Business Overview and History
Oak Valley Bancorp (OVLY) is a bank holding company that operates a community bank, Oak Valley Community Bank, and its Eastern Sierra Community Bank division. Headquartered in Oakdale, California, the bank serves the Central Valley and Eastern Sierra regions, providing a range of commercial and personal banking services to its customers.
Oak Valley Bancorp was incorporated under the laws of the State of California on May 31, 1990, and began operations in Oakdale, California on May 28, 1991. The company operates as the bank holding company for its sole subsidiary, Oak Valley Community Bank, which was formed to provide basic banking services to individuals and business enterprises in Oakdale, California and the surrounding areas.
Since its inception, Oak Valley Community Bank has focused on offering a range of commercial banking services designed for both individuals and small to medium-sized businesses in the Central Valley and Eastern Sierras regions of California. The bank's product offerings include business checking and savings accounts, commercial and real estate loans, lines of credit, and other services such as online banking, remote deposit capture, and merchant services.
Over the years, Oak Valley Community Bank has expanded its branch network to serve customers throughout the California Central Valley around Sacramento, Stockton, Modesto, and the Eastern Sierras. In 2005, the bank opened its first branch in San Joaquin County. The Bridgeport, Mammoth Lakes, and Bishop branches operate as a separate division called Eastern Sierra Community Bank, which is part of Oak Valley Community Bank.
Despite the challenges of the 2008-2009 recession, Oak Valley Bancorp maintained a strong financial position and continued to grow its business. The company weathered the difficult economic environment through prudent risk management and a commitment to serving its local communities. Oak Valley has established itself as a well-capitalized, profitable, and independent community-oriented bank over its more than 30 years of operation.
As of September 30, 2024, Oak Valley Bancorp operated a total of 18 branches, with 15 branches under the Oak Valley Community Bank name and 3 branches under the Eastern Sierra Community Bank division.
Financial Performance and Ratios
For the nine months ended September 30, 2024, Oak Valley Bancorp reported consolidated net income of $18.94 million, or $2.30 per diluted share, compared to $24.98 million, or $3.04 per diluted share, for the same period in 2023. The decrease in net income was primarily due to higher interest expenses on deposit accounts, as well as an increase in non-interest expenses related to staffing and overhead costs to support the company's growing business portfolios. This represents a decrease of $6.04 million or 19.1% compared to the same period in 2023.
For the most recent quarter ended September 30, 2024, the company reported revenue of $19.50 million, net income of $7.32 million, operating cash flow of $8.93 million, and free cash flow of $8.75 million.
As of September 30, 2024, Oak Valley Bancorp's total assets stood at $1.90 billion, with a loan portfolio of $1.08 billion and total deposits of $1.69 billion. The company's net interest margin for the nine-month period ended September 30, 2024, was 4.08%, compared to 4.39% for the same period in 2023, reflecting the impact of rising interest rates on the company's deposit costs. For the three-month period ended September 30, 2024, the net interest margin was 4.04%, down from 4.34% in the comparable 2023 period.
Oak Valley Bancorp's capital ratios remain strong, with a total risk-based capital ratio of 15.40% and a Tier 1 risk-based capital ratio of 14.50% as of September 30, 2024. These ratios exceed the regulatory minimums and provide the company with a solid foundation for future growth.
The company's total assets grew by 3.10% to $1.90 billion as of September 30, 2024, compared to $1.84 billion at the end of 2023. This asset growth was driven by a 5.80% increase in the company's net loan portfolio, which reached $1.06 billion. However, the company's investment securities portfolio decreased slightly by 0.10% over the same period.
Deposit balances increased by 2.40% to $1.69 billion as of September 30, 2024, up from $1.65 billion at the end of 2023. The company has focused on growing its core deposit base, particularly noninterest-bearing demand deposits and money market accounts, to fund its lending activities.
Asset Quality and Credit Risk Management
One of the hallmarks of Oak Valley Bancorp's success has been its emphasis on prudent credit risk management. As of September 30, 2024, the company reported no non-performing loans, and its allowance for credit losses stood at $11.48 million, or 1.07% of total loans. The company's proactive approach to credit risk management, coupled with a focus on relationship-based lending, has allowed it to maintain a high-quality loan portfolio and avoid the pitfalls that have plagued some larger financial institutions.
During the nine months ended September 30, 2024, Oak Valley Bancorp recorded a reversal of credit loss provisions of $1.62 million, primarily due to significant loan recoveries. This underscores the company's ability to effectively manage credit risk and maintain a strong balance sheet.
Liquidity and Capital Position
Oak Valley Bancorp maintains a robust liquidity position, with cash and cash equivalents of $213.91 million as of September 30, 2024, compared to $216.57 million as of December 31, 2023. The company's primary sources of liquidity include deposit growth, loan repayments, and access to the Federal Home Loan Bank (FHLB) system, which provides the bank with additional borrowing capacity as needed.
The company has access to a $70 million federal funds line of credit and $32.8 million borrowing capacity through the FRB Discount Window, in addition to its FHLB borrowing capacity of $350.4 million, of which there were no outstanding advances as of September 30, 2024.
The company's strong capital position, as evidenced by its regulatory capital ratios, provides a solid foundation for future growth and allows it to withstand potential economic downturns. Oak Valley Bancorp's focus on organic growth and prudent capital management has enabled it to consistently maintain a well-capitalized status.
Business Segments and Product Offerings
Oak Valley Bancorp's primary business segments and products include:
Commercial Real Estate Loans: The company offers a range of commercial real estate loans, including construction and land loans, multi-family loans, owner-occupied commercial real estate loans, and non-owner occupied commercial real estate loans. As of September 30, 2024, commercial real estate loans comprised approximately 86% of the company's total loan portfolio.
Commercial and Industrial Loans: Oak Valley Community Bank provides commercial and industrial loans to small and medium-sized businesses in its service areas. These loans are primarily made based on the borrower's cash flow and secondarily on the underlying collateral. As of September 30, 2024, commercial and industrial loans made up about 8% of the total loan portfolio.
Consumer and Agriculture Loans: The bank also originates consumer loans, such as home equity loans and lines of credit, as well as agricultural loans to support crop production, livestock, dairy, and other agricultural interests. These loan types collectively accounted for around 6% of the total loan portfolio as of the reported date.
Outlook and Growth Strategies
Oak Valley Bancorp remains focused on executing its growth strategies, which include expanding its commercial lending portfolio, enhancing its digital banking capabilities, and further strengthening its presence in the communities it serves. The company's recent branch openings, such as the new location in Lodi, California, and the addition of experienced commercial banking officers, underscore its commitment to driving sustainable growth.
Additionally, the company's investments in technology and digital banking solutions have positioned it to better serve its customers and stay competitive in an increasingly digital landscape. Oak Valley Bancorp's dedication to exceptional customer service and its deep understanding of the local markets it operates in have been instrumental in its ability to attract and retain a loyal customer base.
The company continues to focus on service-driven relationship banking to enhance its competitive edge in its primary market areas, which include the California Central Valley around Sacramento, Stockton, Modesto, and the Eastern Sierras.
Risks and Challenges
Like any financial institution, Oak Valley Bancorp faces a variety of risks, including interest rate risk, credit risk, and regulatory compliance challenges. The company's exposure to the economic conditions in its primary markets, particularly the Central Valley and Eastern Sierra regions, could also impact its performance.
Additionally, the highly competitive nature of the banking industry, particularly in the community banking space, poses a constant challenge for Oak Valley Bancorp. The company must remain vigilant in maintaining its competitive edge and adapting to evolving customer preferences and industry trends.
Conclusion
Oak Valley Bancorp's three-decade history of steady growth, prudent risk management, and unwavering commitment to exceptional customer service have positioned the company as a reliable community bank in the Central Valley and Eastern Sierra regions of California. Despite the challenges posed by the current interest rate environment and competitive landscape, the company's focus on relationship-based banking, strategic expansion, and technological advancements suggest that Oak Valley Bancorp is well-equipped to navigate the future and continue delivering value to its shareholders.
The company's mixed financial results for the most recent quarter, with decreases in net income due to higher deposit costs, are balanced by its maintained strong liquidity and credit quality. As Oak Valley Bancorp continues to execute on its strategy of service-driven relationship banking in its regional markets, it remains poised for sustainable growth and continued success in the community banking sector.