Oak Valley Bancorp Annual Report 2008

FY2008 Annual Report · Oak Valley Bancorp

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Oak Valley Bancorp

2 0 0 8 A n n u a l r e p o r t

B r a n c h e s

Oak Valley
Community Bank
Oakdale
125 North Third Avenue
Oakdale, CA 95361
(209) 848-BANK (2265)
Sonora
14580 Mono Way
Sonora, CA 95370
(209) 532-7100
Modesto-12th & I
1200 I Street
Modesto, CA 95354
(209) 549-BANK (2265)
Modesto-Dale
4120 B Dale Road
Modesto, CA 95356
(209) 758-8000
Turlock
2001 Geer Road
Turlock, CA 95382
(209) 633-2850
Stockton
2935 West March Lane
Stockton, CA 95219
(209) 320-7850
Patterson
20 Plaza Circle
Patterson, CA 95363
(209) 892-5757
Ripon
150 North Wilma Avenue
Ripon, CA 95366
(209) 599-9430
Escalon
1910 McHenry Avenue
Escalon, CA 95320
(209) 821-3070

www.ovcb.com

Eastern Sierra
Community Bank
Bridgeport
166 Main Street
Bridgeport, CA 93517
(760) 932-7926
Mammoth Lakes
170 Mountain Boulevard
Mammoth Lakes, CA 93546
(760) 924-0990
Bishop
351 North Main Street
Bishop, CA 93514
(760) 874-BANK (2265)

www.escbank.com

ATM Only Locations:

Crowley Lake General Store
Crowley Lake, CA

Bishop Creek Lodge
Bishop, CA

United States Marine Corps
Marine Housing Exchange
Coleville, CA

United States Marine Corps
Mountain Warfare
Training Center
Bridgeport, CA

Inyo Shell
Bishop, CA

Pearsonville Shell
Pearsonville, CA

Mammoth Shell
Mammoth Lakes, CA

Deep Roots ~ Strong Branches

S t e a d y , S t r o n g a n d S t a n d i n g T a l l

SELECTED FINANCIAL DATA FIVE-YEAR SUMMARY
(In thousands except for per share amounts)

Our Mission

Year Ended December 31,

2008

2007

2006

2005

2004

To provide old-fashioned service with leading edge products through modern

Interest income
Interest expense
Net interest income before

provisions for loan losses

Provision for loan losses
Net interest income
Total non-interest income
Total non-interest expense
Income taxes
Net earnings
Preferred stock dividends & accretion
Net income available to common shareholders
Per common share net earnings (basic)
Per common share cash dividends declared
Cash dividends declared
Total assets
Total earning assets
Net loans
Federal funds sold
Investment securities
Total deposits
Non-interest bearing deposits
Interest bearing deposits
Total stockholder’s equity
Weighted average common
shares outstanding

$29,247
8,732
20,515

2,188
18,327
2,522
17,865
822
2,162
(64)
2,098
0.27
0.075
574
508,203
470,428
421,573
765
41,449
378,248
64,277
313,971
57,986

$31,837
13,006
18,831

555
18,276
2,198
14,213
2,335
3,925
-
3,925
0.53
0.190
1,445
454,259
425,128
382,264
3,805
33,373
377,348
68,151
309,197
42,361

$28,695
11,362
17,333

595
16,738
1,689
12,221
2,480
3,726
-
3,726
0.53
0.190
1,348
455,070
417,282
372,819
2,640
36,249
378,530
56,339
322,191
34,189

$21,447
6,284
15,163

705
14,458
1,313
9,342
2,495
3,935
-
3,935
0.57
0.250
1,163
382,122
351,157
312,787
-
33,049
329,080
42,423
286,657
31,038

$16,346
3,610
12,736

938
11,798
1,452
7,940
2,059
3,251
-
3,251
0.49
0.290
888
313,063
296,779
254,035
5,000
33,284
249,043
25,954
223,089
28,245

7,642,775

7,364,681

7,062,841

6,946,285

6,657,413

systems and technology. The emphasis is one-on-one personal service through

tailored products to meet a customer’s unique needs. Decisions are

decentralized within the communities we serve with a goal of building a

profitable Bank that optimizes investor return in an environment that promotes

employee growth and community service.

L e t t e r t o S h a r e h o l d e r s

Dear Customers,

Shareholders

and Friends:

The year 2008 will undoubt-
edly be remembered as one
of the most tumultuous years
our country has faced since
the Great Depression. We’ve
witnessed large swings in
home values, gas prices, inter-
est rates, consumer goods, and
the stock market. Oak Valley
Bancorp has not been immune
to these circumstances. How-
ever, while many of our peers
posted losses for the first time
in decades—some for the first
time since inception—we are
pleased to report that the Bank
posted a modest profit.

Our success this past year

can be largely attributed
to the Bank continuing to
embrace the simple guiding
principles which have insu-
lated us from the difficulties
many banks have experienced
during the present economic

ties, which is vital to our local
and national economy.

Customer service remains a

vital focus. As our most
valuable asset in serving cus-
tomers, we give full credit to
our employees, placing a great
deal of trust in them to grow
mutually satisfying relation-
ships. At the same time, we pe-
riodically monitor service levels
in our branches through our
mystery shopper program and
customer feedback surveys to
ensure we are constantly
delivering an unequaled cus-
tomer experience.

In closing, we understand

that opportunities may be
created as a result of con-
solidations arising from the
instability within the financial
industry, at both the local
and national levels. As we ap-
proach the year ahead, we will
seize these opportunities with
caution and only when they
make sense within the scope
of our business and footprint.
We will make studied choices
and take deliberate action
when appropriate. We will
keep a steady pace, remain
strong and emerge, as we are
today, standing tall.

—Ronald C. Martin,
Chief Executive Officer

Our ability to reach the

$500 million milestone is
a direct result of effective
operations and our keen focus
on the things we do best:
relationship lending wrapped
by our own unique style of
personal service. Loan growth
for the year totaled nearly $40
million and, while production
potential for the coming year
is not clear, we are confident
our brand of banking will
continue to resonate within
our communities regardless of
the state of the economy.

The Bank also fortified its

financial position by inject-
ing $13.5 million in capital
in 2008. With customers,
shareholders and employees
in mind, management took a
proactive and precautionary
step by increasing an already
well capitalized position of
11%, to over 13%. Aside from
prudence, but just as impor-
tant, the capital allows the
Bank to continue to grow by
lending within our communi-

downturn. Consistent lend-
ing practices, conservative,
local decision-making, and
first-class service at all levels
of customer interaction are
the traditions that continue to
shape our profits and future.
The year also brought our
share of milestones. In 2008,
we established Oak Valley
Bancorp, a one-bank hold-
ing company for Oak Valley
Community and Eastern
Sierra Community Bank. The
holding company formation is
designed to foster our ability
to provide long-term value
to our shareholders. Shortly
thereafter, we submitted an
application to be listed and
traded on the NASDAQ Capi-
tal Market. Receiving approval
in January 2009, Oak Valley
Bancorp now trades under the
ticker symbol OVLY.

Perhaps our greatest
accomplishment of the year
was surpassing $500 million
in total assets. Today in the
United States, only 1,000 of
the more than 7,000 commer-
cial banks in operation have
assets totaling $500 million
or more. Exceeding
one-half billion dollars

in assets signifies the
strength of the Bank
and, despite the volatility
in the banking sector, should
instill confidence in our cus-
tomers and shareholders alike
with respect to our resilience
and long-term viability.

plished all of this while
holding fast to our
core values.

We’ve worked

hard to create a
Bank that offers
timely, relevant products
using modern systems and
technologies, while remaining
firmly rooted in our promise
to deliver old-fashioned,
personalized service. Our
“high touch” customer service
strategy received a boost last
year with the adoption of a
sophisticated Customer Rela-
tionship Management system.
This system enables the Bank
to anticipate customer needs
and identify opportunities for
building household level prof-
itability by targeting specific
offers to customers based on
their current product mix, per-
sonal data and other criteria.
This valuable data allows us
to more efficiently hone our
marketing efforts to broaden
relationships and increase ac-
count growth and profitability.

We’ve also increased
our use of email and web-
based marketing techniques,
both highly effective and
economical ways to reach

customers.
Usage of these
techniques will
most certainly see
continued growth with
the planned launch of our
new online account opening
platform, due in early 2009,
which will allow the Bank
to attract a wider audience,
both geographically and
demographically.

Another relevant product
enhancement reflecting the
changing tastes of the Ameri-
can consumer is eStatements.
We rolled out a “Go Green”
initiative encouraging cus-
tomers to opt for eStatements
rather than traditional paper,
simultaneously implementing
a bankwide shredding and
recycling effort.

We also reached out to
customers and local business
owners this year in many of
our communities with an
Identity Theft Prevention
workshop. Business owners
attended a presentation that
conveyed information on how
to protect their own, as well as
their customers’ information.
With identity theft being one
of the fastest growing crimes
in America, we felt that this ef-
fort would be particularly valu-

Our products

allow us to establish

roots for the

relationships we

create with customers.

Anticipating and

understanding

their needs and

delivering convenient

solutions that exceed

expectations is what

drives customer

satisfaction

and loyalty.

able to local businesses, while
serving as a way for us to give
back and showcase the “old-
fashioned” touch that sets our
brand of service apart from so
many of our competitors.

growing a solid
business from the ground up

The secret of our success at

Oak Valley Community Bank is simple,

and one we’ve stayed true to since

our inception—deep roots
and strong branches. Our
strong foundation has
enabled the Bank to remain

profitable even during these
troubled economic times.
We’ve diligently followed a
realistic plan focused on (1)
building a well diversified and
balanced loan portfolio, (2)
attracting low-cost deposits,

(3) cultivating quality banking
professionals, and (4) distin-
guishing our unique brand
of relationship banking in
the marketplace. The positive
results we’ve enjoyed serve as
a true testament to our pru-
dent, methodical approach to
growth. And we’ve accom-

Oak Valley Community

Bank’s root system

provides a stable

foundation, serving as

both an anchor and

a storehouse for

growth.

fueling growth with tried
and true lending practices

Our ability to remain profitable in

tough economic times while many

banks have faltered is no accident.

Early on, we established a
diversified strategy as a corner-
stone element of our business
plan which has served us well
in good times and bad. And,
while many banks succumbed
to the temptation to issue sub-
prime or other risky loans to
boost short-term profitability,
Oak Valley Community Bank
stayed true to our conservative
lending practices to ensure fi-
nancial stability. These prudent
practices—solid underwriting
guidelines, adherence to sen-
sible credit standards, in-depth
knowledge of our customers,
and a balanced tolerance for
risk—have enabled us to suc-
cessfully weather the recent

financial storm. As a result,
our asset quality continues to
remain very high, with non-
performing assets comprising
only 1.47% of our total assets.
Our traditionally conser-
vative yet flexible approach
to lending has become the
hallmark of Oak Valley Com-
munity Bank, engendering a
strong sense of commitment
and responsibility among
our management, staff and
customers. We’ve continued
to cater to mid-sized, local
businesses, building these
relationships one product at
a time through personalized

Just like the trunk of a

tree serves as the lifeline

transportation system

between the roots and the

leaves, Oak Valley’s lending

practices fuel our long-term

growth and success.

service. The mutual trust we
share with our customers is
helping many of them man-
age some difficult financial
situations, and we take pride
in our ability to provide sup-
port and reassurance which
further strengthens our rela-
tionships with them.

At Oak Valley, we’ve

watched with mixed emotions
as our fellow banking institu-
tions have endured steep
declines in their stock values,
market share, branch networks
and customer bases. However,
we also realize that oppor-
tunities often arise through
adversity. Our branches are
poised to welcome new
customers who’ve been
displaced or become dissatis-
fied as a result of bank closures,
mergers and acquisitions. As
always, we offer a safe haven
that provides a larger measure
of security, service and support
in accordance with our more

personalized style

of banking.

Core Values

Service Empower our

employees to provide

exceptional service to our

customers and expand

relationships within our

communities.

Teamwork United

to reach common

goals through open

communication and

flexibility that promotes an

environment for success.

inTegriTy Ethical

business practices with

accountability to our

employees, customers, and

shareholders.

Performance Maximize

shareholder value through

quality growth and

consistent profitability.

communiTy Commitment

to strengthening the

success and health of the

communities we call home.

enTrePreneurial

Creating wealth and

prosperity by fostering

a flexible and innovative

business environment.

without sacrificing asset
quality or profitability. The
program’s strong emphasis
on customer service uses
numerous relationship-
bolstering techniques, but
largely relies on three simple
tenets: (1) we ask about and
understand the customer
today, (2) we listen and
understand the customer’s
plans for the future,
and (3) we act
to help the
customer fulfill
objectives and
implement
solutions. This approach
reinforces our existing style
of personalized banking, and
by adopting these techniques
when addressing our
customers, we can continue
to meet their needs and
ultimately grow relationships
that last a lifetime.

banking industry with a style
that emphasizes customer
service through ongoing
one-on-one interaction. More
than ever, we are reaching out
to our commercial customers
for a deeper understanding
of their businesses to address
their needs, not just today,
but in the future. While our
lenders and branch managers
own this relationship-crafting
process, our customers have
full access to all levels of the
organization. Executives regu-
larly call on customers and
are always available to discuss
their banking needs to ensure
their long-term success.
Oak Valley’s hands-on

approach has become
especially valuable to
customers during these
difficult financial times. The
Bank’s increased visibility
during this turbulent time
has served to reassure our
customers that we’re here to
stay. Customers know their
money is safe with Oak Valley
simply because our financial
performance speaks for

In 2008, Oak Valley

Community Bank

reached the $500

million in assets

mark as a result of

18 years of steady

growth. We thank

our customers for

helping us achieve

this goal!

itself. They’ve come to trust
us, and we’ve earned that
trust as a result of the way we
do business.

In an effort to strengthen
the Bank’s sales and service
culture even further, we
engaged a nationally known
consulting firm to assist us in
building a sales management
process to generate
sustainable revenue growth

reaching out to build
lasting relationships

Ask anyone who’s familiar with

Oak Valley Community Bank what defines

our institution, and they’ll inevitably

say “customer service.” This
is because we make every
account holder feel like the

valued customer they are.
Everyone from front-line tell-
ers to our executive manage-
ment team unanimously
believes in taking that extra

step to enhance our custom-
ers’ satisfaction. Toward that
end, we employ a tried and
true technique: We ask, we
listen, and then we act.

Oak Valley has elevated
the definition of service in the

Our branches reach

out to customers,

offering shelter during

troubled times while

providing welcome

comfort in the form

of rewarding banking

relationships.

SELECTED FINANCIAL DATA FIVE-YEAR SUMMARY
(In thousands except for per share amounts)

Our Mission

Year Ended December 31,

2008

2007

2006

2005

2004

To provide old-fashioned service with leading edge products through modern

Interest income
Interest expense
Net interest income before

provisions for loan losses

$29,247
8,732
20,515

2,188
18,327
2,522
17,865
822
2,162
(64)
2,098
0.27
0.075
574
508,203
470,428
421,573
765
41,449
378,248
64,277
313,971
57,986

$31,837
13,006
18,831

555
18,276
2,198
14,213
2,335
3,925
-
3,925
0.53
0.190
1,445
454,259
425,128
382,264
3,805
33,373
377,348
68,151
309,197
42,361

$28,695
11,362
17,333

595
16,738
1,689
12,221
2,480
3,726
-
3,726
0.53
0.190
1,348
455,070
417,282
372,819
2,640
36,249
378,530
56,339
322,191
34,189

$21,447
6,284
15,163

705
14,458
1,313
9,342
2,495
3,935
-
3,935
0.57
0.250
1,163
382,122
351,157
312,787
-
33,049
329,080
42,423
286,657
31,038

$16,346
3,610
12,736

938
11,798
1,452
7,940
2,059
3,251
-
3,251
0.49
0.290
888
313,063
296,779
254,035
5,000
33,284
249,043
25,954
223,089
28,245

7,642,775

7,364,681

7,062,841

6,946,285

6,657,413

systems and technology. The emphasis is one-on-one personal service through

tailored products to meet a customer’s unique needs. Decisions are

decentralized within the communities we serve with a goal of building a

profitable Bank that optimizes investor return in an environment that promotes

employee growth and community service.

DI R ECTOR S

Officer s

Correspondent Ba nk

Michael Q. Jones
Chairman of the Board
General Contracting, Land
Development and General
Real Estate

Ronald C. Martin
Chief Executive Officer

Christopher M. Courtney
President

Roger M. Schrimp
Vice Chairman of the Board
Chairman Audit Committee
Chairman Compensation
Committee
Attorney and Cattle Rancher

Donald L. Barton
Walnut Grower and Processor

Christopher M. Courtney
President
Oak Valley Community Bank

James L. Gilbert
Feed and Seed Business

Rick McCarty
Executive Vice President
Chief Administration Officer
Chief Financial Officer

Wendy Burth
Executive Vice President
Retail Banking Group

Dave Harvey
Executive Vice President
Commercial Banking Group

Mike Rodrigues
Executive Vice President
Chief Credit Officer

Thomas A. Haidlen
Chairman Loan Committee
Automobile Dealer

Ron Briw
Senior Vice President
Senior Credit Officer

Union Bank of California, N.A.
400 California Street
San Francisco, CA 94104

Pacific Coast Bankers’ Bank
340 Pine Street, Suite 401
San Francisco, CA 94104

Tr ansfer Agen t

an d Reg istr ar

Computershare
250 Royall Street
Canton, MA 02021
(800) 962-4284

Market Maker s

Troy Norlander
The Seidler Companies
(800) 288-2811

John Cavender
Howe Barnes Hoeffer
and Arnett
(415) 538-5725

Arne J. Knudsen
Corporate Secretary
Oak Valley Community Bank
Wholesale Nurseryman

Ronald C. Martin
Chief Executive Officer
Oak Valley Community Bank

Danny L. Titus
Chairman CRA Committee
Real Estate and Investments

Richard J. Vaughan
Chairman Investment
Committee
Agribusinessman

Di r ector s Emeritus

Barry M. Jett
Real Estate Investor

Romain J. Schonhoff
CPA and Farmer

Cathy Ghan
Senior Vice President
Commercial Real Estate

Joey Warmenhoven
McAdams Wright Ragen
(503) 922-4888

Advisor s

John Amistadi CPA
Jeff Arambel
Debbie Armstrong
Joe Azzopardi
Nelson Bahler
Joseph Barlupo
Gary Barton
Jennifer Bethel
David Bhakta
Dennis Bitters
Candido Borges
Roy R. Brown Jr., DDS
Larry Buehner
Wendy Coddington
Harold Copp

Janis Powers
Senior Vice President
Risk Management Officer

Gary Stephens
Senior Vice President
Credit Administrator

Independent Auditor s

Moss-Adams LLP
3121 West March Lane,
Suite 100
Stockton, CA 95219-2303

Legal Couns el

Donald G. Parachini
Leland, Parachini, Steinberg,
Matzger & Melnick, LLP
333 Market Street, 27th Floor
San Francisco, CA 94105-2171

Jim Devenport
Herb Dompe
Paula M. Frago
Arlene Francis
Matt Friedrich
Richard Gilton
Richard Gonzales
Rick Gray
Roger Gregg
Carmen Hagan
Frank Hagan
Dick Hagerty
Stephen Haycock
Marge Imfeld
Larry Jones
Olga Jones
Peter Kay
Mike Kline
Theresa Lara
Dr. Daniel Lee
Craig Lewis
Gary Linhares
Dave Lyon
Tim Martin
Jaime McManis
Stan Nelsen
Carol Ornelas
Ray Perez
Scott Piercy
Bruce Porter
John Ramos
Blake Rasmussen
Marc Robinson
Frank Rocha
Kathy Rocha
Mike Ruddy, Sr.
Ward Schemper
Rick Schiltz
Collin Schut
Donald Segerstrom
Dave Silva
Kevin Sosinsky
Roger Stevens
Jim Stevens
Niniv Tamimi
Bruce Thompson
Willie Traina
John Vereuck
Arlon Waterson
Pat Wilkey

Founder s

Steve Benak, MD
Andrea Boston-Gilbert
Gordon A. and Yvonne Brown
Robert and Beverly Brunker
William D. and Joyce

A.Compton

Hal and Chrys Copp
Betty Dallas
Ramon A. Esslinger
Donald Fagundes
Richard A. and Susan J. Franco
Joel W. Geddes, Jr.
Harrison Gibbs
James Lawrence Gilbert
Thomas A. and Julia D.

Haidlen

Mr. and Mrs. Walter H.

Heckendorf

Barbara Heckendorf
Mrs. Beverly Haidlen Holloway
Leonard B. and Betty M.

Jackson

Barry M. and Betty-Lynn Jett
Henry Kamps, Jr.
Arne and Birgitta Knudsen
Soren and Sharon Knudsen
Steven Knudsen
Joe and Joyce Martin
Della Messner
Bill and Sharon Morris
James A. Morrison III
Ben and Judy Mullins
Dr. and Mrs. J. Patrick

Mulrooney

Thomas W. and Marsha L. Orr
Willem Postma
Mike Reed
Roger M. and Delsie Schrimp
Romain and Janette

Schonhoff

Ralph P. and Margitta R.

Sikkema, DVM

Richard D. and Ola L. Stokes
George and Ruth Thoukis
Danny L. and Suzette Titus
DeWayne F. Titus
Lynda Vaughan
Richard J. Vaughan
Jack Watkins
Gilbert O. Wymond III

Oak Valley Bancorp

2 0 0 8 A n n u a l r e p o r t

B r a n c h e s

www.ovcb.com

www.escbank.com

ATM Only Locations:

Crowley Lake General Store
Crowley Lake, CA

Bishop Creek Lodge
Bishop, CA

United States Marine Corps
Marine Housing Exchange
Coleville, CA

United States Marine Corps
Mountain Warfare
Training Center
Bridgeport, CA

Inyo Shell
Bishop, CA

Pearsonville Shell
Pearsonville, CA

Mammoth Shell
Mammoth Lakes, CA

Deep Roots ~ Strong Branches

S t e a d y , S t r o n g a n d S t a n d i n g T a l l





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

OAK VALLEY BANCORP
(Exact name of registrant as specified in its charter)

California
(State or other jurisdiction
of incorporation or organization)
125 North Third Avenue
Oakdale, California
(Address of principal executive offices)

26-2326676
(I.R.S. Employer
Identification No.)

95361
(Zip Code)

(209) 848-2265
(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock

Name of each exchange on which registered
The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act:

None
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange

Act.

Yes 

No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be

contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting

company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer 

Smaller reporting company 

Accelerated filer 

Non-accelerated filer 
(Do not check if a
smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes 

No 

As of December 31, 2008, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was

$37,480,902 based on the closing price.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, No Par Value
[Common Stock, No par value per share]

Outstanding at March 30, 2009
7,661,627 shares

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TABLE OF CONTENTS

DESCRIPTION OF BUSINESS

PART I
ITEM 1 -
ITEM 1A - RISK FACTORS
ITEM 1B - UNRESOLVED STAFF COMMENTS
ITEM 2 -
ITEM 3 -
ITEM 4 -

DESCRIPTION OF PROPERTY
LEGAL PROCEEDINGS
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND

ITEM 6 -
ITEM 7-

ITEM 8 -
ITEM 9 -

ISSUERS PURCHASES OF EQUITY SECURITIES.
SELECTED CONSOLIDATED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

ITEM 9A - CONTROLS AND PROCEDURES
ITEM 9B- OTHER INFORMATION

PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11 - EXECUTIVE COMPENSATION
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

STOCKHOLDER MATTERS

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENTS

SIGNATURES

ITEM 1. BUSINESS OF OAK VALLEY BANCORP

Overview of the Business

PART I

Oak Valley Bancorp was incorporated on April 1, 2008 in California for the purpose of becoming Oak Valley Community
Bank’s parent bank holding company. Effective July 3, 2008, Oak Valley Bancorp acquired all of the outstanding capital stock of Oak
Valley Community Bank. The principal office of Oak Valley Bancorp is located at 125 North Third Avenue, Oakdale, California
95361 and its principal telephone is (209) 848-2265.

Oak Valley Bancorp is authorized to issue 50,000,000 shares of common stock, without par value, of which 7,661,627 are issued

and outstanding, and 10,000,000 shares of preferred stock, without par value, of which 13,500 Series A preferred stock shares are
issued or outstanding.

Oak Valley Community Bank commenced operations in May 1991. We are an insured bank under the Federal Deposit Insurance

Act and are a member of the Federal Reserve. Since its formation, the Bank has provided basic banking services to individuals and
business enterprises in Oakdale, California and the surrounding areas. The focus of the Bank is to offer a range of commercial banking
services designed for both individuals and small to medium-sized businesses in the two main areas of service of the Bank: the Central
Valley and the Eastern Sierras.

The Bank offers a complement of business checking and savings accounts for its business customers. The Bank also offers
commercial and real estate loans, as well as lines of credit. Real estate loans are generally of a short-term nature for both residential
and commercial purposes. Longer-term real estate loans are generally made with adjustable interest rates and contain normal
provisions for acceleration. The Bank introduced a mortgage-lending program, Community Bank Lending Exchange (“CBLX”), at
the beginning of 2003. At December 31, 2008, the Bank has originated $205 million in loans for funding by CBLX.

The Bank also offers other services for both individuals and businesses including online banking, remote deposit capture,
merchant services, night depository, extended hours, traveler’s checks, wire transfer of funds, note collection, and automated teller
machines in a national network. The Bank does not currently offer international banking or trust services although the Bank may
make such services available to the Bank’s customers through financial institutions with which the Bank has correspondent banking
relationships. The Bank does not offer stock transfer services nor does it directly issue credit cards.

Expansion

Branch Expansion. Over the past few years, our network of branches and loan production offices have been expanded
geographically. As of December 31, 2008, we maintained twelve full-service branch offices (in addition to our main office).
Beginning in October 1995, we started our geographic expansion outside of Oakdale, by opening a Loan Production Office in Sonora,
California. We subsequently opened a branch in Sonora and branches in Modesto. In September 2000, we expanded into the Eastern
Sierra, opening a branch in Bridgeport, California under the name Eastern Sierra Community Bank. Since that time we have added
branches in Mammoth Lakes and Bishop. During 2005 and through the first part of 2006, we aggressively increased our presence in
the Central Valley, by opening branches. In March 2007 our corporate headquarters expanded by adding an adjacent historical
building located in downtown Oakdale to its complex. We intend to continue our growth strategy in future years through the opening
of additional branches and loan production offices as our needs and resources permit.

Bank Holding Company Reorganization. Effective July 3, 2008, we entered into a bank holding company reorganization,
whereby each of the Bank’s outstanding shares of common stock converted into an equal number of shares of common stock in Oak
Valley Bancorp, which currently owns the Bank as its wholly-owned subsidiary. Management believes that operating the Bank within
a holding company structure will, among other things, provide greater operating flexibility than is currently enjoyed by Oak Valley
Community Bank; facilitate the acquisition of related businesses as opportunities arise; improve the Bank’s ability to diversify;
enhance the Bank’s ability to remain competitive in the future with other companies in the financial services industry that are
organized in a holding company structure; and improve the Bank’s ability to raise capital to support growth. The reorganization was
approved by the vote of the majority of the issued and outstanding shares of common stock.

Business Segments

We operate in two primary business segments: Retail Banking and Commercial Banking. We determine operating results of each

segment based on an internal management system that allocates certain expenses to each segment. These segments are described in
additional detail below:

Retail Banking. The Bank offers a range of checking and savings accounts, including NOW and Super NOW accounts, overdraft

protection, passbook savings accounts, certificates of deposit, money market certificates, and Individual Retirement Accounts
(“IRA”). To satisfy the lending needs of individuals in its service area, the Bank offers real estate and home equity financing, as well
as consumer, automobile, and home improvement loans.

Commercial Banking. The Bank offers a range of deposit and lending services to business customers. More specifically, the

Bank offers a variety of commercial loans for virtually any business, professional, or agricultural need. These include short-term
working capital, operating lines of credit, equipment purchases, leasehold improvements, commercial real estate acquisitions or
refinancing. Currently, virtually all of the Bank’s business relationships are with customers located in the San Joaquin, Stanislaus,
Tuolumne, Inyo and Mono Counties.

Primary Market Area

We conduct business from our main office in Oakdale, a city of approximately 19,300 located in Stanislaus County, California.

Oakdale is approximately 15 miles from Modesto and sits at the foothills of the Sierra Nevada Mountains, at the edge of the California
Central Valley agricultural area. Through our branches, we serve customers in the Central Valley, from Fresno to Sacramento, and in
foothill locations. We also reach into the Highway 395 corridor in the Eastern Sierras and in the towns of Bishop, Mammoth and
Bridgeport. Our lending activities are primarily focused in the counties of Stanislaus and San Joaquin and other surrounding counties
within the Central Valley. The Central Valley area has a total population of over 3 million.

The Central Valley area has the highest concentration of agricultural workforce in California, primarily operating in farming,

forestry, or fishing. The unemployment rates of the California Central Valley area, throughout the counties that are within the Bank’s
primary market areas, have historically been higher than the national average. The effects of the national housing crisis and credit
crunch, and the effects of the national economic slowdown and cutbacks in consumer spending have contributed to an increase in the
unemployment rate within our primary market area since last year. The number of job losses in the Central Valley are soaring and the
unemployment rate is nearing 20 percent in some cities. Riverbank’s unemployment rate is 19.8 percent, the unemployment rate in
Patterson is 18.5 percent, and in Stockton the unemployment rate is 15.8 percent. Similar upward trends in job losses have been
observed in Merced, Tuolumne, Calaveras and Mariposa Counties as well. The commercial real estate market in the Central Valley
area is experiencing a sizable decline due to the slowing demand from buyers directly affected by the housing market downturn.
Vacancies rates for retail, office and industrial spaces have risen since 2007 and will continue to rise in 2009. Economic forecasts
indicate that the impact from local housing market has impacted jobs, primarily related to construction, credit and related services and
may continue to increase moving forward.

Despite the economic challenges that we are currently experiencing in the markets in which we operate, we believe that we
operate in areas of the country that have sound economic fundamentals, driven by a variety of factors, which will provide us with
continued lending and growth opportunities in the future. Some of these factors includes the significant role of the agriculture
industry in the creation of jobs through direct employment or related services; a developed network of transportation infrastructure
including interstate freeways, nearby deep water ports, two major railroad providing local intermodal yards, and access to international
airports in the Bay Area. The California transportation commissioners announced on the March 11, 2009 that it will spend $46.7
million of state stimulus money to replace two aging bridges on Highway 99 in Merced County. Such improvement of local
infrastructure coupled with an inventory of available and affordable industrial land and buildings, dependable and affordable labor,
and a quality of life and low cost of living, could lead to population growth in the California Central Valley. These projects could also
help to create new employment opportunities in the area.

Lending Activities

General. Our loan policies set forth the basic guidelines and procedures by which we conduct our lending operations. These

policies address the types of loans available, underwriting and collateral requirements, loan terms, interest rate and yield
considerations, compliance with laws and regulations and our internal lending limits. Our Board of Directors reviews and approves
our loan policies on an annual basis. We supplement our own supervision of the loan underwriting and approval process with periodic
loan audits by experienced external loan specialists who review credit quality, loan documentation and compliance with laws and
regulations. We engage in a full complement of lending activities, including:

• commercial real estate loans,

• commercial business lending and trade finance,

• Small Business Administration lending, and

• consumer loans, including automobile loans, home mortgages, credit lines and other personal loans.

As part of our efforts to achieve long-term stable profitability and respond to a changing economic environment in the California

Central Valley, we constantly evaluate a variety of options to augment our traditional focus by broadening the services and products
we provide. Possible avenues of growth include more branch locations, expanded days and hours of operation and new types of
lending.

Loan Procedures. Loan applications may be approved by the Director Loan Committee of our Board of Directors, or by our

management or lending officers, to the extent of their loan authority. Our Board of Directors authorizes our lending limits. Our
President and Chief Credit Officer are responsible for evaluating the authority limits for individual credit officers and recommending
lending limits for all other officers to the board of directors for approval.

We grant individual lending authority to our President, Chief Credit Officer, and to some department managers. Our highest
management lending authority is combined administrative lending authority for unsecured and secured lending of $1,500,000, which
requires the approval of our President or Chief Credit Officer. Loans for which direct and indirect borrower liability exceeds an
individual’s lending authority are referred to our Board of Directors Loan Committee.

At December 31, 2008, our authorized legal lending limits were $9.5 million for unsecured loans plus an additional

$15.9 million for specific secured loans. Legal lending limits are calculated in conformance with California law, which prohibits a
bank from lending to any one individual or entity or its related interests an aggregate amount which exceeds 15% of primary capital
plus the allowance for loan losses on an unsecured basis, plus an additional 10% on a secured basis. Our primary capital plus
allowance for loan losses at December 31, 2008 totaled $63.6 million.

We seek to mitigate the risks inherent in our loan portfolio by adhering to certain underwriting practices. The review of each loan

application includes analysis of the applicant’s prior credit history, income level, cash flow and financial condition, tax returns, cash
flow projections, and the value of any collateral to secure the loan, based upon reports of independent appraisers and audits of
accounts receivable or inventory pledged as security. In the case of real estate loans over a specified amount, the review of collateral
value includes an appraisal report prepared by an independent, Bank-approved, appraiser.

Real Estate Loans. We offer commercial real estate loans to finance the acquisition of new or the refinancing of existing
commercial properties, such as shopping centers, office buildings, industrial buildings, warehouses, hotels, automotive industry
facilities and multiple dwellings. At December 31, 2008, real estate loans constituted 83% of our loan portfolio, of which 63% were
commercial loans.

Commercial real estate loans typically have 10-year maturities with up to 25-year amortization of principal and interest and

loan-to-value ratios of not more than 75% of the appraised value or purchase price, whichever is lower. We usually impose a
prepayment penalty during the period within 3 to 5 years of the date of the loan.

Construction loans are comprised of loans on commercial, residential and income producing properties that generally have terms
of 1 year, with options to extend for additional periods to complete construction and to accommodate the lease-up period. We usually
require 15% equity capital investment by the developer and loan to value ratios of not more than 75% of anticipated completion value.

Miniperm loans finance the purchase and/or ownership of commercial properties, including owner-occupied and income
producing properties. We also offer miniperm loans as take-out financing with our construction loans. Miniperm loans are generally
made with an amortization schedule ranging from 20 to 25 years, with a lump sum balloon payment due in 3 to 5 years.

Equity lines of credit are revolving lines of credit collateralized by junior deeds of trust on residential real properties. They
generally bear a rate of interest that floats with our base rate or the prime rate, and have maturities of 10 years. From time to time, we
purchase participation interests in loans made by other financial institutions. These loans are subject to the same underwriting criteria
and approval process as loans made directly by us.

Our real estate loans are typically collateralized by first or junior deeds of trust on specific commercial properties and equity
lines of credit, and are subject to corporate or individual guarantees from financially capable parties, as available. The properties
collateralizing real estate loans are principally located in our primary market areas of the California Central Valley and the Eastern
Sierra. Real estate loans typically bear an interest rate that floats with our base rate, prime rate or another established index.

Our real estate portfolio is subject to certain risks, including (i) downturns in the California economy, (ii) interest rate increases,

(iii) reduction in real estate values in the California Central Valley, (iv) increased competition in pricing and loan structure, and
(v) environmental risks, including natural disasters. As a result of the high concentration of the real estate loan in our loan portfolio,
the current difficulties in the real estate markets could cause significant increases in nonperforming loans, which would reduce our
profits. A decline in real estate values could cause some of our mortgage loans to become inadequately collateralized, which would
expose us to a greater risk of loss. Additionally, a decline in real estate values could adversely affect our portfolio of commercial real

estate loans and could result in a decline in the origination of such loans. However, we strive to reduce the exposure to such risks and
seek to continue to maintain high quality in our real estate loans by (a) reviewing each loan request and each loan renewal
individually, (b) using a dual signature approval system for the approval of each loan request for loans over a certain dollar amount,
(c) adhering to written loan policies, including, among other factors, minimum collateral requirements, maximum loan-to-value ratio
requirements, cash flow requirements and personal guarantees, (d) performing secondary appraisals from time to time, (e) conducting
external independent credit review, and (f) conducting environmental reviews, where appropriate. We review each loan request on the
basis of our ability to recover both principal and interest in view of the inherent risks. We monitor and stress test our entire portfolio,
evaluating debt coverage ratios and loan-to-value ratios, on a quarterly basis. We monitor trends and evaluate exposure derived from
simulated stressed market conditions. The portfolio is stratified by owner classification (either owner occupied or non-owner
occupied), product type, geography and size.

As of December 31, 2008, the aggregate loan-to-value of the entire commercial real estate portfolio was 54.9%. Historical data
suggests that the Bank continues to maintain strong LTV, which may serve as a cushion against precipitous reductions in real estate
values. Non-owner occupied real estate comprises 50.3% of the Bank’s total commitments, as of December 31, 2008. The loan-to-
value on the non-owner occupied segment was 51.4%, as of December 31, 2008. The highest concentration by product type is office
space, which comprised 16.7% of total loan commitments outstanding, as of December 31, 2008. Our portfolio diversity in terms of
both product types and geographic distribution, combined with strong debt coverage ratios, a low aggregate loan-to-value and a high
percentage of owner-occupied properties, significantly mitigate the risks associated with excessive commercial real estate
concentration. These elements contribute strength to our overall real estate portfolio despite the current weakness in the real estate
market.

Commercial Business Lending. We offer commercial loans to sole proprietorships, partnerships and corporations, with an
emphasis on the real estate related industry. These commercial loans include business lines of credit and commercial term loans to
finance operations, to provide working capital or for specific purposes, such as to finance the purchase of assets, equipment or
inventory. Since a borrower’s cash flow from operations is generally the primary source of repayment, our policies provide specific
guidelines regarding required debt coverage and other important financial ratios.

Lines of credit are extended to businesses or individuals based on the financial strength and integrity of the borrower and are

secured primarily by real estate, accounts receivable and inventory, and have a maturity of one year or less. Such lines of credit bear
an interest rate that floats with our base rate, the prime rate, LIBOR or another established index.

Commercial term loans are typically made to finance the acquisition of fixed assets, refinance short-term debts or to finance the
purchase of businesses. Commercial term loans generally have terms from one to five years. They may be collateralized by the asset
being acquired or other available assets and bear interest rates which either floats with the Bank’s base rate, prime rate, LIBOR or
another established index or is fixed for the term of the loan.

We also provide other banking services tailored to the small business market. We have focused recently on diversifying our loan
portfolio, which has led to an increase in commercial real estate and commercial business loans to small and medium sized businesses.

Our portfolio of commercial loans is also subject to certain risks, including (i) downturns in the California economy, (ii) interest

rate increases; and (iii) the deterioration of a borrower’s or guarantor’s financial capabilities. We attempt to reduce the exposure to
such risks through (a) reviewing each loan request and renewal individually, (b) requiring a dual signature approval system, (c)
mandating strict adherence to written loan policies, and (d) performing external independent credit review. In addition, we monitor
loans based on short-term asset values on a monthly or quarterly basis. In general, during the term of the relationship, we receive and
review the financial statements of our borrowing customers on an ongoing basis, and we promptly respond to any deterioration that
we note.

Small Business Administration Lending Services. Small Business Administration, or SBA, lending, forms an important part of

our business. Our SBA lending service places an emphasis on minority-owned businesses. Our SBA market area includes the
geographic areas encompassed by our full-service banking offices in the California Central Valley and in the Eastern Sierra. Our SBA
Loan Department has attained “Preferred Lender” status, which permits us to approve SBA guaranteed loans directly. As an SBA
Preferred Lender, we provide quicker and more efficient service to our clientele, enabling them to obtain SBA loans in order to
acquire new businesses, expand existing businesses, and acquire locations in which to do business, without having to go through the
time consuming SBA approval process.

Although our participation in the SBA program is subject to the legislative power of Congress and the continued maintenance of

our approved status by the SBA, we have no reason to believe that this program (and our participation therein) will not continue,
particularly in view of the lengthy duration of the SBA program nationally.

Consumer Loans. Consumer loans include personal loans, auto loans, home improvement loans, home mortgage loans,
revolving lines of credit and other loans typically made by banks to individual borrowers. We provide consumer loan products in an
effort to diversify our product line.

Our consumer loan portfolio is subject to certain risks, including:

• amount of credit offered to consumers in the market,

• interest rate increases, and

• consumer bankruptcy laws which allow consumers to discharge certain debts.

We attempt to reduce the exposure to such risks through the direct approval of all consumer loans by:

• reviewing each loan request and renewal individually,

• using a dual signature system of approval,

• strictly adhering to written credit policies and,

• performing external independent credit review.

Deposit Activities and Other Sources of Funds

Our primary sources of funds are deposits and loan repayments. Scheduled loan repayments are a relatively stable source of
funds, whereas deposit inflows and outflows and unscheduled loan prepayments (which are influenced significantly by general interest
rate levels, interest rates available on other investments, competition, economic conditions and other factors) are not as stable.
Customer deposits also remain a primary source of funds, but these balances may be influenced by adverse market changes in the
industry. We may resort to other borrowings, on an as needed basis, as follows:

• on a short-term basis to compensate for reductions in deposit inflows at less than projected levels, and

• on a longer-term basis to support expanded lending activities and to match the maturity of repricing intervals of assets.

We offer a variety of accounts for depositors, which are designed to attract both short-term and long-term deposits. These
accounts include certificates of deposit, or “CDs”, regular savings accounts, money market accounts, checking and negotiable order of
withdrawal, or “NOW”, accounts, installment savings accounts, and individual retirement accounts, or “IRAs”. These accounts
generally earn interest at rates established by management based on competitive market factors and management’s desire to increase
or decrease certain types or maturities of deposits. As needs arise, we augment these customer deposits with brokered deposits. The
more significant deposit accounts offered by us are described below:

Certificates of Deposit. We offer several types of CDs with a maximum maturity of five years. The substantial majority of our

CDs have a maturity of one to twelve months and typically pay simple interest credited monthly or at maturity.

Regular Savings Accounts. We offer savings accounts that allow for unlimited deposits and withdrawals, provided that

depositors maintain a $100 minimum balance. Interest is compounded daily and credited quarterly.

Money Market Account. Money market accounts pay a variable interest rate that is tiered depending on the balance maintained

in the account. Minimum opening balances vary. Interest is compounded daily and paid monthly.

Checking and NOW Accounts. Checking and NOW accounts are generally non-interest and interest bearing accounts,

respectively, and may include service fees based on activity and balances. NOW accounts pay interest, but require a higher minimum
balance to avoid service charges.

Federal Home Loan Bank Borrowings. To supplement our deposits as a source of funds for lending or investment, we borrow

funds in the form of advances from the Federal Home Loan Bank. We regularly make use of Federal Home Loan Bank advances as
part of our interest rate risk management, primarily to extend the duration of funding to match the longer term fixed rate loans held in
the loan portfolio as part of our growth strategy.

As a member of the Federal Home Loan Bank system, we are required to invest in Federal Home Loan Bank stock based on a
predetermined formula. Federal Home Loan Bank stock is a restricted investment security that can only be sold to other Federal Home
Loan Bank members or redeemed by the Federal Home Loan Bank. As of December 31, 2008, we owned $3,803,700 in FHLB stock.

Advances from the Federal Home Loan Bank are typically secured by our entire real estate loan portfolio, which includes
residential and commercial loans. At December 31, 2008, our borrowing limit with the Federal Home Loan Bank was approximately
$107 million.

Internet Banking

Since August 1, 2001, we have offered Internet banking service, which allows our customers to access their deposit accounts

through the Internet. Customers are able to obtain transaction history and account information, transfer funds between accounts and
make on-line bill payments. We intend to improve and develop our Internet banking products and delivery channels as the need arises
and our resources permit.

Other Services

We also offer ATM machines located at branch offices, and customer access to an ATM network.

Marketing

Our business plan relies principally upon local advertising and promotional activity and upon personal contacts by our directors,
officers and shareholders to attract business and to acquaint potential customers with our personalized services. We emphasize a high
degree of personalized client service in order to be able to provide for each customer’s banking needs. Our marketing approach
emphasizes the advantages of dealing with an independent, locally-managed and state chartered bank to meet the particular needs of
consumers, professionals and business customers in the community. Our management continually evaluates all of our banking services
with regard to their profitability and efforts and makes determinations based on these evaluations whether to continue or modify our
business plan, where appropriate.

We do not currently have any plans to develop any new lines of business which would require a material amount of capital

investment on our part.

Competition

Regional Branch Competition. We consider our primary service area to be composed of the counties of San Joaquin,
Stanislaus, Tuolumne, Inyo and Mono Counties. The banking business in California generally, and in our primary service area,
specifically, is competitive with respect to both loans and deposits and is dominated by a relatively small number of major banks
which have many offices operating over wide geographic areas. These include Wachovia, Wells Fargo Bank, Bank of America and
Bank of the West. We compete for deposits and loans principally with these banks, as well as with savings and loan associations, thrift
and loan associations, credit unions, mortgage companies, insurance companies, offerors of money market accounts and other lending
institutions.

Among the advantages certain of these institutions have over us are their ability to finance extensive advertising campaigns and
to allocate their investment assets to regions of highest yield and demand, their ability to offer certain services, such as international
banking and trust services which are not offered directly by the Bank and, the ability by virtue of their greater total capitalization, to
have substantially higher lending limits than we do. In addition, as a result of increased consolidation and the passage of interstate
banking legislation there is and will continue to be increased competition among banks, savings and loan associations and credit
unions for the deposit and loan business of individuals and businesses.

In addition to competing with savings institutions, commercial banks compete with other financial markets for funds. For
instance, yields on corporate and government debt securities and other commercial paper affect the ability of commercial banks to
attract and hold deposits. Commercial banks also compete for available funds with money market funds.

As of June 30, 2008, our primary service areas contained one hundred seventy-five (175) banking offices, with approximately

$10.5 billion in total deposits. As of June 30, 2008, we had total deposits of approximately $358 million, which represented
approximately 3.42% of the total deposits in the Bank’s primary service area. There can be no assurance that the Bank will maintain
its competitive position against current and potential competitors, especially those with greater resources than the Bank. The deposits
of the four (4) largest competing banks averaged approximately $112 million per office as of June 30, 2008.

In order to compete with major financial institutions in our primary service areas, we use to the fullest extent the flexibility that
our independent status permits. This includes an emphasis on specialized services, local promotional activity, and personal contacts
by our officers, directors and employees. In the event that there are customers whose needs exceed our lending limits, we may arrange
8

for such loans on a participation basis with other financial institutions. We also assist customers who require other services that we do
not offer by obtaining such services from correspondent banks. However, no assurance can be given that our continued efforts to
compete with other financial institutions will be successful.

Other Competitive Factors. Large commercial bank competitors have, among other advantages, the ability to finance wide-
ranging and effective advertising campaigns and to allocate their investment resources to areas of highest yield and demand. Many of
the major banks operating in our market area, such as Wells Fargo Bank and Bank of America, offer certain services that we do not
offer directly (but some of which we offer through correspondent institutions). By virtue of their greater total capitalization, such
banks also have substantially higher lending limits (restricted to a percentage of the bank’s total shareholders’ equity, depending upon
the nature of the loan transaction) than we do.

In addition to other banks, our competitors include savings institutions, credit unions, and numerous non-banking institutions,

such as finance companies, leasing companies, insurance companies, brokerage firms, and investment banking firms. In recent years,
increased competition has also developed from specialized finance and non-finance companies that offer money market and mutual
funds, wholesale finance, credit card, and other consumer finance services, including on-line banking services and personal finance
software. Strong competition for deposit and loan products affects the rates of those products as well as the terms on which they are
offered to customers.

The more general competitive trends in the industry include increased consolidation and competition. Strong competitors, other

than financial institutions, have entered banking markets with focused products targeted at highly profitable customer segments. Many
of these competitors are able to compete across geographic boundaries and provide customers increasing access to meaningful
alternatives to banking services in nearly all significant products areas. Mergers between financial institutions have placed additional
pressure on banks within the industry to streamline their operations, reduce expenses, and increase revenues to remain competitive.
Competition has also intensified due to the federal and state interstate banking laws, which permit banking organizations to expand
geographically, and the California market has been particularly attractive to out-of-state institutions. The Financial Modernization Act,
which has made it possible for full affiliations to occur between banks and securities firms, insurance companies, and other financial
companies, is also expected to intensify competitive conditions.

Technological innovations have also resulted in increased competition in the financial services industry. Such innovations have,

for example, made it possible for non-depository institutions to offer customers automated transfer payment services that were
previously considered traditional banking products. In addition, many customers now expect a choice of several delivery systems and
channels, including telephone, mail, home computer, ATMs, self-service branches and/or in-store branches.

Business Concentration. No individual or single group of related accounts is considered material in relation to our total assets

or deposits, or in relation to our overall business. However, approximately 83% of our loan portfolio held for investment at
December 31, 2008 consisted of real estate-related loans, including construction loans, miniperm loans, real estate mortgage loans and
commercial loans secured by real estate. Moreover, our business activities are currently focused primarily in Central California, with
the majority of our business concentrated in San Joaquin, Stanislaus, Tuolumne, Inyo and Mono Counties. Consequently, our results
of operations and financial condition are dependent upon the general trends in the Central California economies and, in particular, the
residential and commercial real estate markets. In addition, the concentration of our operations in Central California exposes us to
greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and
floods in this region.

Employees

As of December 31, 2008, we had 123 employees (101 full-time employees and 22 part-time employees). None of our employees
are currently represented by a union or covered by a collective bargaining agreement. Management believes its employee relations are
satisfactory.

Bank Holding Company Regulation

Upon effectiveness of the bank holding company reorganization on July 2, 2008, we became subject to regulation under the
Bank Holding Company Act of 1956, as amended (“BHCA”) which subjects Oak Valley Bancorp to Federal Reserve Board reporting
and examination requirements. Under the Federal Reserve Board’s regulations, a bank holding company is required to serve as a
source of financial and managerial strength to its subsidiary banks.

The BHCA regulates the activities of holding companies including acquisitions, mergers, and consolidations and, together with

the Gramm-Leach Bliley Act of 1999, the scope of allowable banking activities.

Government Policies, Legislation, and Regulatory Initiatives

The banking and financial services business in which we engage is highly regulated. Such regulation is intended, among other

things, to protect depositors insured by the FDIC and the entire banking system. The commercial banking business is also influenced
by the monetary and fiscal policies of the federal government and the policies of the Board of Governors of the Federal Reserve
System, also known as the Federal Reserve Board. The Federal Reserve Board implements national monetary policies (with objectives
9

such as curbing inflation and combating recession) by its open-market operations in United States Government securities, by adjusting
the required level of reserves for financial intermediaries subject to its reserve requirements and by varying the discount rates
applicable to borrowings by depository institutions. The actions of the Federal Reserve Board in these areas influence the growth of
bank loans, investments and deposits and also affects interest rates charged on loans and paid on deposits. Indirectly such actions may
also impact the ability of non-bank financial institutions to compete with us. The nature and impact of any future changes in monetary
policies cannot be predicted.

The laws, regulations and policies affecting financial services businesses are continuously under review by Congress and state
legislatures and federal and state regulatory agencies. From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other
financial intermediaries. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding
companies and other financial intermediaries are frequently made in Congress, in the California legislature and by various bank
regulatory agencies and other professional agencies. Changes in the laws, regulations or policies that impact us cannot necessarily be
predicted, but they may have a material effect on our business and earnings.

As a California state-chartered bank whose accounts are insured by the FDIC up to a maximum of $250,000 (as approved on
October 10, 2008 by the FDIC through the end of 2009), the Bank is subject to regulation, supervision and regular examination by the
California Department of Financial Institutions and the FDIC. In addition, although we are not a member of the Federal Reserve
System, we are subject to certain regulations of the Board of Governors of the Federal Reserve System. The regulations of these
agencies govern most aspects of our business, including the filing of periodic reports, and activities relating to dividends, investments,
loans, borrowings, capital requirements, certain check-clearing activities, branching, mergers and acquisitions, reserves against
deposits, and numerous other areas. Supervision, legal action and examination of us by the FDIC is generally intended to protect
depositors and is not intended for the protection of our shareholders.

The following discussion of statutes and regulations affecting banks is only a summary and does not purport to be complete. This

discussion is qualified in its entirety by reference to such statutes and regulations. No assurance can be given that the referenced
statutes or regulations will not change in the future.

Capital Adequacy Requirements

The federal banking agencies have adopted risk-based minimum capital guidelines intended to provide a measure of capital that

reflects the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as
assets and transactions which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and
credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from
0% for assets with low credit risk, such as federal banking agencies, to 100% for assets with relatively high credit risk. The higher the
category, the more risk a bank is subject to and thus the more capital that is required.

The guidelines divide a bank’s capital into two tiers. Tier I includes common equity, retained earnings, certain non-cumulative
perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries. Goodwill and other intangible assets
(except for mortgage servicing rights and purchased credit card relationships, subject to certain limitations) are subtracted from Tier I
capital. Tier II capital includes, among other items, cumulative perpetual and long-term, limited-life preferred stock, mandatory
convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan losses (subject to certain
limitations). Certain items are required to be deducted from Tier II capital. Banks must maintain a total risk-based ratio of 8%, of
which at least 4% must be Tier I capital. As of December 31, 2008 and 2007, our Total Risk-Based Capital Ratios were 13.3% and
11.1%, respectively, and our Tier 1 Risk-Based Capital Ratios were 12.1% and 10.0%, respectively.

In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount

of Tier 1 capital to total average assets, referred to as the leverage ratio. Banks that have received the highest rating of the five
categories used by regulators to rate banks and are not anticipating or experiencing any significant growth must maintain a ratio of
Tier 1 capital (net of all intangibles) to adjusted total assets, or “Leverage Capital Ratio”, of at least 3%. All other institutions are
required to maintain a leverage ratio of at least 100 to 200 basis points above the 3% minimum, for a minimum of 4% to 5%. Pursuant
to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the
volume and severity of problem loans. As of December 31, 2008 and 2007, our Leverage Capital Ratios were 11.8% and 9.4%,
respectively.

Federal banking regulators may set capital requirements higher than the minimums described above for financial institutions
whose circumstances warrant it. For example, a financial institution experiencing or anticipating significant growth may be expected
to maintain capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets.

Prompt Corrective Action Provisions

Federal law requires each federal banking agency to take prompt corrective action to resolve the problems of insured financial

institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The federal banking
agencies have by regulation defined the following five capital categories:

• “well capitalized” (Total Risk-Based Capital Ratio of 10%; Tier 1 Risk-Based Capital Ratio of 6%; and Leverage Ratio of 5%),

• “adequately capitalized” (Total Risk-Based Capital Ratio of 8%; Tier 1 Risk-Based Capital Ratio of 4%; and Leverage Ratio of
4% or 3% if the institution receives the highest rating from its primary regulator),

• “undercapitalized” (Total Risk-Based Capital Ratio of less than 8%; Tier 1 Risk-Based Capital Ratio of less than 4%; or
Leverage Ratio of less than 4% or 3% if the institution receives the highest rating from its primary regulator),

• “significantly undercapitalized” (Total Risk-Based Capital Ratio of less than 6%; Tier 1 Risk-Based Capital Ratio of less than
3%; or Leverage Ratio less than 3%), and

• “critically undercapitalized” (tangible equity to total assets less than 2%).

A bank may be treated as though it were in the next lower capital category if, after notice and the opportunity for a hearing, the

appropriate federal agency finds an unsafe or unsound condition or practice so warrants, but no bank may be treated as “critically
undercapitalized” unless its actual capital ratio warrants such treatment.

At each successively lower capital category, an insured bank is subject to increased restrictions on its operations. For example, a
bank is generally prohibited from paying management fees to any controlling persons or from making capital distributions, if to do so
would make the bank “undercapitalized.” Asset growth and branching restrictions apply to undercapitalized banks, which are required
to submit written capital restoration plans meeting specified requirements (including a guarantee by the parent holding company, if
any). “Significantly undercapitalized” banks are subject to broad regulatory authority, including among other things, capital directives,
forced mergers, restrictions on the rates of interest they may pay on deposits, restrictions on asset growth and activities, and
prohibitions on paying certain bonuses without FDIC approval. Even more severe restrictions apply to critically undercapitalized
banks. Most importantly, except under limited circumstances, the appropriate federal banking agency is required to appoint a
conservator or receiver for an insured bank not later than 90 days after the bank becomes critically undercapitalized.

In addition to measures taken under the prompt corrective action provisions, insured banks may be subject to potential actions by

federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any
condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the issuance
of cease and desist orders, termination of insurance of deposits (in the case of a bank), the imposition of civil money penalties, the
issuance of directives to increase capital, formal and informal agreements, or removal and prohibition orders against “institution-
affiliated” parties.

Dividends

The payment of cash dividends by the Bank to Oak Valley Bancorp is subject to restrictions set forth in the California Financial
Code (the “Code”). Prior to any distribution from the Bank to Oak Valley Bancorp, a calculation is made to ensure compliance with
the provisions of the Code and to ensure that the Bank remains within capital guidelines set forth by the DFI and the FDIC. In the
event that the intended distribution from the Bank to Oak Valley Bancorp exceeds the restriction in the Code, advance approval from
DFI is required. While advance approval may be required from the DFI for up to three years if we terminate our participation in the
U.S. Treasury Capital Purchase Program, Management does not believe that these regulations will limit dividends from the Bank to
meet the operating requirements of Bancorp for the foreseeable future. See Note 19 to the Consolidated Financial Statements in Item 8
of this report.

As long as the U.S. Treasury holds an equity position in us, we are restricted from increasing our dividends per common share

without prior approval from the U.S. Treasury until December 5, 2011. We are also precluded from paying any dividends on common
shares if we are in arrears on payment of dividends on preferred shares which are payable quarterly at an annual rate of 5%.

Safety and Soundness Standards

Federal banking agencies have also adopted guidelines establishing safety and soundness standards for all insured depository

institutions. Those guidelines relate to internal controls, information systems, internal audit systems, loan underwriting and
documentation, compensation and interest rate exposure. In general, the standards are designed to assist the federal banking agencies
in identifying and addressing problems at insured depository institutions before capital becomes impaired. If an institution fails to

meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan and institute
enforcement proceedings, if an acceptable compliance plan is not submitted.

Premiums for Deposit Insurance

Our deposits are insured by the FDIC to the maximum amount permitted by law which is currently $250,000 per depositor. On

October 14, 2008, the FDIC announced the Temporary Transaction Account Guarantee Program to strengthen confidence in the
banking system. The new rule also allows, at the participating FDIC-insured institutions’ option, full deposit insurance coverage for
non-interest bearing transaction accounts regardless of the dollar amount until December 31, 2009. We have elected to participate in
the program by paying a 10 basis point surcharge on the non-interest bearing transaction accounts over $250,000. In addition, the
FDIC has finalized a new premium rate structure and has imposed a uniform increase in minimum assessment from five cents to
twelve cents annually for every $100 of domestic deposits on institutions that are assigned to the lowest risk category for the first
calendar quarter of 2009. Effective April 1, 2009, assessment rates will be adjusted to differentiate for risk. Banks in the best risk
category will pay a base rate from twelve to sixteen cents per $100 of deposits. Further, on February 27, 2009, the FDIC announced
the imposition of a 20-basis-point emergency special assessment on all insured depository institutions on June 30, 2009 (will be
collected on September 30, 2009). The rule also gives the FDIC the ability to impose future emergency special assessments of up to 10
basis points if necessary.

Community Reinvestment Act

We are subject to certain requirements and reporting obligations involving the Community Reinvestment Act, or “CRA”. The
CRA generally requires federal banking agencies to evaluate the record of financial institutions in meeting the credit needs of local
communities, including low and moderate-income neighborhoods. The CRA further requires that a record be kept of whether a
financial institution meets its community credit needs, which record will be taken into account when evaluating applications for,
among other things, domestic branches, consummating mergers or acquisitions, or holding company formations. In measuring a
bank’s compliance with its CRA obligations, the regulators now utilize a performance-based evaluation system which bases CRA
ratings on the bank’s actual lending service and investment performance, rather than on the extent to which the institution conducts
needs assessments, documents community outreach activities or complies with other procedural requirements. In connection with its
assessment of CRA performance, the FDIC assigns a rating of “outstanding,” “satisfactory,” “needs to improve” or “substantial
noncompliance.” We were last examined for CRA compliance in August 15, 2005 and received a satisfactory CRA Assessment
Rating.

Anti-Money Laundering Regulations

A series of banking laws and regulations beginning with the Bank Secrecy Act in 1970 require banks to prevent, detect, and

report illicit or illegal financial activities to the federal government to prevent money laundering, international drug trafficking, and
terrorism. Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account
relationships as well as enhanced due diligence and “know your customer” standards in their dealings with high risk customers,
foreign financial institutions, and foreign individuals and entities. We have extensive controls to comply with these requirements.

Privacy and Data Security

The Gramm-Leach Bliley Act (“GLBA”) of 1999 imposed requirements on financial institutions with respect to consumer
privacy. The GLBA generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has
been given the opportunity to object and has not objected to such disclosure. Financial institutions are further required to disclose
their privacy policies to consumers annually. The GLBA also directs federal regulators, including the FDIC, to prescribe standards for
the security of consumer information. We are subject to such standards, as well as standards for notifying consumers in the event of a
security breach. We must disclose our privacy policy to consumers and permit consumers to “opt out” of having non-public customer
information disclosed to third parties. We are required to have an information security program to safeguard the confidentiality and
security of customer information and to ensure proper disposal. Customers must be notified when unauthorized disclosure involves
sensitive customer information that may be misused.

Other Consumer Protection Laws and Regulations

Bank regulatory agencies are increasingly focusing on compliance with consumer protection laws and regulations. Examination
and enforcement has become intense, and banks have been advised to monitor compliance carefully with various consumer protection
laws and their implementing regulations. For example, the federal Interagency Task Force on Fair Lending issued a policy statement
on discrimination in home mortgage lending describing three methods that federal agencies will use to prove discrimination: overt
evidence of discrimination, evidence of disparate treatment, and evidence of disparate impact. In addition to CRA and fair lending

requirements, we are subject to numerous other federal consumer protection statutes and regulations. Due to heightened regulatory
concern related to compliance with consumer protection laws and regulations generally, we may incur additional compliance costs or
be required to expend additional funds for investments in the local communities we serve.

Interstate Banking and Branching The Riegle-Neal

The Interstate Banking and Branching Efficiency Act of 1994, or “Interstate Banking Act,” regulates the interstate activities of

banks and bank holding companies and establishes a framework for nationwide interstate banking and branching. Since June 1, 1997,
a bank in one state has generally been permitted to merge with a bank in another state without the need for explicit state law
authorization. However, states were given the ability to prohibit interstate mergers of banks in their own state by “opting-out”
(enacting state legislation prohibiting such mergers) prior to June 1, 1997.

Since 1995, adequately capitalized and managed bank holding companies have been permitted to acquire banks located in any
state, subject to two exceptions: first, any state may still prohibit bank holding companies from acquiring a bank which is less than
five years old; and second, no interstate acquisition can be consummated by a bank holding company if the acquirer would control
more than 10% of the deposits held by insured depository institutions nationwide or 30% or more of the deposits held by insured
depository institutions in any state in which the target bank has branches.

A bank may establish and operate de novo branches in any state in which the bank does not maintain a branch, if that state has

enacted legislation to expressly permit all out-of-state banks to establish branches in that state.

In 1995, California enacted legislation to implement important provisions of the Interstate Banking Act and to repeal California’s

previous interstate banking laws, which were largely preempted by the Interstate Banking Act.

The changes effected by the Interstate Banking Act and California laws have increased competition in our market by permitting

out-of-state financial institutions to enter our market areas directly or indirectly. We believe that the Interstate Banking Act has
contributed to the accelerated consolidation of the banking industry. Although many large out-of-state banks have already entered the
California market as a result of this legislation, it is not possible to predict the precise impact of this legislation on us and the
competitive environment in which we operate.

USA Patriot Act of 2001

On October 26, 2001, President Bush signed the USA Patriot Act of 2001, or “Patriot Act”. The Patriot Act was enacted in

response to the terrorist attacks in New York, Pennsylvania and Washington, D.C. on September 11, 2001, and is intended to
strengthen U.S. law enforcement’s and the intelligence community’s ability to work cohesively to combat terrorism on a variety of
fronts. The potential impact of the Patriot Act on financial institutions is significant and wide ranging. The Act contains sweeping anti-
money laundering and financial transparency laws and requires various regulations, including:

• due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or
correspondent accounts for non-U.S. persons,

• standards for verifying customer identification at account opening,

• rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that
may be involved in terrorism or money laundering,

• reports by non-financial trades and business filed with the Treasury Department’s Financial Crimes Enforcement Network for
transactions exceeding $10,000, and

• filing of suspicious activities reports if they believe a customer may be violating U.S. laws and regulations.

Currently we are unable to quantify the impact the Patriot Act has had or may in the future have on our financial condition or

results of operations.

The Sarbanes-Oxley Act of 2002

On July 30, 2002, President Bush signed into law The Sarbanes-Oxley Act of 2002, or “Sarbanes-Oxley Act”. The Sarbanes-

Oxley Act addresses accounting oversight and corporate governance matters relating to the operations of public companies. During
2003, the Commission issued a number of regulations under the directive of the Sarbanes-Oxley Act significantly increasing public
company governance-related obligations and filing requirements, including:

• the establishment of an independent public oversight of public company accounting firms by a board that will set auditing,
quality and ethical standards for and have investigative and disciplinary powers over such accounting firms,

• the enhanced regulation of the independence, responsibilities and conduct of accounting firms which provide auditing services
to public companies,

• the increase of penalties for fraud related crimes,

• the enhanced disclosure, certification, and monitoring of financial statements, internal financial controls and the audit process,
and

• the enhanced and accelerated reporting of corporate disclosures and internal governance.

Furthermore, in November 2003, in response to the directives of the Sarbanes-Oxley Act, Nasdaq adopted substantially expanded

corporate governance criteria for the issuers of securities quoted on the Nasdaq markets. The new Nasdaq rules govern, among other
things, the enhancement and regulation of corporate disclosure and internal governance of listed companies and of the authority, role
and responsibilities of their boards of directors and, in particular, of “independent” members of such boards of directors, in the areas
of nominations, corporate governance, compensation and the monitoring of the audit and internal financial control processes.

The Sarbanes-Oxley Act, the Commission rules promulgated thereunder, and the new Nasdaq governance requirements have
required the Bank to review its current procedures and policies to determine whether they comply with the new legislation and its
implementing regulations. Oak Valley Bancorp will be primarily responsible for ensuring compliance with Sarbanes-Oxley and the
Nasdaq governance rules, as applicable. Although the impact these new requirements will have upon the Oak Valley Bancorp’s and
the Bank’s operations is not entirely clear, the Bank has already experienced an increase in expenditures associated with certain
outside professional costs necessary for compliance.

The Emergency Economic Stabilization Act of 2008 and its Related Government Policies, Legislations, and Regulations

Dramatic negative developments in the latter half of 2007 in the subprime mortgage market and the securitization markets for
such loans, together with volatility in oil prices and other factors, have resulted in uncertainty in the financial markets in general and a
related economic downturn, which continued through 2008 and is anticipated to continue through 2009. Dramatic declines in the
housing market, with decreasing home prices and increasing delinquencies and foreclosures, have negatively impacted the credit
performance of mortgage and construction loans and resulted in significant write-downs of assets by many financial institutions. In
addition, the values of real estate collateral supporting many commercial and residential loans have declined and may continue to
decline. General downward economic trends, reduced availability of commercial credit and increasing unemployment have negatively
impacted the credit performance of commercial and consumer credit, resulting in additional write-downs. Concerns over the stability
of the financial markets and the economy have resulted in decreased lending by many financial institutions to their customers and to
each other. This market turmoil and tightening of credit has led to increased commercial and consumer delinquencies, lack of
customer confidence, increased market volatility and widespread reduction in general business activity. Competition among
depository institutions for deposits has increased significantly. Bank and bank holding company stock prices have been negatively
affected as has the ability of banks and bank holding companies to raise capital or borrow in the debt markets compared to recent
years. Bank regulators have been very aggressive in responding to concerns and trends identified in examinations, and this has
resulted in the increased issuance of formal and informal enforcement orders and other supervisory actions requiring action to address
credit quality, liquidity and risk management and capital adequacy, as well as other safety and soundness concerns.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted to restore confidence and

stabilize the volatility in the U.S. banking system and to encourage financial institutions to increase their lending to customers and to
each other. Initially introduced as the Troubled Asset Relief Program (“TARP”), the EESA authorized the United States Department
of the Treasury (“U.S. Treasury”) to purchase from financial institutions and their holding companies up to $700 billion in mortgage
loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial
institutions and their holding companies. Initially, $350 billion was made immediately available to the U.S. Treasury. On January 15,
2009, the remaining $350 billion was released to the U.S. Treasury.

On October 14, 2008, the U.S. Treasury announced its intention to inject capital into nine large U.S. financial institutions
under the TARP Capital Purchase Program (the “TARP CPP”), and since has injected capital into many other financial institutions,
including the Company. The U.S. Treasury initially allocated $250 billion towards the TARP CPP

In order to participate in the TARP CPP, financial institutions were required to adopt certain standards for executive
compensation and corporate governance. These standards generally apply to the Chief Executive Officer, Chief Financial Officer and
14

the three next most highly compensated senior executive officers. The standards include (1) ensuring that incentive compensation for
named senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2)
required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other
criteria that are later proven to be materially inaccurate; (3) prohibition on making golden parachute payments to senior executives;
and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive. The
Company has complied with these requirements and will continue to comply.

The bank regulatory agencies, U.S. Treasury and the Office of Special Inspector General, also created by the EESA, have

issued guidance and requests to the financial institutions that participated in the TARP CPP to document their plans and use of TARP
CPP funds and their plans for addressing the executive compensation requirements associated with the TARP CPP. The Company has
received and responded to that request.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law by President
Obama. The ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure,
energy, health, and education needs. In addition, the ARRA imposes certain new executive compensation and corporate expenditure
limits on all current and future TARP recipients, including the Company, until the institution has repaid the U.S. Treasury, which is
now permitted under the ARRA without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation
with the recipient’s appropriate regulatory agency.

The ARRA executive compensation standards are more stringent than those currently in effect under the TARP CPP or those

previously proposed by the U.S. Treasury. The new standards include (but are not limited to); (i) prohibitions on bonuses, retention
awards and other incentive compensation, other than restricted stock grants which do not fully vest during the TARP CPP period up to
one-third of an employee’s total annual compensation, (ii) prohibitions on golden parachute payments for departures, (iii) an expanded
clawback of bonuses, retention awards, and incentive compensation if payment is based on materially inaccurate statements of
earnings, revenues, gains or other criteria, (iv) prohibitions on compensation plans that encourage manipulation of reported earnings,
(v) retroactive review of bonuses, retention awards and other compensation previously provided by TARP CPP recipients if found by
the U.S. Treasury to be inconsistent with the purposes of TARP CPP or otherwise contrary to public interest, (vi) required
establishment of a company-wide policy regarding “excessive or luxury expenditures,” and (vii) inclusion in a participant’s proxy
statements for annual shareholder meetings of a nonbinding “Say on Pay” shareholder vote on the compensation of executives.

On February 23, 2009, the U.S. Treasury and the Federal bank regulatory agencies issued a Joint Statement providing further

guidance with respect to the Capital Assistance Program announced February 10, 2009, including: (i) that should the “stress test”
assessments of the major banks initiated February 25, 2009 indicate that an additional capital buffer is warranted, institutions will have
an opportunity to turn first to private sources of capital otherwise; the temporary capital buffer will be made available from the
government; (ii) such additional government capital will be in the form of mandatory convertible preferred shares, which would be
converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under
improved financial conditions before the conversion becomes mandatory; and (iii) previous capital injections under the TARP CPP
will also be eligible to be exchanged for the mandatory convertible preferred shares. The conversion of preferred shares to common
equity shares would enable institutions to maintain or enhance the quality of their capital by increasing their tangible common equity
capital ratios; however, such conversions would necessarily dilute the interests of existing shareholders.

On February 25, 2009, the first day the Capital Assistance Program was initiated, the U.S. Treasury released the actual terms
of the program, stating that the purpose of the Capital Assistance Program is to restore confidence throughout the financial system that
the nation’s largest banking institutions have a sufficient capital cushion against larger than expected future losses, should they occur
due to a more severe economic environment, and to support lending to creditworthy borrowers. Under the terms of the Capital
Assistance Program, eligible U.S. banking institutions with assets in excess of $100 billion on a consolidated basis are required to
participate in coordinated supervisory assessments, which are forward-looking “stress test” assessments to evaluate the capital needs
of the institution under a more challenging economic environment. Should this assessment indicate the need for the bank to establish
an additional capital buffer to withstand more stressful conditions, these institutions may access the Capital Assistance Program
immediately as a means to establish any necessary additional buffer or they may delay the Capital Assistance Program funding for six
months to raise the capital privately. Eligible U.S. banking institutions with assets below $100 billion may also obtain capital from the
Capital Assistance Program. The Capital Assistance Program is an additional program from the TARP CPP and is open to eligible
institutions regardless of whether they participated in the TARP CPP. The deadline to apply to participate in the Capital Assistance
Program is May 25, 2009. Recipients of capital under the Capital Assistance Program will be subject to the same executive
compensation requirements as if they had received TARP CPP.

Environmental Regulations

In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with

respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury,

investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to
investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or
remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to
common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the
property. If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity and results of
operations could be materially and adversely affected.

Other Pending and Proposed Legislation

Other legislative and regulatory initiatives which could affect us and the banking industry, in general, are pending and additional
initiatives may be proposed or introduced before the United States Congress, the California legislature and other governmental bodies
in the future. Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial
institutions, and may subject us to increased regulation, disclosure and reporting requirements. In addition, the various banking
regulatory agencies often adopt new rules and regulations to implement and enforce existing legislation. We cannot predict whether,
or in what form, any such legislation or regulations may be enacted or the extent to which our business would be affected thereby.

Available Information

The Company maintains an Internet website at http://www.ovcb.com. The Company makes available its annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and other information related to the Company free of
charge, through this site as soon as reasonably practicable after it electronically files those documents with, or otherwise furnishes
them to, the SEC. The Company’s internet website and the information contained therein or connected thereto are not intended to be
incorporated into this annual report on Form 10-K.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our main office is located in a complex at 125 North Third Avenue, Oakdale, CA 95361, in downtown Oakdale. The building

has an automated teller machine and onsite parking. The Bank’s complex occupies approximately 20,000 square feet of space.

Property Location and
Address

Square
Footage

Monthly Rent

Lease
Expiration Date

Lease
Extension Options

Oakdale, 125 N. 3rd Ave.......
Oakdale, 338 F Street...........

Sonora ..................................
Modesto, 12th & I Street.......

Bridgeport ............................
Mammoth Lakes ..................
Bishop ..................................

Modesto Dale.......................

Turlock.................................

Patterson ..............................
Escalon.................................

Ripon....................................

Stockton ...............................

* The Bank owns this property.

9,600

n/a*

n/a*
n/a*

n/a*

9,860
2,500

4,500
2,875
1,856

3,680

4,500

2,400
2,100

3,500

1,800

8,000

n/a*

3/2017
4/2010

3/2016
n/a*
n/a*

8/2014

3/2015

1/2015
n/a*

4/2021

1/2011

12/2022

n/a
three, 5-year
term extensions
n/a
two, 5-year
term extensions
n/a
n/a
two, 5-year
term extensions
two, 5-year
term extensions
two, 5-year
term extensions
n/a*
two, 5-year
term extensions
two, 5-year
term extensions
two, 5-year
term extensions

Management has determined that all of its premises are adequate for its present and anticipated level of business.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company is a party to claims and legal proceedings arising in the ordinary course of business. Our
management evaluates its exposure to these claims and proceedings individually and in the aggregate and provides for potential losses
on such litigation if the amount of the loss is estimable and the loss is probable.

We believe that there are no material litigation matters at the current time. Although the results of such litigation matters and

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to our shareholders during the fourth quarter of the year ended December 31, 2008 covered by this

report.

PART II

ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

Price Range of Common Stock

The common stock of the Bank was traded on The NASDAQ OTCBB under the symbol “OVYB” until January 14, 2009. On

January 15, 2009 our common stock began trading on The NASDAQ Capital Market under the symbol “OVLY.” The following table
sets forth the high and low closing bid prices (which reflect prices between dealers and do not include retail markup, markdown or
commission and may not represent actual transactions) for the current year and the three calendar years ended December 31, 2008,
2007 and 2006, respectively. From time to time, during the periods indicated, trading activity in our common stock was infrequent.
The source of the quotes is The Nasdaq Stock Market, LLC.

For Calendar Quarter Ended

June 30, 2006 .............................................
September 30, 2006 ...................................
December 31, 2006 ....................................
March 31, 2007 ..........................................
June 30, 2007 .............................................
September 30, 2007 ...................................
December 31, 2007 ....................................
March 31, 2008 ..........................................
June 30, 2008 .............................................
September 30, 2008 ...................................
December 31, 2008 ....................................

Closing Sale Price(1)(2)

High

Low

16.75
16.00
14.75
13.03
11.35
11.00
10.05
8.49
8.00
7.50
7.00

13.35
12.75
12.55
10.80
10.90
9.17
7.52
8.49
6.50
6.30
3.55

On March 27, 2009 the closing price of our common stock was $4.25 per share; and there were approximately 545 shareholders

of record of the common stock and 7,661,627 outstanding shares of common stock.

(1) Figures in the table have been retroactively adjusted to reflect a three-for-two stock split in January 2005 and a three-for-two stock
split in January 2006.

(2) Figure through June 30, 2008 refer to Bank common stock prices.

Dividends

Our ability to pay any cash dividends will depend not only upon our earnings during a specified period, but also on our meeting

certain capital requirements.

Shareholders are entitled to receive dividends only when and if dividends are declared by our Board of Directors. Although we

have paid dividends in the past, it is no guarantee that we will continue paying cash dividends in the future.

Prior to the bank holding company reorganization in 2008, the Bank has historically declared and paid a dividend on its common

stock every year since 1996. Dividends for the year ended December 31, 2008, 2007 and 2006 were $0.075, $0.19 and $0.19 per
share of common stock, respectively.

The following table shows stock splits declared for the four years ended December 31, 2008:

Declaration Date

Payable Date

Record Date

Type

November 17, 2004...........
November 16, 2005...........

January 14, 2005
January 17, 2006

January 3, 2005
January 3, 2006

Three-for-two stock split
Three-for-two stock split

Equity Compensation Plan Information

The following table provides information as of December 31, 2008 with respect to shares of our common stock that are issued

and currently outstanding under the Bank’s 1998 Restated Stock Option Plan (the “1998 Restated Stock Option Plan”), and the
number of shares that are authorized to be issued under the Company’s 2008 Stock Option Plan (the “2008 Equity Plan”) Figures in
the table have been retroactively adjusted to reflect three-for-two stock splits in August 2005 and 2006.

Plan Category
Equity Compensation Plans

Approved by Shareholders..........

Equity Compensation Plans Not

Approved by Shareholders..........
Total..................................................

Number of Securities to be Issued Upon
Exercise of Outstanding Options

Weighted Average Exercise Price of
Outstanding Options

C
Number of Securities Remaining Available for
Future Issuance Under 2008 Equity Plan
(Excluding Securities Reflected in
Column A)

420,455

6.97

Not applicable
6.97

1,500,000

0
1,500,000

Recent Sales of Unregistered Securities

On December 5, 2008, the Company completed the sale to the U.S. Treasury of $13.5 million of preferred stock and warrants as
part of the TARP CPP pursuant to an exemption under Section 4(2) of the Securities Act of 1933, as amended. Pursuant to the terms
18

of such offering, the Company issued and sold to the U.S. Treasury (i) 13,500 shares of the Company’s Series A Fixed Rate
Cumulative Perpetual Preferred Stock, having a liquidation preference of $1,000 per share and (ii) a warrant to purchase up to 350,346
shares of the Company’s common stock, no par value. Under the terms of the TARP CPP, the Company is prohibited from increasing
dividends on its common stock, and from making certain repurchases of equity securities, including its common stock, without the
U.S. Treasury’s consent. Furthermore, as long as the preferred stock issued to the U.S. Treasury is outstanding, dividend payments
and repurchases or redemptions relating to certain equity securities, including the Company’s common stock, are prohibited until all
accrued and unpaid dividends are paid on such preferred stock, subject to certain limited exceptions. Restrictions related to the
payment of dividends on common stock are disclosed under “Dividends” of the section above of this Form 10-K.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

Forward-Looking Statements

This discussion of financial results includes forward-looking statements within the meaning of Section 27A of the

Securities Act of 1933, as amended, (the “1933 Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (the
“1934 Act”). Those sections of the 1933 Act and 1934 Act provide a “safe harbor” for forward-looking statements to encourage
companies to provide prospective information about their financial performance so long as they provide meaningful, cautionary
statements identifying important factors that could cause actual results to differ significantly from projected results.

Our forward-looking statements include descriptions of plans or objectives of Management for future operations, products
or services, and forecasts of our revenues, earnings or other measures of economic performance. Forward-looking statements can be
identified by the fact that they do not relate strictly to historical or current facts. They often include the words “believe,” “expect,”
“intend,” “estimate” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.”

Forward-looking statements are based on Management’s current expectations regarding economic, legislative, and

regulatory issues that may impact our earnings in future periods. A number of factors - many of which are beyond Management’s
control - could cause future results to vary materially from current Management’s expectations. Such factors include, but are not
limited to, general economic conditions, the current financial turmoil in the United States and abroad, changes in interest rates, deposit
flows, real estate values and competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation;
and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and
services. Forward-looking statements speak only as of the date they are made. We do not undertake to update forward-looking
statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the
occurrence of unanticipated events.

The following discussion explains the significant factors affecting our operations and financial position for the periods

presented, and includes the statistical disclosures required by Securities and Exchange Commission Guide 3 (“Statistical Disclosure by
Bank Holding Companies”). The discussion should be read in conjunction with our financial statements and the notes related thereto
which appear elsewhere in this registration statement.

Introduction

Effective July 3, 2008, Oak Valley Community Bank became a subsidiary of Oak Valley Bancorp, a newly established

bank holding company. Oak Valley Bancorp operates Oak Valley Community Bank as a community bank in the general commercial
banking business, with our primary market encompassing the California Central Valley around Oakdale and Modesto, and the Eastern
Sierras. As such, unless otherwise noted, all references are about Oak Valley Community Bank.

In the bank holding company reorganization, each outstanding shares of common stock of the bank was exchange for an

equal number of shares of common stock of Oak Valley Bancorp, which now owns the Bank as its wholly-owned subsidiary.
Management believes that operating the Bank within a holding company structure will, among other things:

• provide greater operating flexibility than is currently enjoyed by us.

• facilitate the acquisition of related businesses as opportunities arise.

• improve our ability to diversify.

• enhance our ability to remain competitive in the future with other companies in the financial services industry that are
organized in a holding company structure.

• enhance our ability to raise capital to support growth.

As of December 31, 2008, we had approximately $508 million in total assets, $422 million in total loans, and $378 million in

total deposits.

Over the past few years, our network of branches and loan production offices have been expanded geographically. We currently

maintain twelve full-service offices. We intend to continue our growth strategy in future years through the opening of additional
branches and loan production offices as our needs and resources permit.

2008 Key Performance Indicators

We believe the following were key indicators of our performance for operations during 2008:

• our total assets increased to $508 million at the end of 2008, or an increase of 11.9%, from $454 million at the end of
2007.

• our total deposits increased slightly to $378 million at the end of 2008, or an increase of 0.2%, from $377 million at the
end of 2007.

• our total net loans grew to $422 million at the end of 2008, or an increase of 10.3%, from $382 million at the end of 2007.

• our ratio of total non-performing loans to total loans decreased to 1.1% at December 31, 2008 from 2.4% at December 31,
2007. Management deems that the size of the ratio of non-performing assets to total loans is moderate and manageable, and
reserves have been taken appropriately.

• net interest income increased $1.7 million or 8.9% in 2008 compared to 2007, mainly as a result of an increase in the net
interest margin from 4.53% to 4.72% and an increase in average earning assets of $16.5 million.

• provision for loan losses increased $1.6 million or 294% to $2.2 million in 2008 compared to $555,000 in 2007.

• total noninterest income increased to $2.52 million in 2008, or an increase of 14.8%, from $2.20 million in 2007. We
primarily attribute this increase to our efforts to expand our deposit account base and diversify our non-interest revenue
sources.

• total noninterest expense increased from $14.2 million in 2007 to $17.9 million in 2008, reflecting the expanded
personnel and premises associated with our business growth, including the recent opening of new branch offices. Another
primary component of the increase was market value write downs on other real estate owned of $1.6 million.

These items, as well as other factors, contributed to the decrease in net income available to common shareholders for 2008

to $2.10 million from $3.93 million in 2007, which translates into $0.27 per diluted common share in 2008 and $0.52 per diluted
common share in 2007.

2009 Outlook

As we begin our strategic business plan for 2009, we are continuing to pursue opportunities for growth in our existing

markets, as well as opportunities to expand into new markets through de novo branching. Further, we expect that our portfolio of
unsecured business loans and consumer loans will overall experience additional growth in 2009 as a result of target marketing efforts
in these areas.

In 2009, we are continuing to focus on loan and account growth and managing our net interest margin, while attempting to
control expenses and credit losses and manage our business to achieve our net income and other objectives. We are also continuing to
utilize strategies to control other operating expenses. These efforts are important for us to continue to attract new accounts and grow
loans. However, we will continue to strive to be more efficient and focus on controlling the growth of these expenses so that they
grow more slowly than the growth in loans.

Although interest rates decreased in 2008, we have maintained a stable net interest margin with continued growth in net

interest income, which we expect to continue in 2009. In light of current difficult economic conditions, protracted low interest rates or
a further decrease in interest rates will likely pressure our net interest margin downwards. This will in turn decrease the growth rate
and net interest income. Should interest rates increase later in 2009, our yield on earnings assets is likely to increase and we could then
determine to increase the interest rates we pay on our deposit accounts or change our promotional or other interest rates on new
deposits in marketing activation programs to attempt to achieve a certain net interest margin. Any increases in the rates we charge on
accounts could have an effect on our efforts to attract new customers and grow loans, particularly with the continuing competition in

the commercial and consumer lending industry. The economies and real estate markets in our primary market areas will continue to be
significant determinants of the quality of our assets in future periods and, thus, our results of operations, liquidity and financial
condition. Current economic indicators suggest that the national economy and the economies in our primary market areas are facing a
downturn but the length and severity of it are difficult to predict.

For 2009, management remains focused on the above challenges and opportunities and other factors affecting the business

similar to the factors driving 2008 results as discussed in this section.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our financial statements,

which have been prepared in accordance with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates and judgments that effect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial
statements. Actual results may differ from these estimates under different assumptions or conditions.

Asset Impairment Judgments

Certain of our assets are carried in our statements of financial condition at fair value or at the lower of cost or fair value.

Valuation allowances are established when necessary to recognize impairment of such assets. We periodically perform analyses to test
for impairment of various assets. In addition to our impairment analyses related to loans, another significant impairment analysis
relates to other than temporary declines in the value of our securities.

Our available for sale portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported

as accumulated other comprehensive income in stockholders” equity. We conduct a periodic review and evaluation of the securities
portfolio to determine if the value of any security has declined below its carrying value and whether such decline is other than
temporary. If such decline is deemed other than temporary, we would adjust the carrying amount of the security by writing down the
security to fair market value through a charge to current period income. The market values of our securities are significantly affected
by changes in interest rates.

In general, as interest rates rise, the market value of fixed-rate securities will decrease; as interest rates fall, the market value of fixed-
rate securities will increase. With significant changes in interest rates, we evaluate our intent and ability to hold the security for a
sufficient time to recover the recorded principal balance. Estimated fair values for securities are based on published or securities
dealers” market values.

Allowance for Loan Losses

Accounting for allowance for loan losses involves significant judgment and assumptions by management and is based on
historical data and management’s view of the current economic environment. At least on a quarterly basis, our management reviews
the methodology and adequacy of allowance for loan losses and reports its assessment to the Board of Directors for its review and
approval.

We base our allowance for loan losses on an estimation of probable losses inherent in our loan portfolio. Our methodology
for assessing loan loss allowances are intended to reduce the differences between estimated and actual losses and involves a detailed
analysis of our loan portfolio, in three phases:

• the specific review of individual loans,

• the segmenting and review of loan pools with similar characteristics in accordance with SFAS No. 5, “Accounting for
Contingencies,” and

• our judgmental estimate based on various subjective factors:

The first phase of our methodology involves the specific review of individual loans to identify and measure impairment.

We evaluate each loan by use of a risk rating system, except for homogeneous loans, such as automobile loans and home mortgages.
Specific risk rated loans are deemed impaired if all amounts, including principal and interest, will likely not be collected in accordance
with the contractual terms of the related loan agreement. Impairment for commercial and real estate loans is measured either based on
the present value of the loan’s expected future cash flows or, if collection on the loan is collateral dependent, the estimated fair value
of the collateral, less selling and holding costs.

The second phase involves the segmenting of the remainder of the risk rated loan portfolio into groups or pools of loans,

together with loans with similar characteristics, for evaluation in accordance with SFAS No. 5. We determine the calculated loss ratio
to each loan pool based on its historical net losses and benchmark it against the levels of other peer banks.

In the third phase, we consider relevant internal and external factors that may affect the collectability of loan portfolio and

each group of loan pool. The factors considered are, but are not limited to:

• concentration of credits,

• nature and volume of the loan portfolio,

• delinquency trends,

• non-accrual loan trend,

• problem loan trend,

• loss and recovery trend,

• quality of loan review,

• lending and management staff,

• lending policies and procedures,

• economic and business conditions, and

• other external factors.

Our management estimates the probable effect of such conditions based on our judgment, experience and known or

anticipated trends. Such estimation may be reflected as an additional allowance to each group of loans, if necessary. Management
reviews these conditions with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically
identifiable problem credit or portfolio segment as of the evaluation date, managements’ estimate of the effect of such condition may
be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a
specific, identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the inherent loss
related to such condition is reflected in the unallocated allowance

Central to our credit risk management and our assessment of appropriate loss allowance is our loan risk rating system.

Under this system, the originating credit officer assigns borrowers an initial risk rating based on a thorough analysis of each
borrower’s financial capacity in conjunction with industry and economic trends. Approvals are made based upon the amount of
inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit administration personnel.
Credits are monitored by line and credit administration personnel for deterioration in a borrower’s financial condition which may
impact the ability of the borrower to perform under the contract. Although management has allocated a portion of the allowance to
specific loans, specific loan pools, and off-balance sheet credit exposures (which are reported separately as part of other liabilities), the
adequacy of the allowance is considered in its entirety.

Non-Accrual Loan Policy

Interest on loans is credited to income as earned and is accrued only if deemed collectible. Accrual of interest is

discontinued when a loan is over 90 days delinquent or if management believes that collection is highly uncertain. Generally,
payments received on nonaccrual loans are recorded as principal reductions. Interest income is recognized after all principal has been
repaid or an improvement in the condition of the loan has occurred that would warrant resumption of interest accruals.

Stock-Based Compensation

Effective January 1, 2006, the Bank adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)
No. 123R, Share Based Payments. SFAS No. 123R requires companies to recognize in the income statement the grant-date fair
value of stock options and other equity-based forms of compensation issued to employees over the employees” requisite service period
(generally the vesting period). The Bank uses straight-line recognition of expenses for awards with graded vesting. The Bank utilizes
a binomial pricing model for all grants. Expected volatility is based on the historical volatility of the price of the Bank’s stock. The
Bank uses historical data to estimate option exercise and stock option forfeiture rates within the valuation model. The expected term of
options granted for the binomial model is derived from applying a historical suboptimal exercise factor to the contractual term of the

grant. For binomial pricing, the risk-free rate for periods is equal to the U.S. Treasury yield at the time of grant and commensurate
with the contractual term of the grant.

Other Real Estate Owned

Other real estate owned, which represents real estate acquired through foreclosure, or deed in lieu of foreclosure in
satisfaction of commercial and real estate loans, is carried at the lower of cost or estimated fair value less the estimated selling costs of
the real estate. The fair value of the property is based upon a current appraisal. The difference between the fair value of the real estate
collateral and the loan balance at the time of transfer is recorded as a loan charge off if fair value is lower. Subsequent to foreclosure,
management periodically performs valuations and the OREO property is carried at the lower of carrying value or fair value, less costs
to sell. The determination of a property’s estimated fair value incorporates (1) revenues projected to be realized from disposal of the
property, (2) construction and renovation costs, (3) marketing and transaction costs, and (4) holding costs (e.g., property taxes,
insurance and homeowners” association dues). Any subsequent declines in the fair value of the OREO property after the date of
transfer are recorded through a write-down of the asset. Any subsequent operating expenses or income, reduction in estimated fair
values, and gains or losses on disposition of such properties are charged or credited to current operations.

Impact of SAB No. 108

In September 2006, the SEC’s Office of the Chief Accountant and Divisions of Corporation Finance and Investment
Management released SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements” (“SAB 108”), that provides interpretive guidance on how the effects of the carryover or reversal
of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants
should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in
quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. This pronouncement
was effective for fiscal years ending after November 15, 2006. The Company initially adopted SAB 108 in conjunction with the filing
of this Form 10. This change in accounting policy was retrospectively applied in accordance with Statement of Financial Accounting
Standards No. 154, Accounting Changes and Error Corrections. The adoption of SAB 108 had no material impact on the Company’s
financial position, results of operations, or cash flows, although we made certain adjustments that resulted in a decrease of net income
of $43,227 for the year ended December 31, 2007 (a decrease of $0.01 in basic and diluted earnings per share), and $105,102 for the
year ended December 31, 2006 (a decrease of $0.01 in basic and diluted earnings per share), respectively. See note 1 to the
December 31, 2008 financial statements for further discussion.

Overview

We recorded net income available to common shareholders for the year ended December 31, 2008 of $2,098,010 or $0.27

per diluted common share compared to $3,925,121 or $0.52 per diluted common share for the year ended December 31, 2007. The
decrease in net income available to common shareholders for the year ended December 31, 2008 was primarily due to an increase of
$3,652,424 in non-interest expense, which included a market value write down on other real estate owned of $1,553,881, and an
increase in the provision for loan loss of $1,633,139. Partially offsetting these factors was an increase in net interest income of
$1,684,248, an increase in non-interest income of $324,798 and a decrease in income tax provision of $1,513,225.

Results of Operation

Net Interest Income and Net Interest Margin

Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning
assets and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes in the level and mix
of interest-earning assets and interest- bearing liabilities, referred to as volume changes. Our net interest income is also affected by
changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on our loans are
affected principally by the demand for such loans, the supply of money available for lending purposes and competitive factors. Those
factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies,
the general supply of money in the economy, legislative tax policies, the governmental budgetary matters, and the actions of the
Federal Reserve Board.

Net interest income increased $1.7 million or 8.9% to $20.5 million for the year ended December 31, 2008, compared to $18.8
million in 2007. Net interest spread and net interest margin were 4.33% and 4.72%, respectively, for the year ended December 31,
2008, compared to 3.87% and 4.53%, respectively, for the year ended December 31, 2007. The increase in the net interest margin in
2008 was principally attributable to the change in the deposit mix from high cost certificates of deposit to lower cost core deposit
accounts which caused the rate on interest-bearing liabilities to decrease faster than the rate on earning assets. Changes in volume

resulted in an increase in net interest income of $830,000 for the year of 2008 compared to the year 2007, and changes in interest rates
and the mix resulted in an increase in net interest income of $938,000 for the year 2008 versus the year 2007.

For a detailed analysis of interest income and interest expense, see the “Average Balance Sheets” and the “Rate/Volume

Analysis” below.

Distribution, Yield and Rate Analysis of Net Income
For the Years Ended December 31,

Average
Balance

2008
Interest
Income/
Expense

Avg
Rate/
Yield

Average
Balance

2007
Interest
Income/
Expense

Avg Rate/
Yield

Assets:
Earning assets:

Gross loans (1) (2) ................................... $ 400,821 $
Securities of U.S. government agencies...
Other investment securities (2) ................
Federal funds sold ....................................
Interest-earning deposits ..........................
Total interest-earning assets.........................
Total noninterest earning assets ...................

2,450
31,489
1,227
37
436,024
16,256
Total Assets.......................................... $ 452,280

Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:

Money market deposits ............................
NOW deposits..........................................
Savings deposits.......................................
Time certificates of $100,000 or more.....
Other time deposits ..................................
Other borrowings .....................................
Total interest-bearing liabilities ...................
Noninterest-bearing liabilities:

Noninterest-bearing deposits....................
Other liabilities ........................................
Total noninterest-bearing liabilities .............
Shareholders’ equity ....................................

Total liabilities and

149,202
54,160
15,563
40,172
44,846
59,666
363,609

61,554
3,131
64,685
23,986

27,638
73
1,600
18
2
29,331

3,578
386
259
1,576
1,441
1,492
8,732

30,175
405
1,278
159
4
32,021

4,539
565
558
3,432
2,133
1,779
13,006

6.90% $
2.98%
5.08%
1.47%
4.36%
6.73%

381,316 $
8,322
26,687
3,122
76
419,523
26,771
446,294

2.40%
0.71%
1.66%
3.92%
3.21%
2.50%
2.40%

125,574
53,634
16,745
66,006
49,118
34,384
345,461

58,468
3,543
62,011
38,822

shareholders’ equity ......................... $ 452,280

446,294

Net interest income ......................................
Net interest spread (3)..................................
Net interest margin (4) .................................

20,599

19,015

4.33%
4.72%

7.91%
4.86%
4.79%
5.10%
5.56%
7.63%

3.62%
1.05%
3.33%
5.20%
4.34%
5.17%
3.76%

3.87%
4.53%

(1) Loan fees have been included in the calculation of interest income. Loan fees were approximately $1,024,000 and $1,331,000 for

the years ended December 31, 2008, and 2007, respectively.

(2) Yields on municipal securities and loans have been adjusted to their fully-taxable equivalents, based on a federal marginal tax rate

of 34.0%.

(3) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
(4) Represents net interest income as a percentage of average interest-earning assets.

Rate/Volume Analysis

The following table below sets forth certain information regarding changes in interest income and interest expense of Oak Valley

Community Bank for the periods indicated. For each category of earning assets and interest bearing liabilities, information is
provided on changes attributable to (i) changes in volume (change in average volume multiplied by old rate); and (ii) changes in rates
(change in rate multiplied by old average volume). Changes in rate/volume (change in rate multiplied by the change in volume) have
been allocated to the changes due to volume and rate in proportion to the absolute value of the changes due to volume and rate prior to
the allocation.

Rate/Volume Analysis of Net Interest Income

For the Year Ended December 31,
2008 vs. 2007
Increases (Decreases)
Due to Change In
Rate

Volume

For the Year Ended December 31,
2007 vs. 2006
Increases (Decreases)
Due to Change In
Rate

Total

Volume

Interest income:
Net loans (1)........................................
Securities of U.S. government

agencies...........................................
Other Investment securities.................
Federal funds sold...............................
Interest-earning deposits .....................
Total interest income...................

Interest expense:
Money market deposits .......................
Super NOW deposits...........................
Savings deposits..................................
Time certificates of $100,000 or

more ................................................
Other time deposits .............................
Other borrowings ................................
Total interest expense .................
Change in net interest income.............

1,543 $

(4,078) $

(2,535) $

2,831 $

356 $

3,187

(286)
230
(97)
(2)
1,388

(46)
91
(45)
0
(4,078)

854 $
6
(39)

(1,816) $
(184)
(260)

(1,343)
(185)
1,308
601
787 $

(512)
(506)
(1,597)
(4,875)

797 $

(332)
321
(142)
(2)
(2,690)

(962) $
(178)
(299)

(1,855)
(691)
(289)
(4,274)
1,584 $

(77)
(48)
36
(1)
2,741

272 $

51
(147)

(222)
(128)
818
644
2,097 $

(38)
81
(1)
3
401

232 $
(29)
54

467
42
234
1,000
(599) $

(115)
33
35
2
3,142

504
22
(93)

245
(86)
1,052
1,644
1,498

(1) Loan fees have been included in the calculation of interest income. Loan fees were approximately $1,024,000 and $1,331,000 for

the years ended December 31, 2008 and 2007, respectively.

Provision for Loan Losses

The provision for loan losses was $2,188,139 for the year ended December 31, 2008, compared to $555,000 for the year 2007.

Nonperforming loans were $4.72 million at December 31, 2008 and $9.81 million at December 31, 2007, or 1.10% and 2.54%,
respectively, of total loans. Nonperforming loans are primarily in nonperforming real estate construction and development loans. The
allowance for loan losses was $5.57 million and $4.51 million at December 31, 2008 and 2007, or 1.30% and 1.16%, respectively, of
total loans. Net charge-offs were $1,110,000 in 2008 compared to $397,000 in 2007. The increase in net charge-offs in 2008 was
primarily due to the economic downturn and the effect on the housing market.

The Bank maintains the allowance for loan losses at a level that it considers to be adequate to provide for credit losses inherent in
its loan portfolio. Management determines the level of the allowance by performing a quarterly analysis that considers concentrations
of credit, past loss experience, current economic conditions, the amount and composition of the loan portfolio (including
nonperforming and potential problem loans), estimated fair value of underlying collateral, and other information relevant to assessing
the risk of loss inherent in the loan portfolio. As a result of management’s analysis, a range of the potential amount of the allowance
for loan losses is determined.

The Bank will continue to monitor the adequacy of the allowance for loan losses and make additions to the allowance in
accordance with the analysis referred to above. Because of uncertainties inherent in estimating the appropriate level of the allowance
for loan losses, actual results may differ from management’s estimate of credit losses and the related allowance.

The following table sets forth the amount of total loans outstanding (excluding unearned income) and the percentage distributions

in each category, as of the dates indicated.

Distribution of Loans and Percentage Composition of Loan Portfolio Amount Outstanding as of
December 31,

2008

2007

2006

2005

2004

(Dollars in Thousands)

Commercial real estate .............................. $
Commercial ...............................................
Real estate construction .............................
Agriculture.................................................
Residential real estate and consumer .........
Unearned income.......................................

268,742
37,302
73,321
25,917
22,895
(1,035)

208,309
45,497
83,173
31,430
19,400
(1,038)

233,110
41,077
60,269
27,527
16,409
(1,233)

212,901
31,349
37,717
22,390
13,752
(1,345)

175,641
22,156
36,457
13,016
11,225
(1,188)

Total loans, net of unearned income ..........

427,142

386,771

377,160

316,764

257,307

Participation loans sold and serviced

by the Bank ........................................... $

9,759

1,314

3,488

3,838

3,872

Commercial real estate ..............................
Commercial ...............................................
Real estate construction .............................
Agriculture.................................................
Residential real estate and consumer .........
Unearned income.......................................

62.9%
8.7%
17.2%
6.1%
5.3%
(0.2)%

53.9%
11.8%
21.5%
8.1%
5.0%
(0.3)%

61.8%
10.9%
16.0%
7.3%
4.4%
(0.3)%

67.2%
9.9%
11.9%
7.1%
4.3%
(0.4)%

68.3%
8.6%
14.2%
5.1%
4.4%
(0.5)%

Total loans, net of unearned income ..........

100.0%

The following table shows the contractual maturity distribution and repricing intervals of the outstanding loans in our

portfolio, as of December 31, 2008. In addition, the table shows the distribution of such loans between those with variable or floating
interest rates and those with fixed or predetermined interest rates.

(Dollars in thousands)

Loan Maturities and Repricing Schedule
At December 31, 2008

Within
One Year

After One
But Within
Five Years

After
Five Years

Total

Commercial real estate.................................................................
Commercial..................................................................................
Real estate construction ...............................................................
Agriculture ...................................................................................
Residential real estate and consumer ...........................................
Unearned income .........................................................................
Total loans, net of unearned income ....................................

Loans with variable (floating) interest rates.................................
Loans with predetermined (fixed) interest rates...........................

$
$

51,315 $
21,934
61,193
18,374
1,040
(372)
153,484 $

178,999 $

12,719
12,113
6,375
6,301
(523)
215,984 $

38,428 $
2,649
15
1,168
15,554
(140)
57,674 $

268,742
37,302
73,321
25,917
22,895
(1,035)
427,142

119,490 $
33,994 $

151,650 $
64,333 $

37,732 $
19,943 $

308,872
118,270

The majority of the properties taken as collateral are located in Northern California. We employ strict guidelines regarding

the use of collateral located in less familiar market areas. The recent decline in Northern California real estate value is offset by the
low loan-to-value ratios in our commercial real estate portfolio and high percentage of owner-occupied properties.

Nonperforming Assets

Nonperforming assets consist of loans on non-accrual status, loans 90 days or more past due and still accruing interest,

loans restructured, where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal,
and other real estate owned (“OREO”).

Loans are generally placed on non-accrual status when they become 90 days past due, unless management believes the loan

is adequately collateralized and in the process of collection. The past due loans may or may not be adequately collateralized, but
collection efforts are continuously pursued. Loans may be restructured by management when a borrower has experienced some
changes in financial status, causing an inability to meet the original repayment terms, and where we believe the borrower will

eventually overcome those circumstances and repay the loan in full. OREO consists of properties acquired by foreclosure or similar
means and which management intends to offer for sale.

The Bank had nonperforming loans of $4.72 million at December 31, 2008, as compared to $9.81 million at December 31,

2007 and no nonperforming loans at December 31, 2006, 2005 and 2004, respectively. The ratio of nonperforming loans over total
loans was 1.10% and 2.54% at December 31, 2008 and 2007, respectively, as compared with 0.0% in the prior three year-end periods.

In addition, the Bank held two residential development OREO properties with a market value of $2.75 million as of

December 31, 2008. The Bank did not possess any OREO during any of the year-end periods from 2004 through 2007.

Management believes that the reserve provided for nonperforming loans, together with the tangible collateral, were

adequate as of December 31, 2008. See “Allowance for Loan Losses” below for further discussion. Except as disclosed above, as of
December 31, 2008, management was not aware of any material credit problems of borrowers that would cause it to have serious
doubts about the ability of a borrower to comply with the present loan payment terms. However, no assurance can be given that credit
problems may exist that may not have been brought to the attention of management.

The following table provides information with respect to the components of our nonperforming assets as of the dates

indicated. (The figures in the table are net of the portion guaranteed by the U.S. Government):

Nonperforming Assets

2008

2007

At December 31,
2006
(Dollars in Thousands)

2005

2004

Nonaccrual loans(1).......................................................
Commercial real estate ....................................................
Commercial .....................................................................
Real estate construction ...................................................
Agriculture.......................................................................
Residential real estate and consumer ...............................

2,115 $
0
1,963
0
0

1,127 $
0
7,960
0
0

Total ............................................................................

4,078 $

9,087

Loans 90 days or more past due and still accruing

(as to principal or interest):

Commercial real estate ....................................................
Commercial .....................................................................
Real estate construction ...................................................
Agriculture.......................................................................
Residential real estate and consumer ...............................

Total ............................................................................

Restructured loans(2) ....................................................
Commercial real estate ....................................................
Commercial .....................................................................
Real estate construction ...................................................
Agriculture.......................................................................
Residential real estate and consumer ...............................

Total ............................................................................

0 $
0
643
0
0

0 $
0
721
0
0

643

721

0 $
0
0
0
0

Total nonperforming loans......................................
Other real estate owned ...................................................

4,721
2,746

9,808
0

0 $
0
0
0
0

0 $

0 $
0
0
0
0

0
0

0 $
0
0
0
0

0
0

Total nonperforming assets.....................................

7,467

9,808 $

0 $

0
0
0
0
0

0
4
0
1
0

0
0
0
0
0

5
0

Nonperforming loans as a percentage of total loans ........
Nonperforming assets as a percentage of total loans

and other real estate owned .........................................

Allowance for loan losses as a percentage of

1.10%

1.74%

2.54%

nonperforming loans ...................................................

117.97%

45.95%

0.00%

—

0.00%

—

(1) During the fiscal year ended December 31, 2008 and 2007, no interest income related to these loans was included in net income
while on nonaccrual status. Additional interest income of approximately $135,000 and $233,000 would have been recorded during the
year ended December 31, 2008 and 2007, respectively, if these loans had been paid in accordance with their original terms.

(2) A “restructured loan” is one the terms of which were renegotiated to provide a reduction or deferral of interest or principal because
of deterioration in the financial position of the borrower.

Allowance for Loan Losses

In anticipation of credit risk inherent in our lending business, we set aside allowances through charges to earnings. Such

charges are not only made for the outstanding loan portfolio, but also for off-balance sheet items, such as commitments to extend
credits or letters of credit. The charges made for the outstanding loan portfolio are credited to the allowance for loan losses, whereas
charges for off-balance sheet items are credited to the reserve for off-balance sheet items, which is presented as a component of other
liabilities. The provision for loan losses is discussed in the section entitled “Provision for Loan Losses” above.

The rapid growth of our loan portfolio in the past five years has required more reserves for probable loan losses. The

allowance for loan losses increased by 23.6%, or $1,063,000, to $5.57 million at December 31, 2008, as compared with $4.51 million
at December 31, 2007. Such allowances were $4.34 million, $3.98 million, and $3.27 million at December 31, 2006, 2005, and 2004,
respectively. Despite the rapid growth of our loan portfolio, the increases in loan loss allowances have been sufficient to maintain a
stable allowance for loan losses as a percentage of total loans, as reflected in the ratios of 1.30, 1.16, 1.15, 1.16 and 1.20, at the end of
2008, 2007, 2006, 2005 and 2004, respectively.

In light of the current weakness in the economic environment, and specifically in the real estate construction sector,

reserves have been increased to recognize such increased risk. Diversification, low loan-to-values, strong credit quality and enhanced
credit monitoring contribute to a reduction in the portfolio’s overall risk, and help to offset the economic risk. The impact of the
increasing economic weakness will continue to be monitored, and adjustments to the provision for loan loss will be made accordingly.
As evidenced in 2008, the weak business climate adversely impacted the financial conditions of some of our clients and increased our
net loan charge-off to $1,110,000, compared to $397,000, $13,000, $1,000 and $4,000 in 2007, 2006, 2005 and 2004, respectively.

Management reviews these conditions with our senior credit officers. To the extent that any of these conditions is evidenced

by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of
such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions
is not evidenced by a specific, identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of
the inherent loss related to such condition is reflected in the unallocated allowance. Although management has allocated a portion of
the allowance to specific loan categories, the adequacy of the allowance is considered in its entirety.

Although management believes the allowance at December 31, 2008 was adequate to absorb losses from any known and
inherent risks in the portfolio, no assurance can be given that economic conditions which adversely affect our service areas or other
variables will not result in increased losses in the loan portfolio in the future.

As of December 31, 2008, our allowance for loan losses consisted of amounts allocated to three phases of our methodology

for assessing loan loss allowances, as follows (see details of methodology for assessing allowance for loan losses in the section
entitled “Critical Accounting Policies”):

Phase of Methodology (Dollars in Thousands)
Specific review of individual loans...............................................
Review of pools of loans with similar characteristics...................
Judgmental estimate based on various subjective factors .............

$
$
$

As of: December 31, 2008

768
4,801
—

The table below summarizes, for the periods indicated, loan balances at the end of each period, the daily averages during

the period, changes in the allowance for loan losses arising from loans charged off, recoveries on loans previously charged off,
additions to the allowance and certain ratios related to the allowance for loan losses:

Allowance for Loan Losses
(in thousands)

2008

2007

2006

2005

2004

Balances:
Average total gross loans outstanding

during period.................................................... $
Total gross loans outstanding at end of period..... $
Allowance for loan losses:
Balances at beginning of period........................ $

Actual charge-offs:
Commercial real estate.........................................
Commercial..........................................................
Real estate construction .......................................
Agriculture ...........................................................
Residential real estate and consumer ...................
Total charge-offs..............................................

Recoveries on loans previously charged off
Commercial real estate.........................................
Commercial..........................................................
Real estate construction .......................................
Agriculture ...........................................................
Residential real estate and consumer ...................
Total recoveries................................................

Net loan charge-offs/(recoveries).........................

Provision for loan losses ......................................

Reclassification of reserve related to

400,821 $
428,177 $

381,316 $
387,809 $

345,063 $
378,393 $

276,277 $
318,108 $

220,526
258,495

4,507 $

4,341 $

3,976 $

3,272 $

2,338

0
11
1,062
0
42
1,115

0
0
0
0
5
5

1,110

2,188

0
0
366
0
35
402

0
0
0
0
5
5

397

555

0
0
0
0
15
15

0
0
0
0
2
2

595

0
1
0
0
0
1

0
0
0
0
0
0

0
5
0
0
0
5

0
0
0
0
1
1

705

938

off-balance-sheet commitments .......................

(16)

(217)

Balance at end of period ...................................... $

5,569 $

4,507 $

4,341 $

3,976 $

3,272

Ratios:
Net loan charge-offs/(recoveries) to average

total loans.........................................................

Allowance for loan losses to total loans at

end of period ....................................................

Net loan charge-offs (recoveries) to allowance

0.28%

1.30%

for loan losses at end of period ........................

19.93%

Net loan charge-offs (recoveries) to provision

0.10%

1.16%

8.81%

for loan losses ..................................................

50.73%

71.57%

0.00%

1.15%

0.29%

2.12%

0.00%

1.16%

1.20%

0.02%

0.11%

0.10%

0.38%

The table below summarizes, for the periods indicated, the balance of the allowance for loan losses and the percentage of each type of
loan balance at the end of each period (See “Loan Portfolio” above for a description of each type of loan balance):

Allocation of the Allowance for Loan Losses

2008

2007

Amount Outstanding as of December 31,
2006
(Dollars in Thousands)

2005

2004

Applicable to:
Commercial real estate .........................................
Commercial ..........................................................
Real estate construction........................................
Agriculture ...........................................................
Residential real estate and consumer....................

Total Allowance ..................................................
Noninterest Income

3,329 $
806
997
210
227

2,672 $
663
837
189
147

2,755 $
413
885
162
126

2,693 $
364
691
118
110

5,569 $

4,507 $

4,341 $

3,976 $

2,350
262
514
65
81

3,272

Noninterest income was $2.5 million for the year ended December 31, 2008, compared to $2.2 million for the year 2007. Service

charge income was $1.3 million for the year 2008 compared to $1.1 million for the year 2007 as a result of the increase number of
core deposit accounts. The aggregate number of DDA, Now, Money Market and Savings accounts increased by 19% to 16,602 at
December 31, 2008 as compared to 13,946 accounts as of December 31, 2007. In 2008, Earnings on cash surrender value of life
insurance increased by $195,000 due to the purchase of $4.74 million in life insurance policies on certain officers. The Bank
continues to evaluate its deposit product offerings with the intention of continuing to expand its offerings to the consumer and
business depositors.

Noninterest Income
(Dollars in thousands)

Service charges on deposit accounts ...........................................
Earnings on cash surrender value of life insurance.....................
Mortgaged Commissions ............................................................
Other income...............................................................................
Total............................................................................................

Average assets.............................................................................
Noninterest income as a % of average assets..............................

Noninterest Expense

For the Years Ended December 31,

2008

2007

(Amount)

(%)

(Amount)

(%)

1,299
370
101
752
2,522

51.5% $
14.7%
4.0%
29.8%
100.0% $

1,090
175
195
737
2,198

452,280

446,294

0.6%

49.6%
8.0%
8.9%
33.5%
100.0%

0.5%

Noninterest expense was $17.9 million for the year ended December 31, 2008, an increase of $3.7 million or 25.7%
compared to $14.2 million for the year ended 2007. Salaries and employee benefits increased $720,000 and occupancy expense
increase of $472,000, due in part to the addition of a new branch in Stockton and the addition of a Bank’s commercial lending team
located in the new Stockton branch. Another primary component of total non-interest expense was OREO expenses of $1.6 million in
2008 compared to none in 2007. Other operating expenses increased by $642,000 which includes additional FDIC and DFI
assessments of $153,000 in 2008 compared to 2007.

The following table sets forth a summary of noninterest expenses for the periods indicated:

Noninterest Expense
(Dollars in thousands)

For the Years Ended December 31,

2008

2007

(Amount)

(%)

(Amount)

(%)

Salaries and employee benefits ....................................................
Occupancy expenses ....................................................................
Data processing fees ....................................................................
Telephone expenses .....................................................................
OREO expenses ...........................................................................
Other operating expenses.............................................................
Total.............................................................................................

Average assets..............................................................................
Noninterest expenses as a % of average assets ............................

9,306
2,695
765
295
1,554
3,251
17,866

52.1% $
15.1%
4.3%
1.6%
8.7%
18.2%
100.0% $

8,586
2,223
542
254
—
2,609
14,213

452,280

446,294

4.0%

60.4%
15.6%
3.8%
1.8%
0.0%
18.4%
100.0%

3.2%

Management anticipates that noninterest expense will continue to increase as we continue to grow. However, management

remains committed to cost-control and efficiency, and we expect to keep these increases to a minimum relative to growth.

Income Tax Expense

The effective income tax rate on income from continuing operations was 27.5% for the year ended December 31, 2008 compared

to 37.3% for the year 2007. The disparity between the effective tax rates in 2008 as compared to 2007 is primarily due to tax credits
from California Enterprise Zones and low income housing projects as well as tax free-income on loans within these enterprise zones
and municipal securities and loans that comprise a larger proportion of pre-tax income in 2008 as compared to prior years.

Financial Condition

The Bank’s total assets were $508.2 million at December 31, 2008 compared to $454.3 million at December 31, 2007, an
increase of $53.9 million or 11.9%. Net loans increased $39.3 million, investments increased $8.1 million, bank premises and
equipment increased $1.0 million and interest receivable and other assets increased $7.2 million, while cash and cash equivalents
decreased $4.4 million.

Loans gross of the allowance for loan losses were $428.2 million at December 31, 2008, compared to $387.8 million at

December 31, 2007, an increase of $40.4 million or 10.4%. The increase was primarily due to increase of $60.4 million or 29% in the
commercial real estate loans and a $3.5 million increase in residential real estate and consumer loans. These were offset by decreases
of $8.2 million, $9.9 million and $5.5 million in commercial, real estate construction and agriculture loans, respectively. All loan
categories slightly decreased or remained relatively unchanged as a percentage of total loans, due to the increase in commercial real
estate loans, which increased from approximately 53.9% to 62.9% of total loans.

Deposits increased $901,000 or 0.2% to $378.2 million at December 31, 2008 compared to $377.3 million at December 31, 2007.

Time deposits decreased by $9.2 million, much of which was transferred by customers to money market accounts as evidenced by an
increase of $18.9 million in money market accounts. All other deposit types recognized a slight decrease compared to the prior year.

Short-term borrowings increased $22.5 million to $50.5 million at December 31, 2008, compared to $28.0 million at

December 31, 2007 while long-term debt increased to $18.5 million at December 31, 2008, compared to $3.0 million at December 31,
2007. The increase in long-term debt was due to the Bank deciding to utilize a long-term FHLB fixed rate advance and thus reducing
the level of short-term FHLB advances. The Bank uses short-term borrowings, primarily short-term FHLB advances, to fund short-
term liquidity needs and manage net interest margin.

Equity increased $15.6 million or 36.9% to $58.0 million at December 31, 2008, compared to $42.4 million at December 31,
2007. The Bank was selected to participate in the U.S. Treasury Capital Purchase Program (“TCPP”) which resulted in the issuance of
$13.5 million in preferred stock. The Bank intends to use the capital to increase credit availability to local, creditworthy, businesses
and consumers. The preferred stock shares have a 5% coupon for 5 years and 9% thereafter. Warrants to purchase 350,346 shares of
common stock at a per share exercise price of $5.78 are attached and fully exercisable. The warrants expire 10 years after the issuance
date. The securities issued to the Treasury will be accounted for as components of regulatory Tier 1 capital. See Note 12 to the
Consolidated Financial Statements in Item 8 of this report for further discussion regarding our participation in the TCPP.

Liquidity

Liquidity to meet borrowers’ credit and depositors’ withdrawal demands is provided by maturing assets, short-term liquid assets
that can be converted to cash and the ability to attract funds from depositors. Additional sources of liquidity may include institutional
deposits, advances from the FHLB and other short-term borrowings, such as federal funds purchased.

Since our deposit growth strategy emphasizes core deposit growth we have avoided relying on brokered deposits as a consistent

source of funds. The only brokered deposit the Bank holds are from CDARS, a certificate of deposit program that exchanges funds
with other network banks to offer full FDIC insurance coverage to the customer. The bank had $10.5 million in brokered deposits as
of December 31, 2008 and none at December 31, 2007.

At December 31, 2008 and December 31, 2007, the Bank had total FHLB advances outstanding of $69.0 million and $31.0
million, respectively. At December 31, 2008 and December 31, 2007, the Bank had sufficient collateral to borrow an additional $38.1
million and $68.0 million, respectively. In addition, the Bank had lines of credit to purchase overnight federal funds with its
correspondent banks totaling $20 million. No advances were made on these lines of credit as of December 31, 2008 and
December 31, 2007.

Oak Valley Bancorp’s liquidity depends primarily on dividends paid to it as sole shareholder of the Bank. The Bank’s ability to

pay dividends to Oak Valley Bancorp without regulatory approval will depend on whether the Bank will be in a position to pay
dividends.

The following chart summarizes certain contractual obligations of the Bank as of December 31, 2008 (dollars in thousands):

Contractual Obligations
FHLB borrowings ............................................
Operating lease obligations..............................
Investment in limited partnership ....................
Supplemental retirement plans.........................
Time deposit maturities....................................

Less than 1
Year

1-3 years

3-5 years

More than 5
years

50,500 $
803
37
20
71,638

18,500 $
1,545
—
48
18,608

— $

1,595
—
72
313

3,950
—
764
43

Total

69,000
7,893
37
904
90,602

Total.................................................................

122,998 $

38,701 $

1,980 $

4,757 $

168,436

Return on Equity and Assets

The following table sets forth certain information regarding our return on equity and assets for the periods indicated:

Return on average assets..........................................................................
Return on average equity .........................................................................
Dividend payout ratio ..............................................................................
Equity to assets ratio ................................................................................

At December 31, 2008

At December 31, 2007

0.46%
4.77%
27.38%
11.41%

0.88%
10.11%
36.81%
9.33%

Off-Balance Sheet Arrangements

During the ordinary course of business, we provide various forms of credit lines to meet the financing needs of our

customers. These commitments, which represent a credit risk to us, are not represented in any form on our balance sheets.

As of December 31, 2008, and 2007, we had commitments to extend credit of $63.1 million and $81.4 million,
respectively. Obligations under standby letters of credit were $3.53 million, and $1.14 million, for 2008, and 2007, respectively, and
there were no obligations under commercial letters of credit for either period.

The effect on our revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide

credit cannot be reasonably predicted because there is no guarantee that the lines of credit will be used. For more information
regarding our off balance sheet arrangements, see Note 14 to our 2008 year end financial statements located elsewhere in this report.

Investment Activities

Investments are a key source of interest income. Management of our investment portfolio is set in accordance with
strategies developed and overseen by our Investment Committee. Investment balances, including cash equivalents and interest-bearing
deposits in other financial institutions, are subject to change over time based on our asset/liability funding needs and interest rate risk
management objectives. Our liquidity levels take into consideration anticipated future cash flows and all available sources of credits
and are maintained at levels management believes are appropriate to assure future flexibility in meeting anticipated funding needs.

Cash Equivalents and Interest-bearing Deposits in other Financial Institutions

The Bank holds federal funds sold, unpledged available-for-sale securities and salable government guaranteed loans to help

meet liquidity requirements and provide temporary holdings until the funds can be otherwise deployed or invested. As of
December 31, 2008, and 2007, we had $765,000 and $3.81 million, respectively, in federal funds sold.

Investment Securities

Management of our investment securities portfolio focuses on providing an adequate level of liquidity and establishing an
interest rate-sensitive position, while earning an adequate level of investment income without taking undue risk. Investment securities
that we intend to hold until maturity are classified as held-to-maturity securities, and all other investment securities are classified as
available-for-sale. Currently, all of our investment securities are classified as available-for-sale. The carrying values of available-for-
sale investment securities are adjusted for unrealized gains or losses as a valuation allowance and any gain or loss is reported on an
after-tax basis as a component of other comprehensive income.

Our investment securities holdings increased by $8.1 million, or 24.2%, to $41.4 million at December 31, 2008, compared
to holdings of $33.3 million at December 31, 2007. Accordingly, total investment securities as a percentage of total assets increased

to 8.2% as compared to 7.3% at December 31, 2007. As of December 31, 2008, $34.5 million of the investment securities were
pledged to secure certain deposits.

As of December 31, 2008, the total unrealized loss on securities that were in a loss position for less than 12 continuous

months was $99,719 with an aggregate fair value of $13,074,953. The total unrealized loss on securities that were in a loss position
for greater than 12 continuous months was $100,152 with an aggregate fair value of $5,779,473.

The following table summarizes the book value and market value and distribution of our investment securities as of the

dates indicated:

Investment Securities Portfolio

Dollars in Thousands
Available-for-Sale:
Securities of U.S.

As of December 31, 2008

As of December 31, 2007

As of December 31, 2006

Amortized
Cost

Market Value

Amortized
Cost

Market Value

Amortized
Cost

Market Value

government agencies......... $

25,541 $

26,085 $

24,875 $

24,962 $

27,464 $

27,250

Collateralized mortgage

obligations.........................
Municipal securities ..............
SBA Pools.............................
Asset Backed Security ..........
Total investment securities ... $

3,439
9,971
1,820
198
40,969 $

3,485
9,902
1,779
198
41,449 $

4,024
2,343
2,054
—
33,296 $

3,961
2,400
2,049
—
33,373 $

6,219
2,903
—
—
36,586 $

6,020
2,979
—
—
36,249

As of December 31, 2008 , a total of four U.S. Government agencies, one collateralized mortgage obligations and two SBA

pools make up the total amount of securities in an unrealized loss position for greater than 12 months. Management periodically
evaluates each available-for-sale investment security in an unrealized loss position to determine if the impairment is temporary or
other than temporary. Management has determined that no investment security is other than temporarily impaired. The unrealized
losses are due solely to interest rate changes and the Bank has the ability and intent to hold all investment securities with identified
impairments resulting from interest rate changes to the earlier of the forecasted recovery or the maturity of the underlying investment
security. As of December 31, 2008, we did not have any investment securities that constituted 10% or more of the stockholders’
equity of any third party issuer.

The following table summarizes the maturity and repricing schedule of our investment securities at their amortized cost and

their weighted average yields at December 31, 2008:

Investment Maturities and Repricing Schedule
(Dollars in Thousands)

Within One Year
Amount Yield

Within Five Years
Yield
Amount

Within Ten Years
Yield
Amount

After Ten Years
Amount Yield

Total

Amount

Yield

After One But

After Five But

Available-for-sale:
Securities of U.S. government agencies..... $
Collateralized mortgage obligations ..........
Municipal securities ...................................
SBA Pools ..................................................
Asset Backed Security................................

Total Investment Securities................... $

88
0
510
0
0
598

4.59% $
0%
5.81%
0%
0%
5.63% $

823
0
851
0
198
1,872

2,488
4.25% $
0
0%
8,610
5.47%
0
0%
6.49%
0
5.04% $ 11,098

0%
5.90%
0%
0%

5.28% $ 22,141
3,439
0
1,821
0
5.76% $ 27,401

5.25% $ 25,541
3,439
4.12%
9,971
0%
1,821
1.41%
198
0%
4.86% $ 40,969

5.22%
4.12%
5.86%
1.41%
6.49%
5.12%

Interest income and yields in the above table have not been adjusted to a fully tax equivalent basis.

Other Earning Assets

For various business purposes, we make investments in earning assets other than the interest-earning securities discussed
above. Before 2007, the only other earning assets held by us were insignificant amounts of Federal Home Loan Bank stock, Federal
Reserve Bank stock and the cash surrender value on the Bank Owned Life Insurances (“BOLI”). Balances of the Federal Home Loan
Bank stock, Federal Reserve Bank stock and the BOLI cash surrender value as of December 31, 2008 were $3.8 million, $751,000 and
$9.9 million, respectively. The BOLI increase of $5.1 million was primarily due to the purchase of $4.7 million in BOLI policies for
certain officers.

During 2007, we invested in a low-income housing tax credit funds (“LIHTCF”) to promote our participation in CRA

activities. We committed to invest $1 million, over the next two to three years. We anticipate receiving the return following this two to
three year period in the form of tax credits and tax deductions over the next fifteen years.

The balances of other earning assets as of December 31, 2008 and December 31, 2007 were as follows:

Dollars in Thousands
Type ........................................................................................................
BOLI .......................................................................................................
LIHTCF ..................................................................................................
Federal Reserve Bank Stock ...................................................................
Federal Home Loan Bank Stock .............................................................

$
$
$
$

Balance as of December
31, 2008

Balance as of December
31, 2007

9,859 $
846 $
751 $
3,804 $

4,749
323
670
2,283

Deposits and Other Sources of Funds

Deposits

Total deposits at December 31, 2008, and 2007 were $378.2 million, and $377.3 million, respectively, representing an
increase of $0.9 million or 0.2%, in 2008. The average deposits for the years ended December 31, 2008 decreased $4.0 million or
1.1% to $365.5 million compared to $369.5 million at December 31, 2007.

Deposits are the Bank’s primary source of funds. Due to strategic emphasis by management, core deposits (consisting of

DDA, NOW, Money Market and Savings accounts) increased by 3.7% in 2008 to $287.6 million at December 31, 2008. As a result,
the percentage of core deposits to total deposits increased to 76.0% from 73.5% as of December 31, 2008 as compared to
December 31, 2007. The average rate paid on time deposits in denominations of $100,000 or more was 3.92% and 5.20% for the
years ended December 31, 2008, and 2007, respectively. See “Net Interest Income and Net Interest Margin” for further discussion.

The following tables summarize the distribution of average daily deposits and the average daily rates paid for the periods

indicated:

Dollars in Thousands

2008

Average Deposits
2007

2006

Average
Balance

Average
Rate

Average
Balance

Average
Rate

Average
Balance

Average
Rate

Demand, noninterest-bearing ..... $
Money market ............................
NOW..........................................
Savings.......................................
Time certificates of deposit of

$100,000 or more...................
Other time deposits ....................
Total deposits............................. $

61,554
149,202
54,160
15,563

40,172
44,846
365,497

0.00% $
2.40%
0.71%
1.66%

3.92%
3.21%
1.98% $

58,468
125,574
53,634
16,745

66,007
49,118
369,546

0.00% $
3.62%
1.05%
3.33%

49,966
117,635
49,071
21,644

5.20%
4.34%
3.04% $

70,937
52,124
361,377

0.00%
3.43%
1.11%
3.01%

4.49%
4.26%
2.94%

The scheduled maturities of our time deposits in denominations of $100,000 or greater at December 31, 2008 are, as

follows:

Maturities of Time Deposits of $100,000 or More
(Dollars in Thousands)

Three months or less ..............................................................................................................................................
Over three months through six months ..................................................................................................................
Over six months through twelve months ...............................................................................................................
Over twelve months ...............................................................................................................................................
Total.......................................................................................................................................................................

19,121
7,462
7,512
9,945
44,040

Because our client base is comprised primarily of commercial and industrial accounts, individual account balances are
generally higher than those of consumer-oriented banks. A number of clients carry deposit balances of more than 1% of our total
deposits, but only one customer had a deposit balance of more than 3% of total deposits in 2008.

The only brokered deposit the Bank holds are from CDARS, a certificate of deposit program that exchanges funds with
other network banks to offer full FDIC insurance coverage to the customer. The bank had $10.5 million in brokered deposits as of
December 31, 2008 and none at December 31, 2007.

FHLB Borrowings

Although deposits are the primary source of funds for our lending and investment activities and for general business

purposes, we may obtain advances from the Federal Home Loan Bank of San Francisco (“FHLB”) as an alternative to retail deposit
funds. Our outstanding FHLB advances increased by $38.0 million to $69.0 million at year-end 2008 compared to the prior year as a
result of our emphasis on managing non-relationship, high cost CD’s. See “Liquidity Management” below for the details on the
FHLB borrowings program.

The following table is a summary of FHLB borrowings for fiscal years 2008 and 2007:

Dollars in Thousands
Balance at year-end.................................................................................................................
Average balance during the year.............................................................................................
Maximum amount outstanding at any month-end...................................................................
Average interest rate during the year ......................................................................................
Average interest rate at year-end ............................................................................................

$
$
$

2008

2007

69,000 $
59,441 $
79,100 $
2.50%
1.51%

31,000
33,455
61,125
5.17%
4.70%

Asset/Liability Management

Management seeks to ascertain optimum and stable utilization of available assets and liabilities as a vehicle to attain our
overall business plans and objectives. In this regard, management focuses on measurement and control of liquidity risk, interest rate
risk and market risk, capital adequacy, operation risk and credit risk.

Liquidity Management

Maintenance of adequate liquidity requires that sufficient resources be available at all time to meet our cash flow

requirements. Liquidity in a banking institution is required primarily to provide for deposit withdrawals and the credit needs of its
customers and to take advantage of investment opportunities as they arise. Liquidity management involves our ability to convert assets
into cash or cash equivalents without incurring significant loss, and to raise cash or maintain funds without incurring excessive
additional cost. For this purpose, we maintain a portion of our funds in cash and cash equivalents, loans and securities available for
sale. Our liquid assets at December 31, 2008 and 2007 totaled approximately $60.9 million, and $59.9 million, respectively. Our
liquidity level measured as the percentage of liquid assets to total assets was 12.0%, and 13.2% at December 31, 2008, and 2007,
respectively.

As a secondary source of liquidity, we rely on advances from the FHLB to supplement our supply of lendable funds and to

meet deposit withdrawal requirements. Advances from the FHLB are typically secured by a portion of our loan portfolio and stock
issued by the FHLB. The FHLB determines limitations on the amount of advances by assigning a percentage to each eligible loan
category that will count towards the borrowing capacity. As of December 31, 2008, our borrowing capacity from the FHLB was about
$107 million and the outstanding balance was $69 million, or approximately 64% of our borrowing capacity. We also maintain 2 lines
of credit with correspondent banks to purchase up to $20 million in federal funds.

Capital Resources and Capital Adequacy Requirements

In the past two years, our primary source of capital has been internally generated operating income through retained

earnings. At December 31, 2008, total shareholders’ equity increased to $58.0 million, representing an increase of $15.6 million from
December 31, 2007. In December 2008, the Bank was selected to participate in the U.S. Treasury Capital Purchase Program which
demonstrates the confidence the U.S. Treasury Department has in the stability of the Bank. The Bank issued $13.5 million in preferred
stock and intends to use the capital to increase credit availability to local, creditworthy, businesses and consumers. The preferred stock
shares have a 5% coupon for 5 years and 9% thereafter. Warrants to purchase 350,346 shares of common stock at a per share exercise
price of $5.78 are attached and fully exercisable. The warrants expire 10 years after the issuance date. The securities issued to the
Treasury will be accounted for as components of regulatory Tier 1 capital.

As of December 31, 2008, we had no material commitments for capital expenditures other than the preferred stock dividend

payments due to the U.S. Treasury Department.

We are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet

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

about components, risk weightings, and other factors. (See “Description of Business-Regulation and Supervision-Capital Adequacy
Requirements” herein for exact definitions and regulatory capital requirements.)

As of December 31, 2008, we were qualified as a “well capitalized institution” under the regulatory framework for prompt
corrective action. The following table presents the regulatory standards for well-capitalized institutions, compared to our capital ratios
as of the dates specified:

Total capital to risk-weighted assets ..................................
Tier I capital to risk-weighted assets..................................
Tier I capital to average assets ...........................................

Recently Issued Accounting Standards

Regulatory Well-
Capitalized Standards

December 31, 2008

December 31, 2007

10.0%
6.0%
5.0%

13.3%
12.1%
11.8%

11.1%
10.0%
9.4%

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,”
(“SFAS 157”) which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. SFAS
157 defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. This
Statement applies under other accounting pronouncements that require or permit fair value measurements. The Statement indicates,
among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the
principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or
liability. SFAS 157 defines fair value based upon an exit price model. Relative to SFAS 157, the FASB proposed FASB Staff
Positions (FSP) 157-a, 157-b, and 157-c. FSP 157-a amends SFAS 157 to exclude Financial Accounting Standards No. 13,
“Accounting for Leases,” and its related interpretive accounting pronouncements that address leasing transactions, while FSP 157-b
delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis. FSP 157-c clarifies the principles in SFAS 157 on the fair value
measurement of liabilities. Public comments on FSP 157-a and 157-b were due in January 2008, while public comments on FSP 157-c
were due in February 2008. The Company adopted this pronouncement effective January 1, 2008 and has determined that this
Standard has not had a material impact on the Company’s financial position, results of operations or cash flows.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial

Assets and Financial Liabilities” (“SFAS 159”), which permits entities to choose to measure many financial instruments and certain
other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities using different measurement techniques. SFAS 159
requires additional disclosures related to the fair value measurements included in the entity’s financial statements. This Statement is
effective for financial statements issued for fiscal years beginning after November 15, 2007. Accordingly, the Company adopted
SFAS in the first quarter of 2008. The Company did not elect the fair value option for any of its financial assets or liabilities.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business

Combinations” (“SFAS 141(R)”), which replaces Statement of Financial Accounting Standards No. 141, “Business Combinations”
(“SFAS 141”). SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be
accounted for at fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the
acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling
interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after
the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business
combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008,
with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends
SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with
acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is
not permitted. The Company is currently evaluating the potential impact this Statement may have on the Company’s future financial
position, results of operations and cash flows.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in

Consolidated Financial Statements-an amendment of ARB No. 51.” (“SFAS 160”). SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. The Statement requires
the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the
parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on
the face of the income statement. The Statement also amends certain of ARB No. 51’s consolidation procedures for consistency with

the requirements of SFAS 141(R). This Statement also includes expanded disclosure requirements regarding the interests of the parent
and its noncontrolling interest. The Company is currently evaluating the potential impact this Statement may have on the Company’s
financial position, results of operations and cash flows, but does not believe the impact of the adoption will be material.

FASB Emerging Issues Task Force (“EITF”) Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement

Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements.” EITF 06-4 requires the recognition of a liability and
related compensation expense for bank owned life insurance policies with joint beneficiary agreements that provide a benefit to an
employee that extends to post-retirement periods. Under EITF 06-4, life insurance policies purchased for the purpose of providing
such benefits do not effectively settle an entity’s obligation to the employee. Accordingly, the entity must recognize a liability and
related compensation expense during the employee’s active service period based on the future cost of insurance to be incurred during
the employee’s retirement. If the entity has agreed to provide the employee with a death benefit, then the liability for the future death
benefit should be recognized by following the guidance in SFAS 106, “Employer’s Accounting for Postretirement Benefits Other
Than Pensions.” EITF 6-04 was effective for fiscal years beginning after December 17, 2007. The Bank adopted this pronouncement
effective January 1, 2008 and has recorded an initial liability of $119,842 with an offsetting adjustment to retained earning of $70,459
and deferred taxes of $49,383, pursuant to this accounting pronouncement.

Impact of Inflation; Seasonality

Inflation primarily impacts us by its effect on interest rates. Our primary source of income is net interest income, which is

affected by changes in interest rates. We attempt to limit the impact of inflation on our net interest margin through management of
rate-sensitive assets and liabilities and the analysis of interest rate sensitivity. The effect of inflation on premises and equipment as
well as noninterest expenses has not been significant for the periods covered in this report. Our business is generally not seasonal.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements and the independent auditors’ report appear on pages F-1 through F-33 of this Report and

are incorporated into this Item 8 by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K (as required by paragraph (b) of
Rule 13a-15 under the Securities Exchange Act of 1934 (the Exchange Act)), the Registrant’s principal executive officer and principal
financial officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the
Exchange Act) were effective to ensure that information required to be disclosed by the Company in reports that it files or submits
under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Oak Valley Bancorp and its subsidiary (the Company) is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act
of 1934. The Company’s management, including the chief executive officer and chief financial officer, has assessed the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2008, presented in conformity with accounting
principles generally accepted in the United States of America. In making this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -Integrated Framework. Based
on this assessment, management concluded that, as of December 31, 2008, the Company’s internal control over financial reporting
was effective based on those criteria.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered
public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide
only management’s report in this annual report.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.

Directors and Executive Officers

The current executive officers and directors of the Bank and of Oak Valley Bancorp are as follows:

Donald Barton, 51, has been a director of the Bank since 2006 and of Oak Valley Bancorp since 2008. Mr. Barton is the
managing partner at GoldRiver Orchards, a local walnut processing operation which his family started since 1912. He is a Stanford
graduate and earned his MBA from Santa Clara University. Mr. Barton is an Oakdale resident.

Christopher M. Courtney, 46, has been the Bank’s President since August of 2004 and a director since January 2007. He

has been Oak Valley Bancorp President and Director since May 2008. Previously, he has served as the Bank’s Chief Credit Officer
and Chief Operating Officer since 1999 and 2000, respectively. Mr. Courtney has 20 years of diverse banking experience, joining
Oak Valley Community Bank in 1996, as a lender, after working for a major bank, a mid-size bank and a small community bank. He
graduated from Wells Fargo Bank Credit Training Program in 1989. Mr. Courtney has a B.S. in Finance and a Masters in Business
Administration from California State University, Sacramento. He is also a graduate of the Pacific Coast Banking School at the
University of Washington.

James L. “Jay” Gilbert, 64, has been a Director of the Bank since 1992 and of Oak Valley Bancorp since 2008.
Mr. Gilbert has lived in Oakdale since 1946. Mr. Gilbert is an owner of A.L.Gilbert Co, and he has been involved in the feed and seed
business as well as retail feed stores for 39 years. Mr. Gilbert has also been engaged in and almond farming for more than 30 years.

Thomas A. Haidlen, 62, has been a director of the Bank since 1992 and of Oak Valley Bancorp since 2008. Mr. Haidlen

was born in Oakdale and has resided in Oakdale for over 50 years. He owns and operates the Haidlen Ford Dealership in Oakdale;
established in Oakdale in 1955.

Michael Q. Jones, 63, has been a director of the Bank since 2004 and of Oak Valley Bancorp since 2008. Mr. Jones has

been a resident of Sonora since 1974. Mr. Jones has served as the Chairman of California Gold Development Corporation since 1974,
and has been the owner of the Prudential California Realty in Sonora since 2002.

Arne J. Knudsen, 70, is a director of the Bank and of Oak Valley Bancorp. Mr. Knudsen is also the Secretary of the Bank
and of Oak Valley Bancorp. Mr. Knudsen has been a resident of Oakdale since 1960. He owns and operates Knudsen Nursery, Inc., a
wholesale nursery operation which he founded in 1959.

Ronald C. Martin, 62, has served as a director and Chief Executive Officer of the Bank since 1992. He was also the
Bank’s President until August 2004. He has been Oak Valley Bancorp Chief Executive Officer and a Director since May 2008.
Mr. Martin began his banking career in 1977 with River City Bank in Sacramento. Between 1977 and 1987 he was employed in the
Sacramento area and from December 1987 to January 1992 he served as President and Chief Executive Officer of Butte Savings in
Chico, California. Mr. Martin has a B.S. in Finance from the University of Arizona.

Richard A. McCarty, 37, has been the Executive Vice President and Chief Financial Officer since 2000 and Chief

Administration Officer since 2008. He has been Oak Valley Bancorp Executive Vice President and Chief Financial Officer since
May 2008. Mr. McCarty first joined Oak Valley in 1996, leaving in 1997 to work for Del Monte Foods Corporation, where he spent
two years before returning to Oak Valley Community Bank in 1999. Mr. McCarty has a B.S. in Finance from California State
University, Stanislaus.

Roger M. Schrimp, 67, has been a director of the Bank since 1992 and of Oak Valley Bancorp since 2008. Mr. Schrimp

has practiced law in Oakdale since 1967. He is a senior partner in the Modesto Law Firm of Damrell, Nelson, Schrimp, Pallios &
Ladine, and owns and operates a cattle ranch.

Danny L. Titus, 64, has been a director of the Bank since 1992 and of Oak Valley Bancorp since 2008. Mr. Titus has

served as the President of Situs Investments, Inc. since 1989 which manages real estate and investments. During the period of from
1979 to 1988, Mr. Titus was the general manager of Steelgard, Inc. which manufacturers portable buildings.

Richard J. Vaughan, 71, has been a director of the Bank since 1992 and of Oak Valley Bancorp since 2008. Mr. Vaughan
owns Vaughan Farms, operating in Waterford and Oakdale, California. Mr. Vaughan has been involved with agribusiness since 1961.
Corporate Governance Principles and Board Matters

We are committed to having sound corporate governance principles. Having such principles is essential to running our business

efficiently and to maintaining our integrity in the marketplace.

We have adopted a Code of Ethics that applies to our directors, executive officers, employees and consultants. Our Chief
Executive Officer and all senior financial officers, including the Chief Financial Officer, are bound by such Code of Ethics which is
posted on our Internet website at www.ovcb.com.

Board Independence

The Board has determined that each of the current directors standing for re-election, except for Messrs. Martin and Courtney, is
independent under the Nasdaq director independence standards set forth in Marketplace Rules 4200 and 4350, as currently in effect.

Director Qualifications

We believe that our directors should have the highest professional and personal ethics and values, consistent with longstanding
our values and standards. They should have broad experience at the policy-making level in business, government, or banking. They
should be committed to enhancing shareholder value and should have sufficient time to carry out their duties and to provide insight
and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that
permits them, given their individual circumstances, to perform responsibly all director duties. Each director must represent the
interests of all shareholders.

We also believe that it is necessary that the majority of our Board of Directors must be comprised of independent directors as set

forth in the Nasdaq Marketplace Rules 4200 and 4350 and desirable to have at least one financial expert on the Board of Directors
who serves on our Audit Committee as set forth in Section 401(h) of Regulation S-K under the federal securities laws. When
considering potential director candidates, the Board also considers the candidate’s character, judgment, diversity, age, skills, including
financial literacy, and experience in the context of our needs and the Board of Directors.

Identifying and Evaluating Nominees for Directors

The Board and the Nominating Committee utilize a variety of methods for identifying and evaluating nominees for director.
Directors regularly assess the appropriate size of the Board, and whether any vacancies on the Board are expected due to retirement or
otherwise. In the event that vacancies are anticipated, or otherwise arise, the Board considers various potential candidates for director.
Candidates may come to the attention of the Board through current Board members, shareholders or other persons. These candidates
are evaluated at regular or special meetings of the Board and the independent directors meeting separately, and may be considered at
any point during the year. As described above, the Board considers properly submitted shareowner nominations for candidates for the
Board. Following verification of the shareowner status of persons proposing candidates, recommendations are aggregated and
considered by the Board at a regularly scheduled meeting, which is generally the first or second meeting prior to the issuance of the
proxy statement for our annual meeting. If any materials are provided by a shareholder with the nomination of a director candidate,
such materials are forwarded to the Board. In evaluating such nominations, the Board seeks to achieve a balance of knowledge,
experience and capability on the Board.

Shareholder Communications with the Board of Directors

The Board of Directors has established a process for shareholders to communicate with the Board of Directors or with individual

directors. Shareholders who wish to communicate with the Board of Directors or with individual directors should direct written
correspondence to our Corporate Secretary, Arne J. Knudsen, at our principal executive offices located at 125 North Third Avenue,
Oakdale, California 95361. Any such communication must contain (i) a representation that the shareholder is a holder of record of
stock of the Bank, (ii) the name and address, as they appear on our books, of the shareholder sending such communication and (iii) the
class and number of shares that are beneficially owned by such shareholder. The Corporate Secretary will forward such
communications to the Board of Directors or the specified individual director to whom the communication is directed unless such
communication is unduly hostile, threatening, illegal or similarly inappropriate, in which case the Corporate Secretary has the
authority to discard the communication or to take appropriate legal action regarding such communication.

Director Compensation and Indemnification Arrangements

Director Fees. Non-employee Directors receive a cash retainer in the amount of $2,000 per month. Directors who are employees

of the Bank do not receive any compensation for service as a director.

Director Retirement Agreements. On August 21, 2001, the Board of Directors authorized the Bank to enter into Director
Retirement Agreements with each director. The agreements are intended to encourage existing directors to remain directors of the
Bank, assuring the Bank that it will have the benefit of the directors’ experience and guidance in the years ahead.

For retirement after the later of age 72 (the “Normal Retirement Age”), the Director Retirement Agreements provide an annual

benefit during the director’s lifetime of $12,000 for 10 years. If a director retires or becomes disabled before the Normal Retirement
Age, he will receive a lump-sum payment in an amount equal to the retirement liability balance accrued by the Bank at the time of
early retirement or disability. If a change in control of the Bank occurs (as defined in the Director Retirement Agreements) and a
director’s service terminates within 24 months after the change in control, the director will receive the retirement liability balance
accrued by the Bank payable to the director for retirement at the Normal Retirement Age. In December of 2001, the Bank purchased
insurance policies on the lives of its directors, paying the premiums for these insurance policies with one lump-sum premium payment
of approximately $1,045,000. In 2008 we spent $1,580,000 in cash value premium paid to purchase additional BOLI insurance
coverage for directors.

Although the Bank expects the policies on the directors’ lives to serve as a source of funds for benefits payable under the Director

Retirement Agreements, the contractual entitlements arising under the Director Retirement Agreements are not funded and remain
contractual liabilities of the Bank, payable upon each director’s termination of service. The policy interests are divided between the
Bank and each director. Under the Bank’s Split Dollar Agreements and Split Dollar Policy endorsements with the directors, the Bank
is entitled to any insurance policy death benefits remaining after payment to the director’s beneficiary. The Bank expects to recover
the premium in full from its portion of the policies’ death benefits. If a director is terminated for cause, the Bank will not pay any
benefits under his Director Retirement Agreement. For this purpose, the term “cause” means a director’s gross negligence or gross
neglect of duties, fraud, disloyalty, dishonesty or willful violation of law or significant bank policies in connection with the director’s
service that results in an adverse effect on the Bank.

Stock Options. None of the non-employee directors was granted any stock options during 2008. As of December 31, 2008, the
non-employee directors held outstanding, fully exercisable stock options to purchase the following amounts of our common stock, all
with exercise prices ranging from $3.46 to $13.25 per share, and all with expiration dates no late than 2016:

Non-Employee Directors
Donald Barton ............................................................
James L. “Jay” Gilbert................................................
Thomas A. Haidlen.....................................................
Michael Q. Jones ........................................................
Arne J. Knudsen .........................................................
Roger M. Schrimp ......................................................
Danny L. Titus............................................................
Richard J. Vaughan ....................................................

Options

2,000
2,500
3,375
2,250
0
0
0
16,875

Indemnification. Our Articles of Incorporation limit the liability of our directors to us or our shareholders for breaches of the

directors’ fiduciary duties to the fullest extent permitted by California law. In addition, our Articles of Incorporation and Bylaws
provide for mandatory indemnification of directors and officers to the fullest extent permitted by California law. We also maintain
directors’ and officers’ liability insurance.

Board Structure and Committee Composition

Our Board had 10 directors and the following five committees:

• Audit,

• Loan

• Investment,

• Compensation, and

• CRA Committee.

The membership during the last fiscal year and the function of each of the committees are described below. During 2008, the
Board of the Bank held twelve meetings while the Board of the Company held four meetings. . Each director attended at least 75% of
all Board and applicable committee meetings. Directors are encouraged to attend annual meetings of our shareholders. All ten
directors attended the last annual meeting of shareholders.

Audit Committee

We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange

Act. The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of our financial
statements, our compliance with legal and regulatory requirements, the independent auditors’ qualifications and independence, the
performance of our internal audit function and independent auditors, and risk assessment and risk management. Among other things,
the Audit Committee prepares the Audit Committee report for inclusion in the annual proxy statement; annually reviews the Audit
Committee charter and the committee’s performance; appoints, evaluates and determines the compensation of our independent
auditors; reviews and approves the scope of the annual audit, the audit fee and the financial statements; reviews our disclosure controls
and procedures, internal controls, internal audit function, and corporate policies with respect to financial information and earnings
guidance; oversees investigations into complaints concerning financial matters; and reviews other risks that may have a significant
impact on our financial statements. The Audit Committee works closely with management as well as our independent auditors. The
Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from us for, outside legal,
accounting or other advisors as the Audit Committee deems necessary to carry out its duties.

The Board of Directors has adopted a written charter for the Audit Committee. In 2008 the members of the Audit Committee were

Messrs. Schrimp (Chairman), Haidlen, Knudsen, Barton, Titus and Vaughan are members of the Audit Committee. The Audit
Committee held five meetings during fiscal 2008. The Board has determined that all members of the Audit Committee are
“independent” as that term is defined in Rules 4200(a)(15) of the Nasdaq Marketplace Rule and Rule 10A-3(b)(1) under the Exchange
Act.

The Board of Directors has determined that Mr. Schrimp is qualified as an “audit committee financial expert” under Item

401(h) of Regulation S-K.

Audit Committee Report

The Audit Committee reports as follows with respect to the audit of our fiscal 2008 audited financial statements:

Management is responsible for the Bank’s internal controls and the financial reporting process. The independent auditors are

responsible for performing an independent audit of the Bank’s financial statements in accordance with auditing standards generally
accepted in the United States and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these
processes.

In this context, the Audit Committee has met and held discussions with management and the independent auditors. Management

represented to the Audit Committee that the Bank’s financial statements were prepared in accordance with accounting principles
generally accepted in the United States, and the Audit Committee has reviewed and discussed the financial statements with
management and the independent auditors. The Audit Committee discussed with the independent auditors matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).

The Bank’s independent auditors also provided to the Audit Committee the written disclosures required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee discussed with the
independent auditors that firm’s independence and considered the compatibility of non-audit services with the independent auditors’
independence.

Compensation Committee

The Compensation Committee establishes our compensation policy, determines the compensation paid to our executive officers

and non−employee directors, recommends executive incentive compensation plans and equity−based plans and approves other
compensation plans and retirement plans. The Compensation Committee approves corporate goals related to the compensation of the
executive officers, evaluates the executive officers’ performance and compensates the executive officers based on this evaluation.
Messrs. Schrimp (Chairman), Barton, Gilbert, Haidlen, Jones, Knudsen, Titus and Vaughan are current members of the Compensation
Committee. The Compensation Committee held two meetings during fiscal 2008.

The Board has determined that all members of the Compensation Committee are “independent” as that term is defined in

Rule 4200(a)(15) of the Nasdaq Marketplace Rules.

General Compensation Policy. The Compensation Committee’s policy is to provide our executive officers with compensation
opportunities which are based upon their personal performance, the financial performance of the Bank and their contribution to that
performance and which are competitive enough to attract and retain highly skilled individuals. Each executive officer’s compensation
package is comprised of three elements: (i) base salary that is competitive with the market and reflects individual performance,
(ii) annual variable performance awards payable in cash and tied to the achievement of annual financial, strategic and operational
objectives in addition to individual contributions to these objectives and (iii) long-term stock-based incentive awards designed to
strengthen the mutual interest of our executive officers and its shareholders. As an officer’s level of responsibility increases, a greater
proportion of his or her total compensation will be dependent upon the company’s financial performance and stock price appreciation
rather than base salary.

Base Salary. Executive officer base salaries are determined annually with reference to Bank and individual performance. Base

salaries are based on a number of measures, including comparisons with salaries and compensation programs of banks with
comparable asset size, capitalization and performance. Our current practice is not to provide employment contracts to any of its
executive officers. If any additional employment contracts should ever be considered necessary and beneficial to us, such a contract
would require individual assessment by the Board of Directors.

Annual Incentives. The Committee considers annual Bank profitability goals and individual performance goals in determining

annual bonuses for the executive officers. Based on the foregoing factors and the Bank’s performance in 2008, variable compensation
was awarded to the Bank’s executive officers named in the Summary Compensation Table in the indicated amounts.

Long-term incentives. Stock option grants are made at the discretion of the Board. Each grant is designed to align the interests

of the executive officer with those of the shareholders and provide each individual with a significant incentive to manage the Bank
from the perspective of an owner with an equity stake in the business. Each grant allows the officer to acquire shares of the Bank’s
common stock at a fixed price per share consistent with the market price on the grant date over a specified period of time (up to ten
years). Each option becomes exercisable in a series of installments over a five year period, contingent upon the officer’s continued
employment with the Bank. Accordingly, the option will provide a return to the executive officer only if he or she remains employed
by the Bank during the vesting period, and then only if the market price of the shares appreciates over the option term.

The size of the option grant to each executive officer is set by the Compensation Committee at a level that is intended to create a

meaningful opportunity for stock ownership based upon the individual’s current position with the Bank, the individual’s personal
performance in recent periods and his or her potential for future responsibility and promotion over the option term. The Compensation
Committee also takes into account the number of unvested options held by the executive officer in order to maintain an appropriate
level of equity incentive for that individual. The relevant weight given to each of these factors varies from individual to individual.
The Compensation Committee has established certain guidelines with respect to the option grants made to the executive officers, but
has the flexibility to make adjustments to those guidelines at its discretion. Pending an assessment of the impact of ARRA on
executive compensation, the Compensation Committee has suspended any new option grants to our principal executive officer.

Retirement plans. The Bank maintains a plan that complies with the provisions of Section 401(k) of the Internal Revenue Code.
Substantially all employees are eligible to participate in this plan, and eligibility for participation commences upon hiring. The Bank’s
executive officers are eligible to participate in this program, subject to any applicable tax laws.

Loan Committee

The Loan Committee monitors the activities of our lending function utilizing information presented to it by management at
regular meetings. This includes, but is not limited to, the review of trends in outstanding credit relationships, key quality measures,
significant borrowing relationships, large problem loans, industry concentrations, all significant lending policies, and the adequacy of
the allowance for loan losses. The Loan Committee also reviews lending-related reports from regulators, auditors, and internal
personnel.

Each member of the Board of Directors also served on the Loan Committee throughout 2008 and as of December 31, 2008.

Mr. Haidlen serves as Chairman of the Committee. The Director Loan Committee held 24 meetings during fiscal 2008.

Investment Committee

The Investment Committee reviews, identifies and classifies our assets based on credit risk, in accordance with regulatory
guidelines. The Committee is also responsible for reviewing asset valuation and classification policies, as well as developing and

monitoring asset disposition. In addition, the Committee reviews and monitors the Bank’s investment portfolio, liquidity position and
the risk of our interest-earning assets in comparison to its interest-bearing liabilities.

Messrs. Courtney, Gilbert, Jones, Knudsen, Martin, Titus and Vaughn served on the Investment Committee throughout 2008 and
as of December 31, 2008. Mr. Vaughn serves as Chairman of the Committee. The Committee held four meetings during fiscal 2008.

CRA Committee

The CRA Committee is responsible for oversight of our performance under the requirements of the Federal Community

Reinvestment Act of 1977 and similar state law requirements. Messrs. Courtney, Gilbert, Jones, Knudsen, Martin, Titus served on the
CRA Committee throughout 2008 and as of December 31, 2008. Mr. Titus serves as Chairman of the Committee. The CRA
Committee held three meetings during fiscal 2008.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s officers and directors, and persons

who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. To the best knowledge of the Company, there are no holders with 10% or
more of the Company’s common stock.

Based solely on a review of the copies of the reports furnished to us, or written representations that no reports were required to be
filed, we believe that during the fiscal year ended December 31, 2008 all Section 16(a) filing requirements applicable to our directors,
officers, and greater than 10% beneficial owners, if any, were complied with, except that Donald Barton failed to timely report three
transactions on Form 4.

ITEM 11 - EXECUTIVE COMPENSATION.

Summary of Cash and Certain Other Compensation

The following table provides certain summary information concerning the compensation earned, by our Chief Executive Officer,

and the two most highly compensated executive officers for services rendered in all capacities to us for the fiscal years ended
December 31, 2008 and 2007 in their respective executive officer capacities with the Bank:

SUMMARY COMPENSATION TABLE

Name and Principal
Position
Ronald C. Martin ..................
Director and CEO .............

Christopher M. Courtney ......
Director and President.......

Richard A. McCarty..............
Executive Vice President

CAO/CFO .....................

Year
2008
2007

2008
2007

$
$

Annual Compensation
Salary

Bonus

254,960 $
248,000 $

Other
Compensation(1)
9,000
9,000

48,000 $
81,250 $

192,750 $
187,000 $

50,000 $
81,250 $

163,825 $
$
159,000

41,000 $
$
66,625

7,800
7,800

Long Term
Compensation
Awards
Securities
Underlying
Options

All
Other
Compensation(2)

— $
— $

75,748
42,510

64,564
61,089

49,320
46,140

(1)

(2)

Reflects automobile allowances.

Amounts shown for Mr. Martin include (a) for 2008, $57,466 representing executive salary continuation plan accrual which
vests as described under “Employment and Salary Continuation Agreements”, $14,094 in 401(k) plan matching contributions
and $4,188 representing director retirement plan accrual; (b) for 2007, $23,369 for accrued and unused vacation paid, $15,375
in 401(k) plan matching contributions and $3,766 representing director retirement plan accrual.

Amounts shown for Mr. Courtney include (a) for 2008, $36,105 representing executive salary continuation plan accrual which
vests as described under “Employment and Salary Continuation Agreements”, $17,793 for accrued and unused vacation paid
and $10,656 in 401(k) plan matching contributions; (b) for 2007, $34,017 representing executive salary continuation plan
accrual which vests as described under “Employment and Salary Continuation Agreements”, $15,822 for accrued and unused
vacation paid and $11,250 in 401(k) plan matching contributions.

Amounts shown for Mr. McCarty include (a) for 2008, $27,953 representing executive salary continuation plan accrual which
vests as described under “Employment and Salary Continuation Agreements”, $10,711 for accrued and unused vacation paid
and $10,656 in 401(k) plan matching contributions; (b) for 2007, $26,329 representing executive salary continuation plan
accrual which vests as described under “Employment and Salary Continuation Agreements”, $8,561 for accrued and unused
vacation paid and $11,250 in 401(k) plan matching contributions.

Option Grants in Last Fiscal Year

No individual grants of stock options were made during 2008 to each of the named executive officers in the Summary

Compensation Table.

Aggregated Option Exercises and Fiscal Year-End Option Values

The following table provides information about stock options exercised in 2008 and options held as of December 31, 2008 by
each of the executive officers named in the Summary Compensation Table. Actual gains on exercise, if any, will depend on the value
of our common stock on the date on which the shares are sold.

FISCAL 2008 OPTION VALUES

Shares Acquired
on Exercise (#)

Value

Number of Securities Underlying
Unexercised Options at
December 31, 2008 (#)(2)

Value of Unexercised In-the-
money Options at December 31,
2008 ($)(2)

Realized ($)(1)

Exercisable

Unexercisable

Exercisable

Unexercisable

Ronald C. Martin ................
Christopher M. Courtney ....
Richard A. McCarty............

0 $

10,125
0

0
26,201
0

27,000
67,500
50,528

6,750 $
6,750
4,500

0 $

102,781
82,550

Total....................................

10,125 $

26,201

145,028

18,000 $

185,330 $

0
0
0

(1) The value realized of shares acquired on exercise was determined by subtracting the exercise price from the fair market value of
the common stock on the exercise date multiplied by the number of shares acquired on exercise

(2) Options granted under our Stock Plans. “Exercisable” refers to those options which were both exercisable and vested while
“Unexercisable” refers to those options which were unvested.

Employment Contracts, Termination of Employment and Change in Control Arrangements

On August 21, 2001, the Board of Directors of the Bank approved Salary Continuation Agreements between the Bank and
Messrs. Courtney and McCarty. Under the Salary Continuation Agreements, Messrs. Courtney and McCarty are entitled to receive
maximum annual payments of $85,000 and $65,000, respectively, for a period of 20 years following their retirement at the age of 62
or upon a change in control, as defined in each salary continuation agreement. In the event of disability while employed at the Bank
prior to the age of 62, either executive will receive a benefit equal to the retirement liability balance accrued by the Bank at the time of
disability. In the event of early termination, either executive will receive a vested portion of his retirement liability balance accrued by
the Bank at the time of such early retirement. The vesting schedule is 20% per year of service beginning with the sixth year of
service. In the event the Executive dies prior to termination of his salary continuation agreement, the beneficiary of such executive
will receive from the Bank a lump sum death benefit amount.

In December 2001, the Bank purchased insurance policies on the lives of Messrs. Courtney and McCarty, paying the premiums

for these insurance policies with one lump-sum premium payment of approximately $590,000. Under the Bank’s Split Dollar
Agreements and Split Dollar Policy endorsements, the policy interests are divided between the Bank and such executives. The Bank
is entitled to any insurance policy death benefits remaining after payment to the executive’s beneficiary.

If Messrs. Courtney or McCarty are terminated for cause, the Bank will not pay any benefits under the Salary Continuation

Agreement. For this purpose, the term “cause” means an executive’s gross negligence or gross neglect of duties, fraud, disloyalty,
dishonesty or willful violation of law or significant bank policies in connection with the executive’s service that results in an adverse
effect on the Bank.

In February 2008, the Board of Directors of the Bank approved an additional Salary Continuation Agreement in the same form
also for Ronald C. Martin. Under the Salary Continuation Agreement, Mr. Martin entitled to receive maximum annual payment of
$48,000 for a period of 10 years following his retirement at the age of 67 or upon a change in control, as defined in the salary
continuation agreement. In the event of disability while employed at the Bank prior to the age of 67, the executive will receive a
benefit equal to the retirement liability balance accrued by the Bank at the time of disability. In the event of early termination, the
executive will receive a vested portion of his retirement liability balance accrued by the Bank at the time of such early retirement. The
vesting schedule is 20% per year of service beginning with the first year of service. In the event the Executive dies prior to
termination of his salary continuation agreement, the beneficiary of such executive will receive from the Bank a lump sum death
benefit amount.

Impact of Emergency Economic Stabilization Act and American Recovery and Reinvestment Act

As a participant in the U.S. Treasury Capital Purchase Program (CPP) under the Emergency Economic Stabilization Act

(EESA), the Company will, as required, until such time as the U.S. Treasury ceases to own any securities of the Company, and during
the period in which any obligation arising from financial assistance provided under the CPP remains outstanding, take all necessary
action to ensure that its benefit and compensation arrangements applicable to its senior executive officers and other highly
compensated employees comply with Section 111(b) of EESA.

On February 17, 2009, the American Recovery and Reinvestment Act (ARRA) was signed into law. Section 7001 of ARRA
amended Section 111 of EESA in its entirety. While the U.S. Treasury must promulgate regulations to implement the restrictions and
standards set forth in Section 7001, ARRA, among other things, significantly expands the executive compensation restrictions
previously imposed by EESA. The Company will take all necessary action to ensure that its current executive compensation
arrangements comply with Section 7001 of ARRA, as applicable.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.

Ownership of Securities

The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of

March 30, 2009, by:

• each person known by us to be a beneficial owner of five percent (5%) or more of our common stock;

• each current director, each of whom is a nominee for election as a director; and

• all current directors and executive officers as a group.

Our common stock is the only class of voting securities outstanding. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and includes voting and investment power with respect to the securities. Except as
indicated in the notes following the table, and subject to applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The percentage of
beneficial ownership is based on 7,661,627 shares of common stock outstanding as of March 30, 2009. In computing the number of
shares beneficially owned by a person and the percentage ownership of that person, shares of our common stock subject to options
held by that person that are currently exercisable or will become exercisable within 60 days following March 30, 2009 are deemed
outstanding. However, these shares are not deemed outstanding for the purpose of computing the percentage ownership of any other
person or entity.

Beneficial Owner
Five Percent Shareholder: (4)

Common Stock Beneficially Owned (1)
on March 30, 2009

Shares
Beneficially
Owned

Vested
Option
Shares (2)

Percentage of
Shares
Beneficially
Owned (3)

Patrick W. Hopper .......................................................................................

711,707

N/A

9.29%

Executive Officers and Directors:(5)

James L. Gilbert...........................................................................................

143,561

Thomas A. Haidlen ......................................................................................

191,380

Michael Q. Jones..........................................................................................

11,520

Arne J. Knudsen...........................................................................................

342,160

Roger M. Schrimp........................................................................................

198,065

Danny L. Titus .............................................................................................

216,051

2,500

3,375

2,250

—

Richard J. Vaughan......................................................................................

88,000

16,875

Donald Barton..............................................................................................

10,000

2,000

Ronald C. Martin (6)....................................................................................

169,100

27,000

Christopher M. Courtney .............................................................................

47,871

74,250

Richard A. McCarty.....................................................................................

1,502

55,028

1.91%

2.54%

0.18%

4.47%

2.59%

2.82%

1.37%

0.16%

2.56%

1.59%

0.74%

All officers and directors as a group (11).....................................................

1,419,210

183,278

20.92%

(1) Except as otherwise noted, may include shares held by such person’s spouse (except where legally separated) and minor children,
and by any other relative of such person who has the same home; shares held in “street name” for the benefit of such person; shares
held by a family or living trust as to which such person is a trustee and primary beneficiary with sole voting and investment power (or
shared power with a spouse); or shares held in an Individual Retirement Account or pension plan as to which such person is the sole
beneficiary.

(2) Consists of shares which the applicable individual or group has the right to acquire upon the exercise of stock options which are
vested or will vest within 60 days of March 30, 2009 pursuant to the Company’s Stock Plans.

(3) This percentage is based on the total number of shares of our common stock outstanding, plus the number of option shares which
the applicable individual or group has the right to acquire upon the exercise of stock options which are vested or will vest within
60 days of March 30, 2009 pursuant to our Stock Plans.

(4) The address for Patrick Hopper is 2624 Pebblegold Avenue, Henderson, Nevada 89074.

(5) The address for all officers and directors is c/o Oak Valley Community Bank, 125 North Third Avenue, Oakdale, California
95361.

(6) Exclude third party participant shares held by Mr. Martin in his capacity as trustee of the Company’s 401(k) plan.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Loans to Directors and Officers in the Ordinary Course of Business

The Bank offers loans to directors, officers, and employees in the ordinary course of business on substantially the same terms,
including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to the lender, and
which do not involve more than the normal risk of collectibility or present other unfavorable features. All such loans were performing
in accordance with their terms as of the date of this registration statement. Federal regulations permit executive officers and directors
to participate in loan programs that are available to other employees, so long as the director or executive officer is not given
preferential treatment compared to other participating employees.

Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits a company from extending credit, arranging for the extension
of credit or renewing an extension of credit in the form of a personal loan one of its officers or directors. There are several exceptions
to this general prohibition, including loans made by an FDIC insured depository institution that is subject to the insider lending
restrictions of the Federal Reserve Act. All loans to our directors and officers comply with the Federal Reserve Act and the Federal
Reserve Board’s Regulation O and, therefore, are excepted from the prohibitions of Section 402.

Director Retirement Agreements; Bank-Owned Life Insurance Policies

On August 21, 2001, the Board of Directors authorized the Bank to enter into Director Retirement Agreements with each
director. The agreements are intended to encourage existing directors to remain directors of the Bank, assuring the Bank that it will
have the benefit of the directors’ experience and guidance in the years ahead.

For retirement after the later of age 72 or five years of service, the Director Retirement Agreements provide an annual

If a change in control of the Bank occurs (as defined in the Director Retirement Agreements) and a director’s service

terminates within 24 months after the change in control, the director will receive the retirement liability balance accrued by the Bank
payable to the director for retirement at age 72 or after five years of service.

In December of 2001, the Bank purchased insurance policies on the lives of its directors, paying the premiums for these

insurance policies with one lump-sum premium payment of approximately $1,045,000. Although the Bank expects the policies on the
directors’ lives to serve as a source of funds for benefits payable under the Director Retirement Agreements, the contractual
entitlements arising under the Director Retirement Agreements are not funded and remain contractual liabilities of the Bank, payable
upon each director’s termination of service.

The policy interests are divided between the Bank and each director. Under the Bank’s Split Dollar Agreements and Split
Dollar Policy endorsements with the directors, the Bank is entitled to any insurance policy death benefits remaining after payment to
the director’s beneficiary. The Bank expects to recover the premium in full from its portion of the policies’ death benefits.

If a director is terminated for cause, the Bank will not pay any benefits under his Director Retirement Agreement. For this

purpose, the term “cause” means a director’s gross negligence or gross neglect of duties, fraud, disloyalty, dishonesty or willful
violation of law or significant bank policies in connection with the director’s service that results in an adverse effect on the Bank.

On August 21, 2001, the Board of Directors of the Bank adopted the Oak Valley Community Bank Supplemental Life

Insurance Plan which applies to Messrs. Martin, Courtney and McCarty. The Plan is intended to encourage these key employees of
the Bank to continue their employment with the Bank. In December 2001, December 2002 and January 2003, the Bank purchased
single premium life insurance policies in the amounts of $951,000, $579,000 and $592,000, respectively, on the life of each of the
officers covered by the Plan. Under the Split Dollar Life Insurance Agreements to be entered into by the Bank with each such officer
in the Plan, the Bank is the owner of the policies and the partial beneficiary in an amount equal to the cash surrender values of the
policies.

Compensation of Non-employee Directors

Persons who are directors and are not employees of the Company receive $2,000 per month. There is no plan in place for
compensation of persons who are directors who are employees. In addition, non-employee Directors of the Company were eligible to
participate in the Company’s incentive stock plan. However, there were no stock options granted to non-employee directors in fiscal
year 2007 or 2008.
Director Compensation Table

The following table provides compensation information for the year ended December 31, 2008 for each non-employee Director

of the Company. Information related to Messrs. Martin and Courtney’s compensation is detailed in the “Summary Compensation
Table” set forth above.

DIRECTOR COMPENSATION TABLE

Fees Earned or
Paid in Cash

Stock Awards

Option Awards

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings

$
$
$
$
$
$
$
$

24,000 $
24,000 $
24,000 $
24,000 $
24,000 $
24,000 $
24,000 $
24,000 $

— $
— $
— $
— $
— $
— $
— $
— $

All Other
Compensation
(1)

$
$
$
$
$
$
$
$

1,301 $
5,293 $
4,022 $
5,820 $
13,868 $
8,585 $
5,178 $
16,067 $

Total

25,301
29,293
28,022
29,820
37,868
32,585
29,178
40,067

Name
Donald Barton........................
James L. Gilbert.....................
Thomas A. Haidlen ................
Michael Q. Jones....................
Arne J. Knudsen.....................
Roger M. Schrimp..................
Danny L. Titus .......................
Richard J. Vaughan................

(1) Represents amounts accrued under the Director Retirement Agreements between the Bank and each Director.

ITEM 14 — PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table presents fees for professional services rendered by Moss Adams LLP and billed to the Bank for the audit of
the Bank’s annual financial statements for the years ended December 31, 2008 and 2007, and fees for other services billed by Moss
Adams LLP during those periods:

Fees
Audit Fees .......................................................................
Audit-related Fees ...........................................................
Tax Fees ..........................................................................
All other Fees ..................................................................

104,377 $

40,000
12,278
18,275

2008

2007

Total ............................................................................

174,930

67,500
2,961
11,650
27,739

72,914

Audit Fees. Annual audit fees relate to services rendered in connection with the audit of the annual financial statements included

in our annual report.

Audit-Related Fees. Audit-related services include fees for consultations concerning financial accounting and reporting matters.

Tax Fees. Tax services include fees for tax compliance, tax advice and tax planning.

All Other Fees. The increase in all other fees is primarily attributable to tax advising work in the areas of enterprise zone and

costs aggregation work.

ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

PART IV

Index to Financial Statements

Report of Independent Registered Public Accounting Firm................................................................................................

Financial Statements

Balance sheets........................................................................................................................................................................
Statements of earnings ...........................................................................................................................................................
Statements of shareholders’ equity ........................................................................................................................................
Statements of cash flows........................................................................................................................................................

Notes to financial statements .................................................................................................................................................

(b) Exhibits

PAGE

F-2

F-3
F-4
F-5
F-6

F-7

The warranties, representations and covenants contained in any of the agreements included herein or which appear as exhibits

hereto should not be relied upon by buyers, sellers or holders of the Company’s securities and are not intended as warranties,
representations or covenants to any individual or entity except as specifically set forth in such agreement

Exhibit
Number

2.1

Description
Agreement and Plan of Merger between the Registrant, Interim Oak Valley Bancorp, Inc. and Oak Valley Community
Bank*

Index to Exhibits

3.1 Articles of Incorporation of Oak Valley Bancorp, Inc.*

3.2 First Amendment to Articles of Incorporation of Oak Valley Bancorp, Inc.*

3.3 Bylaws of Oak Valley Bancorp, Inc.*

3.4 First Amended and Restated Bylaws of Oak Valley Bancorp, Inc.**

3.5 Certificate of Determination of Series A Preferred Stock of Oak Valley Bancorp, Inc.**

3.6

Letter Agreement between the United States Department of the Treasury and Oak Valley Bancorp dated December 5,
2008**

10.1 Oak Valley Community Bank 1998 Restated Stock Option Plan*

10.2 Oak Valley Community Bank Form of Director Retirement Agreement*

10.3 Oak Valley Community Bank Form of Salary Continuation Agreement*

10.4 Securities Purchase Agreement between Oak Valley Bancorp and the U.S. Treasury effective December 4, 2008**

11 Statement Regarding Computation of Net Earnings per Share

14 Code of Ethics

21 Subsidiaries of the Issuer*

23.1 Consent of Independent Registered Accounting Firm

24 Power of Attorney (included on the signature page of this report)

31.01

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002

31.02

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002

32.01

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Incorporated by reference from the Form 10 filed on July 31, 2008

** Incorporated by reference from the Form 8-A filed on January 14, 2009

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Oakdale, California on March 30, 2009.

SIGNATURES

OAK VALLEY BANCORP
a California corporation

By:

/s/ RONALD C. MARTIN
Ronald C. Martin, Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons

on behalf of the registrant and in the capacities and on the date indicated.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of the registrant hereby constitutes
and appoints Ronald C. Martin and Richard A. McCarty, and each of them, as lawful attorney-in-fact and agent for each of the
undersigned (with full power of substitution and resubstitution, for and in the name, place and stead of each of the undersigned
officers and directors), to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, any and all amendments, supplements and exhibits to this report and any and all other documents in connection therewith,
hereby granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing
necessary or desirable to be done in order to effectuate the same as fully and to all intents and purposes as each of the undersigned
might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or
any of their substitutes, may do or cause to be done by virtue hereof.

Signature

Title

/s/ DONALD BARTON
Donald Barton

/s/ CHRISTOPHER M. COURTNEY
Christopher M. Courtney

/s/ JAMES L. GILBERT
James L. Gilbert

/s/ THOMAS A. HAIDLEN
Thomas A. Haidlen

/s/ MICHAEL Q. JONES
Michael Q. Jones

/s/ ARNE J. KNUDSEN
Arne J. Knudsen

/s/ RONALD C. MARTIN
Ronald C. Martin

/s/ ROGER M. SCHRIMP
Roger M. Schrimp

/s/ DANNY L. TITUS
Danny L. Titus

/s/ RICHARD J. VAUGHAN
Richard J. Vaughan

Director

Date

March 30, 2009

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

FINANCIAL STATEMENTS

Balance sheets......................................................................................................................................................................
Statements of earnings .........................................................................................................................................................
Statement of shareholders’ equity........................................................................................................................................
Statements of cash flows......................................................................................................................................................

Notes to financial statements ...............................................................................................................................................

PAGE

F-2

F-3
F-4
F-5
F-6

F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Oak Valley Bancorp

We have audited the accompanying consolidated balance sheets of Oak Valley Bancorp and subsidiary (the “Company”) as of
December 31, 2008 and 2007 and the related consolidated statements of earnings, shareholders’ equity, and cash flows for the years
ended December 31, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Oak Valley
Bancorp and subsidiary as of December 31, 2008 and 2007, and the results of their operations and their cash flows for the years ended
December 31, 2008 and 2007 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 1 and 16 to the consolidated financial statements, effective January 1, 2008, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 157 “Fair Value Measurements” and Emerging Issues Task Force (EITF) 06-04
“Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance
Arrangements.”

/s/ Moss Adams LLP

Stockton, California
March 31, 2009

F-2

OAK VALLEY BANCORP
BALANCE SHEETS

ASSETS
Cash and due from banks..................................................................................................
Federal funds sold.............................................................................................................
Cash and cash equivalents ............................................................................................

Securities available for sale ..............................................................................................
Loans, net of allowance for loan loss of $5,569,496 in 2008 and $4,506,753 in 2007 .....
Bank premises and equipment, net ...................................................................................
Other real estate owned (OREO) ......................................................................................
Accrued interest and other assets ......................................................................................

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits ............................................................................................................................
Accrued interest and other liabilities ................................................................................
FHLB advances.................................................................................................................
Total liabilities ..........................................................................................................

Shareholders’ equity .........................................................................................................

Preferred stock, no par value; $1,000 per share liquidation preference,
10,000,000 shares authorized and 13,500 issued and outstanding at
December 31, 2008 ...................................................................................................

Common stock, no par value; 10,000,000 shares authorized, 7,661,627 and
7,607,780 shares issued and outstanding at December 31, 2008 and 2007,
respectively ...............................................................................................................
Additional paid-in capital .............................................................................................
Retained earnings..........................................................................................................
Accumulated other comprehensive income, net of tax .................................................

December 31,
2008

December 31,
2007

9,072,860 $
765,000
9,837,860

41,448,877
421,572,911
11,093,967
2,745,575
21,503,821

10,397,951
3,805,000
14,202,951

33,372,624
382,264,026
10,108,620
—
14,310,569

508,203,011 $

454,258,790

378,248,467 $
2,968,465
69,000,000
450,216,932

377,347,776
3,549,624
31,000,000
411,897,400

12,680,649

—

23,863,331
1,925,224
19,226,645
290,230

22,843,171
1,748,380
17,723,646
46,193

Total shareholders’ equity.........................................................................................

57,986,079

42,361,390

508,203,011 $

454,258,790

See accompanying notes

F-3

OAK VALLEY BANCORP
STATEMENTS OF EARNINGS

YEAR ENDED DECEMBER 31,
2007
2008

INTEREST INCOME......................................................................................................
Interest and fees on loans.............................................................................................
Interest on securities available for sale ........................................................................
Interest on federal funds sold .......................................................................................
Interest on deposits with banks ....................................................................................
Total interest income................................................................................................

27,611,325 $
1,615,951
17,996
1,887
29,247,159

INTEREST EXPENSE ....................................................................................................
Deposits .......................................................................................................................
FHLB advances............................................................................................................
Federal funds purchased ..............................................................................................
Total interest expense ..............................................................................................

Net interest income ..................................................................................................
PROVISION FOR LOAN LOSSES ................................................................................

7,240,037
1,484,525
7,748
8,732,310

20,514,849
2,188,139

30,132,688
1,541,034
159,163
4,203
31,837,088

11,227,565
1,730,636
48,286
13,006,487

18,830,601
555,000

Net interest income after provision for loan losses ..................................................

18,326,710

18,275,601

NON-INTEREST INCOME............................................................................................
Service charges on deposits .........................................................................................
Earnings on cash surrender value of life insurance......................................................
Mortgage commissions ................................................................................................
Other ............................................................................................................................
Total non-interest income ........................................................................................

NON-INTEREST EXPENSE ..........................................................................................
Salaries and employee benefits ....................................................................................
Occupancy expenses ....................................................................................................
Data processing fees ....................................................................................................
Telephone expenses .....................................................................................................
OREO expenses ...........................................................................................................
Other operating expenses.............................................................................................
Total non-interest expense .......................................................................................

1,299,014
370,004
100,857
752,532
2,522,407

9,305,601
2,694,684
764,792
295,466
1,553,881
3,250,819
17,865,243

1,090,125
175,168
194,975
737,341
2,197,609

8,586,098
2,222,541
541,556
253,500
—
2,609,124
14,212,819

Earnings before provision for income taxes.............................................................

2,983,874

6,260,391

PROVISION FOR INCOME TAXES .............................................................................
NET EARNINGS ............................................................................................................

Preferred stock dividends and accretion ......................................................................
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS ...............................

NET EARNINGS PER COMMON SHARE...................................................................

NET EARNINGS PER DILUTED COMMON SHARE.................................................

822,045
2,161,829 $

63,819
2,098,010 $

0.27 $

2,335,270
3,925,121

—
3,925,121

0.53

0.52

See accompanying notes

F-4

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5
-
F

OAK VALLEY BANCORP
STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings .................................................................................................................
Adjustments to reconcile net earnings to net cash from operating activities:

Provision for loan losses ..........................................................................................
Depreciation, amortization and accretion, net..........................................................
Stock-based compensation expense .........................................................................
Excess tax benefits from stock-based payment arrangements .................................
Loss (gain) on sale of premises and equipment .......................................................
(Increase) decrease in accrued interest receivable ...................................................
Decrease in accrued interest payable and other liabilities........................................
Increase in other assets.............................................................................................
Net cash from operating activities........................................................................

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of securities available for sale .....................................................................
Proceeds from maturities, calls, and principal paydowns of securities

available for sale ......................................................................................................
Net increase in loans ....................................................................................................
Purchase of BOLI policies ...........................................................................................
Proceeds from sales of premises and equipment..........................................................
Net purchases of premises and equipment ...................................................................
Net cash from investing activities ....................................................................

CASH FLOWS FROM FINANCING ACTIVITIES:

FHLB advanced funds .................................................................................................
FHLB payments ...........................................................................................................
Federal funds advances ................................................................................................
Federal funds payments ...............................................................................................
Proceeds from sale of Preferred Stock .........................................................................
Dividends paid .............................................................................................................
Net increase in demand deposits and savings accounts ...............................................
Net decrease in time deposits.......................................................................................
Excess tax benefits from stock-based payment arrangements .....................................
Proceeds from sale of common stock and exercise of stock options ...........................
Net cash from financing activities....................................................................

YEAR ENDED DECEMBER 31,
2007
2008

2,161,829 $

3,925,121

2,188,139
1,116,198
122,649
(54,195)
1,434
(7,744)
(701,001)
(2,500,595)
2,326,714

555,000
986,559
130,073
(106,355)
(14,400)
7,062
(5,085,005)
(2,583,711)
(2,185,656)

(15,606,409)

(19,190,393)

7,947,699
(44,242,599)
(4,740,000)
0
(2,117,820)
(58,759,129)

269,863,000
(231,863,000)
63,178,130
(63,178,130)
13,500,000
(574,484)
10,146,439
(9,245,748)
54,195
186,922
52,067,324

22,516,909
(9,999,737)
0
14,400
(4,845,574)
(11,504,395)

62,869,400
(65,469,400)
66,305,000
(66,305,000)
0
(1,444,697)
32,607,147
(33,789,676)
106,355
5,194,696
73,825

NET DECREASE IN CASH AND CASH EQUIVALENTS..........................................

(4,365,091)

(13,616,226)

CASH AND CASH EQUIVALENTS, beginning of period............................................

14,202,951

27,819,177

CASH AND CASH EQUIVALENTS, end of period......................................................

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:

Interest .....................................................................................................................
Income taxes ............................................................................................................

NON-CASH INVESTING ACTIVITIES:

Real estate acquired through foreclosure .....................................................................
Net change in unrealized gain/(loss) on available-for-sale securities ..........................

NON-CASH FINANCING ACTIVITIES:

Tax benefit from stock options exercised ....................................................................
Cumulative effect of adopting EITF 06-04..................................................................

$
$

9,837,860 $

14,202,951

9,785,838 $
1,160,000 $

13,341,328
2,461,000

2,745,575 $
402,701 $

0
(414,134)

54,195 $
119,842 $

116,303
0

See accompanying notes

F-6

OAK VALLEY BANCORP
NOTES TO FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF ACCOUNTING POLICIES

Introductory Explanation

On July 3, 2008 (the “Effective Date”), a bank holding company reorganization was completed whereby Oak Valley Bancorp
(“Bancorp”) became the parent holding company for Oak Valley Community Bank ( the “Bank”). On the Effective Date, a tax-free
exchange was completed whereby each outstanding share of the Bank was converted into one share of Bancorp and the Bank became
the sole wholly-owned subsidiary of the holding company. The information contained in the financial statements and accompanying
footnotes for periods subsequent to the reorganization relate to consolidated Oak Valley Bancorp. Periods prior to the reorganization
relate to the Bank only. The information is comparable for all periods as the sole subsidiary of Bancorp is the Bank.

The consolidated financial statements include the accounts of Bancorp and its wholly-owned bank subsidiary. All material
intercompany transactions have been eliminated. In the opinion of Management, the consolidated financial statements contain all
adjustments necessary to present fairly the financial position, results of operations, changes in stockholders’ equity and cash
flows. All adjustments are of a normal, recurring nature.

A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.

Oak Valley Community Bank (the “Bank”) is a California State chartered bank. The Bank was incorporated under the laws of the state
of California on May 31, 1990, and began operations in Oakdale on May 28, 1991. The Bank operates branches in Oakdale, Sonora,
Bridgeport, Bishop, Mammoth Lakes, Modesto, Patterson, Turlock, Ripon, Stockton, and Escalon, California. The Bridgeport,
Mammoth Lakes, and Bishop branches operate as a separate division, Eastern Sierra Community Bank. The Bank’s primary source of
revenue is providing loans to customers who are predominantly middle-market businesses.

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Change in accounting principle — During 2008 in conjunction with the Company’s filing of a Form 10 registration statement with
the SEC, the Company made a change in accounting principle and adopted Staff Accounting Bulletin (SAB) No. 108. As a result, the
Company recorded adjustments to its deferred tax assets and also recorded a liability related to lease agreements that include fixed rent
escalation clauses.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 154, Accounting Changes and Error Corrections, the
Company adjusted its financial statements to apply SAB No. 108 retrospectively. As a result of the change in accounting principle,
the following adjustments to the financial statements were made:

• Accrued interest and other assets decreased by $144,586 at December 31, 2007.
• Other liabilities increased by $134,030 at December 31, 2007.
• Retained earnings decreased by $278,616 at December 31, 2007.
• Occupancy expense increased $42,107 for the year ended December 31, 2007.
• Income tax expense increased $1,270 for the year ended December 31, 2007.
• Net income decreased $43,227 and basic and diluted earnings per share decreased $.01 per share to $.53 and $.52 per share,

respectively, for the year ended December 31, 2007.

Stock offering — During 2007 the Bank facilitated a stock offering in an effort to raise additional capital. The stock was first offered
to existing shareholders between May 14, 2007 through June 15, 2007. Subsequently, the offering was extended to the public between
June 16, 2007 through July 16, 2007. Common stock of the Bank was offered at $11 per share to all investors. As a result of the
offering, the Bank raised $4,995,739 in capital, net of offering expenses of $25,000. Additionally, 456,431 in additional common
shares of the Bank were issued as a result of the offering.

Cash and cash equivalents — The Bank has defined cash and cash equivalents to include cash, due from banks, certificates of
deposit with maturities of three months or less, and federal funds sold. Generally, federal funds are sold for one-day periods. At times
throughout the year, balances can exceed FDIC insurance limits. Management believes the risk of loss is remote as these amounts are
held by major financial institutions.

F-7

Securities available for sale — Available-for-sale securities consist of bonds, notes, and debentures not classified as trading
securities or held-to-maturity securities. Available-for-sale securities with unrealized holding gains and losses, net of tax, are reported
as a net amount in a separate component of shareholders’ equity, accumulated other comprehensive income, until realized. Gains and
losses on the sale of available-for-sale securities are determined using the specific identification method. The amortization of
premiums and accretion of discounts are recognized as adjustments to interest income over the period to maturity.

Investments with fair values that are less than amortized cost are considered impaired. Impairment may result from either a decline in
the financial condition of the issuing entity or, in the case of fixed interest rate investments, from rising interest rates. At each financial
statement date, management assesses each investment to determine if impaired investments are temporarily impaired or if the
impairment is other than temporary based on the positive and negative evidence available. Evidence evaluated includes, but is not
limited to, industry analyst reports, credit market conditions, and interest rate trends. If negative evidence outweighs positive evidence
that the carrying amount is recoverable within a reasonable period of time, the impairment is deemed to be other than temporary and
the security is written down in the period in which such determination is made.

Other real estate owned - Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially
recorded at the lower of carrying amount of the loan or fair value of the property at the date of foreclosure less selling costs.
Subsequent to foreclosure, valuations are periodically performed and any subject revisions in the estimate of fair value are reported as
adjustment to the carrying value of the real estate, provided the adjusted carrying amount does not exceed the original amount at
foreclosure. Revenues and expenses from operations and changes in the valuation allowance are included in other operating expenses.
As of December 31, 2008, six loans with outstanding balances of $2,745,575 were reclassified to other real estate owned.

Loans and allowance for loan losses — Loans are reported at the principal amount outstanding, net of unearned income, deferred
loan fees, and the allowance for loan losses. Unearned discounts on installment loans are recognized as income over the terms of the
loans. Interest on other loans is calculated by using the simple interest method on the daily balance of the principal amount
outstanding.

Loan fees net of certain direct costs of origination, which represent an adjustment to interest yield, are deferred and amortized over the
contractual term of the loan.

Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest on loans is
discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal or when a loan becomes
contractually past due by ninety days or more with respect to interest or principal. When a loan is placed on non-accrual status, all
interest previously accrued, but not collected, is reversed against current period interest income. Income on such loans is then
recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are
resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of
management, the loans are estimated to be fully collectible as to both principal and interest.

The allowance for loan losses is established through a provision for loan losses charged to operations. Loans are charged against the
allowance for loan losses when management believes that the collectability of the principal is unlikely. Subsequent recoveries of
previously charged off amounts, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based on management’s periodic review of the
collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may
affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes
available.

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as
impaired. Impaired loans, as defined, are measured based on the present value of expected future cash flows discounted at the loan’s
effective interest rate or the fair value of the collateral if the loan is collateral dependent. The general component relates to non-
impaired loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to
cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects
the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses
in the portfolio.

The Bank considers a loan impaired when it is probable that all amounts of principal and interest due, according to the contractual
terms of the loan agreement, will not be collected, which is the same criteria used for the transfer of loans to non-accrual status.
Interest income is recognized on impaired loans in the same manner as non-accrual loans. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest

F-8

payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the
delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The method for calculating the allowance for off-balance-sheet is based on an allowance percentage which is less than other
outstanding loan types because they are at a lower risk level. This allowance percentage is evaluated by management periodically and
is applied to the total undisbursed loan commitment balance to calculate the allowance for off-balance-sheet commitments.

Premises and equipment — Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation
and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated
service lives using the straight-line basis. The estimated lives used in determining depreciation are:

Building ......................................

31.5

years

Equipment...................................

3 – 12

years

Furniture and fixtures..................

3 – 7

years

Leasehold improvements ............

5 – 15

years

Automobiles................................

3 – 5

years

Leasehold improvements are amortized over the lesser of the useful life of the asset or the remaining term of the lease. The straight-
line method of depreciation is followed for all assets for financial reporting purposes, but accelerated methods are used for tax
purposes. Deferred income taxes have been provided for the resulting temporary differences.

Income taxes — Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax
basis of the Bank’s assets and liabilities. Deferred tax assets and liabilities are reflected at currently enacted income tax rates
applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled using the liability method.
As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

The Bank adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007.
The Bank had no unrecognized tax benefits which would require an adjustment to the January 1, 2007 beginning balance of retained
earnings. The Bank had no unrecognized tax benefits at January 1, 2007, December 31, 2007 and 2008.

The Bank recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended
December 31, 2008 and 2007 the Bank recognized no interest and penalties.

The Bank files income tax returns in the U.S. federal jurisdiction, and various states. With few exceptions, the Bank is no longer
subject to U.S. federal or state/local income tax examinations by tax authorities for years before 2004.

Transfers of financial assets — Transfers of financial assets are accounted for as sales when control over the assets has been
surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Bank,
(2) the transferee obtains the right (free of conditions that contain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase
them before their maturity.

Advertising costs — The Bank expenses marketing costs as they are incurred. Advertising expense was $126,000 and $119,000 for
the years ended December 31, 2008 and 2007, respectively.

Comprehensive income — Comprehensive income is comprised of net income and other comprehensive income. Other
comprehensive income includes items previously recorded directly to equity, such as unrealized gains and losses on securities
available for sale. Comprehensive income is presented in the statement of shareholders’ equity. For the years ended December 31,
2008 and 2007, no amounts were reclassified out of comprehensive income into earnings.

Investment in limited partnership — During 2007 the Bank acquired limited interests in a private limited partnership that acquires
affordable housing properties in California that generate Low Income Housing Tax Credits under Section 42 of the Internal Revenue
Code of 1986, as amended. The Bank’s limited partnership investment is accounted for under the equity method. The Bank’s
noninterest expense associated with the utilization of these tax credits for the year ended December 31, 2008 and 2007 was 62,932 and
$54,308, respectively. The limited partnership investment is expected to generate a total tax benefit of approximately $1.16 million
over the life of the investment for the combination of the tax credits and deductions on noninterest expense. The tax credits expire
between 2009 and 2022. In 2007, a tax benefit of $54,000 was utilized for income tax purposes and an estimated amount of $134,000

F-9

will be utilized in 2008. The recorded investment in limited partnerships totaled $962,740 and $377,790 at December 31, 2008 and
2007, respectively, and is reflected as a component of accrued interest and other assets on the balance sheets.

Stock based compensation —Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share Based Payments, requires
companies to recognize in the income statement the grant-date fair value of stock options and other equity-based forms of
compensation issued to employees over the employees’ requisite service period (generally the vesting period). The bank uses the
straight-line recognition of expenses for awards with graded vesting.

The fair value of each option grant is estimated as of the grant date using an option-pricing model with the assumptions noted in the
following table. The Bank utilizes a binomial pricing model for all grants. Expected volatility is based on the historical volatility of the
price of the Bank’s stock. The Bank uses historical data to estimate option exercise and stock option forfeiture rates within the
valuation model. The expected term of options granted for the binomial model is derived from applying a historical suboptimal
exercise factor to the contractual term of the grant. For binomial pricing, the risk-free rate for periods is equal to the U.S. Treasury
yield at the time of grant and commensurate with the contractual term of the grant.

The fair value of each option is estimated on the date of grant using an options pricing model with the following weighted average
assumptions:

Pricing model ...............................
Dividend yield ..............................
Expected volatility........................
Risk-free interest rate ...................
Expected option term....................
Stock-based compensation

YEAR ENDED DECEMBER 31,

2008
Binomial
1.54%
36.25%
4.22%
7.27 years

2007
Binomial
1.73%
36.33%
4.79%
7.25 years

recorded....................................

122,649 $

130,073

Reclassifications — Certain prior year amounts have been reclassified to conform to the current year presentation. There was no
effect on net income or shareholders’ equity.

Recently Issued Accounting Standards — In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements,” (“SFAS 157”) which is effective for fiscal years beginning after November 15, 2007 and for
interim periods within those years. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands the
related disclosure requirements. This Statement applies under other accounting pronouncements that require or permit fair value
measurements. The Statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset
or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most
advantageous market for the asset or liability. SFAS 157 defines fair value based upon an exit price model. Relative to SFAS 157, the
FASB proposed FASB Staff Positions (FSP) 157-a, 157-b, and 157-c. FSP 157-a amends SFAS 157 to exclude Financial Accounting
Standards No. 13, “Accounting for Leases,” and its related interpretive accounting pronouncements that address leasing transactions,
while FSP 157-b delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis. FSP 157-c clarifies the principles in SFAS 157 on
the fair value measurement of liabilities. Public comments on FSP 157-a and 157-b were due in January 2008, while public comments
on FSP 157-c were due in February 2008. The Company adopted this pronouncement effective January 1, 2008 and has determined
that this Standard has not had a material impact on the Company’s financial position, results of operations or cash flows.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”), which permits entities to choose to measure many financial instruments and certain
other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities using different measurement techniques. SFAS 159
requires additional disclosures related to the fair value measurements included in the entity’s financial statements. This Statement is
effective for financial statements issued for fiscal years beginning after November 15, 2007. Accordingly, the Company adopted
SFAS 159 in the first quarter of 2008. The Company did not elect the fair value option for any of its financial assets or liabilities.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations”
(“SFAS 141(R)”), which replaces Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”).
SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at
fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a
number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair
value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset

F-10

at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the
acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that
adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed
prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated
Financial Statements—an amendment of ARB No. 51.” (“SFAS 160”). SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. The Statement requires the
recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the
parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on
the face of the income statement. The Statement also amends certain of ARB No. 51’s consolidation procedures for consistency with
the requirements of SFAS 141(R). This Statement also includes expanded disclosure requirements regarding the interests of the parent
and its noncontrolling interest. The Company is currently evaluating the potential impact this Statement may have on the Company’s
financial position, results of operations and cash flows, but does not believe the impact of the adoption will be material.

FASB Emerging Issues Task Force (“EITF”) Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split Dollar Life Insurance Arrangements.” EITF 06-4 requires the recognition of a liability and related
compensation expense for bank owned life insurance policies with joint beneficiary agreements that provide a benefit to an employee
that extends to post-retirement periods. Under EITF 06-4, life insurance policies purchased for the purpose of providing such benefits
do not effectively settle an entity’s obligation to the employee. Accordingly, the entity must recognize a liability and related
compensation expense during the employee’s active service period based on the future cost of insurance to be incurred during the
employee’s retirement. If the entity has agreed to provide the employee with a death benefit, then the liability for the future death
benefit should be recognized by following the guidance in SFAS 106, “Employer’s Accounting for Postretirement Benefits Other
Than Pensions.” The Company adopted this pronouncement effective January 1, 2008. The impact to the Company’s financial
position, results of operations and cash flows was not material.

NOTE 2 — CASH AND DUE FROM BANKS

Cash and due from banks includes balances with the Federal Reserve Bank and other correspondent banks. The Bank is required to
maintain specified reserves by the Federal Reserve Bank. The average reserve requirements are based on a percentage of the Bank’s
deposit liabilities. In addition, the Federal Reserve Bank requires the Bank to maintain a certain minimum balance at all times.

NOTE 3 — SECURITIES

The amortized cost and estimated fair values of debt securities as of December 31, 2008, are as follows:

Amortized Cost

Gross
Unrealized
Gains

Gross Unrealized
Losses

Estimated Fair
Market Value

Available-for-sale securities:

U.S. agencies.......................
Collateralized mortgage

obligations.......................
Municipalities .....................
SBA Pools...........................
Asset-Back Security............

25,540,641 $

609,957 $

(65,680) $

26,084,918

3,438,998
9,970,961
1,820,810
198,081
40,969,491

54,471
14,829
—
—
679,257 $

(8,861)
(83,567)
(41,682)
(81)
(199,871) $

3,484,608
9,902,223
1,779,128
198,000
41,448,877

F-11

The following tables detail the gross unrealized losses and fair values aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position at December 31, 2008.

Description of Securities

Fair Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Loss

U.S. agencies..........................
Collateralized mortgage

obligations..........................
Municipalities ........................
SBA Pools..............................
Asset Backed Securities .........

Total temporarily

$ 2,900,405 $

(13,962) $ 3,067,267 $

(51,718) $

5,967,672 $

(65,680)

618,552
9,357,996
—
198,000

(2,109)
(83,567)
—
(81)

1,085,704
—
1,626,502
—

(6,752)
—
(41,682)
—

1,704,256
9,357,996
1,626,502
198,000

(8,861)
(83,567)
(41,682)
(81)

impaired securities .........

$ 13,074,953

(99,719) $ 5,779,473

(100,152) $ 18,854,426 $ (199,871)

At December 31, 2008, a total of four U.S. agencies, one collateralized mortgage obligations and two SBA pools make up the total
amount of securities in an unrealized loss position for greater than 12 months. Management periodically evaluates each available-for-
sale investment security in an unrealized loss position to determine if the impairment is temporary or other than temporary.
Management has determined that no investment security is other than temporarily impaired. The unrealized losses are due solely to
interest rate changes and the Bank has the ability and intent to hold all investment securities with identified impairments resulting
from interest rate changes to the earlier of the forecasted recovery or the maturity of the underlying investment security.

The amortized cost and estimated fair value of debt securities at December 31, 2008, by contractual maturity or call date, are shown
below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

Available-for-sale securities:

Due in one year or less...........................................................................................
Due after one year through five years ....................................................................
Due after five years through ten years ...................................................................
Due after ten years .................................................................................................

Amortized
Cost

Estimated
Fair
Value

88,186
1,250,978
4,238,046
35,392,281
40,969,491

88,575
1,235,828
4,218,813
35,905,661
41,448,877

The amortized cost and estimated fair values of debt securities as of December 31, 2007, are as follows:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

Available-for-sale securities:

U.S. agencies..........................................................
Collateralized mortgage obligations ......................
Municipalities ........................................................
SBA Pools..............................................................

24,874,744 $
4,024,103
2,343,015
2,054,076

153,914 $
7,014
58,834
—

(66,313) $
(69,967)
(1,855)
(4,941)

24,962,345
3,961,150
2,399,994
2,049,135

33,295,938

219,762 $

(143,076) $

33,372,624

F-12

The following table details the gross unrealized losses and fair values aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position at December 31, 2007.

Description of Securities

Fair Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair Value

Unrealized
Loss

Less than 12 months

12 months or more

Total

U.S. agencies.............................
Collateralized mortgage

obligations.............................
Municipalities ...........................
SBA Pools.................................
Total temporarily impaired

$ 1,564,653 $

(1,182) $ 7,076,297 $

(65,131) $ 8,640,950 $

(66,313)

977,951
304,611
2,049,134

(6,821)
(406)
(4,941)

2,241,900
259,621
—

(63,146) $ 3,219,851 $
564,232 $
(1,449) $
— $ 2,049,134 $

(69,967)
(1,855)
(4,941)

securities ...........................

$ 4,896,349 $

(13,350) $ 9,577,818 $

(129,726) $ 14,474,167 $

(143,076)

At December 31, 2007, a total of ten U.S. agencies, four collateralized mortgage obligations, three municipal securities, and two SBA
pools make up the total amount of securities in an unrealized loss position for greater than 12 months. Management periodically
evaluates each available-for-sale investment security in an unrealized loss position to determine if the impairment is temporary or
other than temporary. Management has determined that no investment security is other than temporarily impaired. The unrealized
losses are due solely to interest rate changes and the Bank has the ability and intent to hold all investment securities with identified
impairments resulting from interest rate changes to the earlier of the forecasted recovery or the maturity of the underlying investment
security.

There were no realized gains or losses on sales of available-for-sale securities during 2008 and 2007. There were no sales of available-
for-sale securities during 2008 and 2007.

Securities carried at $30,117,814 and $28,930,614 at December 31, 2008 and 2007, respectively, were pledged to secure deposits of
public funds.

NOTE 4 — LOANS

The Bank’s customers are primarily located in Stanislaus, San Joaquin, Tuolumne, Inyo, and Mono Counties. Approximately 63% of
the Bank’s loans are commercial real estate loans. Approximately 9% of the Bank’s loans are for general commercial uses including
professional, retail, and small business. Additionally, 17% of the Bank’s loans are for real estate construction for residential and
commercial real estate. The remaining 11% are in agriculture, residential real estate, and consumer loans. Generally, real estate loans
are collateralized by real property while commercial and other loans are collateralized by funds on deposit, business, or personal
assets. Repayment of loans is generally expected from cash flows of the borrower. Pre-approved permanent financing generally pays
off construction loans.

Loan totals were as follows:

Loans...................................................................................................................................
Commercial real estate....................................................................................................
Commercial.....................................................................................................................
Real estate construction ..................................................................................................
Agriculture ......................................................................................................................
Residential real estate and consumer ..............................................................................

DECEMBER 31,

2008

2007

268,741,826
37,302,286
73,321,446
25,916,928
22,894,644

208,309,072
45,496,794
83,173,030
31,429,970
19,400,263

Total loans...................................................................................................................

428,177,130

387,809,129

Less:

Deferred loan fees and costs, net ....................................................................................
Allowance for loan losses ...............................................................................................

(1,034,723 )
(5,569,496)

(1,038,350)
(4,506,753)

Net loans .....................................................................................................................

421,572,911

382,264,026

F-13

Changes in the allowance for loan losses were as follows:

YEARS ENDED DECEMBER 31,

2008

2007

Balance, beginning of year ..........................................................................
Provision charged to operations...................................................................
Loans charged off ........................................................................................
Loan recoveries............................................................................................
Reclassification of reserve related to off-balance-sheet commitments ........

4,506,753 $
2,188,139
(1,114,534)
4,745
(15,608)

4,341,062
555,000
(401,510)
4,275
7,926

Balance, end of year.....................................................................................

5,569,496 $

4,506,753

Changes in the allowance off-balance-sheet commitments were as follows:

YEARS ENDED DECEMBER 31,

2008

2007

Balance, beginning of year ...................................................................
Reclassification of reserves from allowance for loan losses.................
Provision Charged to Operations for Off Balance Sheet ......................
Balance, end of year..............................................................................

209,757 $
15,608
(50,034)
175,331 $

217,683
(7,926)
—
209,757

The total recorded investment in impaired loans at December 31, 2008, was $4,078,765. The average recorded investment in impaired
loans was $4,294,356 during 2008. The recorded investment in impaired loans that have a specific reserve was $3,322,670 at
December 31, 2008. The recorded investment in impaired loans that did not have a specific reserve was $756,005 at December 31,
2008. The total specific reserve related to impaired loans and included in the allowance for loan losses was $768,719. No interest
income was recognized on impaired loans, while considered impaired during 2008. The total recorded investment in non-accrual loans
was $4,078,765 at December 31, 2008. In addition, there was one real estate construction loan with a principal balance of $643,000
that was past due greater than 90 days and still accruing interest at December 31, 2008.

The total recorded investment in impaired loans at December 31, 2007, was $9,087,462. The average recorded investment in impaired
loans was $1,411,000 during 2007. The recorded investment in impaired loans that have a specific reserve was $977,218 at
December 31, 2007. The recorded investment in impaired loans that did not have a specific reserve was $8,110,244 at December 31,
2007. The total specific reserve related to impaired loans and included in the allowance for loan losses was $95,430. No interest
income was recognized on impaired loans, while considered impaired during 2007. The total recorded investment in non-accrual loans
was $9,087,462 at December 31, 2007. In addition, there were no loans past due greater than 90 days and still accruing interest at
December 31, 2007.

At December 31, 2008 and 2007, loans carried at $274,578,420 and $261,861,840, respectively, were pledged as collateral on
advances from the Federal Home Loan Bank.

NOTE 5 — PREMISES AND EQUIPMENT

Major classifications of premises and equipment are summarized as follows:

DECEMBER 31,

2008

2007

Land ......................................................................................................................................
Building ................................................................................................................................
Leasehold improvements ......................................................................................................
Furniture, fixtures, and equipment........................................................................................

4,023,703
3,192,470
3,604,173
5,909,567

3,611,703
2,480,649
3,152,407
5,606,695

Less accumulated depreciation and amortization..................................................................

5,635,946

4,742,834

16,729,913

14,851,454

11,093,967

10,108,620

Depreciation expense was $1,131,038 and $1,022,739 for the years ended 2008 and 2007, respectively.

F-14

NOTE 6 — ACCRUED INTEREST AND OTHER ASSETS

Other assets are summarized as follows:

Interest income receivable on loans .........................................................................................
Interest income receivable on investments ..............................................................................
Net deferred tax asset...............................................................................................................
Federal Reserve Bank stock.....................................................................................................
Federal Home Loan Bank stock...............................................................................................
Cash surrender value of life insurance .....................................................................................
Investment in limited partnership ............................................................................................
Prepaid expenses and other......................................................................................................

DECEMBER 31,

2008

2007

1,676,613 $
209,746
2,554,700
750,550
3,803,700
9,859,234
845,500
1,803,778

1,693,677
184,940
2,237,414
669,500
2,283,300
4,749,230
323,482
2,169,026

NOTE 7 — DEPOSITS

Deposit totals were as follows:

21,503,821

14,310,569

DECEMBER 31,

2008

2007

Demand................................................................................................................................
NOW accounts.....................................................................................................................
Money market deposit accounts...........................................................................................
Savings.................................................................................................................................
Time, under $100,000 ..........................................................................................................
Time, $100,000 and over .....................................................................................................

64,276,737 $
53,485,103
157,351,888
12,532,242
46,562,563
44,039,934

68,150,833
54,496,524
138,413,815
16,438,359
42,227,602
57,620,643

Total deposits...................................................................................................................

378,248,467 $

377,347,776

Certificates of deposit issued and their remaining maturities at December 31, 2008, are as follows:

Year ending December 31,
2009
2010
2011
2012
2013

71,681,711
18,098,971
509,194
300,971
11,650
90,602,497

NOTE 8 — FHLB ADVANCES

At December 31, 2008, the Bank had advances from the Federal Home Loan Bank (“FHLB”) totaling $69,000,000. Of the total
advances outstanding, $34,500,000 represents term advances due in 2009, $18,500,000 represents term advances due in 2010, and
$16,000,000 represents overnight open advances. The weighted average interest rate on these advances was 1.51% and interest
payments are due monthly. Unused and available advances totaled $38,130,625 at December 31, 2008. Loans carried at $274,578,420
at December 31, 2008, were pledged as collateral on advances from the Federal Home Loan Bank.

At December 31, 2007, the Bank had advances from the Federal Home Loan Bank (“FHLB”) totaling $31,000,000. Of the total
advances outstanding, $10,000,000 represents term advances due in 2008, $3,000,000 represents term advances due in 2009, and
$18,000,000 represents overnight open advances. The weighted average interest rate on these advances was 4.69% and interest
payments are due monthly. Unused and available advances totaled $67,740,720 at December 31, 2007. Loans carried at $261,861,840
at December 31, 2007, were pledged as collateral on advances from the Federal Home Loan Bank.

F-15

NOTE 9 — INTEREST ON DEPOSITS

Interest on deposits was comprised of the following:

Savings and other deposits..............................................
Time deposits of $100,000 or more ................................
Other time deposits .........................................................

NOTE 10 — INCOME TAXES

The provision for income taxes consists of the following:

YEARS ENDED DECEMBER 31,

2008

2007

4,210,099 $
1,578,851
1,451,088

5,636,857
3,457,958
2,132,750

7,240,037

11,227,565

Current .........................................................................
Federal .....................................................................
State .........................................................................

802,797 $
141,878

1,739,000 $
530,000

2,089,500
718,000

YEARS ENDED DECEMBER 31,
2007

2008

2006

Deferred .......................................................................
Federal .....................................................................
State .........................................................................

944,675

2,269,000

2,807,500

(8,812)
(113,818)

65,970
300

(285,325)
(42,000)

(122,630)

66,270

(327,325)

822,045

2,335,270 $

2,480,175

The components of the Bank’s deferred tax assets and liabilities (included in accrued interest and other assets on the balance sheet), is
shown below:

Deferred tax assets:

Deferred loan fees ................................................................................................................
Allowance for loan losses ....................................................................................................
State income tax...................................................................................................................
Accrued bonus .....................................................................................................................
Accrued vacation .................................................................................................................
Accrued salary continuation liability ...................................................................................
Deferred compensation ........................................................................................................
Split Dollar Life Insurance...................................................................................................
EITF 06-04...........................................................................................................................
Nonaccrual loans..................................................................................................................
OREO expenses ...................................................................................................................
Holding company organization fees ....................................................................................
Unrealized loss on securities available for sale....................................................................

Deferred tax liabilities:

Prepaid expenses..................................................................................................................
FHLB dividends...................................................................................................................
Accumulated depreciation....................................................................................................
Deferred rent ........................................................................................................................
Stock Options.......................................................................................................................
Investment in limited partnership ........................................................................................
Unrealized loss on securities available for sale....................................................................

DECEMBER 31,

2008

2007

200 $

1,813,000
76,800
7,800
35,000
372,000
58,000
128,000
49,000
56,000
517,000
58,000
—
3,170,800

(170,000)
(217,000)
(191,000)
(145,000)
(50,000)
(800)
(185,000)
(958,800)

400
1,910,000
200,000

31,000
280,000

108,000
—
113,000
—
—
13,000
2,658,000

(51,000)
(167,000)
(58,000)
—
2,600
—
—
(276,000)

Net deferred income tax asset ..................................................................................................

2,212,000 $

2,382,000

F-16

Management has assessed the realizability of deferred tax assets and believes it is more likely than not that all deferred tax assets will
be realized in the normal course of operations. Accordingly, these assets have not been reduced by a valuation allowance.

The effective tax rate for 2008 and 2007 differs from the current Federal statutory income tax rate as follows:

Federal statutory income tax rate .....................................................
State taxes, net of federal tax benefit ...............................................
Tax exempt interest on municipal securities and loans....................
Taxe exempt earnings on bank owned life insurance ......................
Stock based compensation ...............................................................
Low income housing tax credit........................................................
California enterprise zone tax credits and deductions......................
Other ................................................................................................
Effective tax rate ..............................................................................

YEARS ENDED DECEMBER 31,

2008

2007

34.0%
7.2%
(1.1)%
(5.1)%
1.6%
(3.6)%
(4.7)%
(0.8)%
27.5%

34.0 %
7.2 %
(1.0 )%
(1.1 )%
0.8 %
0.0 %
(1.1 )%
(1.5 )%
37.3 %

Bancorp files a consolidated return in the U.S. Federal tax jurisdiction and a combined report in the State of California tax
jurisdiction. Prior to the formation of Bancorp in 2007, the Bank filed in the U.S. Federal and California jurisdictions on a stand-alone
basis. None of the entities are subject to examination by taxing authorities for years before 2005 for U.S. Federal or for years before
2004 for California.

We adopted the provisions of FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes, on January 1,
2007. No adjustments were identified for unrecognized tax benefits that required an adjustment to the January 1, 2007 beginning tax
reserve. We had no tax reserve for uncertain tax positions at December 31, 2008. We do not anticipate providing a reserve for
uncertain tax positions in the next twelve months. We have elected to record interest and penalties related to unrecognized tax
benefits in tax expense. During the years ended December 31, 2008 and 2007, neither the Bank nor Bancorp had an accrual for
interest and penalties associated with uncertain tax positions.

NOTE 11 — STOCK OPTION PLAN

During 1991 the Bank’s Board of Directors approved a fixed stock option plan (the “Plan”) under which incentive and non-qualified
stock options may be granted to key employees and directors, respectively, to purchase up to thirty-five percent of the authorized and
un-issued common stock of the Bank at a price equal to the fair market value on the date of grant. The Plan provides that the options
are exercisable in equal increments over a five-year period from the date of grant or over any other schedule approved by the Board of
Directors. All incentive stock options expire no later than ten years from the date of grant. The Plan was ratified by the shareholders at
the Bank’s annual meeting in April 1992.

A summary of the status of the Bank’s fixed stock option plan and changes during the year are presented below.

DECEMBER 31, 2008

Outstanding at beginning of year .............................................................................................
Granted ....................................................................................................................................
Exercised..................................................................................................................................
Forfeited...................................................................................................................................

506,564 $
10,000 $
(53,847) $
(42,262) $

Outstanding at end of year .......................................................................................................

420,455 $

Weighted-
Average
Exercise
Price

6.96
10.81
3.47
12.16

6.97

F-17

DECEMBER 31,

2008

2007

Weighted-average fair value of options granted during the year .......................

4.16 $

4.18

Intrinsic value of options exercised ...................................................................

1700,008 $

314,048

Options exercisable at year end:

343,005

357,913

Weighted average exercise price....................................................................
Intrinsic value ................................................................................................
Weighted average remaining contractual life.................................................

6.23 $

412,074
3.93 years

5.52
1,155,012
4.36 years

Options outstanding at year end:

420,455

506,564

6.97 $

412,074
4.43 years

6.96
1,210,741
5.22 years

Tax benefits totaling $1,600 were recorded in the statement of earnings during 2008 related to the vesting of non-qualified stock
options. As of December 31, 2008, there was $157,958 of total unrecognized compensation cost related to non-vested stock options
which is expected to be recognized over a weighted-average period of 2.56 years.

For the year ended December 31, 2008, the Bank received $186,922 from the exercise of stock options and received income tax
benefits of $54,195 related to the exercise of non-qualified employee stock options and disqualifying dispositions in the exercise of
incentive stock options.

NOTE 12 — TREASURY CAPITAL PURCHASE PROGRAM

In response to the stresses in the credit markets and to protect and recapitalize the U.S. financial system, on October 3, 2008, the
Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law. EESA includes the Treasury Capital Purchase
Program (the “TCPP”), which was intended to inject liquidity into, and stabilize the financial industry. On December 1, 2008, we
received preliminary approval from the United States Department of the Treasury (the “U.S. Treasury”) to participate in the
TCPP. On December 5, the Bank issued to the U.S. Treasury 13,500 shares of senior preferred stock with a zero par value and a
$1,000 per share liquidation preference, along with warrants to purchase 350,346 shares of common stock at a per share exercise price
of $5.78, in exchange for aggregate consideration of $13.5 million. Dividends will be payable quarterly in arrears on February 15,
May 15, August 15 and November 15 of each year with a 5% coupon dividend rate for the first five years and 9% thereafter. If
dividends on the senior preferred shares are not paid in full for six dividend periods, the U.S. Treasury will have the right to elect two
directors to our board until full dividends have been paid for four consecutive dividend periods. The attached warrants are
immediately exercisable and expire 10 years after the issuance date. We must comply with restrictions on executive compensation
during the period that the U.S. Treasury holds an equity position in us through the TCPP. Under the American Recovery and
Reinvestment Act of 2009, we may elect to repurchase the preferred stock at the original purchase price plus accrued but unpaid
dividends.

The proceeds of $13.5 million were allocated between the preferred stock and the warrants with $12.7 million allocated to preferred
stock and $833 thousand allocated to the warrants, based on their relative fair value at the time of issuance. The fair value of the
preferred stock was estimated using discounted cash flows with a discount rate of 9%. The fair value of the warrants was estimated
using the Binomial option pricing model with the following assumptions: 1) risk-free interest rate of 2.66% (the Treasury 10-year
yield rate as of warrant issuance date); 2) estimated life of ten years (contractual term of the warrants); 3) volatility of 37.4%; and 4)
dividend yield of 1.67%. The discount on the preferred stock (i.e., difference between the initial carrying amount and the liquidation
amount) is amortized over the five-year period preceding the 9% perpetual dividend, using effective yield method.

F-18

NOTE 13 — EARNINGS PER SHARE

The Bank computes earnings per share (“EPS”) in accordance with SFAS No. 128, Earnings per Share. SFAS No. 128 requires the
presentation of basic EPS, which does not consider the effect of common stock equivalents and diluted EPS, which considers all
dilutive common stock equivalents.

Income
(Numerator)

YEAR ENDED DECEMBER 31, 2008
Shares
(Denominator)

Per-Share
Amount

Net earnings .....................................................................................................

Basic EPS:

Net earnings available to common shareholders..........................................

2,161,829

2,098,010

7,642,775 $

0.27

Effect of dilutive securities:

Stock options................................................................................................
Warrants.......................................................................................................
Total dilutive shares.........................................................................................

—
—

91,106
4,723
95,829

Diluted EPS:

Net earnings available to common shareholders plus assumed

conversions ..............................................................................................

2,098,010

7,738,604 $

0.27

Options to purchase 254,875 shares of common stock in prices ranging from $7.20 to $15.67 were outstanding during 2008. They
were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of
the common shares. These options begin to expire in 2015.

Income
(Numerator)

YEAR ENDED DECEMBER 31, 2007
Shares
(Denominator)

Per-Share
Amount

Net earnings .....................................................................................................

Basic EPS:

Net earnings available to common shareholders..........................................

3,925,121

7,364,681 $

0.53

Effect of dilutive securities:

Stock options................................................................................................

—

159,824

Diluted EPS:

Net earnings available to common shareholders plus assumed

conversions ..............................................................................................

3,925,121

7,524,505 $

0.52

Options to purchase 104,750 shares of common stock in prices ranging from $10.85 to $15.67 were outstanding during 2007. They
were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of
the common shares. These options begin to expire in 2015.

NOTE 14 — COMMITMENTS AND CONTINGENCIES

The Bank is obligated for rental payments under certain operating lease agreements, some of which contain renewal options and
escalation clauses that provide for increased rentals. Total rental expense for the years ended December 31, 2008 and 2007, was
$904,800 and $669,054, respectively.

At December 31, 2008 the future minimum commitments under these operating leases are as follows:

Year ending December 31,

2009
2010
2011
2012
2013
Thereafter

802,804
793,216
751,314
780,793
814,136
3,950,322
7,892,585

F-19

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of
credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in
the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of
financial instruments.

The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Financial instruments whose contract amounts represent credit risk:

Undisbursed loan commitments............................................................................................................
Checking reserve...................................................................................................................................
Equity lines ...........................................................................................................................................
Standby letters of credit ........................................................................................................................

Contract
Amount

$ 47,726,630
1,276,002
10,543,892
3,528,566
$ 63,075,090

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral
held varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial
properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

NOTE 15 — FINANCIAL INSTRUMENTS

Fair values of financial instruments — The financial statements include various estimated fair value information as of December 31,
2008 and 2007. Such information, which pertains to the Bank’s financial instruments, does not purport to represent the aggregate net
fair value of the Bank. Further, the fair value estimates are based on various assumptions, methodologies, and subjective
considerations, which vary widely among different financial institutions and which are subject to change. The following methods and
assumptions are used by the Bank.

Cash and cash equivalents — The carrying amounts of cash and cash equivalents approximate their fair value.

Securities (including mortgage-backed securities) — Fair values for securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans receivable — For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based
on carrying values. The fair values for other loans (e.g., real estate construction and mortgage, commercial, and installment loans) are
estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of
similar credit quality.

Deposit liabilities — The fair values estimated for demand deposits (interest and non-interest checking, passbook savings, and certain
types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying
amounts). The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair
values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule of the aggregate expected monthly maturities on time
deposits.

Federal Home Loan Bank (FHLB) advances — Rates currently available to the Bank for borrowings with similar terms and remaining
maturities are used to estimate the fair value of the existing debt.

F-20

Accrued interest — The carrying amounts of accrued interest approximate their fair value.

Off-balance-sheet instruments — Fair values for the Bank’s off-balance-sheet lending commitments are based on fees currently
charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit standing of the
counterparties.

The estimated fair values of the Bank’s financial instruments at December 31, 2008 are as follows:

Carrying
Amount

Estimated
Fair
Value

Financial assets:

Cash and cash equivalents .......................................................................................................
Securities available for sale .....................................................................................................
Loans........................................................................................................................................
Accrued interest receivable......................................................................................................

9,837,860 $

41,448,877
428,177,130
1,886,359

9,837,860
41,448,877
429,344,847
1,886,359

Financial liabilities:

Deposits ...................................................................................................................................
FHLB advance .........................................................................................................................
Accrued interest payable..........................................................................................................

(378,248,467)
(69,000,000)
(763,117)

(378,041,128)
(69,103,323)
(763,117)

Off-balance-sheet assets (liabilities):

Commitments and standby letters of credit..............................................................................

(3,528,566)

The estimated fair values of the Bank’s financial instruments at December 31, 2007 were as follows:

Carrying
Amount

Estimated
Fair
Value

Financial assets:

14,202,951 $
33,372,624
387,809,129
1,878,617

14,202,951
33,372,624
394,349,356
1,878,617

Financial liabilities:

(377,347,776)
(31,000,000)
(1,816,645)

(377,536,730)
(31,080,813)
(1,816,645)

Off-balance-sheet assets (liabilities):

Commitments and standby letters of credit..............................................................................

(814,000)

NOTE 16 − FAIR VALUE MEASUREMENTS

SFAS No. 157, Fair Value Measurements, which the Company adopted effective January 1, 2008, defines fair value, establishes a
framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and
enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the
valuation of an asset or liability as of the measurement date. The three levels are defined as follow:

Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

F-21

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level
in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level
input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Assets and liabilities measured at fair value on a recurring and non-recurring basis are summarized below:

Fair Value Measurements at December 31, 2008 Using

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

December 31,
2008

Assets and liabilities measured on a recurring basis:

Available-for-sale securities ........................................... $

41,448,877 $

—

Assets and liabilities measured on a non-recurring basis:

Impaired Loans ............................................................... $

3,309,956 $

— $

3,309,956

The fair value of securities available for sale equals quoted market price, if available. If quoted market prices are not available, fair
value is determined using quoted market prices for similar securities. Changes in fair market value are recorded in other
comprehensive income net of tax. SFAS No. 157 applies to loans measured for impairment using the practical expedients permitted
by SFAS No. 114, Accounting by Creditors for Impairment of a Loan, including impaired loans measured at an observable market
price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral,
when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost
related to liquidation of the collateral. At December 31, 2008, impaired loans had a principal balance of $4,078,675, with a valuation
allowance of $768,719. Upon being classified as impaired, charge offs were taken to reduce the balance of each loan to an estimate of
the collateral fair market value less cost to dispose. This estimate was a level 3 valuation. There was no direct impact on the income
statement. The charge-offs were recorded as a debit to the allowance for loan losses.

NOTE 17 — RELATED PARTY TRANSACTIONS

The Bank, in the normal course of business, makes loans and receives deposits from its directors, officers, principal shareholders, and
their associates. In management’s opinion, these transactions are on substantially the same terms as comparable transactions with
other customers of the Bank. Loans to directors, officers, shareholders, and affiliates are summarized below:

YEARS ENDED DECEMBER 31,

2008

2007

Aggregate amount outstanding, beginning of year ..................................................................
New loans or advances during year .........................................................................................
Repayments during year ..........................................................................................................

5,785,792 $
4,068,823
(370,907)

7,307,946
2,793,291
(4,315,445)

Aggregate amount outstanding, end of year ............................................................................

9,483,708 $

5,785,792

Related party deposits totaled $9,518,344 and $9,367,808 at December 31, 2008 and 2007, respectively.

NOTE 18 — PROFIT SHARING PLAN

The profit sharing plan to which both the Bank and eligible employees contribute was established in 1995. Bank contributions are
voluntary and at the discretion of the Board of Directors. Contributions were approximately $296,000 and $326,000 for 2008 and
2007, respectively.

F-22

NOTE 19 — RESTRICTIONS ON RETAINED EARNINGS

Under current California State banking laws, the Bank may not pay cash dividends in an amount that exceeds the lesser of retained
earnings of the Bank or the Bank’s net earnings for its last three fiscal years (less the amount of any distributions to shareholders made
during that period). If the above requirements are not met, cash dividends may only be paid with the prior approval of the
Commissioner of the Department of Financial Institutions, in an amount not exceeding the Bank’s net earnings for its last fiscal year
or the amount of its net earnings for its current fiscal year. Accordingly, the future payment of cash dividends will depend on the
Bank’s earnings and its ability to meet its capital requirements.

NOTE 20 — OTHER POST-RETIREMENT BENEFIT PLANS

The Bank has awarded certain officers a salary continuation plan (the “Plan”). Under the Plan, the participants will be provided with a
fixed annual retirement benefit for 20 years after retirement. The Bank is also responsible for certain pre-retirement death benefits
under the Plan. In connection with the implementation of the Plan, the Bank purchased single premium life insurance policies on the
life of each of the officers covered under the Plan. The Bank is the owner and partial beneficiary of these life insurance policies. The
assets of the Plan, under Internal Revenue Service regulations, are owned by the Bank and are available to satisfy the Bank’s general
creditors.

During December 2001 the Bank awarded its directors a director retirement plan (“DRP”). Under the DRP, the participants will be
provided with a fixed annual retirement benefit for ten years after retirement. The Bank is also responsible for certain pre-retirement
death benefits under the DRP. In connection with the implementation of the DRP, the Bank purchased single premium life insurance
policies on the life of each director covered under the DRP. The Bank is the owner and partial beneficiary of these life insurance
policies. The assets of the DRP, under Internal Revenue Service regulations, are the property of the Bank and are available to satisfy
the Bank’s general creditors.

Future compensation under both plans is earned for services rendered through retirement. The Bank accrues for the salary continuation
liability based on anticipated years of service and vesting schedules provided under the plans. The Bank’s current benefit liability is
determined based on vesting and the present value of the benefits at a corresponding discount rate. The discount rate used is an
equivalent rate for investment-grade bonds with lives matching those of the service periods remaining for the salary continuation
contracts, which average approximately 20 years. At December 31, 2008 and 2007, $903,657 and $680,844, respectively, has been
accrued to date, based on a discounted cash flow using a discount rate of 6%, and is included in other liabilities.

The Bank entered into split-dollar life insurance agreements with certain officers. In connection with the implementation of the split-
dollar agreements, the Bank purchased single premium life insurance policies on the life of each of the officers covered by the split-
dollar life insurance agreements. The Bank is the owner of the policies and the partial beneficiary in an amount equal to the cash
surrender value of the policies.

The combined cash surrender value of all Bank-owned life insurance policies was $9,859,234 and $4,749,230 at December 31, 2008
and 2007, respectively. The cash surrender value of the life insurance policies is included in other assets (Note 6).

NOTE 21 — REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if
undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures
of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s
capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and
other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios
(set forth in the table on the next page) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2008, that the Bank meets
all capital adequacy requirements to which it is subject.

As of December 31, 2008, the most recent notification from the Federal Reserve Bank categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since
notification that management believes have changed the Bank’s category.

F-23

The Bank’s actual capital amounts and ratios at December 31, 2008 and 2007, are presented in the following table.

Actual

For capital
adequacy purposes

To be well
capitalized under
prompt corrective
action provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

Capital ratios for Bank:
As of December 31, 2008
Total capital (to Risk-

Weighted Assets) ..................

$ 63,379,000

13.3% $ 38,206,000

>8.0% $ 47,758,000

>10.0%

Tier I capital (to Risk-

Weighted Assets) ..................

$ 57,635,000

12.1% $ 19,103,000

>4.0% $ 28,655,000

Tier I capital (to Average

Assets)...................................

$ 57,635,000

11.8% $ 19,593,000

>4.0% $ 24,492,000

>6.0%

>5.0%

As of December 31, 2007:
Total capital (to Risk-

Weighted Assets) ..................

$ 47,311,000

11.1% $ 33,994,000

>8.0% $ 42,493,000

>10.0%

Tier I capital (to Risk-

Weighted Assets) ..................

$ 42,594,000

10.0% $ 16,997,000

>4.0% $ 24,686,000

Tier I capital (to Average

Assets)...................................

$ 42,594,000

9.4% $ 18,092,000

>4.0% $ 21,831,000

Capital ratios for Bancorp:
As of December 31, 2008
Total capital (to Risk-

Weighted Assets) ..................

$ 63,440,000

13.3% $ 38,211,000

Tier I capital (to Risk-

Weighted Assets) ..................

$ 57,696,000

12.1% $ 19,106,000

Tier I capital (to Average

Assets)...................................

$ 57,696,000

11.8% $ 19,594,000

>8.0%

>4.0%

N/A

>6.0%

>5.0%

N/A

F-24

OAK VALLEY BANCORP
NOTES TO FINANCIAL STATEMENTS

22. PARENT ONLY CONDENSED FINANCIAL STATEMENTS

CONDENSED BALANCE SHEET

ASSETS

Investment in bank subsidiary.................................................................................................................................
Other assets .............................................................................................................................................................

Total Assets.....................................................................................................................................................

LIABILITIES AND SHAREHOLDERS’ EQUITY

December 31,
2008

57,925,039
61,040

57,986,079

Total liabilities ................................................................................................................................................

—

Shareholders’ equity ...............................................................................................................................................

Preferred stock, no par value; 10,000,000 shares authorized and 13,500 issued and outstanding at

December 31, 2008 .........................................................................................................................................

12,680,649

Common stock, no par value; 10,000,000 shares authorized and 7,661,627 and 7,103,243 shares issued

and outstanding at December 31, 2008 and 2007, respectively ......................................................................
Additional paid-in capital ...................................................................................................................................
Retained earnings................................................................................................................................................
Accumulated other comprehensive income, net of tax .......................................................................................

23,863,331
1,925,224
19,226,645
290,230

Total shareholders’ equity...............................................................................................................................

57,986,079

Total liabilities and shareholders’ equity ........................................................................................................

57,986,079

F-25

OAK VALLEY BANCORP
NOTES TO FINANCIAL STATEMENTS

22. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (CONTINUED)

CONDENSED STATEMENT OF EARNINGS

INCOME.................................................................................................................................................................
Dividends declared by subsidiary .......................................................................................................................
Total income ...................................................................................................................................................

EXPENSES.............................................................................................................................................................
Audit expense .....................................................................................................................................................
Legal expense .....................................................................................................................................................
Other operating expenses....................................................................................................................................
Total non-interest expense ..............................................................................................................................

Income before equity in undistributed income of subsidiary ..........................................................................

Year Ended
December 31,
2008

711,929
711,929

15,000
128,320
5,000
148,320

563,609

Equity in undistributed net income of subsidiary....................................................................................................
Income before income tax benefit...........................................................................................................................

1,537,180
2,100,789

Income tax benefit ..................................................................................................................................................

61,040

Net Income..............................................................................................................................................................

Preferred Stock dividends and accretion.................................................................................................................

Net income available to common shareholders.......................................................................................................

2,161,829

63,819

2,098,010

F-26

YEAR ENDED
DECEMBER 31,
2008

2,161,829

(1,537,179)
(61,040)
563,610

13,500,000
(13,500,000)
(574,484)
10,874
(563,610)

—

OAK VALLEY BANCORP
NOTES TO FINANCIAL STATEMENTS

22. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (CONTINUED)

CONDENSED STATEMENT OF CASHFLOWS

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings ........................................................................................................................................................
Adjustments to reconcile net earnings to net cash from operating activities:

Undistributed net income of subsidiary ..........................................................................................................
Increase in other assets....................................................................................................................................
Net cash from operating activities...............................................................................................................

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from sale of Preferred Stock ................................................................................................................
Capital infusion into bank subsidiary..................................................................................................................
Dividends paid ....................................................................................................................................................
Proceeds from sale of common stock and exercise of stock options ..................................................................
Net cash from financing activities...........................................................................................................

NET DECREASE IN CASH AND CASH EQUIVALENTS.................................................................................

CASH AND CASH EQUIVALENTS, beginning of period...................................................................................

CASH AND CASH EQUIVALENTS, end of period.............................................................................................

F-27

Statement of Computation of Per Share Earnings

Set forth below are the bases for the computation of earnings per share for the periods shown.

EXHIBIT 11

Earnings Per Common Share .......................................................................................
Basic ........................................................................................................................
Average Shares Outstanding - Basic........................................................................
Diluted .....................................................................................................................
Average Shares Outstanding (including dilutive effect of stock options)................

Earnings Per Common Share .......................................................................................
Basic ........................................................................................................................
Average Shares Outstanding- Basic.........................................................................
Diluted .....................................................................................................................
Average Shares Outstanding (including dilutive effect of stock options)................

Three Months Ended
December 31

2008

2007

0.03 $

7,660,526

0.03 $

7,723,711

0.12
7,606,506
0.12
7,727,570

Fiscal Year Ended
December 31, 2008

2008

2007

0.27 $

7,642,775

0.27 $

7,733,881

0.53
7,364,681
0.52
7,524,505

Exhibit 14

OAK VALLEY BANCORP

OAK VALLEY COMMUNITY BANK

Code of Ethics

Approved by the Board of Directors: November 18, 2008

CODE OF ETHICS

II.

III.

IV.

PHILOSOPHY

EXECUTIVE OFFICER

CONFIDENTIALITY

CONFLICTS OF INTEREST AND CORPORATE OPPORTUNITIES

INSIDER TRADING

VI.

EXTENSIONS OF CREDIT

VII.

OUTSIDE ACTIVITIES

VIII.

OUTSIDE EMPLOYMENT

IX.

FAIR DEALING

PROTECTION AND PROPER USE OF OVCB PROPERTY

XI.

PERSONAL FINANCIAL RESPONSIBILITY

XII.

COMPLIANCE WITH LAWS, RULES AND REGULATIONS

XIII.

EXPRESSIONS OF OPINIONS

XIV. OTHER GUIDELINES/SARBANES-OXLEY ACT (SOX)

XV.

NO RETALIATION

XVI.

REPORTING OF ILLEGAL OR UNETHICAL BEHAVIOR

XVII. ADMINISTRATION AND WAIVER OF CODE OF ETHICS

5B - 1

5B - 2

5B - 3

5B - 4

5B – 5

5B – 6

5B - 6

5B - 7

This Code of Ethics (“Code of Ethics”) applies to all employees, officers and directors (“employee”) of Oak Valley Community
Bank and Oak Valley Bancorp (collectively the “Company” or the “Bank”).

I. PHILOSOPHY

The Company is committed to the highest standards of legal and ethical business conduct and we seek to foster an
environment of awareness where the prompt reporting of any unethical or illegal behavior or any violation of our corporate
policies, is protected, encouraged and dealt with fairly. Ethical conduct is an inherent obligation of our directors and
employees and in furtherance of our commitment and consistent with our core values we have adopted the following Code of
Ethics.

This Code of Ethics governs the actions and working relationships of Company employees and directors with its current and
potential customers, consumers, fellow employees and directors, competitors, government and self-regulatory agencies, the
media and anyone else with whom the Company has contact. These relationships are essential to the continued success of the
Company as a leading financial service provider.

Compliance with this code is mandatory and it is the responsibility of each director and employee to read and become
familiar with the ethical standards described here within.

This Code of Ethics:

• Requires the highest standards for honest and ethical conduct, including proper and ethical procedures for dealing with actual

or apparent conflicts of interest between personal and professional relationships.

• Requires full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by the Company

with governmental and regulatory agencies.

• Requires compliance with applicable laws, rules and regulations.
• Addresses potential or apparent conflicts of interest and provides guidance for employees and directors to communicate those

conflicts to the appropriate party.

• Addresses misuse or misapplication of Company property and corporate opportunities.
• Requires the highest level of confidentiality and fair dealing within and outside the Company environment.
• Requires reporting of any illegal behavior.

II.

EXECUTIVE OFFICER

For purposes of this policy, executive officers are defined as the Chief Executive Officer, President, Chief Financial Officer
and other Executive Officers. In addition to the other requirements of the Code of Ethics, Executive Officers must ensure:

• Business transactions are properly authorized and completely and accurately recorded on the Bank’s books and records in

•

accordance with Generally Accepted Accounting Principles (GAAP) and established policy.
The retention or proper disposal of Company records shall be in accordance with established policies and applicable legal and
regulatory requirements.

• Disclosures in periodic reports are accurate, complete, objective, relevant, timely and understandable.
• Compliance with applicable laws, rules and regulations of federal, state and local governments (both U.S. and foreign) and

other appropriate private and public regulatory agencies.

Executive Officers also must:

• Act in good faith, with due care, competence, and diligence, without misrepresenting material facts or allowing independent

judgment to be subordinated.

• Respect the confidentiality of information acquired in the course of employment.
•
Share knowledge and maintain skills necessary and relevant to the Bank’s needs.
•
Proactively promote ethical and honest behavior within the Company environment.
• Assure responsible use of, and control of all assets, resources and information of the Bank.

III.

CONFIDENTIALITY

Nonpublic information regarding the Company or its businesses, employees, customers and suppliers is confidential. As a
Company employee or director, you are entrusted with confidential information. You are only to use such confidential
information for the business purpose intended. You are not to share confidential information with anyone outside of the
Bank, including family and friends, or with other employees who do not need the information to carry out their duties. You

5B-1

will be required to sign the Handbook & IIPP Revision Acknowledgement Form in the course of your employment. You
remain under an obligation to keep all information confidential even if your employment with the Company ends.

The following is a non-exclusive list of confidential information:

•

Trade secrets, which include any business or technical information, such as formula, program, method, technique,
compilation or information that is valuable because it is not generally known.
Information from a business plan or other confidential material that would be beneficial to competitors or investors.

•
• Comments on highly controversial or sensitive subjects. If the Company is to respond on these matters, executive

management will reply.

• All rights to any invention or process developed by an employee using Company facilities or trade secret information,

resulting from any work for the Company or relating to the Bank’s business, is considered to be work-for-hire under the U.S.
copyright laws and shall belong to the Bank.
Proprietary information such as customer lists and confidential customer information. Of particular concern is unintentional
disclosure which includes leaving confidential information on copiers, fax machines, printers and desks or in other places
where they may be viewed by either unauthorized individuals, which include employees without a need-to-know, customers,
clients, vendors or service providers.
Public and media communications involving the Company must have prior clearance from an executive officer.
Information regarding the relationship between the Company and present and former employees. Any verbal or written
request regarding disclosure of information of past and present employees should be directed to the Human Resources
Department.
State and federal exams and other agency reports are strictly confidential. Information contained in the reports should not be
communicated to anyone not officially connected with the Bank.

•

•
•

•

IV.

CONFLICTS OF INTEREST AND CORPORATE OPPORTUNITIES

Our directors and employees should not be involved in any activity that creates or gives the appearance of a conflict of
interest. A “conflict of interest” exists when a person’s private interest interferes or appears to interfere in any way with the
interests of the Bank. You are expected to avoid all situations that might lead to a real or apparent material conflict between
your self-interest and your duties and responsibilities as an employee or director of the Bank. Any position or interest,
financial or otherwise, which could materially conflict with your performance as an employee or director, or which affects or
could reasonably be expected to affect your independence or judgment concerning transactions between the Bank, its
customers, suppliers or competitors or otherwise reflects negatively on the Bank, would be considered a conflict of interest.

Using confidential information about the Company or its businesses, employees, directors, customers, consumers or suppliers
for personal benefit or disclosing such information to others outside your normal duties is prohibited.

Title 18 U.S. Code, Section 215, makes it a criminal offense for any Company employee to corruptly:

Solicit for himself or herself or for a third party anything of value from anyone in return for any business, service or
confidential information of the Company or;

Accept anything of value (other than normal authorized compensation) from anyone in connection with the business of the
Bank, either before or after a transaction is discussed or consummated.

Employees and directors, on behalf of the Company, are prohibited from:

Personally benefiting from opportunities that are discovered through the use of Company property, contacts, information or
position.

•

• Accepting employment or engaging in a business (including consulting or similar arrangements) that may conflict with the

performance of your duties or the Bank’s interest.

•

Soliciting, demanding, accepting or agreeing to accept anything of value from any person in conjunction with the
performance of your employment or duties at the Bank.

• Acting on behalf of the Company in any transaction in which you or your immediate family has a direct or indirect financial

•

interest.
Providing gifts and entertainment of a nominal value (generally not to exceed $100) are acceptable, to the extent that they are
fit and suitable under the circumstances, meet the standards of ethical business conduct and involve no element of

5B-2

concealment. Gifts given to customers or suppliers should be approved by an officer authorized to approve business expense
claims.

• Making direct or indirect contribution of funds or other property of the Company in connection with a candidate to any state
or federal political office. Contributions may be made to candidates of any local office only when the prior approval of an
executive officer is first obtained. Company expenditures of a nonpartisan nature may be made in support of public issues of
concern to the Bank, such as for political education, “get out and vote,” etc.

There are certain situations in which you may accept a personal benefit from someone with whom you transact Company
business such as:

• Accepting a gift in recognition of a commonly recognized event or occasion (such as a promotion, new job, wedding,

retirement or holiday.) An award in recognition of service and accomplishment may also be accepted without violating these
guidelines so long as the gift does not exceed $100 from any one individual in any calendar year.

• Accepting something of value if the benefit is available to the general public under the same conditions on which it is

available to you.

• Accepting meals, refreshments, travel arrangements and accommodations, and entertainment of reasonable value in the

course of a meeting or other occasion to conduct business or foster business relations if the expense would be reimbursed by
the Company as a business expense if the other party did not pay for it.

Directors and employees should be sensitive to any situation where there is the potential for a conflict of interest or the
appearance of a conflict of interest. Judgment on whether a conflict of interest exists can be difficult to make and therefore,
directors and employees who are uncertain should promptly consult with the following to determine the appropriate course of
action:

Executive Officers
Directors
Employees

Chief Executive Officer
Chair of the Board of Directors

Manager of Human Resources Department

Members of the Board of Directors (Board) have a special responsibility because our directors are prominent individuals with
other responsibilities. To avoid other conflicts of interest, Directors are expected to recuse themselves from participation in
any decision in which there is a conflict between their personal interests and the interest of the Bank.

INSIDER TRADING

It is unethical and illegal to buy, sell, trade, recommend to others or otherwise participate in transactions involving Company
common stock or other security while in possession of material information that has not been released to the public, but
which when released may have an impact on the market price of Company common stock or other equity security. It is also
unethical and illegal to buy, sell, trade, recommend to others or otherwise participate in transactions involving the common
stock or other security of any other Company while in possession of similar non-public material information concerning such
Bank. Any questions concerning the propriety of participating in Company stock or other security transactions should be
directed to the CFO at: 209-844-7538. Common examples of this material are as follows:

Tender offer or exchange offer.

Projections of future earnings or losses.

•
• News of pending or proposed merger or acquisition.
•
• News of a significant sale of assets or the disposition of a subsidiary.
• Changes in dividend policies or the declaration of a stock split or the offering of additional securities.
•

Significant changes in management, new products or discoveries; or impending financial liquidity problems.

Any requests of employees for “material inside information” that is not germane to the execution of the employee’s duties
should be immediately reported to an executive officer. The employee should first inquire why such information is being
requested.

VI.

EXTENSIONS OF CREDIT

Regulation O affects, to varying degrees, extensions of credit to insiders of the Bank and, in some instances, insiders of any
affiliate of the Bank. Executive officers, directors and related interests of a director or executive officers are covered under
the Bank’s Loan Administration Policy, (Regulation O.)

5B-3

VII.

OUTSIDE ACTIVITIES

Before agreeing to act as a director, officer, consultant or advisor for any other business organization, employees should
obtain the approval of their immediate supervisor.

Directors should disclose all new directorships or potential directorships to the Chairman of the Board in order to avoid any
conflicts of interest and to maintain independence.

Employees are encouraged to support and take active roles in public affairs, including civic, charitable, educational and
political activities as long as they do not interfere with the performance of your Company duties. This can be accomplished
through voluntary action and involvement in such activities. Normally these activities take place outside of normal business
hours. Before agreeing to participate in any civic of political activities, you should contact your immediate supervisor. If the
efforts require corporate time, again, prior approval should be obtained through the employee’s immediate supervisor.

Employees wishing to accept appointed office such as with the city, county, state or federal government must first seek
approval of an executive officer. They must campaign on their own time and not use Company property or services for such
purposes.

No employee or director should enter into investment transactions that would create, or give the appearance of creating, a
conflict of interest between the employee or director and the Company or between the Company and customer. The policy
covers investments for the personal account of an employee or director as well as members of his or her family. Such
investment situations are too numerous to list. However, specific examples of such situations that should be avoided are
listed in the Human Resources Policy.

VIII. OUTSIDE EMPLOYMENT

Employees who are considering outside employment must notify their supervisor. Employees in some positions of the
Company and its affiliates are prohibited by law from holding outside employment.

It is contrary to Company policy for an employee to engage in outside employment that interferes, competes or conflicts with
the interests of the Bank, or that will encroach on the normal working time, or necessitates such long hours as to impair the
employee’s ability to meet regular job responsibilities of the Bank. An employee may be required to withdraw from a paid
outside activity at such a time as management determines it is in the best interest of the employee and/or Bank.

Outside employment must be disclosed in writing with a description of the employment, along with the hours of expected
commitment on a daily basis, scope of interest, etc., and submitted to the employee’s supervisor. Final written approval must
be given by an executive officer. A copy of the approval will be sent to the Human Resources Department and will be kept in
the employee’s personnel file. If approval is denied or approved and later revoked, the employee will be required to
discontinue the outside employment or resign. Failure to disclose such outside employment may be subject to corrective
action, up to and including employment termination.

Even though the outside employment may be approved, employees must abstain from negotiating, processing or approving
any business transaction between the Company and the outside organization with which they are affiliated, whether acting as
a representative of the Company or the outside organization.

Examples of situations arising from outside employment that may involve a conflict of interest or be subject to criticism are:

•
•
•

•

•
•

•

Employment or personally engaging in any activity that is competitive with the Bank.
Employment that involves the use of the Bank’s equipment, supplies and facilities.
Employment that involves the preparation, audit or certification of statements or documents upon which would be presented
to the Bank, and that may place reliance for lending or other purposes.
Employment that involves rendering investment, legal or other advice or exercising judgment that is predicated upon
information, reports or analyses that are accessible from or through employment with the Bank.
Employment that may reflect adversely on the employee or on the Bank.
Employment under circumstances that may infer sponsorship or support of the Company on behalf of the outside employer or
an outside organization.
Employment as an insurance or securities broker, agent or representative.

5B-4

• While the Company has no policy against employees obtaining any real estate sales or brokerage license, specific prior

approval must be obtained when engaging in any activity requiring the use of such license.

• Rendering accounting services.
• Drawing wills or practicing law.
•

Performing a service that the Company itself could perform.

Additionally, in a situation where in the context of your outside employment you propose to perform work for the Bank, you
must disclose this in writing with a description of the work to be performed for your outside employment, and it must be
submitted to the employee’s supervisor. Final written approval must be given by an executive officer. A copy of the approval
will be sent to the Human Resources Department and will be kept in the employee’s personnel file

Any other outside activity or venture involving customers, vendors or affiliates of the Company that may not have been
covered in the foregoing, but raise some basis for concern, must first be reviewed and approved by the employee’s supervisor
and final approval must be given by an executive officer. Any business or professional listing of the employee’s outside
activity, as in the telephone or other directory, is also prohibited.

IX.

FAIR DEALING

Each employee and director should undertake to deal fairly with the Bank’s customers, suppliers, competitors and fellow
employees. Additionally, no one should take advantage of another through manipulation, concealment, and abuse of
privileged information, misrepresentation of material facts or any other unfair-dealing practices.

Employees must disclose prior to or at their time of hire the existence of any employment agreement, non-compete or non-
solicitation agreement, confidentiality agreement or similar agreement with a former employer that in any way restricts or
prohibits the performance of any duties or responsibilities of their positions with the Bank. Copies of such agreements
should be provided to Human Resources to permit evaluation of the agreement in light of the employee’s position. In no
event shall an employee use any trade secrets, proprietary information or other similar property, acquired in the course of his
or her employment with another employer, in the performance if his or her duties for or on behalf of the Bank.

In the event that the Company becomes engaged in the business of serving as executor, trustee and guardian of estates of
individuals, employees will be encouraged to recommend these services to qualified individuals. Employees may serve as
fiduciaries, personal executor, trustee or guardian on an estate or trust for members of their own families. The definition of
family includes: spouse, son, daughter, niece, nephew, cousin, grandchild, father, mother, brother, sister, father-in-law,
mother-in-law, sister-in-law, brother-in-law, grandfather, grandmother or any member of a household from this list of
relatives. With respect to any other person, employees should not seek nor accept appointment to any fiduciary or co-
fiduciary position without the written approval of an executive officer. Due to the danger of customer misunderstandings,
potential liability to the Bank, its employees and inherent conflicts of interest, such approval will not normally be given.

Employees will refuse any legacy or bequest. They also should not directly or indirectly accept bequests under a will or trust
if such bequests have been made to them because of their employment with the Bank. An employee may not receive
anything of value for making a loan or accept a fee for performance of any act that the Company could have performed.

Officers responsible for making internal investments with correspondent banks on behalf of the Company shall not accept
any gifts that may be implicated as an influential transaction.

An employee will not sell anything to a customer at a value in excess of its worth, nor will they purchase anything from a
customer at a value below its worth.

It is improper for an employee of the Company to accept a gift from a customer, supplier or from any other person or
business seeking a relationship with the bank. An employee should decline any gift where there would be even the slightest
implication of influence on future business dealings. An employee may not do indirectly what they are prohibited from doing
directly, to include but not limited to arranging to have a member of their own family accept a gift from a customer.

Employees may not, on behalf of the Company in connection with any transaction or business of the Bank, directly or
indirectly give, offer or promise anything of value to an individual for the purpose of influencing the actions of the recipient.
This is not intended to prohibit normal business practices such as providing meals, entertainment, promotional gifts and
tickets to cultural and sporting events, or gifts given for special occasions, so long they are of nominal and reasonable value
under the circumstances and promote the Bank’s legitimate business interests.

5B-5

PROTECTION AND PROPER USE OF COMPANY PROPERTY

All employees and directors should protect the Bank’s property and assets and ensure their efficient and proper use. Theft,
carelessness and waste can directly impact the Bank’s profitability, reputation and success. Permitting Company property
(including data transmitted or stored electronically and computer resources) to be damaged, lost or used in an unauthorized
manner is strictly prohibited. No Company information may be used in the performance of any authorized or unauthorized
non-Company related activity.

XI.

PERSONAL FINANCIAL RESPONSIBILITY

As employees of a financial institution, it is important to consistently demonstrate an ability to properly manage personal
funds, particularly the intelligent use of credit. This includes avoidance of the following:

• Borrowing from customers or suppliers.
• Borrowing from other financial institutions is appropriate as long as it is at the same terms, rates and conditions as would be

offered to other customers of similar credit worthiness.

Signing on customers’ accounts, unless the customer is related by blood or marriage.
Taking advantage of a business opportunity that rightfully belongs to the Bank.

• Borrowing from other employees is strongly discouraged, as it may lead to animosity among employees.
•
•
• Acting as principal for either themselves or their immediate families in the supply of goods, properties or services to the
Bank. This includes purchases from the Company of foreclosed properties and repossessed vehicles or other personal
property, unless approved by the Board.

XII.

COMPLIANCE WITH LAWS, RULES AND REGULATIONS

The successful business operation and reputation of the Company is built upon the principles of fair dealing and ethical
conduct of our employees. Our reputation for integrity and excellence requires careful observance of the spirit and letter of
all applicable laws and regulations, as well as a scrupulous regard for the highest standards of conduct and personal integrity.

The Company will comply with all applicable laws and regulations and expects its directors, officers and employees to
conduct business in accordance with the letter, spirit and intent of all relevant laws and to refrain from any illegal, dishonest,
or unethical conduct. While the law prescribes a minimum standard of conduct, this Code of Ethics requires conduct that
often exceeds the legal standard.

Compliance with this policy of business ethics and conduct is the responsibility of every Company employee. Disregarding
or failing to comply with these standards could lead to disciplinary action, up to and including possible termination of
employment

The Company recognizes that its customers must have faith and confidence in the honesty and character of its employees and
directors. In addition to the importance of maintaining customer confidence, there are specific laws that outline the actions
the Company must take regarding any known, or suspected, crime involving the affairs of the Bank. In accordance with the
Bank Secrecy Act (BSA), the bank must file a Suspicious Activity Report in the case of any known or suspected theft,
embezzlement, check/debit card kiting, misapplication, structuring or other defalcation involving bank funds or bank
personnel in any amount. All such information should be immediately forwarded to the BSA Department for documenting,
filing and retention.

XIII. EXPRESSIONS OF OPINIONS

Use of Company letterhead for the purpose of personal letters, testimonials and letters of recommendation may lead to
embarrassing situations for both the writer and the Bank. Accordingly, it is inappropriate for employees or directors to use
official stationery for either personal correspondence or other non-business purposes.

Employees should also refrain from giving legal or tax advice to customers, even if asked. The customers should be directed
to seek qualified practitioners for such advice. Employees should also be careful not to recommend specific individuals,
rather provide a list of professionals in the professional services field requested. The Bank’s relationship with the media is an
important factor that affects our image to the community. Employees should seek the approval of an executive officer, before
making a definite commitment on behalf of the Company during a speech or the creation of an article for publication. All
questions or requests for information from reporters or other media representatives to executive staff, ensuring consistency
and accuracy of information released.

5B-6

XIV. OTHER GUIDELINES/SARBANES-OXLEY ACT (SOX)

Congress passed the Sarbanes-Oxley Act in response to serious accounting abuses by Enron, WorldCom, Tyco, Global
Cable, and a host of publicly traded companies. Title III (Corporate Responsibility) Section 301 of the Act, contains a
requirement that the Company establish procedures where employees can confidentially and anonymously submit negative
information about the Company to the Audit Committee. The information might be with regards to accounting practices,
internal control deficiencies, senior executive abuses, or matters that need to be investigated by an internal auditor. Title VIII
(Corporate and Criminal Fraud Accountability Act of 2002) Section 806 prohibits retaliation against an employee for
disclosing information to a government or law enforcement agency, where the employee has reasonable cause to believe that
the information discloses a violation of state or federal statue, or a violation or noncompliance with a state or federal rule or
regulation.

The Company encourages vigorous, yet fair and open competition while providing a full range of financial services.
Employees and directors are expected to observe the highest standards of ethical conduct in relationships with competitors.
The dissimulation of rumors or disparaging statements regarding competitors is considered inappropriate and unethical. In
addition, for ethical and legal reasons, employees and directors are prohibited from entering into arrangements with
competitors for the purpose of controlling prices, rates, trade prices or marketing policies or disclosing to competitors future
plans of the Company which have not been disclosed generally to the public.

It is the policy of the Company to maintain records and accounts that accurately and fairly reflect its assets, liabilities,
receipts and disbursements. The falsification of any records, accounts or documents of the Company is grounds for
dismissal. There should never be issued any information that is false, misleading, incomplete or would lead to mistrust by
the public, our customers, or our stockholders.

XV.

NO RETALIATION

From time to time, employees may become aware of ethical shortcomings, internal control weaknesses and financial
improprieties. Matters such as these are to be reported to the employee’s immediate supervisor, the Human Resource
Department, or CFO. These written reports can be submitted anonymously or employees may reveal their names; this is a
matter left to the choice of each employee. Once the reports are received by the Human Resource Department, they will begin
an investigation of the complaint. In cases where the employees reveals their name, the Company will respond if, (or as)
appropriate. No director or employee who in good faith reports a violation of the Code shall suffer harassment, retaliation or
adverse employment consequence. An employee who retaliates against someone who has reported a violation in good faith is
subject to discipline up to and including termination of employment.

All complaints will be documented on the Ethics/Whistle-Blower Complaint Log, maintained by the Human Resources
Department. A copy of all logged items with be shared with the Board Audit Committee via the Risk Management Officer at
the next scheduled meeting, or sooner if warranted.

XVI. REPORTING OF ILLEGAL OR UNETHICAL BEHAVIOR

We hold all directors and employees individually responsible for carrying out and for monitoring compliance with this
Code. Directors should immediately report in person or in writing any known or suspected illegal or unethical behavior to the
Chair of the Board of Directors. Employees should immediately report any known or suspected illegal or unethical behavior
to their immediate supervisor, Manager of Human Resources, or the CFO.

125 N Third Avenue
Oakdale, CA 95361

XVII. ADMINISTRATION AND WAIVER OF CODE OF ETHICS

This Code of Ethics shall be administered and monitored by the Bank’s Human Resources Department. Any questions and
further information on this Code of Ethics should be directed to this department.

All managers and direct supervisors are responsible for reviewing this Code of Ethics with their subordinates each time a new
edition of the Code of Ethics is published. The provisions of the Code of Ethics Policy will be included in the Bank’s
Employee Handbook. The Employee Handbook will be issued to all new employees at the time of employment and reissued
to existing employees and officers from time to time. Employees will be required to sign a receipt form from the Employee
Handbook indicating they have read this Code of Ethics and will comply with its provisions.

5B-7

Employees and directors are expected to follow this Code of Ethics at all times. Generally, there should be no waivers to this
Code of Ethics, however, in rare circumstances conflicts may arise that necessitate waivers. Waivers will be determined on a
case-by-case basis by the Human Resources Department with the advice, as needed, from Legal Counsel. However, the
Board of Directors must determine waivers for directors and executive officers. For members of the board of directors and
executive officers, the Board of Directors shall have the sole and absolute discretionary authority to approve any deviation or
waiver from this Code of Ethics. Any waiver and the grounds for such waiver by directors or executive officers shall be
promptly disclosed to stockholders in the Bank’s Annual Proxy Statement.

The Board shall have the sole and absolute discretionary authority to approve any deviation or waiver from the Code of
Ethics for executive officers. Any waiver and the grounds for such waiver for a executive officers shall be promptly
disclosed through a filing with the Securities and Exchange Commission on Form 8-K. Additionally, any change of this Code
of Ethics for executive officers shall be promptly disclosed to stockholders.

Known or suspected violations of this Code of Ethics will be investigated and may result in disciplinary action up to and
including immediate termination of employment.

5B-8

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement (filed on or about March 25, 2009) of Oak Valley Bancorp
on Form S-8 of our report dated March 31, 2009, relating to the consolidated financial statements appearing in this Annual Report on
Form 10-K of Oak Valley Bancorp for the year ended December 31, 2008.

EXHIBIT 23.1

/s/ Moss Adams LLP

Stockton, California
March 31, 2009

EXHIBIT 31.01

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Ronald C. Martin, Chief Executive Officer, certify that:

I have reviewed this annual report on Form 10-K of Oak Valley Bancorp (the Registrant);

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods
presented in this report;

The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a -15(f) and 15d-15(f)) for the Registrant and have:

(a)

(b)

(c)

(d)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;

evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and

disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during
the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial
reporting; and

The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s Board of Directors:

(a)

(b)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting, which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and
report financial information; and

any fraud, whether or not material, that involves Management or other employees who have a significant role in the
Registrant’s internal control over financial reporting.

Dated: March 30, 2009

/s/ Ronald C. Martin
Ronald C. Martin
Chief Executive Officer

EXHIBIT 31.02

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Richard A. McCarty, Chief Financial Officer, certify that:

I have reviewed this annual report on Form 10-K of Oak Valley Bancorp (the Registrant);

(a)

(b)

(c)

(d)

(a)

(b)

any fraud, whether or not material, that involves Management or other employees who have a significant role in the
Registrant’s internal control over financial reporting.

Dated: March 30, 2009

/s/ Richard A. McCarty
Richard A. McCarty
Chief Financial Officer

EXHIBIT 32.01

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 10-K of Oak Valley Bancorp (the Registrant) for the year ended December 31, 2008, as
filed with the Securities and Exchange Commission, the undersigned hereby certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

such Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and

the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results
of operations of the Registrant.

Dated: March 30, 2009

/s/ Ronald C. Martin
Ronald C. Martin
Chief Executive Officer

/s/ Richard A. McCarty
Richard A. McCarty
Chief Financial Officer

This certification accompanies each report pursuant to section 906 of the Sarbanes Oxley Act of 2002 and shall not, except to the
extent required by the Sarbanes Oxley Act of 2002, be deemed filed by the Registrant for purposes of section 18 of the Securities and
Exchange Act of 1934, as amended.