NOTE 5 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS

The following tables summarize the Company’s allowance for credit losses for loans, reserve for unfunded commitments, and loan balances individually and collectively evaluated by type of loan, as of the dates and for the periods indicated:

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For the three months ended September 30, 2026, the provision for credit losses reflected loan growth and higher historical loss rates, partially offset by modest improvements in forecasted national unemployment and gross domestic product relative to the prior quarter’s forecasts, decreased specific reserves on certain individually evaluated loans, and the revision of the lending policies and procedures qualitative factor described below.

For the nine months ended September 30, 2026, the provision for credit losses was primarily driven by $2.9 million of net charge-offs, loan growth and increased specific reserves on certain individually evaluated loans, partially offset by improvements in macroeconomic forecasts. The provision exceeded net charge-offs, resulting in an increase in the allowance for credit losses at September 30, 2026 compared to December 31, 2025. During the third quarter of 2026 the qualitative factor for lending policies and procedures was revised from minor risk to neutral, reflecting improvement in loan exception metrics. All other qualitative factors were unchanged during the three and nine months ended September 30, 2026.

Net charge-offs were $13,000 and $2.9 million for the three and nine months ended September 30, 2026, compared to net charge-offs of $833,000 and $948,000 for the three and nine months ended September 30, 2025, respectively.

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The following table summarizes the amortized cost basis of individually evaluated collateral-dependent loans, including nonaccrual loans, modified loans to borrowers experiencing financial difficulty, and PCD loans, by loan and collateral type as of the dates indicated.

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The following table shows the amortized cost and allowance for credit losses for loans on nonaccrual status as of the dates indicated:

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The Company holds certain small business loans to borrowers qualified under The California Capital Access Program for Small Business, a state guaranteed loan program sponsored by the California Pollution Control Financing Authority (“CalCAP”). Under this loan program, the borrower, CalCAP and the participating lender contributed funds to a loss reserve account held in a demand deposit account at the participating lender. The borrower’s contributions to the loss reserve account are attributed to the participating lender. Losses on qualified loans are charged to this account after approval by CalCAP. Under the program, if a loan defaults, the participating lender has immediate coverage of 100% of the loss. The participating lender must return recoveries from the borrower, less expenses, to the credit loss reserve account. The funds in the loss reserve account are the property of CalCAP; however, in the event that the participating lender leaves the program any excess funds, after all loans have been repaid or unenrolled from the program by the participating lender and provided there are no pending claims for reimbursement, the remaining excess funds are distributed to CalCAP and the participating lender based on their respective contributions to the loss reserve account. Funds contributed by the participating lender to the loss reserve account are treated as a receivable from CalCAP and evaluated for credit losses quarterly. As of September 30, 2026 and December 31, 2025, the Company had $3.0 million and $9.3 million, respectively, of loans enrolled in this loan program. The Company had a loss reserve account of $2.0 million and $4.9 million as of September 30, 2026 and December 31, 2025, respectively.

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In addition, the Company is approved by under the CalCAP program, in partnership with the California Air Resources Board, to originate loans to California truckers in the On-Road Heavy-Duty Vehicle Air Quality Loan Program. Under this loan program, CalCAP solely contributes funds to a loss reserve account held in a demand deposit account at the participating lender. Losses are handled in the same manner as described above. The funds are the property of CalCAP and are payable upon termination of the program. When the loss reserve account balance exceeds the total associated loan balance, the excess is to be remitted to CalCAP. The Company originated loans under this program of $2.0 million and $2.8 million during the three and nine months ended September 30, 2026, and $3.3 million and $12.1 million during the three and nine months ended September 30, 2025, respectively. As of September 30, 2026, the Company had $13.0 million of loans enrolled in this program and a loss reserve account of $3.2 million. As of December 31, 2025, the Company had $19.0 million of loans enrolled in this program and a loss reserve account of $4.9 million.