Avidbank Holdings, Inc. 10-K

Item 8. Financial Statements AVIDBANK HOLDINGS, INC. TABLE OF CONTENTS AS OF AND FOR THE YEARS ENDED December 31, 2025 and 2024 Page Report of Independent Registered Public Accounting Firm 85 Consolidated Financial Statements: Consolidated Statements of Financial Condition 86 Consolidated Statements of Operations 87 Consolidated Statements of Comprehensive Income 88 Consolidated Statements of Changes in Shareholders’ Equity 89 Consolidated Statements of Cash Flows 90 Notes to Consolidated Financial Statements 91 -84- Table of Contents Crowe LLP Independent Member Crowe Global Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors Avidbank Holdings, Inc. San Jose, California Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of Avidbank Holdings, Inc., (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Crowe LLP We have served as the Company's auditor since 2003. Sacramento, California March 18, 2026 -85- Table of Contents AVIDBANK HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, 2025 and 2024 (In thousands, except share data) 2025 2024 ASSETS Cash and due from financial institutions $ 7,942 $ 8,662 Due from Federal Reserve Bank and interest-bearing deposits in other financial institutions 146,627 74,039 Total cash and cash equivalents 154,569 82,701 Debt securities available-for-sale, at fair value (amortized cost $ 218,488 and $ 369,155 , net of allowance for credit losses of $ 0 and $ 0 ) 218,160 296,556 Loans, net of allowance for credit losses on loans of $ 22,261 in 2025 and $ 18,679 in 2024 2,126,178 1,846,263 Federal Home Loan Bank stock, at cost 8,409 8,409 Premises and equipment, net 1,526 2,331 Cash surrender value of bank-owned life insurance policies 13,045 12,674 Accrued interest receivable and other assets 47,756 55,554 Total assets $ 2,569,643 $ 2,304,488 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest-bearing $ 556,972 $ 414,327 Interest-bearing 1,629,101 1,477,028 Total deposits 2,186,073 1,891,355 Short-term borrowings 60,000 185,000 Subordinated debentures, net 22,000 22,000 Accrued interest payable and other liabilities 20,591 19,771 Total liabilities 2,288,664 2,118,126 Commitments and contingent liabilities (Note 12) Shareholders' equity: Preferred stock - no par value; 5,000,000 shares authorized, no shares issued and outstanding at December 31, 2025 and 2024 - - Common stock - no par value; 25,000,000 and 15,000,000 shares authorized; 10,947,967 and 7,906,761 shares issued and outstanding at December 31, 2025 and 2024, respectively 169,990 106,997 Retained earnings 111,150 130,703 Accumulated other comprehensive loss, net of taxes ( 161 ) ( 51,338 ) Total shareholders' equity 280,979 186,362 Total liabilities and shareholders' equity $ 2,569,643 $ 2,304,488 The accompanying notes are an integral part of these consolidated financial statements. -86- Table of Contents AVIDBANK HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2025 and 2024 (In thousands, except per share data) 2025 2024 Interest income: Interest and fees on loans $ 132,825 $ 130,878 Taxable debt securities 6,761 7,067 Tax-exempt debt securities 122 95 Federal Home Loan Bank dividends 735 752 Other interest income 5,307 3,649 Total interest income 145,750 142,441 Interest expense: Interest on deposits 53,159 54,146 Interest on other borrowings 3,544 11,879 Interest on long-term debt 1,742 1,194 Total interest expense 58,445 67,219 Net interest income 87,305 75,222 Provision for credit losses 5,118 4,096 Net interest income after provision for credit losses 82,187 71,126 Non-interest income: Service charges and fees 3,178 2,600 Foreign exchange income 937 896 Bank-owned life insurance income 372 508 Warrant and success fee income 648 65 Other investment income 485 1,092 Net loss on sale of debt securities ( 62,391 ) - Other income 395 849 Total non-interest income ( 56,376 ) 6,010 Non-interest expense: Salaries and employee benefits 37,415 32,499 Occupancy and equipment 3,208 4,019 Data processing 2,936 2,412 Legal and professional fees 2,707 2,139 Regulatory assessments 1,930 2,083 Other operating expenses 4,585 4,181 Total non-interest expense 52,781 47,333 (Loss) / income before (benefit) / provision for income taxes ( 26,970 ) 29,803 (Benefit) / provision for income taxes ( 7,417 ) 8,788 Net (loss) / income $ ( 19,553 ) $ 21,015 Basic (loss) / earnings per common share $ ( 2.25 ) $ 2.83 Diluted (loss) / earnings per common share $ ( 2.25 ) $ 2.76 The accompanying notes are an integral part of these consolidated financial statements. -87- Table of Contents AVIDBANK HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 2025 and 2024 (In thousands) 2025 2024 Net (loss) / income $ ( 19,553 ) $ 21,015 Other comprehensive income/(loss): Unrealized gains/(losses) on securities: Unrealized holdings gains/(losses) 9,880 ( 3,846 ) Reclassification adjustment for losses included in net income 62,391 - 72,271 ( 3,846 ) Derivative instruments designated as cash flow hedges: Unrealized holdings gains on derivatives 73 83 Other comprehensive income/(loss), before tax 72,344 ( 3,763 ) Tax effect ( 21,167 ) 1,300 Total other comprehensive income / (loss) 51,177 ( 2,463 ) Comprehensive income $ 31,624 $ 18,552 The accompanying notes are an integral part of these consolidated financial statements. -88- Table of Contents AVIDBANK HOLDINGS, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 2025 and 2024 (In thousands) Accumulated Other Total Common Stock Retained Comprehensive Shareholders' Shares Amount Earnings (Loss) Income Equity Balance, December 31, 2023 7,770,439 $ 104,499 $ 109,688 $ ( 48,875 ) $ 165,312 Net income - - 21,015 - 21,015 Other comprehensive loss - - - ( 2,463 ) ( 2,463 ) Restricted stock issued, net of forfeitures and shares withheld to cover taxes 136,322 ( 713 ) - - ( 713 ) Stock-based compensation - 3,211 - - 3,211 Balance, December 31, 2024 7,906,761 $ 106,997 $ 130,703 $ ( 51,338 ) $ 186,362 Net loss - - ( 19,553 ) - ( 19,553 ) Other comprehensive income - - - 51,177 51,177 Issuance of common stock upon initial public offering, net of offering costs 3,001,500 61,344 - - 61,344 Restricted stock issued, net of forfeitures and shares withheld to cover taxes 39,706 ( 1,522 ) - - ( 1,522 ) Stock-based compensation - 3,171 - - 3,171 Balance, December 31, 2025 10,947,967 $ 169,990 $ 111,150 $ ( 161 ) $ 280,979 The accompanying notes are an integral part of these consolidated financial statements. -89- Table of Contents AVIDBANK HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2025 and 2024 (In thousands) 2025 2024 Operating activities: Net (loss) / income $ ( 19,553 ) $ 21,015 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 5,118 4,096 Depreciation, amortization and accretion 1,133 1,648 Net loss on sale of debt securities 62,391 - (Gain) / loss on disposal of premises and equipment - ( 16 ) Amortization of debt issuance costs - 94 (Increase) / decrease in deferred loan origination fees, net ( 276 ) ( 228 ) Earnings on bank-owned life insurance policies ( 372 ) ( 508 ) Repayment of operating lease liabilities 2,278 2,866 Stock-based compensation expense 3,171 3,211 Deferred income taxes 7,297 348 Net (increase) / decrease in accrued interest receivable and other assets ( 22,870 ) ( 130 ) Net increase / (decrease) in accrued interest payable and other liabilities 716 ( 9,705 ) Net cash provided by operating activities 39,033 22,691 Investing activities: Purchase of available-for-sale investment securities ( 223,002 ) ( 6,693 ) Proceeds from sales of available-for-sale investment securities 274,708 - Proceeds from paydowns/maturities of available-for-sale investment securities 36,335 30,958 Net increase in loans ( 284,653 ) ( 128,428 ) Proceeds from surrendered bank-owned life insurance policies - 21,475 Purchase of premises and equipment ( 93 ) ( 47 ) Proceeds from sale of premises and equipment - 36 Net cash used in investing activities ( 196,705 ) ( 82,699 ) Financing activities: Net increase in deposits 294,718 237,026 Restricted stock issued, net ( 1,522 ) ( 713 ) Proceeds from the issuance of common stock upon initial public offering, net of offering costs 61,344 - Net proceeds / (repayment) from overnight borrowings ( 55,000 ) ( 21,000 ) Net proceeds / (repayment) from Federal Reserve Bank borrowings - ( 224,000 ) Net proceeds / (repayment) from Federal Home Loan Bank borrowings ( 70,000 ) 70,000 Net cash provided by financing activities 229,540 61,313 Net change in cash and cash equivalents 71,868 1,305 Cash and cash equivalents at beginning of period 82,701 81,396 Cash and cash equivalents at end of period $ 154,569 $ 82,701 Supplemental disclosure of cash flow information: Net cash paid during the period for: Interest expense $ 59,391 $ 75,290 Income taxes, net of refunds 4,415 7,484 Supplemental non-cash disclosures: Recording of right-of-use assets in exchange for lease liabilities $ 439 $ - Change in unrealized (gains) / losses on available-for-sale securities, net of tax ( 51,104 ) 2,546 The accompanying notes are an integral part of these consolidated financial statements. -90- Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Avidbank Holdings, Inc. (the "Company) was incorporated on December 17, 2007 and subsequently obtained approval from the Board of Governors of the Federal Reserve System to operate as a bank holding company. The Company’s predecessor and current subsidiary is Avidbank (the “Bank”). The bank was formerly “The Private Bank of the Peninsula” and commenced operations on October 1, 2003. On April 2, 2008, Avidbank consummated a merger with the Company effected through the exchange of one share of the Company's stock for each share of the Bank's stock. The reorganization represented an exchange of shares between entities under common control, and, as a result, assets and liabilities of the Bank were recognized at their carrying amounts in the accounts of the Company. Subsequent to the reorganization, the Bank continued its operations as previously conducted, but as a wholly-owned subsidiary of the Company. The Bank is a California state-chartered institution, headquartered in San Jose, California, and provides innovative financial solutions and services. We specialize in commercial and industrial lending, venture lending, structured finance, asset-based lending, sponsor finance, fund finance, real estate construction and commercial real estate lending. Subsequent Events Management has evaluated subsequent events that occurred after December 31, 2025 . During this period, up to the filing date of this annual report on Form 10 -K, management did not identify any material subsequent events that would require recognition or disclosure in our Consolidated Financial Statements as of or for the year ended December 31, 2025 . Principles of Consolidation The consolidated financial statements include the accounts of the Company and the accounts of its wholly-owned subsidiary, the Bank. All significant intercompany balances and transactions have been eliminated. The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. The Company does not have any Variable Interest Entities, nor does it have any unconsolidated entities. Risks and Uncertainties In the normal course of business, the Company encounters two significant types of risk: economic and regulatory. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on a different basis, than its interest-earning assets. Credit risk is the risk of default, primarily in the loan portfolio, that results from the borrowers’ inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of securities, the value of collateral underlying loans receivable, the valuation of other investments and the valuation of deferred tax assets. The Company is subject to the regulations of various governmental agencies. These regulations can change from period to period. Such regulations can also restrict the Company's ability to sustain continued growth as a result of capital and other requirements. The Company also undergoes periodic examinations by the regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required allowance for credit losses and operating restrictions resulting from the regulators' judgments based upon information available to them at the time of their examination. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The allowance for credit losses for loans and unfunded commitments, securities, taxes and the fair value of financial instruments are particularly susceptible to significant change. Reclassifications Some items in the prior year financial statements were reclassified to conform to the current presentation. We now present loans net of deferred fees for all disclosures presented. Previously, loan disclosures were presented gross of deferred fees. Reclassifications had no effect on prior year net income or shareholders’ equity. - 91 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash and Cash Equivalents For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and due from banks and due from Federal Reserve Bank. On the statement of cash flows, net cash flows are reported for customer loan and deposit transactions. Debt Securities Debt securities are classified into the following categories: • Available-for-sale securities (“AFS”), reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of taxes, as accumulated other comprehensive income within shareholders' equity. • Held-to-maturity securities (“HTM”), which management has the positive intent and ability to hold, reported at amortized cost, adjusted for the accretion of discounts and amortization of premiums, which are recognized as adjustments to interest income. Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value. At December 31, 2025 and 2024 , all of the Company's securities were classified as available-for-sale. There were no transfers between categories during 2025 or 2024 . Gains and losses on the sale of securities are computed using the specific identification method on the trade date. Interest earned on debt securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums, which are accounted for on the level-yield method without anticipation of prepayment except for mortgage-backed securities where prepayments are anticipated. Allowance for Credit Losses on Available-for-Sale Securities For available-for-sale securities in an unrealized loss position, management first assesses whether it intends to sell or is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities held as available-for-sale that do not meet the aforementioned criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (“OCI”). No allowance for credit losses was recorded on available-for-sale securities as of December 31, 2025 or 2024 . Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities totaled $ 789 thousand and $ 694 thousand at December 31, 2025 and 2024 , respectively, and is recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition and is not included in the estimate of credit losses. Equity Securities and Investment in Federal Home Loan Bank ( “ FHLB ” ) Stock Equity securities with readily determinable fair values are considered marketable and measured at fair value, with changes in the fair value recognized as a component of other non-interest income in the Company’s Consolidated Statements of Operations. Dividends received from marketable equity securities are recognized within non-interest income in the Consolidated Statements of Operations. Dividends received from FHLB Stock are recognized within interest income in the Consolidated Statements of Operations. - 92 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Equity securities that are not accounted for under the equity method and do not have readily determinable fair values are considered non-marketable and are accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Any adjustments to the carrying value of these non-marketable equity securities are recognized in other non-interest income in the Company’s Consolidated Statements of Operations. Non-marketable equity securities include FHLB stock and other equity investments. As a member of the Federal Home Loan Bank System, the Company is required to maintain an investment in the capital stock of the Federal Home Loan Bank. The FHLB investment is carried at cost and periodically evaluated for impairment based on ultimate recovery of par value. Loans Loans are stated at principal balances outstanding net of deferred loan fees and costs, and an allowance for credit losses on loans. Interest is accrued daily based upon outstanding loan balances. Accrued interest receivable totaled $ 8.2 million and $ 7.4 million at December 31, 2025 and 2024 , respectively, and was reported in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition and is excluded from the estimate of credit losses. When a loan is past due 90 days or in the opinion of management the future collectability of interest and principal is in serious doubt, loans are placed on non-accrual status and the accrual of interest income is suspended. Any interest accrued but unpaid is charged against income. Payments received on loans on non-accrual status are applied to reduce principal to the extent necessary to ensure collection. Subsequent payments on these loans, or payments received on non-accrual loans for which the ultimate collectability of principal is not in doubt, are applied first to earned but unpaid interest and then to principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Substantially all loan origination fees, commitment fees, direct loan origination costs and purchase premiums and discounts on loans are deferred and recognized as an adjustment of yield, to be amortized to interest income over the contractual term of the loan. The unamortized balance of deferred fees and costs is reported as a component of net loans on the Consolidated Statements of Financial Condition. Allowance for Credit Losses on Loans The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed and recoveries are credited to the allowance when received. The Company may also account for expected recoveries should information of an anticipated recovery become available. In the case of actual or expected recoveries, amounts may not exceed the aggregate of amounts previously charged off. Management utilizes relevant available information, from internal and external sources, relating to past events, current conditions, historical loss experience, and reasonable and supportable forecasts. The allowance is calculated using a discounted cash flow methodology applied at the loan level. The Company uses the FOMC Civilian Unemployment Rate and Real GDP Seasonally Adjusted Annual Rate to obtain various forecast scenarios to determine the loan portfolio’s quantitative portion of expected credit loss. The Company has elected to forecast the first four quarters of the credit loss estimate and revert on a straight-line basis over 8 quarters. Adjustments to historical loss information are made when management determines historical data are not likely reflective of the current portfolio such as limited data sets or lack of default or loss history. These adjustments include factors such as differences in underwriting standards, local economic conditions, portfolio mix, credit quality, concentrations, collateral, or other relevant factors. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data. The Company utilizes an external vendor model as well as internally developed tools and non-statistical estimation approaches. Accrued interest receivable was excluded from the estimate of credit losses for loans. The allowance for credit losses on loans is measured on a collective (pool) basis when similar risk characteristics exist. Management segments the loans into pools by product groupings with similar risk characteristics in estimating credit losses, and the loans are reported by portfolio segment. These portfolio segments for reporting include commercial and industrial, construction, residential real estate, commercial real estate and consumer loans. - 93 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The general reserve component of the allowance for credit losses also consists of reserve factors based on management's assessment of the following for each portfolio segment: ( 1 ) inherent credit risk, ( 2 ) historical losses and ( 3 ) other qualitative factors. Management estimates an allowance based upon loans outstanding as well as unfunded commitments. These reserve factors are inherently subjective and are driven by the repayment risk associated with each category described below: Commercial and Industrial – • Commercial and industrial loans consist of working capital and term loans which are generally underwritten to existing cash flows of operating businesses. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators which are closely correlated to the credit quality of these loans. • Asset-based loans are generally made against accounts receivable and inventory to companies generating consistent sales without yet having reached consistent profitability. As such, these loans are more collateral focused and are primarily subject to the risks of collecting and liquidating the collateral. • Sponsor finance loans are made to companies based upon their cash flow and often have risks associated with merger and acquisition activities. Additional risks for this loan category include insufficient levels of collateral in the form of accounts receivable, inventory, or equipment. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt. • Venture loans are made to companies with modest or negative cash flows and no established record of profitable operations. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture firms or others, or in some cases, a successful sale to a third party, public offering or other form of liquidity event. Declines in venture capital financing activity, as well as mergers and acquisitions and initial public offerings may impact the financial health of some of our clients. Construction – Construction loans, including land and development loans, are comprised of loans collateralized by land or real estate. The primary source of repayment is the eventual sale or refinance of the completed project. Risk arises from the necessity to complete projects within specified cost and timelines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects. Residential real estate – Residential real estate loans are typically home equity lines of credit secured by residential real estate. These are not typical mortgage loans and may have a variety of reasons for the borrowing including providing funding to a business or paying for large personal expenditures. The degree of risk in home equity loans depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. Risks common to home equity lines of credit are general economic conditions, including an increase in unemployment rates, and declining real estate values that reduce or eliminate the borrower’s home equity. Commercial real estate – • Non-owner-occupied commercial real estate loans are collateralized by real estate where the owner is not the primary tenant. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations. Another common risk for this loan category includes a lack of a suitable alternative use for the property. • Owner-occupied commercial real estate loans are collateralized by real estate where the owner is the primary tenant. These loans are generally underwritten to existing cash flows of operating businesses. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators which are closely correlated to the credit quality of these loans. - 94 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consumer – Consumer loans are primarily loans to individuals that may be unsecured or secured by collateral other than real estate. The unsecured loans are generally revolving personal lines of credit to established clients. The high quality of the clients who are offered these products has historically caused this loan product to have less risk of loss than commercial loan products. Risks common to consumer loans include unemployment and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral, adjusted for selling costs as appropriate. The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions. Changes are reflected in the pool-basis allowance and in reserves assigned on an individual basis as the collectability of classified loans is evaluated with new information. The Company assigns a risk rating to all loans and periodically performs detailed reviews of all such loans exhibiting variances in expected payment and/or financial performance to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by independent specialists engaged by the Company and the Company's regulators. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each individual loan. The Company individually rates loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, rating agency information, LTV ratios, collateral, collection experience, and other internal metrics. The risk ratings can be grouped into six major categories, defined as follows: Pass – A pass loan is a strong credit with no existing or known potential weaknesses deserving of management's close attention. Special Mention – A special mention loan has potential weaknesses deserving management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Company's credit position at some future date. Special Mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Substandard – A substandard loan is not adequately protected by the current net worth and paying capacity of the borrower or the value of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses jeopardizing the liquidation of the loan. Well-defined weaknesses include the potential for: lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Substandard - Non-accrual – These loans are typically on non-accrual and have many of the same weaknesses as substandard loans. Doubtful - Non-accrual – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. - 95 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Loss – Loans classified as loss are considered uncollectible and charged off immediately. Allowance for Credit Losses on Unfunded Commitments The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded commitments is adjusted through provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate utilizes the same factors and assumptions as the allowance for credit losses on loans and is applied at the same collective segment level. Property and Equipment Property and equipment are carried at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets. The useful lives of furniture, fixtures and equipment are estimated to be five to ten years. Leasehold improvements are amortized over the life of the asset or the term of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred. Leases Leases are classified as operating or finance leases at the lease commencement date. The Company records leases on the statement of financial condition in the form of a lease liability for the present value of future minimum payments under the lease terms and a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset. The discount rate used in determining the lease liability is based upon incremental borrowing rates the Company could obtain for similar loans as of the date of the commencement or renewal. The Company has elected the following practical expedients related to accounting for leases: 1 ) Leases with original terms of less than 12 months are not capitalized; and 2 ) the Company does not separate lease and non-lease components for real estate leases. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Company’s operating lease liabilities largely represent future rental expenses associated with operating leases and the borrowing rates are based on publicly available interest rates. The lease term includes options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis and adjustments are made to the right-of-use asset and lease liability if the Company is reasonably certain that an option will be exercised and will be expensed on a straight-line basis. Right-of-use assets and lease liabilities arising from operating leases are included within accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively, on the Consolidated Statements of Financial Condition. See Note 6 – Leases for additional information on leases. Bank-Owned Life Insurance The Company purchased life insurance policies on certain current employees and former key executives. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. - 96 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income Taxes Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amount of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The determination of the amount of deferred income tax assets, which are more likely than not to be realized, is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. The recognition of deferred income tax assets is assessed and a valuation allowance is recorded if it is "more likely than not" that all or a portion of the deferred tax assets will not be realized. "More likely than not" is defined as greater than a 50% chance. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. The Company considers all tax positions recognized in its financial statements for the likelihood of realization. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than- not recognition threshold are measured as the largest amount of tax benefit that is more than fifty percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if any, is reflected as a liability for unrecognized tax benefits in the accompanying consolidated statement of financial condition along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the statement of operations. The Company did not have any uncertain income tax positions and has not accrued for any interest or penalties as of December 31, 2025 and 2024 . Stock-Based Compensation Compensation cost is recognized for restricted stock awards based on the fair value of these awards at the date of grant. The market price of the Company’s common stock at the date of grant is used for the fair value of restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company's accounting policy is to recognize forfeitures as they occur. Earnings Per Common Share Basic earnings per share (“EPS”) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which share in the earnings of the Company. The treasury stock method is applied to determine the dilutive effect of stock options in computing diluted EPS. Earnings and dividends per share are restated for all stock splits and stock dividends through date of issuance of the financial statements. Comprehensive Income/(Loss) Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Company's available-for-sale debt securities and cash flow hedges are included in other comprehensive income. - 97 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Derivative Financial Instruments The Company follows the guidance under ASC 815, Derivatives and Hedging , and records all derivatives on the Consolidated Statements of Financial Condition at fair value. For derivatives designated as qualifying cash flow hedging relationships, the change in fair value of the effective portion is accounted for in other comprehensive income/(loss). As of December 31, 2025 and 2024 , the Company had no outstanding derivative contracts. In connection with negotiated credit facilities and certain other services, the Company may obtain equity warrant assets giving it the right to acquire stock in primarily private, venture-backed companies. The Company accounts for these equity warrant assets as derivatives when they contain net settlement terms and other qualifying criteria under ASC 815. These equity warrant assets are measured at estimated fair value and are included accrued interest receivable and other assets in the Consolidated Statements of Financial Condition at the time they are obtained. For additional information, see Note 16 – Derivative Financial Instruments . Loss Contingencies Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the consolidated financial statements as of December 31, 2025 . See Note 12 – Commitments and Contingencies for additional information. Accounting Standards Adopted in 2025 ASU No. 2023 - 09, “Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures.” ASU 2023 - 09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU 2023 - 09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU 2023 - 09 is effective for Public Business Entities for the annual period beginning January 1, 2025. The Company has adopted this guidance, and the related updated disclosures can be found in Note 10 – Income Taxes . ASU No. 2023 - 07, “Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures,” introduces requirements for reporting significant expenses by segment, presenting and describing other segment-related items, identifying the entity’s chief operating decision maker (including their role), and explaining how that individual uses reported profit or loss measures to evaluate segment performance. Additionally, it requires certain segment disclosures, previously only needed on an annual basis, to be presented in interim periods. Under ASU 2023 - 07, these changes become effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company has adopted this guidance, and the related updated disclosures can be found in Note 18 – Business Segment Information . Recently Issued Accounting Standards Not Yet Effective In November 2024, the FASB issued ASU No. 2024 - 03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses.” ASU 2024 - 03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024 - 03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024 - 03 may be applied prospectively or retrospectively. ASU 2024 - 03 is not expected to have a significant impact on our consolidated financial statements. - 98 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In January 2025, the FASB issued ASU 2025 - 01, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Clarifying the Effective Date.” ASU 2025 - 01 amends the effective date of ASU 2024 - 03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2025 - 01 is permitted. ASU 2025 - 01 is not expected to have a material impact on our consolidated financial statements. In September 2025, the FASB issued ASU 2025 - 06, "Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350 - 40 ): Targeted Improvements to the Accounting for Internal-Use Software." ASU 2025 - 06 to modernize the accounting for software costs that are accounted for under Subtopic 350 - 40, Intangibles—Goodwill and Other—Internal-Use Software (referred to as “internal-use software”). The amendments in ASU 2025 - 06 remove all references to project stages throughout Subtopic 350 - 40 and clarify the threshold entities apply to begin capitalizing costs. ASU 2025 - 06 is effective for public business entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption of ASU 2025 - 06 is permitted. ASU 2025 - 06 is not expected to have a material impact on our consolidated financial statements. 2. DEBT SECURITIES The Company did not hold securities classified as trading or held-to-maturity at December 31, 2025 or 2024 . The amortized cost and estimated fair value of available-for-sale debt securities at December 31, 2025 and 2024 consisted of the following: December 31, 2025 Gross Gross Estimated Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value Available-for-Sale: U.S. Treasury securities and obligations of U.S. government agencies $ 478 $ - $ ( 20 ) $ 458 Commercial mortgage-backed securities 5,454 3 ( 27 ) 5,430 Residential mortgage-backed securities 207,847 340 ( 635 ) 207,552 U.S. states and political subdivisions 4,709 72 ( 61 ) 4,720 Total available-for-sale $ 218,488 $ 415 $ ( 743 ) $ 218,160 December 31, 2024 Gross Gross Estimated Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value Available-for-Sale: U.S. Treasury securities and obligations of U.S. government agencies $ 578 $ - $ ( 40 ) $ 538 Commercial mortgage-backed securities 3,161 - ( 298 ) 2,863 Residential mortgage-backed securities 360,713 - ( 72,252 ) 288,461 U.S. states and political subdivisions 4,703 57 ( 66 ) 4,694 Total available-for-sale $ 369,155 $ 57 $ ( 72,656 ) $ 296,556 Net unrealized losses on available-for-sale debt securities totaling ($ 234 thousand) were recorded as accumulated other comprehensive income, net of tax of $ 94 thousand, within shareholders' equity at December 31, 2025 . Net unrealized losses on available-for-sale debt securities totaling $ 51.3 million were recorded as accumulated other comprehensive income, net of tax of $ 21.3 million, within shareholders' equity at December 31, 2024 . - 99 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 2025 , the Company sold $ 274.7 million in available-for-sale securities and recognized a loss of $ 62.4 million on the sale of the securities. The Company purchased $ 205.4 million in available-for-sale securities with an average purchase yield of 4.57 % and a duration of 5.4 years. In comparison, there were no sales and no calls of debt securities during 2024 . There were no transfers between investment categories during 2025 or 2024 . The proceeds from sales of securities and the associated losses are listed below: (In thousands) 2025 2024 Proceeds $ 274,708 $ - Gross gains - - Gross losses ( 62,391 ) - The tax benefit related to these net realized losses was $ 17.9 million and $ 0 for the years ended 2025 and 2024 , respectively. Debt securities with unrealized losses at December 31, 2025 and December 31, 2024 are summarized and classified according to the duration of the loss period as follows: (in thousands) Less than 12 Months 12 Months or More Total Unrealized Unrealized Unrealized December 31, 2025 Fair Value Losses Fair Value Losses Fair Value Losses U.S. Treasury securities and obligations of U.S. government agencies $ - $ - $ 458 $ ( 20 ) $ 458 $ ( 20 ) Commercial mortgage-backed securities 3,441 ( 20 ) 1,004 ( 7 ) 4,445 ( 27 ) Residential mortgage-backed securities 103,636 ( 437 ) 1,798 ( 198 ) 105,434 ( 635 ) U.S. states and political subdivisions 1,004 - 871 ( 61 ) 1,875 ( 61 ) Total available-for-sale $ 108,081 $ ( 457 ) $ 4,131 $ ( 286 ) $ 112,212 $ ( 743 ) Less than 12 Months 12 Months or More Total Unrealized Unrealized Unrealized December 31, 2024 Fair Value Losses Fair Value Losses Fair Value Losses U.S. Treasury securities and obligations of U.S. government agencies $ - $ - $ 538 $ ( 40 ) $ 538 $ ( 40 ) Commercial mortgage-backed securities 1,691 ( 54 ) 1,172 ( 244 ) 2,863 ( 298 ) Residential mortgage-backed securities 2,460 ( 46 ) 286,001 ( 72,206 ) 288,461 ( 72,252 ) U.S. states and political subdivisions 2,637 ( 66 ) - - 2,637 ( 66 ) Total available-for-sale $ 6,788 $ ( 166 ) $ 287,711 $ ( 72,490 ) $ 294,499 $ ( 72,656 ) - 100 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2025 , the Company held four securities available-for-sale, which were in a loss position for greater than 12 months, compared to 26 securities available-for-sale in a loss position for greater than 12 months at December 31, 2024 . Management believes the unrealized losses on the Company’s debt securities were caused by interest rate changes. The contractual cash flows of those investments are guaranteed or supported by an agency or sponsored entity of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. As of December 31, 2025 , the Company does not intend to sell and does not believe it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. No credit impairment was recorded for those securities in an unrealized loss position for 2025 or 2024 , and there was no allowance for credit losses on securities available-for-sale recorded as of December 31, 2025 or 2024 . The amortized cost and estimated fair value of available-for-sale debt securities at December 31, 2025 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties. Available-for-sale Amortized Fair (In thousands) Cost Value Due in one year or less $ - $ - Due after one year through five years - - Due after five years through 10 years 478 458 Due after 10 years 4,709 4,720 5,187 5,178 Debt securities not due at a single maturity date: mortgage-backed securities 213,301 212,982 Total available-for-sale $ 218,488 $ 218,160 Debt securities with fair values of $ 8.9 million and $ 15.5 million were pledged at December 31, 2025 and December 31, 2024 , respectively, toward certain letters of credit. No debt securities were pledged to secure public deposits at December 31, 2025 or December 31, 2024 . 3. LOANS Outstanding loans are summarized below: (in thousands) December 31, 2025 2024 Commercial and industrial $ 1,049,530 $ 816,963 Construction 196,243 246,301 Residential real estate 45,669 27,494 Commercial real estate 854,342 773,219 Consumer 2,655 965 Total outstanding loans, net of deferred fees 2,148,439 1,864,942 Allowance for credit losses on loans ( 22,261 ) ( 18,679 ) Total loans, net of allowance for credit losses on loans $ 2,126,178 $ 1,846,263 - 101 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS From time to time, the Bank pledges loans as collateral under a short-term borrowing arrangement through the Discount Window of the Federal Reserve Bank. The Bank has pledged a total of $ 972.7 million and $ 897.5 million of loans for borrowing capacity of $ 853.9 million and $ 786.5 million at December 31, 2025 and 2024 , respectively. The Bank had no Federal Reserve Bank borrowings outstanding that were secured by loans as of December 31, 2025 or December 31, 2024 . The Bank has entered into an agreement providing for the pledging of loans for borrowing capacity with the Federal Home Loan Bank. The Bank pledged a total of $ 773.0 million of loans for remaining borrowing capacity of $ 530.0 million at December 31, 2025 . In comparison, the Bank pledged a total of $ 654.8 million of loans for borrowing capacity of $ 391.2 million at December 31, 2024 . There were no FHLB borrowings outstanding at December 31, 2025 . Comparatively, the bank had $ 70.0 million in FHLB borrowings outstanding at December 31, 2024 . See Note 8 – Subordinated Debt and Other Borrowing Arrangements . 4. ALLOWANCE FOR CREDIT LOSSES Changes in the allowance for credit losses on loans during the years ended December 31, 2025 and 2024 were as follows: (in thousands) 2025 2024 Balance, beginning of period $ 18,679 $ 19,131 Provision for credit losses on loans 5,014 3,909 Charge-offs ( 1,523 ) ( 4,361 ) Recoveries 91 - Balance, end of period $ 22,261 $ 18,679 Accrued interest receivable related to loans totaled $ 8.2 million and $ 7.4 million at December 31, 2025 and December 31, 2024 , respectively, and was reported in accrued interest receivable and other assets on the consolidated statements of financial condition. Accrued interest receivable was excluded from the estimate of credit losses. Allocation of the allowance for credit losses on loans by portfolio segment for the years ended December 31, 2025 and 2024 are as follows: (in thousands) Commercial Residential Commercial and Industrial Construction Real Estate Real Estate Consumer Total Balance, December 31, 2023 $ 9,794 $ 3,156 $ 145 $ 6,035 $ 1 $ 19,131 Provision for credit losses on loans 4,737 ( 151 ) 141 ( 828 ) 10 3,909 Charge-offs ( 4,361 ) - - - - ( 4,361 ) Recoveries - - - - - - Balance, December 31, 2024 10,170 3,005 286 5,207 11 18,679 Provision for credit losses on loans 6,874 ( 1,033 ) 208 ( 1,057 ) 22 5,014 Charge-offs ( 1,523 ) - - - - ( 1,523 ) Recoveries 91 - - - - 91 Balance, December 31, 2025 $ 15,612 $ 1,972 $ 494 $ 4,150 $ 33 $ 22,261 - 102 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing as of December 31, 2025 and 2024 : (in thousands) December 31, 2025 Non-accrual Loans With Non-accrual Loans Total Loans Past No Allowance with Allowance Non-accrual Due over 89 Days for Credit Losses for Credit Losses Loans Still Accruing Commercial and industrial $ - $ 5,088 5,088 $ - Construction 19,414 - 19,414 - Residential Real Estate - - - - Commercial Real Estate - - - - Consumer - - - - Total $ 19,414 $ 5,088 $ 24,502 $ - December 31, 2024 Non-accrual Loans With Non-accrual Loans Total Loans Past No Allowance with Allowance Non-accrual Due over 89 Days for Credit Losses for Credit Losses Loans Still Accruing Commercial and industrial $ 119 $ 1,248 $ 1,367 $ - Construction - - - - Residential Real Estate - - - - Commercial Real Estate - - - - Consumer - - - - Total $ 119 $ 1,248 $ 1,367 $ - - 103 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present the risk category and gross charge-offs by vintage year, which is the year of origination or most recent renewal, as of the date indicated (in thousands). Term Loans Amortized Cost Basis by Origination Year Revolving Revolving Loans Loans Amortized Converted 2025 2024 2023 2022 2021 Prior Cost Basis to Term Total December 31, 2025 Commercial and industrial Risk Rating Pass $ 273,105 $ 69,415 $ 46,268 $ 30,290 $ 15,579 $ 5,807 $ 586,324 $ 5,000 $ 1,031,788 Special Mention 1,016 - - 3,522 - - 6,305 - 10,843 Substandard - - 1,295 26 - - 490 - 1,811 Substandard - Non-accrual - - 3,850 - - - - - 3,850 Doubtful - Non-accrual - - 1,238 - - - - - 1,238 Total $ 274,121 $ 69,415 $ 52,651 $ 33,838 $ 15,579 $ 5,807 $ 593,119 $ 5,000 $ 1,049,530 Gross charge-offs $ 1,523 $ - $ - $ - $ - $ - $ - $ - $ 1,523 Construction Risk Rating Pass $ 42,573 $ 65,573 $ 46,201 $ 12,847 $ 6,005 $ 3,630 $ - $ - $ 176,829 Substandard - Non-accrual - - - 3,091 16,323 - - - 19,414 Total $ 42,573 $ 65,573 $ 46,201 $ 15,938 $ 22,328 $ 3,630 $ - $ - $ 196,243 Gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Residential Real Estate Risk Rating Pass $ 3,477 $ 2,663 $ 4,325 $ 673 $ - $ 2,724 $ 31,807 $ - $ 45,669 Total $ 3,477 $ 2,663 $ 4,325 $ 673 $ - $ 2,724 $ 31,807 $ - $ 45,669 Gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Commercial Real Estate Risk Rating Pass $ 179,320 $ 56,045 $ 152,850 $ 128,199 $ 124,128 $ 206,499 $ 7,301 $ - $ 854,342 Total $ 179,320 $ 56,045 $ 152,850 $ 128,199 $ 124,128 $ 206,499 $ 7,301 $ - $ 854,342 Gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Consumer Risk Rating Pass $ - $ - $ - $ - $ - $ - $ 2,655 $ - $ 2,655 Total $ - $ - $ - $ - $ - $ - $ 2,655 $ - $ 2,655 Gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Pass $ 498,475 $ 193,696 $ 249,644 $ 172,009 $ 145,712 $ 218,660 $ 628,087 $ 5,000 $ 2,111,283 Special Mention 1,016 - - 3,522 - - 6,305 - 10,843 Substandard - - 1,295 26 - - 490 - 1,811 Substandard - Non-accrual - - 3,850 3,091 16,323 - - - 23,264 Doubtful - Non-accrual - - 1,238 - - - - - 1,238 Total $ 499,491 $ 193,696 $ 256,027 $ 178,648 $ 162,035 $ 218,660 $ 634,882 $ 5,000 $ 2,148,439 - 104 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Term Loans Amortized Cost Basis by Origination Year Revolving Revolving Loans Loans Amortized Converted 2024 2023 2022 2021 2020 Prior Cost Basis to Term Total December 31, 2024 Commercial and industrial Risk Rating Pass $ 131,610 $ 95,597 $ 66,375 $ 74,122 $ 13,719 $ 44,181 $ 375,269 $ - $ 800,873 Special Mention - 5,542 4,025 321 69 - 1,958 - 11,915 Substandard - - 338 - - - 2,470 - 2,808 Substandard - Non-accrual - - - - - 119 - - 119 Doubtful - Non-accrual - 1,248 - - - - - - 1,248 Total $ 131,610 $ 102,387 $ 70,738 $ 74,443 $ 13,788 $ 44,300 $ 379,697 $ - $ 816,963 Gross charge-offs $ 4,361 $ - $ - $ - $ - $ - $ - $ - $ 4,361 Construction Risk Rating Pass $ 71,726 $ 49,655 $ 23,681 $ 3,975 $ 3,781 $ 66,411 $ - $ - $ 219,229 Special Mention - 3,060 24,012 - - - - - 27,072 Total $ 71,726 $ 52,715 $ 47,693 $ 3,975 $ 3,781 $ 66,411 $ - $ - $ 246,301 Gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Residential Real Estate Risk Rating Pass $ 4,388 $ 685 $ - $ 1,973 $ 859 $ 19,589 $ - $ - $ 27,494 Total $ 4,388 $ 685 $ - $ 1,973 $ 859 $ 19,589 $ - $ - $ 27,494 Gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Commercial Real Estate Risk Rating Pass $ 58,693 $ 155,593 $ 122,814 $ 132,005 $ 34,836 $ 246,627 $ 19,228 $ - $ 769,796 Special Mention - - - - 1,422 - 2,001 - 3,423 Total $ 58,693 $ 155,593 $ 122,814 $ 132,005 $ 36,258 $ 246,627 $ 21,229 $ - $ 773,219 Gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Consumer Risk Rating Pass $ - $ - $ - $ - $ - $ - $ 965 $ - $ 965 Total $ - $ - $ - $ - $ - $ - $ 965 $ - $ 965 Gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Pass $ 266,417 $ 301,530 $ 212,870 $ 212,075 $ 53,195 $ 376,808 $ 395,462 $ - $ 1,818,357 Special Mention - 8,602 28,037 321 1,491 - 3,959 - 42,410 Substandard - - 338 - - - 2,470 - 2,808 Substandard - Non-accrual - - - - - 119 - - 119 Doubtful - Non-accrual - 1,248 - - - - - - 1,248 Total $ 266,417 $ 311,380 $ 241,245 $ 212,396 $ 54,686 $ 376,927 $ 401,891 $ - $ 1,864,942 - 105 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company monitors loans by past due status. The following tables present the aging of past due loans as of December 31, 2025 and 2024 : (in thousands) December 31, 2025 Greater than Total Past 30-59 Days 60-89 Days 89 days and Due and Past Due Past Due Still Accruing Non-accrual Non-accrual Current Total Commercial and industrial $ - $ - $ - $ 5,088 $ 5,088 $ 1,044,442 $ 1,049,530 Construction - - 19,414 19,414 176,829 196,243 Residential Real Estate - - - - - 45,669 45,669 Commercial Real Estate 1,374 - - - 1,374 852,968 854,342 Consumer - - - - - 2,655 2,655 Total $ 1,374 $ - $ - $ 24,502 $ 25,876 $ 2,122,563 $ 2,148,439 December 31, 2024 Greater than Total Past 30-59 Days 60-89 Days 89 days and Due and Past Due Past Due Still Accruing Non-accrual Non-accrual Current Total Commercial and industrial $ - $ - $ - $ 1,367 $ 1,367 $ 815,596 $ 816,963 Construction - - - - - 246,301 246,301 Residential Real Estate - - - - - 27,494 27,494 Commercial Real Estate - - - - - 773,219 773,219 Consumer - - - - - 965 965 Total $ - $ - $ - $ 1,367 $ 1,367 $ 1,863,575 $ 1,864,942 Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio, or that have been identified as collateral dependent, are evaluated individually for purposes of determining an appropriate lifetime allowance for credit losses. Loans deemed collateral dependent require evaluation based on the estimated fair value of the underlying collateral, less estimated costs to sell. The following table presents outstanding loan balances of collateral-dependent loans by portfolio segment as of December 31, 2025 and 2024 : Collateral Type Real Business Accounts Property Assets Receivable Equipment Other Total December 31, 2025 Commercial and industrial $ - $ - $ - $ - $ 3,850 $ 3,850 Construction 19,414 - - - - 19,414 Residential Real Estate - - - - - - Commercial Real Estate - - - - - - Consumer - - - - - - Total $ 19,414 $ - $ - $ - $ 3,850 $ 23,264 December 31, 2024 Commercial and industrial $ 119 $ - $ - $ - $ - $ 119 Construction - - - - - - Residential Real Estate - - - - - - Commercial Real Estate - - - - - - Consumer - - - - - - Total $ 119 $ - $ - $ - $ - $ 119 - 106 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. In some cases, the Company provides multiple types of concessions on one loan. The following tables present the amortized cost basis of loans at December 31, 2025 and December 31, 2024 that were both experiencing financial difficulty and modified during the years ended December 31, 2025 and 2024 , by portfolio segment and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each segment of financing receivable is also presented below: (in thousands) Principal Interest Forgiveness, Interest Rate Interest Rate Rate Reduction, Reduction, Payment Reduction Payment Payment Delay and and Delay and Delay and Term Payment Term Term % of Extension Extension Delay Extension Extension Total Total Class December 31, 2025 Commercial and industrial $ 3,642 $ 5,143 $ - $ - $ - $ 8,785 0.84 % Construction 16,323 - - - - 16,323 8.32 Residential Real Estate - - - - - - - Commercial Real Estate - - - - - - - Consumer - - - - - - - Total $ 19,965 $ 5,143 $ - $ - $ - $ 25,108 1.17 % December 31, 2024 Commercial and industrial $ 8,166 $ - $ - $ - $ - $ 8,166 1.00 % Construction 20,498 - - - - 20,498 8.32 Residential Real Estate - - - - - - - Commercial Real Estate - - - - - - - Consumer - - - - - - - Total $ 28,664 $ - $ - $ - $ - $ 28,664 1.54 % The Company had no commitments to lend additional amounts to the borrowers included in the previous tables for the year ended December 31, 2025 and $ 1.9 million in commitments to lend additional amounts for the year ended December 31, 2024 . There was one construction loan with an amortized cost of $ 16.3 million to a borrower experiencing financial difficulty, which had been modified within the prior 12 months, with a payment default during the year ended December 31, 2025 . There were no loans to borrowers experiencing financial difficulty, which had been modified in the prior 12 months, with a payment default during the year ended December 31, 2024 . - 107 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. PROPERTY AND EQUIPMENT Property and equipment consisted of the following: (in thousands) December 31, 2025 2024 Leasehold improvements $ 5,229 $ 5,270 Furniture and equipment 1,521 1,516 Computer equipment 1,213 1,178 Gross property and equipment 7,963 7,964 Less accumulated depreciation and amortization 6,437 5,633 Property and equipment, net $ 1,526 $ 2,331 Depreciation included in occupancy and equipment expense totaled $ 898 thousand and $ 993 thousand for the years ended December 31, 2025 and 2024 , respectively. 6. LEASES Lease Arrangements The Company enters into leases in the normal course of business primarily for headquarters, back-office operations locations and business development offices. The Company’s leases have remaining terms ranging from 22 to 53 months, some of which include termination or renewal options to extend the lease for up to 5 years. The Company leases its administrative offices in San Jose under a non-cancellable operating lease. The lease expires in 2027 and has one five -year renewal option. The Company also leases office space for loan production offices in Redwood City, California and San Francisco, California. At the end of September 2021, the Company closed its Palo Alto branch office, and the space has been subleased. In the first quarter of 2025, the Redwood City loan production office lease expired. The Company executed a new Redwood City loan production office lease, in a new location, with a five -year term that expires in 2030. The San Francisco loan production office lease expires in 2030. Leases are classified as operating or finance leases at the lease commencement date. The Company does not currently have any significant finance leases in which it is the lessee. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in a lease is not known. The Company's incremental borrowing rate is based on the Federal Home Loan Bank of San Francisco, adjusted for the lease term and other factors. - 108 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Right-of-use assets and lease liabilities by lease type, and the associated statement of financial condition classifications, are as follows: (in thousands) December 31, Statement of Financial Condition Classification 2025 2024 Right-of-use assets: Operating leases - Accrued interest receivable and other assets $ 5,606 $ 6,933 Total right-of-use assets $ 5,606 $ 6,933 Lease liabilities: Operating leases - Accrued interest payable and other liabilities $ 6,211 $ 7,686 Total lease liabilities $ 6,211 $ 7,686 Lease Expense Total lease cost for the years ended December 31, 2025 and 2024 is as follows: December 31, (In thousands) 2025 2024 Operating lease cost $ 2,549 $ 3,078 Sublease income ( 348 ) ( 379 ) Total lease cost, net $ 2,201 $ 2,699 Lease Obligations Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2025 are as follows: (in thousands) December 31, Leases 2026 $ 2,684 2027 2,432 2028 838 2029 863 2030 338 Thereafter - Total undiscounted lease payments 7,155 Less imputed interest 944 Net lease liabilities $ 6,211 Supplemental Lease Information December 31, 2025 2024 Operating lease weighted average remaining lease term (years) 3.12 3.87 Operating lease weighted average discount rate 2.46 % 2.52 % - 109 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. DEPOSITS The Company’s total deposits consisted of the following: (in thousands). December 31, 2025 2024 Interest-bearing checking $ 1,069,272 $ 993,219 Savings 3,922 3,052 Money market 528,227 335,526 Time, $250,000 or more 21,882 51,009 Other time 5,798 23,459 Non-reciprocal brokered (1) - 70,763 Total interest-bearing deposits 1,629,101 1,477,028 Non-interest-bearing deposits 556,972 414,327 Total deposits $ 2,186,073 $ 1,891,355 ( 1 ) FDIC regulations impose a general cap on reciprocal deposits that may be exempt from brokered deposits classification equal to 20% of the Bank's total liabilities. As of December 31, 2025 and December 31, 2024 , an additional $ 475.4 million and $ 470.0 million of our deposits were considered brokered deposits by the FDIC due to being in excess of the general cap, respectively. Non-reciprocal brokered deposits are used to supplement the Company’s traditional deposit funding sources. At December 31, 2025 , the Company had no non-reciprocal brokered deposits, and at December 31, 2024 , they represented 4 % of total deposits. At December 31, 2025 , scheduled maturities of time deposits for the next five years were as follows: (in thousands) Year Ending December 31, 2026 $ 25,173 2027 1,358 2028 - 2029 1,149 2030 and after - Total time deposits $ 27,680 Interest expense recognized on interest-bearing deposits for the years ended December 31, 2025 and 2024 consisted of the following: (in thousands) 2025 2024 Interest-bearing checking $ 37,160 $ 35,111 Savings 57 46 Money market 12,693 10,683 Time, $250,000 or more 1,259 975 Other time 316 2,170 Brokered 1,674 5,161 Total interest on deposits $ 53,159 $ 54,146 Overdrawn deposit accounts reclassified as loans were $ 15 thousand and $ 70 thousand as of December 31, 2025 and 2024 , respectively. - 110 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2025 , the Company had two deposit relationships that exceeded 5% of total deposits. Totaling $ 228.7 million, together they represented 10 % of total deposits. At December 31, 2024 , the Company had one deposit relationship that exceeded 5 % of total deposits. At $ 97.0 million, this deposit relationship represented 5 % of total deposits. Estimated uninsured deposits, including accrued interest, were 42 % of total deposits at December 31, 2025 , compared to 33 % of total deposits at December 31, 2024 . The uninsured amounts are estimated based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. 8. SUBORDINATED DEBT AND OTHER BORROWING ARRANGEMENTS On December 20, 2019, the Company issued $ 22.0 million in ten -year, fixed-to-floating rate subordinated notes to certain qualified institutional buyers and institutional accredited investors. The subordinated notes have a maturity date of December 30, 2029 and bear interest at the rate of 5.0 % per annum, payable semiannually for the first five years of the term, and then quarterly at a variable rate based on the then current 3 -month Secured Overnight Financing Rate plus 359.5 basis points. The notes are redeemable after five years subject to certain conditions. The indebtedness evidenced by the subordinated notes, including principal and interest, is unsecured and subordinate and junior to general and secured creditors and depositors. On the statement of financial condition, the subordinated notes are carried net of debt issuance costs, and these were fully amortized as of December 31, 2024. The interest rate paid on the subordinated notes as of December 31, 2025 was 7.26 %. The Company had unsecured Federal Funds lines of credit with its correspondent banks totaling $ 206.0 million at December 31, 2025 and $ 175.0 million at December 31, 2024 . Borrowings outstanding as of December 31, 2025 and 2024 , totaled $ 60.0 million and $ 115.0 million, respectively. The interest rate paid on the borrowings outstanding was 3.75 % as of December 31, 2025 and 4.40 % - 4.65 % as of December 31, 2024 . The Company has a short-term borrowing arrangement with the Federal Reserve Bank through the Discount Window. The Company currently has a detailed lien on certain loans to secure borrowings. The borrowing capacity under the agreement varies depending on the amount of loans pledged and totaled $ 853.9 million and $ 786.5 million as of December 31, 2025 and 2024 , respectively. There were no borrowings outstanding under the agreement at December 31, 2025 or 2024 . As a member of the Federal Home Loan Bank of San Francisco, the Bank is eligible to use the FHLB’s facilities for short- and long-term borrowing. Borrowing capacity requires stock ownership in the FHLB and is based on pledged assets or a lien against certain loan categories. As of December 31, 2025 there were no borrowings outstanding from the FHLB. FHLB borrowings totaled $ 70.0 million with a floating rate of 4.78 % as of December 31, 2024 with open maturity dates. The remaining borrowing capacity at December 31, 2025 and 2024 , was $ 530.0 million and $ 391.2 million, respectively, under a detailed lien on loans. 9. SHAREHOLDERS' EQUITY Dividends The Company's ability to pay cash dividends is dependent on dividends paid to it by the Bank, if any, and limited by Federal and California law. Under California law, the holders of common stock of the Company are entitled to receive dividends when and as declared by the Board of Directors, out of funds legally available, subject to certain restrictions. The California General Corporation Law prohibits the Company from paying dividends on its common stock unless either: (i) the amount of retained earnings of the corporation immediately prior to the dividend equals or exceeds the sum of (A) the amount of the proposed dividend plus (B) the preferential preferred dividends in arrears amount, if any, or (ii) immediately after the dividend, the value of the corporation’s assets would equal or exceed the sum of its total liabilities plus the preferential rights amount, if any. Dividends paid from the Bank to the Company are restricted under certain Federal laws and regulations governing banks. In addition, the California Financial Code restricts the total dividend payment of any bank in any one year to the lesser of ( 1 ) the bank's retained earnings or ( 2 ) the bank's net income for its last three fiscal years, less distributions made to shareholders during the same three -year period, without the prior approval of the California Department of Financial Protection and Innovation. At December 31, 2025 , $ 16.7 million was free of such restrictions. - 111 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Earnings Per Common Share Due to the Company's net loss for the year ended December 31, 2025 , the assumed vesting of outstanding restricted stock awards had an anti-dilutive effect on diluted earnings per share and was therefore excluded from the calculation of diluted earnings per share. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the years ended December 31, 2025 and 2024 is shown below. (dollars in thousands, except the per share amounts) Year Ended December 31, 2025 2024 Net (loss) / income $ ( 19,553 ) $ 21,015 Total weighted average shares outstanding - basic 8,702,468 7,426,096 Basic (loss) / earnings per common share $ ( 2.25 ) $ 2.83 Net (loss) / income $ ( 19,553 ) $ 21,015 Total weighted average shares outstanding - basic 8,702,468 7,426,096 Add: dilutive impact of restricted stock - 178,346 Total weighted average shares outstanding - diluted 8,702,468 7,604,442 Diluted (loss) / earnings per common share $ ( 2.25 ) $ 2.76 Anti-dilutive awards (1) 281 222 ( 1 ) In periods in which there is a net loss, potential common shares shall be excluded from the computation of diluted earnings per share because the effect would be anti-dilutive. These awards were considered anti-dilutive because the dilutive impact would increase the earnings per share. Stock Repurchase Program The Company announced a stock repurchase program on November 25, 2020, effective immediately, authorizing the repurchase of up to 5 % or 307,780 shares of the Company's outstanding common stock. The program has no expiration date. Under the stock repurchase program, the Company may, from time to time, repurchase shares of its outstanding common stock in the open market, in privately-negotiated transactions, or otherwise, subject to applicable laws and regulations. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements, availability of funds, and other relevant considerations, as determined by the Company. The Company may, at its discretion, begin, suspend or terminate repurchases at any time prior to the program's expiration, without any prior notice. There is no obligation on the part of the Company to repurchase any shares of its common stock. For the years ended December 31, 2025 and 2024 , no shares were repurchased. Regulatory Capital Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. Management believes as of December 31, 2025 , the Company and the Bank meet all capital adequacy requirements to which they are subject. - 112 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2025 and 2024 , the most recent regulatory notifications categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category. To be categorized as well-capitalized, under the regulatory framework for prompt corrective actions, the Company and the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below: Actual and required capital amounts (in thousands) and ratios, exclusive of the capital conservation buffer are presented below at December 31, 2025 and 2024 : 2025 2024 Amount Ratio Amount Ratio Leverage Ratio Avidbank Holdings, Inc. $ 275,669 11.23 % $ 237,700 10.35 % Minimum regulatory requirement $ 98,167 4.00 % $ 91,844 4.00 % Avidbank $ 285,091 11.65 % $ 253,437 11.07 % Minimum requirement for "Well-Capitalized" institution $ 122,359 5.00 % $ 114,510 5.00 % Minimum regulatory requirement $ 97,887 4.00 % $ 91,608 4.00 % Common Equity Tier I Avidbank Holdings, Inc. $ 275,669 11.05 % $ 237,700 10.59 % Minimum regulatory requirement $ 112,249 4.50 % $ 101,018 4.50 % Avidbank $ 285,091 11.46 % $ 253,437 11.32 % Minimum requirement for "Well-Capitalized" institution $ 161,678 6.50 % $ 145,515 6.50 % Minimum regulatory requirement $ 111,931 4.50 % $ 100,741 4.50 % Tier 1 Risk-Based Capital Ratio Avidbank Holdings, Inc. $ 275,669 11.05 % $ 237,700 10.59 % Minimum regulatory requirement $ 149,665 6.00 % $ 134,690 6.00 % Avidbank $ 285,091 11.46 % $ 253,437 11.32 % Minimum requirement for "Well-Capitalized" institution $ 198,988 8.00 % $ 179,095 8.00 % Minimum regulatory requirement $ 149,241 6.00 % $ 134,322 6.00 % Total Risk-Based Capital Ratio Avidbank Holdings, Inc. $ 313,481 12.57 % $ 276,225 12.30 % Minimum regulatory requirement $ 199,554 8.00 % $ 179,587 8.00 % Avidbank $ 309,703 12.45 % $ 274,362 12.26 % Minimum requirement for "Well-Capitalized" institution $ 248,735 10.00 % $ 223,869 10.00 % Minimum regulatory requirement $ 198,988 8.00 % $ 179,095 8.00 % - 113 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. INCOME TAXES The (benefit) / provision for income taxes for the years ended December 31, 2025 and 2024 consisted of the following (in thousands). The Company does not have pretax income from continuing foreign operations or foreign tax expense. Years Ended December 31, 2025 2024 Current income tax (benefit) / expense: Federal $ ( 43 ) $ 5,763 State ( 77 ) 3,373 Total current (benefit) / expense $ ( 120 ) $ 9,136 Deferred income tax (benefit) / expense: Federal $ ( 5,572 ) $ ( 255 ) State ( 1,725 ) ( 93 ) Total deferred (benefit) / expense $ ( 7,297 ) $ ( 348 ) Total income tax (benefit) / expense $ ( 7,417 ) $ 8,788 The (benefit) / provision for income taxes differs from amounts computed by applying the statutory Federal income tax rate to income before income taxes. The effects of these differences are as follows (dollars in thousands): Years Ended December 31, 2025 2024 Amount Rate % Amount Rate % Federal income tax expense, at statutory rate $ ( 5,664 ) 21.0 % $ 6,259 21.0 % Domestic federal reconciling items Non-taxable and non-deductible items, net ( 17 ) 0.1 % ( 35 ) ( 0.1 )% Tax credits, net of proportional amortization ( 16 ) 0.1 % ( 1 ) ( 0.0 )% Other reconciling items 47 ( 0.3 )% 56 0.2 % Domestic state and local income taxes, net of federal effect (1) ( 1,767 ) 6.6 % 2,509 8.4 % Income tax (benefit) / expense $ ( 7,417 ) 27.5 % $ 8,788 29.5 % ( 1 ) State taxes in California made up the majority (greater than 50 percent) of the tax effect in this category. The components of income taxes paid for the periods ended December 31, 2025 and 2024 were as follows: (in thousands) Years Ended December 31, 2025 2024 Total income taxes paid $ 4,415 $ 7,484 Federal 3,218 4,463 State: California 1,048 2,380 Other 149 641 - 114 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets (liabilities) at December 31, 2025 and 2024 are included in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition and consisted of the following: (in thousands) Years Ended December 31, 2025 2024 Deferred tax assets: Federal & state net operating losses $ 7,367 $ - Federal tax credit carryforwards 36 - Allowance for credit losses on loans 6,323 5,471 State tax - 671 Fixed assets 681 557 Lease liabilities 1,794 2,288 Accrued expenses 2,363 1,778 Share-based compensation 924 1,533 Other 832 785 Unrealized loss on available-for-sale debt securities 94 21,262 Total deferred tax assets $ 20,414 $ 34,345 Deferred tax liabilities: Right-of-use asset ( 1,656 ) ( 2,133 ) Loan origination costs ( 1,633 ) ( 1,476 ) Other $ ( 566 ) $ ( 305 ) Total deferred tax liabilities ( 3,855 ) ( 3,914 ) Net deferred tax asset including OCI items $ 16,559 $ 30,431 In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than- not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is provided when it is deemed more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the ability to realize the deferred tax assets, management considers the four possible sources of taxable income including future reversals of existing taxable temporary differences, future taxable income, taxable income in prior carryback years and tax-planning strategies that would, if necessary, be implemented. At December 31, 2025 and 2024 , management believed deferred tax asset balances were fully realizable, and no valuation allowances were recorded. The Company had no uncertain tax positions at December 31, 2025 or 2024 . The amount of tax benefits that would impact the effective rate, if recognized, is not expected to be material. At December 31, 2025 , the Company had $ 26.5 million of gross Federal net operating loss carryforwards and $ 22 million of gross state net operating loss carryforwards. The Federal carryforward period is indefinite. The state carryforward periods differ by state, with the majority having expiration dates between the years ending 2041 and 2046. Status of Open Tax Years The Company is subject to U.S. Federal income tax as well as various other state income tax. Federal income tax returns for 2022 through 2024 and state income tax returns generally for 2021 through 2024 are currently open for Federal or state income tax examinations. The Company is not currently under audit by the IRS or state taxing authorities. - 115 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. BENEFIT PLANS Equity Incentive Awards Under the 2013 and 2022 Equity Incentive Plans, the Company is able to provide stock-based awards to employees, directors, and contractors. Awards under the Equity Incentive Plans may be in the form of, but not limited to, the following: stock options, restricted stock or units, performance-based shares or units, and other stock-based awards as determined by the Board of Directors. The 2013 and 2022 Equity Incentive Plans specify that the option price may not be less than the fair market value of the stock at the date the option is granted, and that the stock must be paid for in full at the time the option is exercised. All options expire on a date determined by the Board of Directors, but not later than five years from the date of grant. Upon grant, options vest ratably over a four -year period. As of December 31, 2024 , all stock option awards have been fully vested and exercised or expired. There are no plans to award additional stock option awards. During 2025, the 2022 Equity Incentive Plan (the "2022 Plan") was amended to increase the number of shares available for grant to 1,100,000 . As of December 31, 2025 , there were 574,350 remaining shares available to be granted as options or restricted stock among other forms of equity compensation under the 2022 Plan. Upon the approval of the 2022 Equity Incentive Plan, no new awards were granted under the 2013 Equity Incentive Plan ( “2013 Plan”). However, the Company may continue to issue shares of common stock pursuant to awards granted under the 2013 Plan that were outstanding as of the date of the approval of the 2022 Plan. Restricted Common Stock Awards The 2013 and 2022 Equity Incentive Plans provide for the issuance of restricted stock to directors and officers. Restricted common stock grants typically vest over a three -year period. Restricted common stock (all of which are shares of our common stock) is subject to forfeiture if employment terminates prior to vesting. The cost of these awards is recognized over the vesting period of the awards based on the fair value of our common stock on the date of the grant. The market price of the Company’s common stock at the date of grant is used for the fair value of restricted stock awards. The following table summarizes restricted stock activity for the year ended December 31, 2025 : Weighted Average Grant Date Shares Fair Value Non-vested shares at December 31, 2024 451,095 $ 21.24 Granted 115,585 23.69 Vested ( 192,059 ) 22.70 Forfeited ( 12,662 ) 21.39 Non-vested shares at December 31, 2025 361,959 $ 21.24 During the year ended December 31, 2025 , 0 shares of restricted common stock were granted from the 2013 Equity Incentive Plan and 115,585 were granted from the 2022 Equity Incentive Plan. Offsetting the 115,585 grants were 63,217 shares withheld to cover taxes, in addition to 12,662 shares forfeited due to terminations that resulted in net restricted stock issued of 39,706 shares. The restricted common stock had a weighted average fair value of $ 23.69 per share on the date of grant. Most restricted shares granted have a three -year cliff vesting period, with shares vesting on the three -year anniversary date; however, the Company has started to grant awards that vest ratably over 3 years. Shares totaling 12,000 shares were awarded to non-employee directors in 2025 with a one -year vesting period. As of December 31, 2025 , there were 361,959 shares of restricted stock that were non-vested and expected to vest. Stock-based compensation expense charged against income for restricted stock awards was $ 3.2 million and $ 3.2 million for the years ended December 31, 2025 , and 2024 , respectively, which was recognized in salaries and employee benefits expense. Deferred income tax benefits related to stock-based compensation expense of $ 924 thousand and $ 1.5 million were included in the determination of income tax expense for the years ended December 31, 2025 , and 2024 , respectively. As of December 31, 2025 , there was $ 4.1 million of total unrecognized compensation cost related to non-vested restricted common stock. Restricted stock compensation expense is recognized on a straight-line basis over the vesting period. This cost is expected to be recognized over a weighted average remaining period of 1.87 years. - 116 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Defined Contribution Plan The Company has a 401 (k) profit sharing plan. All employees 21 years of age or older become eligible to participate in the plan on the first day of the month following employment with the Bank. Eligible employees may elect to make tax deferred contributions of their salary up to the maximum amount allowed by law. The Bank may make additional contributions to the plan at the discretion of the Board of Directors. Bank contributions vest at a rate of 25 % annually for all employees. Bank contributions for the years ended December 31, 2025 , and 2024 totaled $ 607 thousand and $ 585 thousand, respectively. 12. COMMITMENTS AND CONTINGENCIES Financial Instruments With Off-Balance-Sheet Risk Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment. We manage our liquidity position to make sure we have adequate liquidity and funding if there are significant draws on our unfunded commitments. The Company has some commitments that are unconditionally cancellable at its discretion, and these amounts are not included in the totals below. The contractual amounts of financial instruments with off-balance sheet credit risk at December 31, 2025 and 2024 were as follows (in thousands): December 31, 2025 2024 Fixed Rate Variable Rate Fixed Rate Variable Rate Commitments to extend credit $ 37,731 $ 650,384 $ 39,225 $ 677,470 Standby letters of credit 174 18,994 2,190 15,853 Commitments to extend credit consist primarily of unfunded single-family residential and commercial real estate, construction loans and commercial revolving lines of credit. Construction loans are established under standard underwriting guidelines and policies and are secured by deeds of trust, with disbursements made over the course of construction. Commercial revolving lines of credit have a high degree of industry diversification. Commitments to make loans are generally made for periods of 10 years or less. The fixed rate loan commitments have interest rates ranging from 3.50 % to 15.00 % and maturities ranging primarily from 1 year to 23 years. Standby letters of credit are generally secured and are issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The unamortized fees received for issuing the letters of credit were $ 152 thousand and $ 0 at December 31, 2025 and 2024 , respectively. The Company recognizes these fees as revenue over the term of the commitment or when the commitment is used. Significant Concentrations of Credit Risk The Company grants real estate mortgage, real estate construction, commercial and consumer loans primarily to customers in the California counties of San Mateo, San Francisco and Santa Clara. Although the Company has a diversified loan portfolio, a substantial portion of its portfolio is secured by commercial and residential real estate. Management believes the loans within this concentration have no more than the normal risk of collectability. However, a substantial decline in real estate values in the Company's primary market area could have an adverse impact on the collectability of these loans. Personal and business income represent the primary sources of repayment for a majority of these loans, and management believes the risks presented by the concentration are further mitigated by diversification of property types within the Company's real estate portfolio and by conservative underwriting. At December 31, 2025 and 2024 , in management's judgment, a concentration of loans existed in construction and commercial real estate related loans. At December 31, 2025 , approximately 49 % of the Company's loans were construction and commercial real estate related, representing 9 % and 40 % of total outstanding loans, respectively. At December 31, 2024 , approximately 54 % of the Company's loans were construction and real estate related, representing 13 % and 41 % of total outstanding loans, respectively. - 117 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contingencies The Company and the Bank are routinely involved in legal actions and claims, which arise in the ordinary course of business. The outcome of these matters and the timing of ultimate resolution is inherently difficult to predict. We do not believe that any currently pending proceedings will have a material adverse effect on our business, financial condition or results of operation. In accordance with Accounting Standards Codification Topic 450, the Company establishes accruals for contingencies, including any litigation, regulatory, or tax matters (but excluding standard business-related legal fees), when the Company believes it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We evaluate our outstanding legal and regulatory proceedings and other matters each quarter to assess our loss contingency accruals and make adjustments in such accruals, upward or downward, as appropriate, in light of additional information and based on management’s best judgment. For claims and legal actions where it is not reasonably possible that a loss may be incurred, or where we are not currently able to estimate the reasonably possible loss or range of loss, we do not establish an accrual. As of December 31, 2025 , the Company did not record an accrued contingent liability. However, a loss is possible in future quarters, but not probable and reasonably estimable, due to a lawsuit threatened against the Bank in connection with a wire sent by the Bank on behalf of a client whose email was fraudulently compromised. 13. RELATED PARTY TRANSACTIONS During the normal course of business, the Company enters into transactions with related parties, including directors and officers. As of December 31, 2025 and 2024 , there were no balances outstanding for related party loans and no additions or amounts repaid during those two years. Undisbursed commitments to related parties totaled $ 5 thousand as of both December 31, 2025 and 2024 , respectively. Deposits of certain officers, directors, and their associates totaled approximately $ 248 thousand and $ 519 thousand as of December 31, 2025 and 2024 , respectively. 14. OTHER EXPENSES Other expenses for the years ended December 31, 2025 and 2024 consisted of the following: (In thousands) 2025 2024 Business software and subscriptions 1,098 1,051 Director's fees and expenses 792 746 Travel and meals 646 545 Correspondent bank charges 634 608 Advertising and marketing 431 412 Other 984 819 Total other operating expenses $ 4,585 $ 4,181 15. FAIR VALUE In accordance with accounting guidance, the Company groups its financial assets and financial liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are: Level 1 ‑ Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2 ‑ Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities. - 118 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 3 ‑ Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. The following methods and assumptions were used by the Company to estimate the fair values of its financial instruments at December 31, 2025 and 2024 : Cash and cash equivalents, Federal funds sold and interest-bearing deposits in other banks The carrying amount of these instruments approximate the fair value and are classified as Level 1 in the fair value hierarchy. Securities available-for-sale Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain collateralized mortgage and debt obligations, corporate bonds, municipal bonds and U.S. agency notes. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Securities classified within Level 3 might include certain residual interests in securitizations and other less liquid securities. As of December 31, 2025 and December 31, 2024 , all securities available-for-sale were Level 2. Loans The fair value of variable rate loans that reprice frequently and with no significant change in credit risk is based on the carrying value and results in a classification of Level 3 within the fair value hierarchy. Fair value for other loans is estimated using discounted cash flow analysis using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification in the fair value hierarchy. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. The estimated fair values of financial instruments disclosed above as of December 31, 2025 and 2024 follow the guidance in ASU 2016 - 01 which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments incorporating discounts for credit, liquidity, and marketability factors. Accrued interest receivable – The carrying amount of accrued interest receivable approximates its fair value and is classified as Level 1 in the fair value hierarchy. Deposits The fair value of demand deposits, savings accounts, and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposits is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities. Deposits are classified as Level 2. - 119 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Subordinated debt and Short-term borrowings Subordinated Debt: The carrying amount of the Company’s Subordinated Debentures are estimated using discounted cash flow analysis based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification. Short-term Borrowings: The carrying amount of short-term borrowings approximate their fair values resulting in a Level 1 classification. They generally mature within thirty days or have a variable interest rate. Accrued interest payable – The carrying amount of accrued interest payable approximates its fair value and is classified as Level 1 in the fair value hierarchy. The carrying amounts and estimated fair values of financial instruments not carried at fair value, at December 31, 2025 and December 31, 2024 are as follows (in thousands): Fair Value Measurements at Carrying December 31, 2025 Amount Level 1 Level 2 Level 3 Total Financial assets: Cash and due from banks $ 7,942 $ 7,942 $ - $ - $ 7,942 Due from Federal Reserve Bank and interest-bearing deposits in banks 146,627 146,627 - - 146,627 Loans, net 2,126,178 - - 2,110,338 2,110,338 Accrued interest receivable 9,297 9,297 - - 9,297 Financial liabilities: Deposits 2,186,073 - 2,067,565 - 2,067,565 Subordinated debt 22,000 - - 24,645 24,645 Short-term borrowings 60,000 60,000 - - 60,000 Accrued interest payable 142 142 - - 142 Fair Value Measurements at Carrying December 31, 2024 Amount Level 1 Level 2 Level 3 Total Financial assets: Cash and due from banks $ 8,662 $ 8,662 $ - $ - $ 8,662 Due from Federal Reserve Bank and interest-bearing deposits in banks 74,039 74,039 - - 74,039 Loans, net 1,846,263 - - 1,825,368 1,825,368 Accrued interest receivable 8,327 8,327 - - 8,327 Financial liabilities: Deposits 1,891,355 - 1,737,457 - 1,737,457 Subordinated debt 22,000 - - 24,809 24,809 Short-term borrowings 185,000 185,000 - - 185,000 Accrued interest payable 1,088 1,088 - - 1,088 - 120 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Assets Recorded at Fair Value The following tables present information about the company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2025 and December 31, 2024 : Recurring Basis The Company is required or permitted to record the following assets at fair value on a recurring basis as follows: (in thousands) December 31, 2025 Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Securities available-for-sale U.S. Treasury securities and obligations of U.S. government agencies $ 458 $ - $ 458 $ - Commercial mortgage-backed securities 5,430 - 5,430 - Residential mortgage-backed securities 207,552 - 207,552 - U.S. states and political subdivisions 4,720 - 4,720 - Total securities available-for-sale $ 218,160 $ - $ 218,160 $ - December 31, 2024 Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Securities available-for-sale U.S. Treasury securities and obligations of U.S. government agencies $ 538 $ - $ 538 $ - Commercial mortgage-backed securities 2,863 - 2,863 - Residential mortgage-backed securities 288,461 - 288,461 - U.S. states and political subdivisions 4,694 - 4,694 - Total securities available-for-sale $ 296,556 $ - $ 296,556 $ - - 121 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair values for available-for-sale debt securities are based on quoted market prices for similar securities (Level 2 ). During the years ended December 31, 2025 and December 31, 2024 , there were no significant transfers in or out of Levels 1, 2 or 3. Non-recurring Basis The Company may be required, from time to time, to measure certain other financial assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. A loan is considered to be collateral-dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. At the time a loan is considered collateral-dependent, it is valued at fair value, less estimated costs to sell. Collateral-dependent loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral-dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. There were no changes in valuation techniques used during the year ended December 31, 2025 . Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value is compared with independent data sources such as recent market data or industry-wide statistics. Collateral-dependent loans were measured at fair value and had principal balances of $ 23.3 million with a valuation allowance of $ 1.2 million at December 31, 2025 . The $23.3 million collateral-dependent loans consisted of two construction loans that are well-collateralized and one commercial and industrial loan. At December 31, 2024 , collateral-dependent loans were measured at fair value and had principal balances of $ 119 thousand with no valuation allowance. 16. DERIVATIVE FINANCIAL INSTRUMENTS There were no active derivative contracts in place as of December 31, 2025 or 2024 . The Company receives equity warrants with net settlement terms in connection with extending loan commitments to certain of its clients. These warrants are obtained at the inception of a loan facility or the amendment of a loan facility. These warrants are not obtained in lieu of other fees, interest or payments. These warrants potentially provide an additional return, in addition to the traditional loan yield from interest and fees, in the event of a liquidity event of the borrowing company. The Company holds these equity warrants for future investment gains, rather than to hedge economic risks. In general, the equity warrants entitle the Company to buy a specific number of shares of the client’s stock at a specific price over a specific time period. The warrants may also include contingent provisions which provide for additional shares to be purchased at a specific price if defined future events occur, such as future rounds of equity financing by the client, or upon additional borrowings by the client. All of the Company’s equity warrants contain net share settlement provisions, which permit the client to deliver to the Company, upon the Company’s exercise of the warrant, the amount of shares with a current fair value equal to the net gain under the warrant agreement. Warrants held, which amounted to $ 945 thousand and $ 663 thousand at December 31, 2025 and 2024 , respectively, are included in accrued interest receivable and other assets on the consolidated statements of financial condition. - 122 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. REVENUE FROM CONTRACTS WITH CUSTOMERS All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income. The following table presents the Company’s sources of non-interest income for the twelve months ended December 31, 2025 and 2024 (in thousands). 2025 2024 Service charges and fees $ 3,178 $ 2,600 Foreign exchange income 937 896 Bank-owned life insurance income (a) 372 508 Warrant and success fee income (a) 648 65 Other investment income (a) 485 1,092 Loss on sale of debt securities (a) ( 62,391 ) - Other income (b) 395 849 $ ( 56,376 ) $ 6,010 (a) Not within the scope of ASC 606 (b) The Other income category includes $ 210 thousand and $ 91 thousand of revenue within the scope of ASC 606 for 2025 and 2024, respectively Service charges and fees - Service charges on deposit accounts consist of account analysis fees, monthly service fees, and other deposit account related fees. Account analysis and monthly service fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Other deposit account related fees are largely transaction based and therefore fees are recognized at the point in time when the Company has satisfied its performance obligation. The Company earns other service charges, commissions, and fees from its customers for transaction-based services. Such services include debit card, ATM, and other service charges. In each case, these service charges and fees are recognized in income at the time or within the same period that the Company’s performance obligation is satisfied. The Company earns interchange fees from debit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services. Foreign exchange income – The Company earns foreign exchange fees from clients who complete a transaction in a foreign currency. The fees represent a percentage of the underlying transaction value and are assessed concurrently with the transaction processing service provided to the client. They are then recognized at the end of the month following the transaction processing service. Gains/Losses on Sale of OREO – The Company records a gain from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized, and the gain on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain on sale, the Company adjusts the transaction price and related gain on sale if a significant financing component is present. There were no gains or losses on the sale of OREO for the years ended December 31, 2025 and 2024 . - 123 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. BUSINESS SEGMENT INFORMATION The Company is a bank holding company engaged in the business of commercial banking, which accounts for substantially all the revenues, operating income, and assets. Accordingly, all the Company’s operations are recorded in one segment, banking. The Company has determined that all of its banking divisions meet the aggregation criteria of ASC 280, Segment Reporting , as its current operating model is structured whereby banking divisions serve a similar base of primarily commercial clients utilizing a company-wide offering of similar products and services managed through similar processes and platforms that are collectively reviewed by the Company’s Chief Financial Officer, who has been identified as the chief operating decision maker (“CODM”). The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income reported in the Company’s consolidated statements of income and other comprehensive income. The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Company’s consolidated statements of income. Loans, investments and deposits provide the net revenues in the banking operation. Interest expense, provisions for credit losses and payroll provide the significant expenses in the banking operation. All operations are domestic. 19. AVIDBANK HOLDINGS, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION BALANCE SHEETS December 31, 2025 and 2024 (in thousands) 2025 2024 ASSETS Cash $ 5,527 $ 191 Investment in subsidiary bank 290,401 202,099 Other assets 7,073 6,148 Total assets $ 303,001 $ 208,438 LIABILITIES AND SHAREHOLDERS' EQUITY Subordinated debt, net $ 22,000 22,000 Other liabilities 22 76 Shareholders' equity 280,979 186,362 Total liabilities and shareholders' equity $ 303,001 $ 208,438 - 124 - Table of Contents AVIDBANK HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS OF INCOME For the Years Ended December 31, 2025 and 2024 (in thousands) 2025 2024 Income Dividends from subsidiary bank $ 3,000 $ 2,000 Other income 415 300 Total income 3,415 2,300 Expense Subordinated debt interest expense 1,742 1,194 Other expense 783 411 Total expenses 2,525 1,605 Income before income taxes and equity in undistributed income of subsidiaries 890 695 Income tax benefit ( 603 ) ( 387 ) Income before equity in undistributed income of subsidiaries 1,493 1,082 Equity in undistributed income of subsidiaries ( 21,046 ) 19,933 Net (loss) / income $ ( 19,553 ) $ 21,015 STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2025 and 2024 (in thousands) 2025 2024 Operating activities: Net (loss) / income $ ( 19,553 ) $ 21,015 Adjustments to reconcile net income to net cash used in operating activities: Equity in undistributed income of subsidiaries 21,046 ( 19,933 ) Amortization of debt issuance costs - 94 Net increase in other assets ( 925 ) ( 951 ) Net (decrease) / increase in other liabilities ( 54 ) 66 Net cash provided by operating activities 514 291 Investing activities: Investment in Avidbank ( 55,000 ) - Net cash used in investing activities ( 55,000 ) - Financing activities: Proceeds from issuance of common stock 61,344 - Restricted stock issued, net ( 1,522 ) ( 713 ) Net cash provided by / (used in) financing activities 59,822 ( 713 ) Net increase / (decrease) in cash 5,336 ( 422 ) Cash at beginning of period 191 613 Cash at end of period $ 5,527 $ 191 - 125 - Table of Contents Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.