Oak Valley Bancorp's Q2 Net Income Dips Amid Rising Expenses

TL;DR

**OVLY's Q2 earnings are a red flag; rising costs and unrealized losses are eating into profits, making it a risky hold.**

AI Summary

Oak Valley Bancorp reported a net income of $5.588 million for the three months ended June 30, 2025, a decrease of 5.1% from $5.889 million in the same period of 2024. For the six months ended June 30, 2025, net income was $10.885 million, down 6.3% from $11.616 million in the prior year. Total interest income increased to $21.421 million for the three-month period, up from $20.245 million, primarily driven by a rise in interest and fees on loans to $14.316 million from $13.106 million. However, interest expense on deposits also increased significantly to $3.267 million from $2.953 million. Non-interest expense saw a substantial increase of 9.2% to $12.688 million for the three months, largely due to higher salaries and employee benefits ($7.693 million) and other operating expenses ($2.870 million). The company's total assets grew slightly to $1.920 billion at June 30, 2025, from $1.900 billion at December 31, 2024, with loans, net, increasing to $1.096 billion. A notable risk is the accumulated other comprehensive loss, which widened to $(29.904) million from $(23.700) million, primarily due to unrealized holding losses on available-for-sale securities.

Why It Matters

Oak Valley Bancorp's declining net income and widening unrealized losses on securities signal potential headwinds for investors, suggesting a need for caution. The increase in interest income from loans is a positive, but it's being offset by rising interest expenses on deposits and significant non-interest expense growth, particularly in salaries. This could impact profitability and dividend sustainability, affecting investor returns. For employees, the rise in salaries and benefits is a positive, but overall financial performance could influence future compensation and job security. Customers might see changes in loan rates or deposit offerings as the bank navigates its cost structure. In a competitive banking landscape, these financial pressures could limit OVLY's ability to invest in new technologies or expand services, potentially ceding market share to more agile competitors.

Risk Assessment

Risk Level: medium — The risk level is medium due to a 6.3% decline in net income for the six months ended June 30, 2025, to $10.885 million, coupled with a significant increase in accumulated other comprehensive loss to $(29.904) million from $(23.700) million at December 31, 2024. This widening loss, primarily from unrealized holding losses on available-for-sale securities, indicates exposure to interest rate fluctuations and could impact capital.

Analyst Insight

Investors should closely monitor Oak Valley Bancorp's net interest margin and expense control in upcoming quarters. Given the widening unrealized losses on securities, consider evaluating the bank's asset-liability management strategies and its exposure to further interest rate volatility before making new investments.

Financial Highlights

debt To Equity

N/A

revenue

$21.421M

operating Margin

N/A

total Assets

$1.920B

total Debt

N/A

net Income

$5.588M

eps

$0.68

gross Margin

N/A

cash Position

$198.860M

revenue Growth

+5.8%

Revenue Breakdown

Key Numbers

• $5.588M — Net Income (Q2 2025) (5.1% decrease from Q2 2024)
• $10.885M — Net Income (YTD Q2 2025) (6.3% decrease from YTD Q2 2024)
• $21.421M — Total Interest Income (Q2 2025) (Increased from $20.245M in Q2 2024)
• $3.267M — Interest Expense on Deposits (Q2 2025) (Increased from $2.953M in Q2 2024)
• $12.688M — Total Non-Interest Expense (Q2 2025) (9.2% increase from Q2 2024)
• $1.096B — Loans, net (June 30, 2025) (Increased from $1.093B at Dec 31, 2024)
• $(29.904)M — Accumulated Other Comprehensive Loss (June 30, 2025) (Widened from $(23.700)M at Dec 31, 2024)
• $0.68 — Net income per share (Q2 2025) (Decreased from $0.72 in Q2 2024)
• $1.32 — Net income per share (YTD Q2 2025) (Decreased from $1.41 in YTD Q2 2024)
• $1.711B — Deposits (June 30, 2025) (Increased from $1.695B at Dec 31, 2024)

Key Players & Entities

• Oak Valley Bancorp (company) — parent holding company
• Oak Valley Community Bank (company) — wholly-owned bank subsidiary
• Eastern Sierra Community Bank (company) — division within Oak Valley Community Bank
• FASB (regulator) — Financial Accounting Standards Board
• $5.588 million (dollar_amount) — Net Income for Q2 2025
• $5.889 million (dollar_amount) — Net Income for Q2 2024
• $10.885 million (dollar_amount) — Net Income for six months ended June 30, 2025
• $11.616 million (dollar_amount) — Net Income for six months ended June 30, 2024
• $1.920 billion (dollar_amount) — Total assets at June 30, 2025
• $(29.904) million (dollar_amount) — Accumulated other comprehensive loss at June 30, 2025

FAQ

Risk Factors

• Widening Accumulated Other Comprehensive Loss [medium — financial]: The accumulated other comprehensive loss widened to $(29.904) million from $(23.700) million at December 31, 2024. This is primarily driven by unrealized holding losses on available-for-sale securities, indicating potential market value depreciation impacting equity.
• Increased Non-Interest Expenses [medium — operational]: Total non-interest expense increased by 9.2% to $12.688 million for Q2 2025 compared to the prior year. This rise is largely attributed to higher salaries and employee benefits ($7.693 million) and other operating expenses ($2.870 million), potentially pressuring profitability.
• Rising Interest Expense on Deposits [medium — financial]: Interest expense on deposits increased significantly to $3.267 million for Q2 2025 from $2.953 million in the prior year. This indicates a higher cost of funding, which could erode net interest margin if not offset by increased interest income.
• Unrealized Losses on Securities [medium — market]: The widening accumulated other comprehensive loss is directly linked to unrealized holding losses on available-for-sale securities. Fluctuations in market values of these securities can negatively impact the company's equity position.
• Loan Portfolio Growth [low — operational]: Loans, net, increased to $1.096 billion at June 30, 2025. While loan growth is generally positive, it also implies an increased exposure to credit risk, necessitating robust credit quality management.

Industry Context

The banking industry is currently navigating a complex environment characterized by rising interest rates, which can pressure net interest margins due to increased funding costs. Competition remains fierce, with a focus on digital transformation and customer acquisition. Regulatory scrutiny continues to be a significant factor, requiring robust compliance and risk management frameworks.

Regulatory Implications

Oak Valley Bancorp, like all financial institutions, is subject to various banking regulations. The widening accumulated other comprehensive loss, while not directly a regulatory violation, could attract attention regarding capital adequacy and risk management practices, especially if it continues to grow.

What Investors Should Do

1. Monitor Net Interest Margin Trends
2. Analyze Expense Control Measures
3. Assess Impact of Unrealized Losses
4. Evaluate Loan Growth Sustainability

Key Dates

• 2025-06-30: End of Q2 2025 — Reporting period for the condensed consolidated financial statements, showing a decrease in net income and widening accumulated other comprehensive loss.
• 2025-06-30: Balance Sheet Date — Total assets reached $1.920 billion, with loans net of allowance at $1.096 billion and deposits at $1.711 billion.
• 2024-12-31: End of Fiscal Year 2024 — Prior period comparison for balance sheet items, showing total assets of $1.900 billion and accumulated other comprehensive loss of $(23.700) million.

Glossary

Accumulated Other Comprehensive Loss

A measure of unrealized gains or losses on investments that have not yet been sold. It includes items like unrealized gains/losses on available-for-sale securities. (A widening loss here, as seen in Oak Valley Bancorp's filing, indicates a negative impact on equity due to market fluctuations in their investment portfolio.)

Available-for-sale securities

Investments in debt or equity securities that are not classified as held-to-maturity or trading securities. Their unrealized gains and losses are reported in other comprehensive income. (Unrealized losses on these securities are the primary reason for the increase in Oak Valley Bancorp's accumulated other comprehensive loss.)

Net Interest Income

The difference between interest income generated by a bank and the interest expense it pays out. (Oak Valley Bancorp's net interest income increased to $18.154 million for Q2 2025, driven by higher loan income despite increased deposit costs.)

Non-interest Expense

Expenses incurred by a bank that are not related to interest payments, such as salaries, rent, and technology costs. (Oak Valley Bancorp experienced a significant increase in non-interest expenses, particularly in salaries and employee benefits, impacting overall profitability.)

Allowance for credit losses

An estimate of the amount of uncollectible loans in a bank's portfolio. It is a contra-asset account that reduces the carrying value of loans. (The allowance for credit losses remained relatively stable at $11.430 million for June 30, 2025, suggesting consistent credit risk assessment.)

Year-Over-Year Comparison

Compared to the prior year's comparable periods, Oak Valley Bancorp reported a decrease in net income for both the three-month and six-month periods ended June 30, 2025. Total interest income saw an increase, primarily driven by loan growth, but this was offset by a significant rise in interest expense on deposits. Non-interest expenses also climbed notably by 9.2%, impacting profitability. A key concern highlighted is the widening accumulated other comprehensive loss, primarily due to unrealized losses on available-for-sale securities, which negatively affects total shareholders' equity.

Filing Documents

• ovly20250630_10q.htm (10-Q) — 3141KB
• ex_850485.htm (EX-31.1) — 8KB
• ex_850486.htm (EX-31.2) — 8KB
• ex_850487.htm (EX-32.1) — 7KB
• 0001437749-25-026558.txt ( ) — 12515KB
• ovly-20250630.xsd (EX-101.SCH) — 38KB
• ovly-20250630_def.xml (EX-101.DEF) — 312KB
• ovly-20250630_lab.xml (EX-101.LAB) — 282KB
• ovly-20250630_pre.xml (EX-101.PRE) — 337KB
• ovly-20250630_cal.xml (EX-101.CAL) — 50KB
• ovly20250630_10q_htm.xml (XML) — 3693KB

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION Item 1.

Financial Statements

Financial Statements Condensed Consolidated Balance Sheets at June 30, 2025 (Unaudited) and December 31, 2024 1 Condensed Consolidated Statements of Income for the three and six-month periods ended June 30, 2025 and June 30, 2024 (Unaudited) 2 Condensed Consolidated Statements of Comprehensive Income for the three and six-month periods ended June 30, 2025 and June 30, 2024 (Unaudited) 3 Condensed Consolidated Statements of Changes in Shareholders ' Equity for the three and six-month periods ended June 30, 2025 and June 30, 2024 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2025 and June 30, 2024 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management ' s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 41 Item 4.

Controls and Procedures

Controls and Procedures 41

– OTHER INFORMATION

PART II – OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 42 Item 1A.

Risk Factors

Risk Factors 42 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42 Item 3. Defaults Upon Senior Securities 42 Item 4. Mine Safety Disclosures 42 Item 5. Other Information 42 Item 6. Exhibits 43 Table of Contents

– FINANCIAL STATEMENTS

PART I – FINANCIAL STATEMENTS

Financial Statements

Item 1. Financial Statements OAK VALLEY BANCORP CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands) June 30, December 31, 2025 2024 ASSETS Cash and due from banks $ 153,040 $ 138,481 Federal funds sold 45,820 30,270 Cash and cash equivalents 198,860 168,751 Securities - available for sale 503,347 526,496 Securities - equity investments 3,292 3,169 Loans, net of allowance for credit losses of $ 11,430 and $ 11,460 at June 30, 2025 and December 31, 2024, respectively 1,096,549 1,093,514 Cash surrender value of life insurance 38,145 37,558 Bank premises and equipment, net 18,423 16,319 Goodwill and other intangible assets, net 3,352 3,390 Deferred tax asset 18,105 15,501 Interest receivable and other assets 40,836 35,906 $ 1,920,909 $ 1,900,604 LIABILITIES AND SHAREHOLDERS ' EQUITY Deposits $ 1,711,241 $ 1,695,690 Interest payable and other liabilities 23,863 21,478 Total liabilities 1,735,104 1,717,168 Shareholders' equity Common stock, no par value; 50,000,000 shares authorized, 8,382,062 and 8,357,211 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively 25,435 25,435 Additional paid-in capital 6,394 6,199 Retained earnings 183,880 175,502 Accumulated other comprehensive loss, net of tax ( 29,904 ) ( 23,700 ) Total shareholders' equity 185,805 183,436 $ 1,920,909 $ 1,900,604 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents OAK VALLEY BANCORP CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except per share amounts) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2025 2024 2025 2024 INTEREST INCOME Interest and fees on loans $ 14,316 $ 13,106 $ 28,305 $ 25,707 Interest on securities 5,279 5,099 10,654 10,181 Interest on federal funds sold 290

Description of Securities

Description of Securities Number of Securities Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. agencies 37 $ 7,862 $ ( 331 ) $ 54,463 $ ( 3,962 ) $ 62,325 $ ( 4,293 ) Collateralized mortgage obligations 7 10,445 ( 75 ) 6,582 ( 362 ) 17,027 ( 437 ) Municipalities 126 113,844 ( 6,988 ) 177,945 ( 28,893 ) 291,789 ( 35,881 ) SBA pools 4 415 ( 1 ) 133 ( 2 ) 548 ( 3 ) Corporate debt 11 0 0 39,713 ( 1,787 ) 39,713 ( 1,787 ) Asset backed securities 15 9,792 ( 54 ) 14,286 ( 555 ) 24,079 ( 609 ) Total temporarily impaired securities 200 $ 142,358 $ ( 7,449 ) $ 293,122 $ ( 35,561 ) $ 435,481 $ ( 43,010 ) For available-for-sale debt securities in an unrealized loss position, management evaluates whether the decline in fair value is a reflection of credit deterioration or other factors. In performing this evaluation, management considers the extent which fair value has fallen below amortized cost, changes in ratings by rating agencies, and other information indicating a deterioration in repayment capacity of either the underlying issuer or the borrowers providing repayment capacity in a securitization. If management's evaluation indicates that a credit loss exists then a present value of the expected cash flows is calculated and compared to the amortized cost basis of the security in question and, to the degree that the amortized cost basis exceeds the present value, an allowance for credit loss ("ACL") is established, with the caveat that the maximum amount of the reserve on any individual security is the difference between the fair value and amortized cost balance of the security in question. Any unrealized loss that has not been recorded through an ACL is recognized in other comprehensive income. Accrued interest receivable on available-for-sale securities was $ 5,071,000 an

Description of Securities

Description of Securities Number of Securities Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. agencies 45 $ 29,489 $ ( 777 ) $ 54,568 $ ( 4,828 ) $ 84,057 $ ( 5,605 ) Collateralized mortgage obligations 9 25,092 ( 189 ) 3,408 ( 417 ) 28,500 ( 606 ) Municipalities 123 113,936 ( 2,280 ) 179,223 ( 23,179 ) 293,159 ( 25,459 ) SBA pools 6 720 ( 1 ) 159 ( 2 ) 879 ( 3 ) Corporate debt 11 0 0 39,206 ( 2,294 ) 39,206 ( 2,294 ) Asset backed securities 13 7,948 ( 15 ) 15,912 ( 657 ) 23,860 ( 672 ) 207 $ 177,185 $ ( 3,262 ) $ 292,476 $ ( 31,377 ) $ 469,661 $ ( 34,639 ) There were no sales of available-for-sale securities during the three and six-months ended June 30, 2025. There were 17 available-for-sale securities sold during the three-months ended June 30, 2024 with a book value of $ 26,300,000 , resulting in gross gains of $ 25,000 , and 18 available-for-sale securities sold during the six-months ended June 30, 2024 with a book value of $ 28,258,000 , resulting in gross gains of $ 105,000 . In addition, the Company recognized a gain of $ 2,000 on called securities during the three and six-month periods ended June 30, 2025, as compared to losses of $ 1,000 and $ 9,000 during the comparable 2024 periods, respectively. Debt securities carried at $ 301,282,000 and $ 288,199,000 as of June 30, 2025 and December 31, 2024, respectively, were pledged to secure deposits of public funds. 9 Table of Contents NOTE 4 – LOANS The Company's customers are primarily located in Stanislaus, San Joaquin, Tuolumne, Inyo, and Mono Counties. As of June 30, 2025, approximately 86 % of the Company's loans are commercial real estate loans, which include construction loans. Approximately 7 % of the Company's loans are for general commercial use including professional, retail, and small busine

View Full Filing

View this 10-Q filing on SEC EDGAR