Oak Valley Bancorp — FY2023 Form 10-K
Business context and reporting period. Oak Valley Bancorp is the holding company for Oak Valley Community Bank, a California community bank serving the Central Valley and Eastern Sierras. This annual report covers the fiscal year ended December 31, 2023, with comparisons to FY2022; it is not a standalone fourth-quarter report. The company reported one operating segment. Its independent auditor issued an unqualified opinion on the consolidated financial statements.
Financial performance and condition
| Metric | FY2023 / Dec. 31, 2023 | FY2022 / Dec. 31, 2022 |
|---|---|---|
| Net income | $30.8 million | $22.9 million |
| Diluted EPS | $3.75 | $2.79 |
| Net interest income (GAAP) | $75.8 million | $60.1 million |
| Net interest margin (FTE) | 4.33% | 3.32% |
| Return on average assets / common equity | 1.64% / 21.87% | 1.17% / 18.21% |
| Efficiency ratio | 48.81% | 54.29% |
| Total assets | $1.842 billion | $1.968 billion |
| Gross loans / net loans | $1.017 billion / $1.004 billion | $916 million / $905 million |
| Deposits | $1.651 billion | $1.814 billion |
| Shareholders’ equity | $166.1 million | $126.6 million |
Earnings drivers and expenses. Net interest income increased 26.2% as higher asset yields and loan growth more than offset higher deposit costs. Net interest income on a fully tax-equivalent basis was $78.3 million, up 25.7%; this differs from the GAAP amount above. Noninterest income rose 19.0% to $6.6 million, including higher deposit service charges and positive fair-value changes in equity securities. Noninterest expense increased 10.3% to $41.2 million, mainly from staffing, branch occupancy and data-processing costs. Income tax expense was $9.5 million; the effective tax rate was 23.5%.
Cash flow and liquidity. Operating cash flow was $33.1 million; investing activities used $79.5 million and financing activities used $166.6 million. Cash and cash equivalents fell $213.1 million to $216.6 million, largely alongside deposit outflows and loan growth. Management reported liquid assets of approximately $489 million, or 26.5% of assets, versus $754.9 million, or 38.4%, a year earlier. The bank had no FHLB advances outstanding at year-end, reported $333.1 million of available FHLB borrowing capacity and $70 million of correspondent-bank federal-funds lines. Management said available liquidity and borrowing capacity were expected to meet needs for at least 12 months.
Debt, credit and securities. No short- or long-term borrowings were outstanding at year-end. The allowance for credit losses was $10.9 million, or 1.07% of loans, compared with $9.5 million, or 1.03%, in 2022; FY2023 included a $970,000 provision versus a $1.35 million reversal in FY2022. There were no nonperforming loans or other real estate owned at either year-end, and FY2023 had $112,000 in net loan recoveries. Available-for-sale securities were $518.1 million, with $30.1 million of gross unrealized losses; management attributed these losses primarily to higher market yields, reported no securities credit-loss allowance, and said it did not expect to sell the securities before recovery or maturity.
Capital. The bank was classified as well capitalized. At December 31, 2023, its total risk-based capital ratio was 14.7%, common equity Tier 1 ratio 13.8%, and Tier 1 leverage ratio 9.6%. The company paid $2.6 million in common dividends during the year.
Material changes versus FY2022
- Net income rose 34.7%, while diluted EPS increased from $2.79 to $3.75.
- Net loans grew 11.0%; gross commercial real estate loans increased approximately $101 million. Total assets declined 6.4% and deposits declined 9.0%.
- Net interest margin expanded as asset yields rose; the average cost of interest-bearing liabilities also increased, from 0.10% to 0.46%.
- Net interest income benefited from rate changes and mix as well as loan growth; expenses and credit-loss provisioning increased from the prior-year reversal.
- Equity increased $39.5 million, reflecting earnings and an $11.6 million after-tax improvement in accumulated other comprehensive income, primarily from the change in unrealized securities losses.
Outlook, risks and notable items
Management outlook. For 2024, management plans to pursue relationship-based loan and deposit growth while controlling expenses and credit losses. It expects continued benefit from repricing of existing loans, but also expects deposit rates to remain under pressure. Management noted that forecast rate cuts could compress net interest income and margin; the balance sheet was described as slightly asset-sensitive, particularly because of variable-rate loans and interest-earning cash.
Key risks. Approximately 90% of loans were real-estate-related, with commercial real estate representing about 88% of total loans; about 98% of loans were generated in the Central Valley. This concentration makes results sensitive to regional economic conditions, property values, refinancing and borrower cash flows. Deposits fell during the year, and estimated uninsured deposits were $768.1 million. Other disclosed risks include deposit competition and funding costs, interest-rate changes, bank-industry instability, cybersecurity and third-party vendor exposure, regulatory changes, and natural disasters.
Accounting and contingencies. The company adopted CECL on January 1, 2023; the transition reduced retained earnings by $629,000 after tax. The allowance estimate was identified as a critical audit matter because it depends on forecasts, model inputs and management judgment. Management reported effective disclosure controls and internal control over financial reporting. It disclosed no pending or threatened material legal proceedings and no known cybersecurity threats that had materially affected, or were reasonably likely to materially affect, the company as of the report date.
Important facts for investors to verify
- Whether deposit levels, uninsured deposits and funding costs stabilize or continue to pressure liquidity and margins.
- Commercial real estate exposure by property type, geography, borrower concentration, maturity and updated collateral values; the filing reports a 46.0% aggregate CRE loan-to-value based on appraisals at origination or renewal.
- Subsequent credit trends, criticized or classified loan balances, CECL assumptions and whether the $10.9 million allowance remains adequate as loans grow.
- Unrealized securities losses, liquidity needs and any changes to management’s stated ability and intent to hold securities until recovery or maturity.
- Actual 2024 net interest income, margin, deposit pricing and expense performance against management’s qualitative outlook; the filing provides no numerical earnings or margin guidance.