Oak Valley Bancorp
For the period ended Dec 31, 2024. Filed Mar 31, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 31, 2025
OVLY$34.32+0.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-04-01.
0001437749-24-010372
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-31.
0001437749-25-010215
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 144 previous paragraphs and 132 current paragraphs.
88 unchanged; 43 reworded; 1 added; 13 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 36 previous and 39 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (1)
Current report
The Company recorded a reversal of provision for credit loss of $1,620,000 and a credit loss provision of $970,000 during the years ended December 31, 2024 and 2023, respectively. The 2024 provision reversal was mainly due to loan recoveries totaling $2.2 million, which was offset in part by loan growth. The loan recoveries in 2024 were primarily from two loans from different borrowers recovered during third quarter of 2024 totaling $1,992,000. Each of the recovered loans date back to the recession period when collateral values were considerably depressed, and one of which was acquired in 2015 when we completed a bank acquisition. The loan recoveries initially increased the allowance for credit losses (“ACL”), which subsequently resulted in the reversal of $1,620,000.
Removed paragraphs (13)
Previous report
Goodwill Impairment
Previous report
The Company applies a qualitative analysis of conditions in order to determine if it is more likely than not that the carrying value is impaired. In the event that the qualitative analysis suggests that the carrying value of goodwill may be impaired, the Company uses several quantitative valuation methodologies in evaluating goodwill for impairment that includes assumptions and estimates made concerning the future earnings potential of the organization, and a market-based approach that looks at values for organizations of comparable size, structure and business model.
Previous report
Estimates of fair value are based on a complex model using, among other things, estimated cash flows and industry pricing multiples. The Company tests its goodwill for impairment annually as of December 31 (the Measurement Date), and quarterly if a triggering event causes concern of a possible goodwill impairment charge. At each Measurement Date, the Company, in accordance with ASC 350-20-35-3, evaluates, based on the weight of evidence, the significance of all qualitative factors to determine whether it is more likely than not that the fair value of each of the reporting units is less than its carrying amount.
Previous report
The assessment of qualitative factors at the most recent Measurement Date (December 31, 2023), indicated that it was not more likely than not that impairment existed; as a result, no further testing was performed.
Previous report
Income Taxes
Previous report
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our 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.
Previous report
We file income tax returns in the U.S. federal jurisdiction, and the State of California. We are no longer subject to examination by taxing authorities for years before 2020 for U.S. federal or for years before 2019 for California.
Previous report
Fair Value Measurements
Previous report
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Securities available for sale, derivatives, and loans held for sale, if any, are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record certain assets at fair value on a non-recurring basis, such as certain impaired loans held for investment and securities held to maturity that are other-than-temporarily impaired. These non-recurring fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting.
Previous report
We have established and documented a process for determining fair value. We maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management's judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements. For detailed information on our use of fair value measurements and our related valuation methodologies, see Note 14 to the Consolidated Financial Statements in Item 8 of this report.
Previous report
Construction and Land Loans Outstanding by Type and Geographic Location
Previous report
Allowance for Credit Losses
Previous report
Allocation of the Allowance for Credit Losses
Reworded paragraphs (43)
Previous wording
As of December 31, 2023, we had approximately $1.84 billion in total assets, $1.02 billion in total gross loans, and $1.65 billion in total deposits.
Current wording
As of December 31, 2024, we had approximately $1.90 billion in total assets, $1.11 billion in total gross loans, and $1.70 billion in total deposits.
Previous wording
These items, as well as other factors, contributed to the increase in net income for 2023 to $30.8 million from $22.9 million in 2022, which translates into $3.75 per diluted share in 2023 as compared to $2.79 per diluted share in 2022.
Current wording
These items, as well as other factors, contributed to the decrease in net income for 2024 to $24.9 million from $30.8 million in 2023, which translates into $3.02 per diluted share in 2024 as compared to $3.75 per diluted share in 2023.
Previous wording
Unfavorable trends in inflation prompted the Federal Reserve Open Market Committee, or FOMC, to increase the target federal funds rate in 2022 and 2023, which resulted yield increases on our earning assets. We expect this positive impact will continue to some degree in 2024 due to continued repricing of existing loans. However, the negative impact of the FOMC rate hikes was increased rates on deposit accounts, which we expect will continue into 2024. Deposit interest rates are determined based on customer demand, market surveys of offerings from competitive institutions, and overall liquidity position.
Current wording
Unfavorable trends in inflation prompted the Federal Reserve Open Market Committee, or FOMC, to increase the target federal funds rate in 2022 and 2023, which resulted yield increases on our earning assets. In response to moderating inflation and weakening economic conditions, in 2024 the FOMC made minimal interest rates cuts. In spite of this, we expect the upward trend in our earning asset yield will continue to some degree in 2025 due to continued repricing of existing loans. However, the negative impact of the 2022-2023 FOMC rate hikes was increased rates on deposit accounts, which may continue to some degree into 2025. Deposit interest rates are determined based on customer demand, market surveys of offerings from competitive institutions, and overall liquidity position.
Previous wording
The Fed Funds rate is forecasted to decrease towards the end of 2024, which could potentially compress net interest income and net interest margin further, given that our balance sheet is slightly asset sensitive to interest rate changes primarily due to the variable rate loans and interest-earning cash balances.
Current wording
The Fed Funds rate is forecasted to decrease moderately during 2025, which could potentially compress net interest income and net interest margin further, given that our balance sheet is slightly asset sensitive to interest rate changes primarily due to the variable rate loans and interest-earning cash balances.
Previous wording
We recorded net income for the year ended December 31, 2023 of $30,848,000 or $3.75 per diluted share compared to $22,902,000 or $2.79 per diluted share for the year ended December 31, 2022. The increase in net income for the year ended December 31, 2023 was primarily due to an increase of $15,726,000 in net interest income, mainly from the positive impact of FOMC interest rate hikes and the growth of our loan portfolio. Non-interest income increased by $1,060,000 in 2023, mainly as a result of fair value changes on equity securities and increased service charges on deposit accounts. The provision for credit losses increased compared to last year, mainly due to loan growth. Non-interest expense increased by $3,849,000 associated with staffing and general operating overhead increases to support the growth of our loan and deposit portfolios.
Current wording
We recorded net income for the year ended December 31, 2024 of $24,948,000 or $3.02 per diluted share compared to $30,848,000 or $3.75 per diluted share for the year ended December 31, 2023. The decrease in net income for the year ended December 31, 2024 was primarily due to a decrease of $5,768,000 in net interest income, as a result of an increase in deposit interest expense. Non-interest income decreased by $76,000 in 2024, mainly due to fair value changes on equity securities and decreased NSF fee income. The provision for credit losses decreased compared to last year due to $2.2 million in loan recoveries in 2024, resulting in a $1,620,000 credit loss provision reversal. Non-interest expense increased by $4,860,000 associated with staffing and general operating overhead increases to support the growth of our loan and deposit portfolios.
Previous wording
Net interest income, on a fully tax equivalent basis (“FTE”), increased $16,034,000 or 25.7% to $78,342,000 for the year ended December 31, 2023, compared to $62,308,000 in 2022. Net interest spread and net interest margin were 4.14% and 4.33%, respectively, for the year ended December 31, 2023, compared to 3.27% and 3.32%, respectively, for the year ended December 31, 2022. This upward trend is mainly due to the FOMC rate hikes that begin in March 2022, resulting in an increase in earning asset yields, as described below.
Current wording
Net interest income, on a fully tax equivalent basis (“FTE”), decreased $6,278,000 or 8.0% to $72,064,000 for the year ended December 31, 2024, compared to $78,342,000 in 2023. Net interest spread and net interest margin were 3.60% and 4.07%, respectively, for the year ended December 31, 2024, compared to 4.14% and 4.33%, respectively, for the year ended December 31, 2023. This downward trend is mainly due to an increase in deposit interest expense that was necessary to remain competitive with peer banks, preserve liquidity, and continue to grow the balance sheet. The FOMC rate hikes that began in March 2022 resulted in an immediate increase in earning asset yields, but deposit rates experienced a lag effect and did not increase until 2023 and into 2024.
Previous wording
The cost of funds on interest-bearing liabilities increased to 0.46% in 2023 compared to 0.10% in 2022 as a result of the FOMC rate hikes, competitive pressure and customer demand for higher rates. The decrease in deposit balances in 2023 also contributed to the rise in deposit rates, as management utilized promotional rates in order to match competition as a means to retain deposit relationships.
Current wording
The cost of funds on interest-bearing liabilities increased to 1.20% in 2024 compared to 0.46% in 2023 as a result of the competitive environment and customer demand for higher rates. Promotional rates on money market accounts and higher time-deposit rate offerings were utilized to retain deposit relationships, which contributed to the deposit growth of $45.2 million during 2024.
Previous wording
Our earning asset yield increased 122 basis points in 2023 compared to 2022. The FOMC increased the federal funds target rate from a range of 0% to 0.25% at the beginning of 2022, to 4.25% to 4.50% by the end of the year. The FOMC approved additional rate hikes in 2023 to a range of 5.25% to 5.50%. All earning asset yields benefited from these increases, especially our interest-bearing cash accounts that receive the full impact of those increases. These cash balances averaged $302 million in 2023, representing over 16% of total average assets. The yield on loans recognized an increase of 33 basis points for 2023 as compared to 2022, due to the upward repricing of variable rate loans and higher rate indexes on new loans. Growth in average gross loans of $61 million, also contributed to net interest margin expansion.
Current wording
Our earning asset yield increased 20 basis points in 2024 compared to 2023 despite the FOMC cutting the federal funds target rate from a range of 5.25% to 5.50% at the beginning of 2024, to a range of 4.25% to 4.50% by the end of the year. The FOMC rate hikes in 2022 and 2023 continued to have a positive impact on rates of loans that repriced during 2024. The yield on loans recognized an increase of 33 basis points for 2024 as compared to 2023, due to the upward repricing of variable rate loans and higher rate indexes on new loans. Growth in average gross loans of $108.9 million, also contributed to net interest margin expansion.
Previous wording
The net interest margin expansion the Company recognized in 2023, is due to the factors discussed above but could reverse and result in interest margin compression if rate indexes on assets were to fall, and/or: 1) deposit interest rates continue to increase due to customer demand, or competitive pressure from peer banks, 2) competition in the lending market restrict significant increases in new loan rates, and 3) deposit growth out-paces loan growth as recognized in recent years, resulting in higher interest-bearing cash balances, which would offer lower yields than loans and investments depending if the FOMC were to cut the Federal Funds rate.
Current wording
The net interest margin compression in 2024, is due to the factors discussed above and could worsen if rate indexes on assets were to fall, and/or: 1) deposit interest rates continue to increase due to customer demand, or competitive pressure from peer banks, 2) competition in the lending market restrict significant increases in new loan rates, and 3) deposit growth out-paces loan growth, resulting in higher interest-bearing cash balances, which would offer lower yields than loans and investments depending on the Federal Funds rate as determined by the FOMC.
Previous wording
Changes in volume resulted in an increase in net interest income (on a FTE basis) of $2,186,000 for the year of 2023 compared to the year 2022, and changes in interest rates and the mix resulted in an increase in net interest income (on a FTE basis) of $13,848,000 for the year 2023 versus the year 2022. Management closely monitors both total net interest income and the net interest margin.
Current wording
Changes in volume resulted in decrease in net interest income (on a FTE basis) of $2,641,000 for the year of 2024 compared to the year 2023, and changes in interest rates and the mix resulted in a decrease in net interest income (on a FTE basis) of $3,637,000 for the year 2024 versus the year 2023. Management closely monitors both total net interest income and the net interest margin.
Previous wording
Market rates are in part based on the FOMC target Federal funds interest rate (the interest rate banks charge each other for short-term borrowings). The change in the Federal funds sold rates is the result of target rate changes implemented by the FOMC. In 2020, the FOMC decreased the Federal funds rate by 0.50% and 1.00% on two occasions in March resulting in a range of 0.00% to 0.25% as of December 31, 2020 and 2021. In 2022, the FOMC raised the federal funds rate seven times by an aggregate of 4.00%. In 2023, the FOMC raised the Federal funds rate four times by 0.25% resulting in a range of 5.25% to 5.50%. If FOMC were to cut rates in 2024 or thereafter, we expect this would have a negative impact on our net interest income, due to repricing of interest-bearing cash balances, existing loans and investment securities.
Current wording
Market rates are in part based on the FOMC target Federal funds interest rate (the interest rate banks charge each other for short-term borrowings). The change in the Federal funds sold rates is the result of target rate changes implemented by the FOMC. In 2020, the FOMC decreased the Federal funds rate by 0.50% and 1.00% on two occasions in March resulting in a range of 0.00% to 0.25% as of December 31, 2020 and 2021. In 2022, the FOMC raised the federal funds rate seven times by an aggregate of 4.00%. In 2023, the FOMC raised the Federal funds rate four times by 0.25% resulting in a range of 5.25% to 5.50%. In 2024, the FOMC cut the Federal funds rate three times by an aggregate of 1.00%, resulting in a range of 4.25% to 4.50%. If FOMC were to cut rates in 2025 or thereafter, we expect this would have a negative impact on our net interest income, due to repricing of interest-bearing cash balances, existing loans and investment securities.
Previous wording
The Company recorded provision for credit loss of $970,000 and a reversal totaling $1,350,000 during the years ended December 31, 2023 and 2022, respectively. The 2023 provision was mainly due to loan growth and was based on macro-economic conditions among other factors as determined by our internal credit risk model. Included in 2022, was the reversal of approximately $1,100,000 for the qualitative adjustment corresponding to the COVID-19 pandemic, which was initially recorded during the second quarter of 2020 and totaled $1,620,000 at that time. The Company did not have any nonperforming loans as of December 31, 2023 and 2022. The allowance for credit losses was $10,896,000 and $9,468,000 as of December 31, 2023 and 2022, or 1.07% and 1.03%, respectively, of total loans. The increase as a percentage of total loans is due to the previously mentioned loan growth and macro-economic conditions. The strong credit quality has resulted in net loan recoveries of $112,000 and $80,000 in 2023 and 2022, respectively.
Current wording
Current and forecasted macro-economic conditions are closely evaluated among other inputs that our internal credit risk model utilizes to determine the appropriate credit loss allowance. The Company did not have any nonperforming loans as of December 31, 2024 and 2023. The allowance for credit losses was $11,460,000 and $10,896,000 as of December 31, 2024 and 2023, or 1.04% and 1.07%, respectively, of total loans. The decrease as a percentage of total loans corresponds to credit factors within the loan portfolio, and changes to the current and forecasted macro-economic factors that have been established as credit loss indicators within our model. The strong credit quality has resulted in net loan recoveries of $2,184,000 and $112,000 in 2024 and 2023, respectively.
Previous wording
Noninterest income was $6,631,000 for the year ended December 31, 2023, compared to $5,571,000 for the year 2022. Service charge income increased to $1,813,000 in 2023 compared to $1,596,000 for 2022, due to an increase in overdraft fees and the number of checking accounts. Debit card transaction fee income increased to $1,773,000 in 2023 as compared to $1,734,000 in 2022, as a result of the increase in the aggregate number of transaction deposit accounts and corresponding service fee income. Earnings on the cash surrender value of life insurance recognized an increase of $39,000 in 2023 compared to 2022, due to higher yields earned on certain life insurance policies. Mortgage commissions have decreased by $53,000 for the year 2023, as compared to 2022, as a result of the decreased demand for home purchases and refinancing. In 2023, other income increased by $662,000, which includes a $511,000 positive change in the fair value of equity securities, and an increase of $156,000 from gains on called and sold securities, as compared to 2022. The Company continues to evaluate its deposit product offerings with the intention of continuing to expand its offerings to the consumer and business depositors.
Current wording
Noninterest income was $6,555,000 for the year ended December 31, 2024, compared to $6,631,000 for the year 2023. Service charge income decreased to $1,682,000 in 2024 compared to $1,813,000 for 2023, due to a change in the NSF fee schedule that resulted in a decline in NSF Fee income collected on deposit accounts, despite an increase in the number of checking accounts. Debit card transaction fee income decreased to $1,738,000 in 2024 as compared to $1,773,000 in 2023, due to debit card network costs that are included in the net revenue received by the bank. Earnings on the cash surrender value of life insurance recognized an increase of $264,000 in 2024 compared to 2023, due to higher yields and three new life insurance policies purchased during the second quarter of 2024. Mortgage commissions have increased by $11,000 for the year 2024, as compared to 2023, a moderate upward trend but overall demand for home purchases and refinancing remains low due to cost of housing and high interest rates. In 2024, other income decreased by $143,000, primarily due to a negative change in the fair value of equity securities, as compared to 2023. The Company continues to evaluate its deposit product offerings with the intention of continuing to expand its offerings to the consumer and business depositors.
Previous wording
Noninterest expense was $41,157,000 for the year ended December 31, 2023, an increase of $3,849,000 or 10.3% compared to $37,308,000 for the year ended 2022. Salaries and employee benefits increased by $3,064,000 in 2023, due to expansion of our staff to support loan and deposit growth, including the staff at our new Roseville branch that opened in December 2022.
Current wording
Noninterest expense was $46,017,000 for the year ended December 31, 2024, an increase of $4,860,000 or 11.8% compared to $41,157,000 for the year ended 2023. Salaries and employee benefits increased by $2,531,000 in 2024, due to expansion of our staff to support loan and deposit growth, combined with normal merit-based and cost-of-living increases.
Previous wording
Occupancy expense realized an increase of $390,000 in 2023 compared to the prior year, primarily from rent, utilities and facility maintenance increases on certain branch locations, including the overhead expenses related to our new Roseville branch that opened in December 2022.
Current wording
Occupancy expense realized an increase of $69,000 in 2024 compared to the prior year, primarily from property taxes, rent, and utilities expense.
Previous wording
Data processing costs increased in 2023 over 2022 by $386,000, primarily due to servicing costs on the growing number of loan and deposit accounts, as well as upgrades to our online banking platform.
Current wording
Data processing fees increased in 2024 over 2023 by $85,000, primarily due to servicing costs on the growing number of loan and deposit accounts, as well as upgrades to our online banking and mobile banking platforms.
Previous wording
Federal Deposit Insurance Corporation (“FDIC”) and California Department of Financial Protection and Innovation (“DFPI”) regulatory assessments increased by $93,000 in 2023 over 2022, mainly due to the FDIC increasing the base rate to 0.05%, on an annual basis, for all member banks in order to build up the Deposit Insurance Fund. The FDIC adopted a final rule in June 2022, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. The final rule became effective as of January 1, 2023, with an invoice payment date of June 30, 2023. The FDIC said that the increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio of the Deposit Insurance fund reaches the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028. The final assessment rate for financial institutions is determined by making adjustments to the base rate for various credit quality factors and other risk metrics of the institution as defined by the FDIC. The Company’s risk profile and the related assessment rate remains at a relatively low level due to our strong credit quality, earnings and risk-based capital ratios. Management recognizes that assessments could increase further depending on deposit growth throughout the remainder of 2024, as the FDIC assessment rates are applied to average quarterly total liabilities as the primary basis, and based on FDIC’s discretion to increase the base assessment rate as needed to replenish the Deposit Insurance Fund. Moreover, the FDIC retains the authority and discretion to increase base assessment rates for banking entities in the future, as circumstances warrant.
Current wording
Federal Deposit Insurance Corporation (“FDIC”) and California Department of Financial Protection and Innovation (“DFPI”) regulatory assessments increased by $70,000 in 2024 over 2023, mainly due to the increase in deposit balances. FDIC increased the base rate to 0.05%, on an annual basis, for all member banks in order to build up the Deposit Insurance Fund. The FDIC adopted a final rule in June 2022, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. The final rule became effective as of January 1, 2023, with an invoice payment date of June 30, 2023. The FDIC said that the increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio of the Deposit Insurance fund reaches the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028. The final assessment rate for financial institutions is determined by making adjustments to the base rate for various credit quality factors and other risk metrics of the institution as defined by the FDIC. The Company’s risk profile and the related assessment rate remains at a relatively low level due to our strong credit quality, earnings and risk-based capital ratios. Management recognizes that assessments could increase further depending on deposit growth throughout the remainder of 2025, as the FDIC assessment rates are applied to average quarterly total liabilities as the primary basis, and based on FDIC’s discretion to increase the base assessment rate as needed to replenish the Deposit Insurance Fund. Moreover, the FDIC retains the authority and discretion to increase base assessment rates for banking entities in the future, as circumstances warrant.
Previous wording
Other operating expenses decreased by $84,000 in 2023 as compared to 2022, due to the reversal of $484,000 in undisbursed loan commitment loss provisions as dictated by the calculation within our CECL internal loan-risk model, which was partially offset by various general operating expense increases required to support our growing business portfolios and compliance mandates. Some of these included audit expenses, software license fees and ATM processing expenses.
Current wording
Other operating expenses increased by $2,105,000 in 2024 as compared to 2023, primarily due to an increase in advertising expenses from a direct-mail campaign launched in 2024 targeting consumer deposit accounts, and various general operating expense increases required to support our growing business portfolios and compliance mandates. Some of these included audit expenses, software license fees and charitable contributions.
Previous wording
Management anticipates that noninterest expense should continue to increase as we continue to grow, and management believes the Company’s administration as currently set up is scalable to handle future deposit growth. However, management remains committed to cost-control and efficiency, and we expect to keep these increases to a minimum relative to growth.
Current wording
Management anticipates that noninterest expense should continue to increase as we continue to grow, and management believes the Company’s administration as currently set up is scalable to handle future loan and deposit growth. However, management remains committed to cost-control and efficiency, and we expect to keep these increases to a minimum relative to growth.
Previous wording
We reported a provision for income taxes of $9,458,000 and $6,787,000 for the years 2023 and 2022, respectively. The effective income tax rate on income from continuing operations was 23.5% for the year ended December 31, 2023, compared to 22.9% for the year 2022. These provisions reflect accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income and adjusted for the effects of all permanent differences between income for tax and financial reporting purposes (such as earnings on qualified municipal securities, BOLI and certain tax-exempt loans). The disparity between the effective tax rates for 2023 as compared to 2022 is primarily due to tax credits from low-income housing projects as well as tax-free income on municipal securities and loans that comprised a larger proportion of pre-tax income in 2022 as compared to 2023.
Current wording
We reported a provision for income taxes of $7,244,000 and $9,458,000 for the years 2024 and 2023, respectively. The effective income tax rate on income from continuing operations was 22.5% for the year ended December 31, 2024, compared to 23.5% for the year 2023. These provisions reflect accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income and adjusted for the effects of all permanent differences between income for tax and financial reporting purposes (such as earnings on qualified municipal securities, BOLI and certain tax-exempt loans). The disparity between the effective tax rates for 2024 as compared to 2023 is primarily due to tax credits from low-income housing projects as well as tax-free income on municipal securities and loans that comprised a larger proportion of pre-tax income in 2024 as compared to 2023.
Previous wording
The Company’s total assets were $1,842,422,000 at December 31, 2023 compared to $1,968,346,000 at December 31, 2022, a decrease of $125,924,000 or 6.4%. Net loans increased by $99,242,000, investments decreased $9,218,000, bank premises and equipment increased $565,000, interest receivable and other assets decreased $4,651,000 while cash and cash equivalents decreased $213,065,000 for the year ended December 31, 2023 as compared to December 31, 2022.
Current wording
The Company’s total assets were $1,900,604,000 at December 31, 2024 compared to $1,842,422,000 at December 31, 2023, an increase of $58,182,000 or 3.2%. Net loans increased by $89,237,000, investments increased $8,455,000, net bank premises and equipment increased $454,000, interest receivable and other assets decreased $370,000, while cash and cash equivalents decreased $47,817,000 for the year ended December 31, 2024 as compared to December 31, 2023.
Previous wording
Loans gross of the allowance for credit losses and deferred fees were $1,016,579,000 as of December 31, 2023, compared to $915,758,000 as of December 31, 2022, an increase of $100,821,000 or 11.0%. The increase was due to an increase of $101,126,000 or 12.8% in commercial real estate loans, a decrease of $1,904,000 or 5.7% in consumer loans, an increase of $4,745,000 or 22.4% in agriculture loans, and a decrease of $3,146,000 or 4.6% in commercial and industrial loans. The composition remained relatively unchanged as a percentage of total loans, with commercial real estate comprising 88% and 85% of the loan portfolio at December 31, 2023 and 2022, respectively.
Current wording
Loans gross of the allowance for credit losses and deferred fees were $1,106,535,000 as of December 31, 2024, compared to $1,016,579,000 as of December 31, 2023, an increase of $89,956,000 or 8.9%. The increase was due to an increase of $65,906,000 or 7.4% in commercial real estate loans, an increase of $18,354,000 or 28.1% in commercial and industrial loans, an increase of $2,282,000 or 7.2% in consumer loans, and an increase of $3,414,000 or 13.2% in agriculture loans. The composition remained relatively unchanged as a percentage of total loans, with commercial real estate comprising 87% and 88% of the loan portfolio at December 31, 2024 and 2023, respectively.
Previous wording
Deposits decreased $163,763,000 or 9.0% to $1,650,534,000 as of December 31, 2023 compared to $1,814,297,000 at December 31, 2022. Demand, Money Market, and Savings decreased by $102,491,000, $42,411,000 and $34,198,000, respectively, while Time Deposits increased by $15,337,000, as of December 31, 2023 as compared to December 31, 2022.
Current wording
Deposits increased $45,156,000 or 2.7% to $1,695,690,000 as of December 31, 2024 compared to $1,650,534,000 at December 31, 2023. Demand, Money Market, and Time Deposits increased by $1,925,000, $17,619,000 and $35,873,000, respectively, while Savings decreased by $10,261,000, as of December 31, 2024 as compared to December 31, 2023.
Previous wording
Equity increased $39,466,000 or 31.2% to $166,092,000 as of December 31, 2023, compared to $126,626,000 at December 31, 2022. Equity increased due to earnings and the positive impact interest rates had on our unrealized loss on available-for-sale investment securities.
Current wording
Equity increased $17,344,000 or 10.4% to $183,436,000 as of December 31, 2024, compared to $166,092,000 at December 31, 2023. Equity increased due to earnings, and was partially offset by the negative impact interest rates had on our unrealized loss on available-for-sale investment securities.
Previous wording
The Company 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, 2023, and 2022, we had $36,500,000 and $13,830,000, respectively, in federal funds sold.
Current wording
The Company 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, 2024, and 2023, we had $30,270,000 and $36,500,000, respectively, in federal funds sold.
Previous wording
The fair value of the equity security was $3,132,000 and $2,990,000 at December 31, 2023 and December 31, 2022, respectively. Consistent with ASU 2016-01, equity securities are carried at fair value with the changes in fair value recognized in the consolidated statement of income. Accordingly, the Company recognized an unrealized gain of $41,000 during the year ended December 31, 2023, and an unrealized loss of $475,000 during the year ended December 31, 2022.
Current wording
The fair value of the equity security was $3,169,000 and $3,132,000 at December 31, 2024 and December 31, 2023, respectively. Consistent with ASU 2016-01, equity securities are carried at fair value with the changes in fair value recognized in the consolidated statement of income. Accordingly, the Company recognized an unrealized loss of $74,000 and an unrealized gain of $41,000 during the years ended December 31, 2024 and 2023, respectively.
Previous wording
Our available-for-sale investment securities holdings decreased by $9,360,000 or 1.8% to $518,078,000 at December 31, 2023, compared to holdings of $527,438,000 at December 31, 2022. 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.
Current wording
Our available-for-sale investment securities holdings increased by $8,418,000 or 1.6% to $526,496,000 at December 31, 2024, compared to holdings of $518,078,000 at December 31, 2023. 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.
Previous wording
Total investment securities as a percentage of total assets increased to 28.3% as of December 31, 2023 compared to 26.9% at December 31, 2022. As of December 31, 2023, $288,199,000 of the investment securities were pledged to secure public deposits.
Current wording
Total investment securities as a percentage of total assets increased to 27.9% as of December 31, 2024 compared to 28.3% at December 31, 2023. As of December 31, 2024, $305,513,000 of the investment securities were pledged to secure public deposits.
Previous wording
As of December 31, 2023, the total unrealized loss on debt securities that were in a loss position for less than 12 continuous months was $465,000 with an aggregate fair value of $52,079,000. The total unrealized loss on debt securities that were in a loss position for greater than 12 continuous months was $29,679,000 with an aggregate fair value of $336,756,000.
Current wording
As of December 31, 2024, the total unrealized loss on debt securities that were in a loss position for less than 12 continuous months was $3,262,000 with an aggregate fair value of $177,185,000. The total unrealized loss on debt securities that were in a loss position for greater than 12 continuous months was $31,377,000 with an aggregate fair value of $292,476,000.
Previous wording
Construction and land loans are classified as commercial real estate loans and increased $18.6 million in 2023 as compared to 2022. The table below shows an analysis of construction and land loans by type and location. Non-owner-occupied land loans of $12.5 million as of December 31, 2023 included loans for lands specified for commercial development of $10.7 million and for residential development of $1.8 million, the majority of which are located in Stanislaus County.
Current wording
Construction and land loans are classified as commercial real estate loans and decreased $45.2 million in 2024 as compared to 2023, mainly due to the completion of construction on existing projects that converted to permanent financing during 2024. The table below shows an analysis of construction and land loans by type and location. Non-owner-occupied land loans of $5.6 million as of December 31, 2024 included loans for land specified for commercial development of $3.9 million and for residential development of $1.7 million, the majority of which are located in Stanislaus County.
Previous wording
In 2020, the economy briefly slipped into a recession following the COVID-19 pandemic which inevitability impacted the financial condition of certain borrowers. We responded by making qualitative risk-based discretionary adjustments in connection with the COVID-19 pandemic and corresponding economic stress. In 2022, the financial stress subsided and credit quality improved allowing the Company to reverse $1,350,000 in loan loss provisions, which included the remaining COVID-19 discretionary adjustment of $1,100,000. The allowance for credit losses increased to $10,896,000 as of December 31, 2023, as compared with $9,468,000 at December 31, 2022. The allowance for credit losses as a percentage of total loans increased to 1.07% as of December 31, 2023, as compared to 1.03% as of December 31, 2022, mainly due to loan growth. Based on the current conditions of the loan portfolio, management believes that the $10,896,000 allowance for credit losses at December 31, 2023 is adequate to absorb losses inherent in our loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.
Current wording
The allowance for credit losses increased to $11,460,000 as of December 31, 2024, as compared with $10,896,000 at December 31, 2023. The allowance for credit losses as a percentage of total loans decreased to 1.04% as of December 31, 2024, as compared to 1.07% as of December 31, 2023, due to changes in the macro-economic indicators and qualitative factors used within our CECL model. Based on the current conditions of the loan portfolio, management believes that the $11,460,000 allowance for credit losses at December 31, 2024 is adequate to absorb losses inherent in our loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.
Previous wording
Diversification, low loan-to-values, strong credit quality and enhanced credit monitoring contribute to a reduction in the portfolio’s overall risk in recent years and help to offset the various inherent credit risks. We continue to monitor the impact of the economic environment, and adjustments to the provision for credit loss will be made accordingly. During 2023, the Company recognized net loan recoveries of $112,000 as compared to $80,000 in 2022.
Current wording
Diversification, low loan-to-values, strong credit quality and enhanced credit monitoring contribute to a reduction in the portfolio’s overall risk in recent years and help to offset the various inherent credit risks. We continue to monitor the impact of the economic environment, and adjustments to the provision for credit loss will be made accordingly. During 2024, the Company recognized net loan recoveries of $2,184,000 as compared to $112,000 in 2023.
Previous wording
As required by ASU 2016-13, on January 1, 2023 the Company implemented CECL and increased our ACL, previously the allowance for loan losses, with a $346,000 cumulative adjustment. Under ASU 2016-13, the allowance for credit losses is deducted from the amortized cost basis to present the net amount expected to be collected on the loans. The measurement of expected credit losses is based on relevant information, which includes experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount over the remaining contractual life. The Company’s ACL is calculated monthly, with any difference in the calculated ACL and the recorded ACL trued-up through an entry to the provision for credit losses. Management calculates the quantitative portion of collectively evaluated reserves for all loan categories, using a discounted cash flow (“DCF”) methodology. For purposes of estimating the Company’s ACL, management generally evaluates collectively evaluated loans by federal call code in order to group loans with similar risk characteristics together, however management has grouped loans in selected call codes together in determining portfolio segments, due to similar risk characteristics and reserve methodologies used for certain call code classifications.
Current wording
As required by ASC Topic 326, on January 1, 2023 the Company implemented CECL and increased our ACL, previously the allowance for loan losses, with a $346,000 cumulative adjustment. Under ASC Topic 326, the allowance for credit losses is deducted from the amortized cost basis to present the net amount expected to be collected on the loans. The measurement of expected credit losses is based on relevant information, which includes experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount over the remaining contractual life. The Company’s ACL is calculated monthly, with any difference in the calculated ACL and the recorded ACL trued-up through an entry to the provision for credit losses. Management calculates the quantitative portion of collectively evaluated reserves for all loan categories, using a discounted cash flow (“DCF”) methodology. For purposes of estimating the Company’s ACL, management generally evaluates collectively evaluated loans by federal call code in order to group loans with similar risk characteristics together, however management has grouped loans in selected call codes together in determining portfolio segments, due to similar risk characteristics and reserve methodologies used for certain call code classifications.
Previous wording
For various business purposes, we make investments in earning assets other than the interest-earning securities and loans discussed above. The primary other earning assets held by the Company as of December 31, 2023 and 2022, includes the cash surrender value of the BOLI policies, Federal Home Loan Bank stock and Federal Reserve Bank stock. During 2023, we purchased one new life insurance policy on a director for a total investment of $500,000.
Current wording
For various business purposes, we make investments in earning assets other than the interest-earning securities and loans discussed above. The primary other earning assets held by the Company as of December 31, 2024 and 2023, includes the cash surrender value of the BOLI policies, Federal Home Loan Bank stock and Federal Reserve Bank stock. During 2024, we purchased three new life insurance policies on executive officers for a total investment of $5,000,000.
Previous wording
During 2018 and 2022, we committed to invest $5 million and $10.5 million, respectively, in low-income housing tax credit funds (“LIHTC”) to promote our participation in CRA activities, which had unfunded commitments of $9,782,000 and $10,154,000 as of December 31, 2023 and 2022, respectively. For LIHTC investments, we receive the return in the form of tax credits and tax deductions over a period of approximately 15 years.
Current wording
During 2018 and 2022, we committed to invest $5,000,000 and $10,500,000, respectively, in low-income housing tax credit funds (“LIHTC”) to promote our participation in CRA activities, which had unfunded commitments of $5,664,000 and $9,782,000 as of December 31, 2024 and 2023, respectively. For LIHTC investments, we receive the return in the form of tax credits and tax deductions over a period of approximately 15 years.
Previous wording
In 2017, we made a $1 million commitment as a limited partner, to a small business private equity partnership to promote our participation in CRA activities. The value is recorded at fair market value with market gains or losses recorded to other income in the consolidate financial statements. As of December 31, 2023, we have remaining commitments to fund an additional $200,000 on this investment.
Current wording
In 2017, we made a $1,000,000 commitment as a limited partner, to a small business private equity partnership to promote our participation in CRA activities. The value is recorded at fair market value with market gains or losses recorded to other income in the consolidate financial statements. As of December 31, 2024, we have no remaining undisbursed commitments.
Previous wording
Total deposits at December 31, 2023 and 2022 were $1,650,534 and $1,814,297,000, respectively, representing a decrease of $163,763,000 or 9.0% in 2023. The average deposits for the year ended December 31, 2023 decreased $108,026,000 or 5.9% to $1,708,821,000 compared to $1,816,847,000 at December 31, 2022. Deposit data analysis has resulted in an estimate of $768,103,000 in uninsured deposits, representing the balance that is not covered by FDIC insurance limits as of December 31, 2023.
Current wording
Total deposits at December 31, 2024 and 2023 were $1,695,690,000 and $1,650,534,000, respectively, representing an increase of $45,156,000 or 2.7% in 2024. The average deposits for the year ended December 31, 2024 decreased $52,777,000 or 3.1% to $1,656,045,000 compared to $1,708,822,000 at for the year ended December 31, 2023. Deposit data analysis has resulted in an estimate of $811,351,000 in uninsured deposits, representing the balance that is not covered by FDIC insurance limits as of December 31, 2024.
Previous wording
Deposits are the Company’s primary source of funds. Due to strategic emphasis by management, core deposits (based on a definition provided by FDIC’s Uniform Bank Performance Report) decreased by $168,025,000 or 9.4% in 2023 to $1,622,136,000 at December 31, 2023. The percentage of core deposits to total deposits decreased slightly to 98.3% at December 31, 2023 as compared to 98.7% at December 31, 2022. The average rate paid on time deposits in denominations of over $250,000 was 1.35% and 0.27% for the years ended December 31, 2023 and 2022, respectively. The composition and cost of the Company's deposit base are important components in analyzing the Company's net interest margin and balance sheet liquidity characteristics, both of which are discussed in greater detail in other sections herein. See “Net Interest Income and Net Interest Margin” for further discussion.
Current wording
Deposits are the Company’s primary source of funds. Due to strategic emphasis by management, core deposits (based on a definition provided by FDIC’s Uniform Bank Performance Report) increased by $32,564,000 or 2.0% in 2024 to $1,654,700,000 at December 31, 2024. The percentage of core deposits to total deposits decreased slightly to 97.6% at December 31, 2024 as compared to 98.3% at December 31, 2023. The average rate paid on time deposits in denominations of over $250,000 was 3.35% and 1.35% for the years ended December 31, 2024 and 2023, respectively. The composition and cost of the Company's deposit base are important components in analyzing the Company's net interest margin and balance sheet liquidity characteristics, both of which are discussed in greater detail in other sections herein. See “Net Interest Income and Net Interest Margin” for further discussion.
Previous wording
Because our client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks. Five of our clients carry deposit balances of more than 1% of our total deposits, one of which had a deposit balance of more than 3% of total deposits at December 31, 2023. The Company had no brokered deposits as of December 31, 2023 and 2022.
Current wording
Because our client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks. Four of our clients carry deposit balances of more than 1% of our total deposits, one of which had a deposit balance of more than 3% of total deposits at December 31, 2024. The Company had no brokered deposits as of December 31, 2024 and 2023.
Previous wording
We maintain a nonqualified, unfunded deferred compensation plan for certain key management personnel. Under this plan, participating employees may defer compensation, which will entitle them to receive certain payments upon retirement, death, or disability. The plan provides for payments commencing upon retirement and reduced benefits upon early retirement, disability, or termination of employment. As of December 31, 2023 and 2022, our aggregate payment obligations under this plan totaled $11.4 million and $11.3 million, respectively
Current wording
We maintain a nonqualified, unfunded deferred compensation plan for certain key management personnel. Under this plan, participating employees may defer compensation, which will entitle them to receive certain payments upon retirement, death, or disability. The plan provides for payments commencing upon retirement and reduced benefits upon early retirement, disability, or termination of employment. As of December 31, 2024 and 2023, our aggregate payment obligations under this plan totaled $14.1 million and $11.4 million, respectively.
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