Oak Valley Bancorp (NASDAQ: OVLY) (the “Company”), the bank holding company for Oak Valley Community Bank and its Eastern Sierra Community Bank division, recently reported unaudited consolidated financial results.
For the three months ended Sept. 30, 2023, consolidated net income was $7,354,000, or $0.89 per diluted share (EPS), as compared to $8,404,000, or $1.02 EPS, for the prior quarter and $6,800,000, or $0.83 EPS, for the same period a year ago. Consolidated net income for the nine months ended Sept. 30, 2023 was $24,983,000, or $3.04 EPS, compared to $13,427,000 or $1.64 EPS for the same period of 2022.
The decrease in third quarter net income compared to the prior quarter was due primarily to an increase in deposit interest expense, a credit loss provision and an increase in non-interest expense. The QTD and YTD increases compared to the same periods of 2022 were related to net interest income increases resulting from increased yields on earning assets, triggered by FOMC rate hikes, combined with the growth of our loan portfolio.
Net interest income for the three months ended Sept. 30, 2023 was $18,938,000, compared to $19,407,000 in the prior quarter, and $16,772,000 in the same period a year ago. Interest expense on deposit accounts increased during the quarter, and the average cost of funds rate increased to 0.33 percent from 0.16 percent in the prior quarter and 0.06 percent in the same quarter of the prior year. Overall, the rate increases that began in 2022 have had a positive impact on net interest income and resulted in an increase over the 2022 comparable period.
In addition to rising yields, OVCB has recognized $59.0 million in loan growth, during the prior 12 months.
Net interest margin for the three months ended Sept. 30, 2023 was 4.34 percent, compared to 4.45 percent for the prior quarter and 3.61 percent for the same period last year. The interest margin decrease compared to the prior quarter was related to deposit interest expense. The net interest margin expansion for 2023 YTD compared to 2022 was fueled by the impact of FOMC rate increases on earning asset yields and growth of the loan portfolio.
“Net interest income and net interest margin remain strong and continue to have positive impact on profitability. While rate pressures have begun to increase cost of funds, we’ve been pleased with the way our relationship banking model and deposit mix have enabled us to balance customer demand and interest sensitivity with their respective liquidity needs,” stated Rick McCarty, President and Chief Operating Officer.
Non-interest income was $1,566,000 for the quarter ended Sept. 30, 2023, compared to $1,655,000 for the prior quarter and $1,611,000 for the same period last year. The decrease compared to the prior period was due to a negative change in the market value of equity securities, which was partially offset by an increase in service charges.
Non-interest expense totaled $10,578,000 for the quarter ended Sept. 30, 2023, compared to $10,062,000 in the prior quarter and $9,370,000 in the same quarter a year ago. The third quarter increase compared to prior periods is mainly due to staffing expense and general operating costs related to servicing the growing loan and deposit portfolios.
Total assets were $1.84 billion at Sept. 30, 2023, a decrease of $26.3 million and $127.1 million over June 30, 2023 and Sept. 30, 2022, respectively, due to the deposit decreases. Gross loans were $971.2 million at Sept. 30, 2023, an increase of $20.8 million over June 30, 2023 and $59.0 million over Sept. 30, 2022. The Company’s total deposits were $1.67 billion as of Sept. 30, 2023, a decrease of $15.8 million and $164.3 million from June 30, 2023 and Sept. 30, 2022, respectively. The deposit decrease during the third quarter was related to normal balance fluctuations from core deposit accounts.
Liquidity position is very strong as evidenced by $278 million in cash and cash equivalents balances at Sept. 30, 2023.
“We are pleased to report another solid quarter of financial results. We are understandably excited that our relationship teams continue to drive year-over-year loan growth, particularly in the current rate environment,” stated Chris Courtney, CEO. “While we have expanded our branch network and lending footprint in the Sacramento region, to capitalize on these opportunities, we remain committed to attracting banking professionals who align with our commitment to cultivating lifelong relationships with clients by treating them right and helping their businesses excel.”
Non-performing assets (“NPA”) remained at zero as of Sept. 30, 2023, as they were for all of 2023 and 2022. The allowance for credit losses (“ACL”) as a percentage of gross loans increased to 1.00 percent at Sept. 30, 2023, compared to 0.99 percent at June 30, 2023 and 1.21 percent at Sept. 30, 2022. The slight increase in the third quarter was related to a provision for credit loss of $300,000, which was mainly due to macro-economic conditions and loan growth of $20.8 million during the third quarter. The Company’s credit quality remains stable and credit loss reserves relative to gross loans remain at acceptable levels as determined by management’s evaluation of the CECL credit risk model.
Oak Valley Bancorp operates Oak Valley Community Bank and its Eastern Sierra Community Bank division, through which it offers a variety of loan and deposit products to individuals and small businesses. They currently operate through 18 branches: Oakdale, Turlock, Stockton, Patterson, Ripon, Escalon, Manteca, Tracy, Sacramento, Roseville, two branches in Sonora, three branches in Modesto, and three branches in the Eastern Sierra division, which includes Bridgeport, Mammoth Lakes, and Bishop. The Company’s Roseville location opened in early 2022 as a Loan Production Office and as a full-service branch in December 2022.
For more information, call 1-866-844-7500 or visit www.ovcb.com.
