Oak Valley Bancorp Net Income Dips Amid Rising Expenses, Loan Growth Slows

TL;DR

**OVLY's net income is down, and while interest income is up, rising expenses and a smaller credit loss reversal are eating into profits; watch those unrealized losses on securities.**

AI Summary

Oak Valley Bancorp reported a net income of $6.693 million for the three months ended September 30, 2025, a decrease of 8.6% from $7.324 million in the same period of 2024. For the nine months ended September 30, 2025, net income was $17.578 million, down 7.2% from $18.940 million in 2024. Total interest income increased to $22.517 million for the three-month period in 2025 from $21.146 million in 2024, and to $65.054 million for the nine-month period in 2025 from $61.382 million in 2024. However, interest expense on deposits rose to $9.896 million for the nine months ended September 30, 2025, compared to $9.194 million in the prior year. The company recorded a reversal of provision for credit losses of $60,000 for both the three and nine-month periods in 2025, significantly lower than the $1.620 million reversal in 2024. Non-interest expense increased by 12.1% to $12.700 million for the three months ended September 30, 2025, primarily due to higher salaries and employee benefits, which rose to $7.857 million from $7.177 million. Total assets grew to $1.995 billion as of September 30, 2025, from $1.901 billion at December 31, 2024, driven by an increase in cash and cash equivalents to $247.155 million from $168.751 million. Loans, net, also saw a slight increase to $1.099 billion from $1.093 billion. The company's available-for-sale securities portfolio had gross unrealized losses of $32.442 million as of September 30, 2025.

Why It Matters

Oak Valley Bancorp's declining net income, despite increased interest income, signals potential margin compression for investors. The significant reduction in the reversal of provision for credit losses from $1.620 million to $60,000 suggests a more cautious outlook on loan performance or a stabilization of credit quality, which could impact future earnings. For employees, rising salaries and benefits expenses, up to $7.857 million, indicate continued investment in human capital, potentially reflecting competitive pressures in the labor market. Customers might see stable loan offerings given the modest loan growth, but the broader market will watch how regional banks like OVLY navigate increasing operational costs and manage their securities portfolios, especially with $32.442 million in unrealized losses, which could affect capital and liquidity in a rising rate environment. This performance contrasts with larger banks that may have more diversified revenue streams.

Risk Assessment

Risk Level: medium — The company faces medium risk due to a 7.2% decline in net income for the nine months ended September 30, 2025, to $17.578 million, coupled with a substantial increase in non-interest expenses, up 10.3% to $38.012 million. Additionally, the available-for-sale securities portfolio holds $32.442 million in gross unrealized losses as of September 30, 2025, which could pose a capital risk if interest rates continue to rise or if these securities need to be sold.

Analyst Insight

Investors should closely monitor Oak Valley Bancorp's net interest margin and non-interest expense trends in future filings. Given the unrealized losses in the securities portfolio, investors should assess the bank's liquidity position and interest rate sensitivity. Consider if the current dividend yield of $0.30 per share for Q3 2025 is sustainable given the declining net income.

Financial Highlights

debt To Equity

8.96

revenue

$22.517M

operating Margin

85.6%

total Assets

$1.995B

total Debt

$1.775B

net Income

$6.693M

eps

$0.797

gross Margin

85.6%

cash Position

$247.155M

revenue Growth

+6.5%

Revenue Breakdown

Key Numbers

• $6.693M — Net Income (Q3 2025) (8.6% decrease from Q3 2024)
• $17.578M — Net Income (9M 2025) (7.2% decrease from 9M 2024)
• $22.517M — Total Interest Income (Q3 2025) (Increased from $21.146M in Q3 2024)
• $9.896M — Interest Expense on Deposits (9M 2025) (Increased from $9.194M in 9M 2024)
• $60K — Reversal of Provision for Credit Losses (9M 2025) (Significantly lower than $1.620M in 9M 2024)
• $12.700M — Total Non-Interest Expense (Q3 2025) (12.1% increase from Q3 2024)
• $7.857M — Salaries and Employee Benefits (Q3 2025) (Increased from $7.177M in Q3 2024)
• $1.995B — Total Assets (Sept 30, 2025) (Increased from $1.901B at Dec 31, 2024)
• $32.442M — Gross Unrealized Losses on Debt Securities (Sept 30, 2025) (Potential risk to capital)
• 8,388,221 — Shares Outstanding (Nov 6, 2025) (Reflects current common stock count)

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
• SEC (regulator) — Securities and Exchange Commission
• $6.693 million (dollar_amount) — net income for Q3 2025
• $17.578 million (dollar_amount) — net income for nine months ended Sept 30, 2025
• $32.442 million (dollar_amount) — gross unrealized losses on debt securities as of Sept 30, 2025
• $1.995 billion (dollar_amount) — total assets as of Sept 30, 2025
• $1.099 billion (dollar_amount) — loans, net as of Sept 30, 2025

FAQ

Risk Factors

• Unrealized Losses on Securities Portfolio [medium — financial]: As of September 30, 2025, Oak Valley Bancorp's available-for-sale securities portfolio had gross unrealized losses of $32.442 million. While these are unrealized, significant market value declines could impact the company's capital if these securities need to be sold.
• Rising Interest Expense on Deposits [medium — financial]: Interest expense on deposits rose to $9.896 million for the nine months ended September 30, 2025, compared to $9.194 million in the prior year. This increase, coupled with a decrease in net interest income after provision for credit losses for Q3 2025, indicates pressure on net interest margins.
• Increased Non-Interest Expenses [medium — operational]: Total non-interest expense increased by 12.1% to $12.700 million for Q3 2025, primarily driven by higher salaries and employee benefits ($7.857 million vs. $7.177 million). Sustained increases in operating costs can erode profitability.
• Reduced Provision for Credit Losses Reversal [low — financial]: The company recorded a reversal of provision for credit losses of $60,000 for both the three and nine-month periods in 2025, significantly lower than the $1.620 million reversal in 2024. This suggests a less favorable outlook on credit quality or a shift in provisioning strategy.
• Interest Rate Sensitivity [high — market]: As a bank, Oak Valley Bancorp is exposed to interest rate risk. Changes in market interest rates can affect the value of its securities portfolio and its net interest margin, as seen in the rising interest expense on deposits.

Industry Context

The banking industry is currently navigating a complex environment characterized by rising interest rates, which can pressure net interest margins and increase funding costs. Competition remains fierce, with traditional banks, credit unions, and fintech companies vying for market share. Regulatory scrutiny continues to be a significant factor, requiring substantial compliance efforts and capital management.

Regulatory Implications

Oak Valley Bancorp, like all financial institutions, is subject to stringent regulatory oversight from bodies such as the Federal Reserve and FDIC. Compliance with capital adequacy requirements (e.g., Basel III) and consumer protection laws is paramount. The unrealized losses on securities could draw attention from regulators regarding capital adequacy and risk management practices.

What Investors Should Do

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

Key Dates

• 2025-09-30: End of Q3 2025 — Reporting period for the 10-Q, showing net income of $6.693M and total assets of $1.995B.
• 2024-09-30: End of Q3 2024 — Prior year comparable period, with net income of $7.324M and total assets of $1.901B (as of Dec 31, 2024).
• 2025-12-31: End of Fiscal Year 2024 — Balance sheet comparison point for total assets ($1.901B).
• 2025-11-06: Shares Outstanding Reported — Indicates 8,388,221 shares outstanding, relevant for EPS calculations.

Glossary

Provision for credit losses

An expense set aside by a financial institution to cover potential loan defaults. A reversal indicates that previously set-aside funds are no longer deemed necessary. (A significant decrease in the reversal of this provision in 2025 compared to 2024 suggests a change in the perceived credit risk of the loan portfolio.)

Available-for-sale securities

Investments in debt or equity securities that are not classified as held-to-maturity or trading securities. They are reported at fair value, with unrealized gains and losses recorded in other comprehensive income. (The $32.442 million in gross unrealized losses highlights potential volatility in the company's equity and capital position due to market fluctuations.)

Net interest income

The difference between the interest income generated by a bank and the interest it pays out on deposits and borrowings. (This is a core profitability driver for banks. Oak Valley Bancorp saw an increase in net interest income for both periods, but the growth in interest expense on deposits is a concern.)

Non-interest expense

Operating expenses of a bank that are not related to interest payments, such as salaries, rent, and technology costs. (The 12.1% increase in Q3 2025, driven by salaries, indicates rising operational costs that could impact the bank's bottom line.)

Accumulated other comprehensive loss

A component of shareholders' equity that includes unrealized gains and losses on certain investments (like available-for-sale securities) and other items not included in net income. (The negative balance reflects the impact of unrealized losses on the company's equity, particularly from the available-for-sale securities portfolio.)

Year-Over-Year Comparison

Compared to the prior year's comparable periods, Oak Valley Bancorp reported lower net income for both Q3 2025 (-8.6%) and the nine months ended September 30, 2025 (-7.2%). While total interest income saw growth, this was offset by a significant increase in interest expense on deposits and a sharp reduction in the reversal of provision for credit losses. Non-interest expenses also rose considerably, contributing to the decline in profitability. The balance sheet shows growth in total assets, primarily driven by an increase in cash and cash equivalents, but also highlights a notable unrealized loss position in the available-for-sale securities portfolio.

Filing Documents

• ovly20250930_10q.htm (10-Q) — 3196KB
• ex_885358.htm (EX-31.1) — 8KB
• ex_885357.htm (EX-31.2) — 8KB
• ex_885356.htm (EX-32.1) — 7KB
• 0001437749-25-034791.txt ( ) — 12606KB
• ovly-20250930.xsd (EX-101.SCH) — 38KB
• ovly-20250930_def.xml (EX-101.DEF) — 309KB
• ovly-20250930_lab.xml (EX-101.LAB) — 290KB
• ovly-20250930_pre.xml (EX-101.PRE) — 333KB
• ovly-20250930_cal.xml (EX-101.CAL) — 51KB
• ovly20250930_10q_htm.xml (XML) — 3711KB

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION 1 Item 1.

Financial Statements

Financial Statements 1 Condensed Consolidated Balance Sheets at September 30, 2025 (Unaudited) and December 31, 2024 1 Condensed Consolidated Statements of Income for the three and nine-month periods ended September 30, 2025 and September 30, 2024 (Unaudited) 2 Condensed Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2025 and September 30, 2024 (Unaudited) 3 Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine-month periods ended September 30, 2025 and September 30, 2024 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2025 and September 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 42 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) September 30, December 31, 2025 2024 ASSETS Cash and due from banks $ 225,470 $ 138,481 Federal funds sold 21,685 30,270 Cash and cash equivalents 247,155 168,751 Securities - available for sale 530,661 526,496 Securities - equity investments 3,364 3,169 Loans, net of allowance for credit losses of $ 11,420 and $ 11,460 at September 30, 2025 and December 31, 2024, respectively 1,099,576 1,093,514 Cash surrender value of life insurance 36,783 37,558 Bank premises and equipment, net 18,879 16,319 Goodwill and other intangible assets, net 3,332 3,390 Deferred tax asset 14,701 15,501 Interest receivable and other assets 40,965 35,906 $ 1,995,416 $ 1,900,604 LIABILITIES AND SHAREHOLDERS ' EQUITY Deposits $ 1,774,882 $ 1,695,690 Interest payable and other liabilities 22,254 21,478 Total liabilities 1,797,136 1,717,168 Shareholders' equity Common stock, no par value; 50,000,000 shares authorized, 8,390,621 and 8,357,211 shares issued and outstanding at September 30, 2025 and December 31, 2024, respectively 25,435 25,435 Additional paid-in capital 6,581 6,199 Retained earnings 188,058 175,502 Accumulated other comprehensive loss, net of tax ( 21,794 ) ( 23,700 ) Total shareholders' equity 198,280 183,436 $ 1,995,416 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2025 2024 2025 2024 INTEREST INCOME Interest and fees on loans $ 14,881 $ 13,739 $ 43,187 $ 39,445 Interest on securities 5,395 5,098 16,049 15,279 Interest on

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 $ 7,212 $ ( 259 ) $ 58,487 $ ( 3,573 ) $ 65,699 $ ( 3,832 ) Collateralized mortgage obligations 7 3,392 ( 6 ) 12,830 ( 347 ) 16,222 ( 353 ) Municipalities 119 83,497 ( 2,453 ) 211,055 ( 23,717 ) 294,552 ( 26,170 ) SBA pools 5 438 ( 2 ) 131 ( 1 ) 569 ( 3 ) Corporate debt 11 0 0 39,960 ( 1,540 ) 39,960 ( 1,540 ) Asset backed securities 10 4,842 ( 5 ) 8,553 ( 539 ) 13,395 ( 544 ) Total temporarily impaired securities 189 $ 99,381 $ ( 2,725 ) $ 331,016 $ ( 29,717 ) $ 430,397 $ ( 32,442 ) 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 $ 4,593,000 and $ 4

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 nine-months ended September 30, 2025. There were no sales of available-for-sale securities sold during the three-months ended September 30, 2024, and 18 available-for-sale securities sold during the nine-months ended September 30, 2024 with a book value of $ 28,258,000 , resulting in gross gains of $ 105,000 . In addition, the Company recognized losses of $ 2,000 and $ 0 on called securities during the three and nine-month periods ended September 30, 2025, respectively, as compared to gains of $ 8,000 and $ 9,000 during the comparable 2024 periods, respectively. Debt securities carried at $ 349,605,000 and $ 288,199,000 as of September 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 September 30, 2025, approximately 87 % 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 business. Additio

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