,814,000 and $21,674,000, respectively, while Savings decreased by $6,414,000, as of December 31, 2025 as compared to December 31, 2024. There were no short-term borrowing or long-term debt outstanding balances at December 31, 2025 and 2024.
Highlights of the financial results are presented in the following table: As of and for the years ended December 31, (Dollars in thousands, except per share data) 2024 2023 For the period: Net income available to common shareholders $ 24,948 $ 30,848 Net income per common share: Basic $ 3.04 $ 3.76 Diluted $ 3.02 $ 3.75 Return on average common equity 14.39 % 21.87 % Return on average assets 1.35 % 1.64 % Common stock dividend payout ratio of earnings during the period 14.90 % 8.53 % Efficiency ratio 60.08 % 49.93 % At period end: Book value per common share $ 21.95 $ 20.03 Total assets $ 1,900,604 $ 1,842,422 Total gross loans $ 1,106,535 $ 1,016,579 Total deposits $ 1,695,690 $ 1,650,534 Net loan-to-deposit ratio 64.49 % 60.85 % Net Interest Income and Net Interest Margin Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets and interest paid on liabilities obtained to fund those assets.
Highlights of the financial results are presented in the following table: As of and for the years ended December 31, (Dollars in thousands, except per share data) 2025 2024 For the period: Net income available to common shareholders $ 23,913 $ 24,948 Net income per common share: Basic $ 2.90 $ 3.04 Diluted $ 2.88 $ 3.02 Return on average common equity 12.60 % 14.39 % Return on average assets 1.23 % 1.35 % Cash dividends to net income ratio 21.00 % 15.02 % Efficiency ratio 59.68 % 58.2 % At period end: Book value per common share $ 24.79 $ 21.95 Total assets $ 2,023,116 $ 1,900,604 Total gross loans $ 1,143,930 $ 1,106,535 Total deposits $ 1,792,962 $ 1,695,690 Gross loan-to-deposit ratio 63.80 % 65.26 % Net Interest Income and Net Interest Margin Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets and interest paid on liabilities obtained to fund those assets.
The Company will continue to monitor the adequacy of the allowance for credit losses and make additions to the allowance in accordance with the analysis referred to above. Because of uncertainties inherent in estimating the appropriate level of the allowance for credit losses, actual results may differ from management’s estimate of credit losses and the related allowance.
Because of uncertainties inherent in estimating the appropriate level of the allowance for credit losses, actual results may differ from management’s estimate of credit losses and the related allowance.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFor all of 2024, we were relatively neutral but slightly "asset-sensitive" meaning we expect our net interest income to increase as market rates increase and to decrease as market rates decrease. The relative level of asset sensitivity as of December 31, 2024 has decreased from 2023 primarily due to a decrease in interest-bearing cash balances that have floating rates.
Biggest changeFor all of 2025, we were relatively neutral but slightly "asset-sensitive" meaning we expect our net interest income to increase as market rates increase and to decrease as market rates decrease.
The Company has generally been able to control its exposure to changing interest rates by maintaining a relatively high percentage of variable rate earning assets and a vast majority of its deposits are non-maturing that reprice only at management’s discretion based on competition in the banking industry and liquidity needs of the Company.
The Company has generally been able to control its exposure to changing interest rates by managing the mix of variable versus fixed rate earning assets and a vast majority of its deposits are non-maturing that reprice only at management’s discretion based on competition in the banking industry and liquidity needs of the Company.
First, it does not use arbitrary repricing intervals and accounts for all expected future cash flows. Second, because our model projects cash flows of each financial instrument under different interest rate environments, it can incorporate the effect of embedded options on an institution's interest rate risk exposure.
Second, because our model projects cash flows of each financial instrument under different interest rate environments, it can incorporate the effect of embedded options on an institution's interest rate risk exposure.
In the decreasing interest rate environments, we show a decline in net interest income as interest-bearing assets re-price lower while deposits reach their floors and cannot be reduced further. Management believes that our interest rate risk modeling overcomes three shortcomings of the typical maturity gap methodology.
In the decreasing interest rate environments, we show a decline in net interest income as interest-bearing assets re-price lower while deposits reach their floors and cannot be reduced further. Overall, these simulated changes to net interest income reflected by our model are not significant and interest rate risk is considered by management to be low.
Added
The relative level of asset sensitivity as of December 31, 2025 slightly increased as compared to December 31, 2024, primarily due to an increase in interest-bearing cash balances that have floating rates.
Added
Management believes that our interest rate risk modeling overcomes three shortcomings of the typical maturity gap methodology. First, it does not use arbitrary repricing intervals and accounts for all expected future cash flows.

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