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What changed in Oak Valley Bancorp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Oak Valley Bancorp's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+269 added−245 removedSource: 10-K (2025-03-31) vs 10-K (2024-04-01)

Top changes in Oak Valley Bancorp's 2024 10-K

269 paragraphs added · 245 removed · 202 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

44 edited+35 added−10 removed172 unchanged
Biggest changeThe additional “countercyclical capital buffer” is also required for larger and more complex institutions. The rules assign higher risk weighting to exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property.
Biggest changeThe rules assign higher risk weighting to exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property. 14 Table of Contents In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total average assets, referred to as the leverage ratio.
Our SBA market area includes the geographic areas encompassed by our full-service banking offices in the California Central Valley and in the Eastern Sierra. As an SBA lender, we enable borrowers to obtain SBA loans in order to acquire new businesses, expand existing businesses, and acquire locations in which to do business.
Our SBA market area includes the geographic areas encompassed by our full-service banking offices in the California Central Valley and in the Eastern Sierra. As an SBA lender, we enable borrowers to obtain SBA loans in order to acquire new businesses, expand existing businesses, and acquire locations in which to do business. Consumer Loans.
These laws and regulations require financial institutions to assist U.S. government agencies in detecting and preventing money laundering and other illegal acts by maintaining policies, procedures and controls designed to detect and report money laundering, terrorist financing, and other suspicious activity. ● Limitations on the amount of loans to one borrower and its affiliates and to executive officers and directors. ● Limitations on transactions with affiliates. ● Restrictions on the nature and amount of any investments in, and ability to underwrite certain securities. ● Requirements for opening of branches intra- and interstate. ● Fair lending and truth in lending laws to ensure equal access to credit and to protect consumers in credit transactions. ● Provisions of the Gramm-Leach Bliley Act of 1999 (“GLBA”) and other federal and state laws dealing with privacy for nonpublic personal information of customers.
These laws and regulations require financial institutions to assist U.S. government agencies in detecting and preventing money laundering and other illegal acts by maintaining policies, procedures and controls designed to detect and report money laundering, terrorist financing, and other suspicious activity. ● Limitations on the amount of loans to one borrower and its affiliates and to executive officers and directors. ● Limitations on transactions with affiliates. ● Restrictions on the nature and amount of any investments in, and ability to underwrite certain securities. ● Requirements for opening of branches intra- and interstate. 12 Table of Contents ● Fair lending and truth in lending laws to ensure equal access to credit and to protect consumers in credit transactions. ● Provisions of the Gramm-Leach Bliley Act of 1999 (“GLBA”) and other federal and state laws dealing with privacy for nonpublic personal information of customers.
Since opening the doors of our main Oakdale branch in 1991, our network of branches have been expanded geographically. As of December 31, 2023, we maintained eighteen full-service branch offices (in addition to our corporate headquarters) located in the cities of Oakdale, Sonora, Modesto, Bridgeport, Mammoth Lakes, Bishop, Escalon, Patterson, Turlock, Ripon, Stockton, Manteca, Tracy, Sacramento, and Roseville in California.
Since opening the doors of our main Oakdale branch in 1991, our network of branches have been expanded geographically. As of December 31, 2024, we maintained eighteen full-service branch offices (in addition to our corporate headquarters) located in the cities of Oakdale, Sonora, Modesto, Bridgeport, Mammoth Lakes, Bishop, Escalon, Patterson, Turlock, Ripon, Stockton, Manteca, Tracy, Sacramento, and Roseville in California.
The Company and the Bank held no investment positions at December 31, 2023 or 2022 that were subject to the final rule. Therefore, while these new rules may require us to conduct certain internal analysis and reporting, we believe that they will not require any material changes in our operations or business.
The Company and the Bank held no investment positions at December 31, 2024 or 2023 that were subject to the final rule. Therefore, while these new rules may require us to conduct certain internal analysis and reporting, we believe that they will not require any material changes in our operations or business.
We offer commercial real estate loans to finance the acquisition of new or the refinancing of existing commercial properties, such as office buildings, industrial buildings, warehouses, hotels, shopping centers, automotive industry facilities and multiple dwellings. As of December 31, 2023, consumer and commercial real estate loans constituted 90% of our loan portfolio, of which 97% were commercial real estate loans.
We offer commercial real estate loans to finance the acquisition of new or the refinancing of existing commercial properties, such as office buildings, industrial buildings, warehouses, hotels, shopping centers, automotive industry facilities and multiple dwellings. As of December 31, 2024, consumer and commercial real estate loans constituted 90% of our loan portfolio, of which 97% were commercial real estate loans.
In addition, copies of our filings are available by requesting them in writing or by phone from: Corporate Secretary Oak Valley Bancorp 125 North Third Avenue Oakdale, California 209-844-7578 19 Table of Contents
In addition, copies of our filings are available by requesting them in writing or by phone from: Corporate Secretary Oak Valley Bancorp 125 North Third Avenue Oakdale, California 209-844-7578 21 Table of Contents
Federal Reserve Regulation W combines statutory restrictions on transactions between the Bank and the Company with FRB interpretations in an effort to simplify compliance with Sections 23A and 23B. Securities Laws and Corporate Governance The Company is subject to the disclosure and regulatory requirements of the 1933 Act and the 1934 Act, both as administered by the SEC.
Federal Reserve Regulation W combines statutory restrictions on transactions between the Bank and the Company with FRB interpretations in an effort to simplify compliance with Sections 23A and 23B. 19 Table of Contents Securities Laws and Corporate Governance The Company is subject to the disclosure and regulatory requirements of the 1933 Act and the 1934 Act, both as administered by the SEC.
We also reach into the Highway 395 corridor in the Eastern Sierras and in the towns of Bishop, Mammoth and Bridgeport. Approximately 98% of our loans and 90% of our deposits are generated from the Central Valley.
We also reach into the Highway 395 corridor in the Eastern Sierras and in the towns of Bishop, Mammoth and Bridgeport. Approximately 99% of our loans and 90% of our deposits are generated from the Central Valley.
However, approximately 90% of our loan portfolio held for investment as of December 31, 2023 consisted of real estate-related loans, including construction loans, mini-perm loans, real estate mortgage loans and commercial loans secured by real estate.
However, approximately 90% of our loan portfolio held for investment as of December 31, 2024 consisted of real estate-related loans, including construction loans, mini-perm loans, real estate mortgage loans and commercial loans secured by real estate.
The Company cannot predict whether any of these proposals will be enacted or adopted or, if they are, the effect they would have on our business, the Company's operations or financial condition. Supervision and Regulation in General The banking and financial services business in which we engage is highly regulated.
The Company cannot predict whether any of these proposals will be enacted or adopted or, if they are, the effect they would have on our business, the Company's operations or financial condition. 10 Table of Contents Supervision and Regulation in General The banking and financial services business in which we engage is highly regulated.
Nasdaq has also adopted corporate governance rules, which are intended to allow shareholders and investors to more easily and efficiently monitor the performance of companies and their directors. 18 Table of Contents Finally, the Company is subject to the provisions of the California General Corporation Law, while the Bank is also subject to the Financial Code provisions.
Nasdaq has also adopted corporate governance rules, which are intended to allow shareholders and investors to more easily and efficiently monitor the performance of companies and their directors. Finally, the Company is subject to the provisions of the California General Corporation Law, while the Bank is also subject to the Financial Code provisions.
The Company and the Bank are each subject to supervision and regulation by a number of federal and state agencies and regulatory bodies, as outlined below. 10 Table of Contents The Company is subject to regulation under the Bank Holding Company Act of 1956, as amended (“BHCA”).
The Company and the Bank are each subject to supervision and regulation by a number of federal and state agencies and regulatory bodies, as outlined below. The Company is subject to regulation under the Bank Holding Company Act of 1956, as amended (“BHCA”).
We cannot predict whether, or in what form, any such legislation or regulations may be enacted or the extent to which our business would be affected thereby. Available Information The Company maintains an Internet website at www.ovcb.com.
We cannot predict whether, or in what form, any such legislation or regulations may be enacted or the extent to which our business would be affected thereby. 20 Table of Contents Available Information The Company maintains an Internet website at www.ovcb.com.
The FRB’s last CRA performance examination was performed on us and completed in January of 2023 and we received an overall “Outstanding” CRA Assessment Rating. On May 5, 2022, the FDIC, OCC and the Federal Reserve issued a joint notice of proposed rulemaking to strengthen and modernize the CRA regulatory framework.
The FRB’s last CRA performance examination was performed on us and completed in January of 2023 and we received an overall “Outstanding” CRA Assessment Rating. On May 5, 2022, the FDIC, Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve issued a joint notice of proposed rulemaking to strengthen and modernize the CRA regulatory framework.
There can be no assurance that the Bank will maintain its competitive position against current and potential competitors, especially those with greater resources than the Bank. The four largest competing banks had 136 total branches and deposits averaged approximately $501 million per office as of June 30, 2023 within the Bank’s primary service area.
There can be no assurance that the Bank will maintain its competitive position against current and potential competitors, especially those with greater resources than the Bank. The four largest competing banks had 134 total branches and deposits averaged approximately $481 million per office as of June 30, 2024 within the Bank’s primary service area.
In addition, the concentration of our operations in Central California exposes us to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and floods in this region. Employees As of December 31, 2023, we had 230 employees (198 full-time employees and 32 part-time employees).
In addition, the concentration of our operations in Central California exposes us to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and floods in this region. Employees As of December 31, 2024, we had 231 employees (199 full-time employees and 32 part-time employees).
We are currently evaluating the impact of the modified CRA regulations, but do not anticipate any resulting material impact to its operations or compliance objectives. 16 Table of Contents Anti-Money Laundering Regulations A series of banking laws and regulations beginning with the Bank Secrecy Act in 1970 require banks to prevent, detect, and report illicit or illegal financial activities to the federal government to prevent money laundering, international drug trafficking, and terrorism.
We will continue to monitor for updates related to the CRA regulatory framework and are currently evaluating the impact of the modified CRA regulations, but do not anticipate any resulting material impact to its operations or compliance objectives. 16 Table of Contents Anti-Money Laundering Regulations A series of banking laws and regulations beginning with the Bank Secrecy Act in 1970 require banks to prevent, detect, and report illicit or illegal financial activities to the federal government to prevent money laundering, international drug trafficking, and terrorism.
Historical data suggests that the Bank continues to maintain strong loan-to-value which has served as a cushion against precipitous reductions in real estate values during economic downturns. Non-owner occupied commercial real estate comprises 67.0% of the Bank’s total commercial real estate commitments, as of December 31, 2023.
Historical data suggests that the Bank continues to maintain strong loan-to-value which has served as a cushion against precipitous reductions in real estate values during economic downturns. Non-owner occupied commercial real estate comprises 66.5% of the Bank’s total commercial real estate commitments, as of December 31, 2024.
As of December 31, 2023, we owned $5,202,000 in FHLB stock. Advances from the Federal Home Loan Bank are typically secured by our entire real estate loan portfolio, which includes residential and commercial loans. As of December 31, 2023, our borrowing limit with the Federal Home Loan Bank was approximately $333 million.
As of December 31, 2024, we owned $5,531,000 in FHLB stock. Advances from the Federal Home Loan Bank are typically secured by our entire real estate loan portfolio, which includes residential and commercial loans. As of December 31, 2024, our borrowing limit with the Federal Home Loan Bank was approximately $364 million.
The portfolio is stratified by owner classification (either owner-occupied or non-owner occupied), product type, geography and size. As of December 31, 2023, the aggregate loan-to-value of the entire commercial real estate portfolio was 46.0%, based on the most recent appraisals as of the time of origination or renewal.
The portfolio is stratified by owner classification (either owner-occupied or non-owner occupied), product type, geography and size. As of December 31, 2024, the aggregate loan-to-value of the entire commercial real estate portfolio was 45.3%, based on the most recent appraisals as of the time of origination or renewal.
The Bank’s primary capital plus allowance for credit losses as of December 31, 2023 totaled $193.0 million. We seek to mitigate the risks inherent in our loan portfolio by adhering to certain underwriting practices.
The Bank’s primary capital plus allowance for credit losses as of December 31, 2024 totaled $214.9 million. We seek to mitigate the risks inherent in our loan portfolio by adhering to certain underwriting practices.
These loans require joint approval from two of the following officers: Chief Executive Officer, President, Chief Credit Officer, Senior Lending Officer or Credit Administrator. As of December 31, 2023, the Bank’s authorized legal lending limits were $29.0 million for unsecured loans plus an additional $19.3 million for specific secured loans.
These loans require joint approval from two of the following officers: Chief Executive Officer, President, Chief Credit Officer, Senior Lending Officer or Credit Administrator. As of December 31, 2024, the Bank’s authorized legal lending limits were $32.2 million for unsecured loans plus an additional $21.5 million for specific secured loans.
We provide consumer loan products in an effort to diversify our product line. Our consumer loan portfolio is subject to certain risks, including: ● amount of credit offered to consumers in the market, ● interest rate increases, and ● consumer bankruptcy laws which allow consumers to discharge certain debts.
Our consumer loan portfolio is subject to certain risks, including: ● amount of credit offered to consumers in the market, ● interest rate increases, and ● consumer bankruptcy laws which allow consumers to discharge certain debts.
We will continue to monitor developments related to the CPRA. The full impact of the CPRA on our business is yet to be determined. Like other lenders, we use credit bureau data in their underwriting activities.
The full impact of the CPRA on our business is yet to be determined. 17 Table of Contents Like other lenders, we use credit bureau data in their underwriting activities.
Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements.
Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
The loan-to-value on the non-owner occupied CRE segment was 47.9%, as of December 31, 2023. The highest concentration by product type is CRE Retail, which comprised 22.7% of total CRE loan commitments, as of December 31, 2023.
The loan-to-value on the non-owner occupied CRE segment was 46.5%, as of December 31, 2024. The highest concentration by product type is CRE Retail, which comprised 27.1% of total CRE loan commitments, as of December 31, 2024.
As of June 30, 2023, our primary service areas contained 279 banking offices, with approximately $91.4 billion in total deposits. As of June 30, 2023, we had total deposits of approximately $1.7 billion, which represented approximately 1.8% of the total deposits in the Bank’s primary service area.
As of June 30, 2024, our primary service areas contained 279 banking offices, with approximately $88.2 billion in total deposits. As of June 30, 2024, we had total deposits of approximately $1.6 billion, which represented approximately 1.9% of the total deposits in the Bank’s primary service area.
Privacy, Data Security and Cybersecurity The GLBA of 1999 imposed requirements on financial institutions with respect to consumer privacy. The GLBA generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure.
For example, the GLBA of 1999 imposed requirements on financial institutions with respect to consumer privacy. The GLBA generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure. Financial institutions are further required to disclose their privacy policies to consumers annually.
The following discussion is not meant to cover all applicable rules and regulations and it is qualified in its entirety by reference to such laws, rules and regulations which may change from time to time. 12 Table of Contents The Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), enacted in 2010 has broadly affected the financial services industry by creating resolution authorities, requiring ongoing stress testing of capital, mandating higher capital and liquidity requirements, increasing regulation of executive and incentive-based compensation and requiring numerous other provisions aimed at strengthening the sound operation of the financial services sector depending, in part, on the size of the financial institution.
The Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), enacted in 2010 has broadly affected the financial services industry by creating resolution authorities, requiring ongoing stress testing of capital, mandating higher capital and liquidity requirements, increasing regulation of executive and incentive-based compensation and requiring numerous other provisions aimed at strengthening the sound operation of the financial services sector depending, in part, on the size of the financial institution.
Customers must be notified when unauthorized disclosure involves sensitive customer information that may be misused. Data privacy and data security are areas of increasing state legislative focus.
We are required to have an information security program to safeguard the confidentiality and security of customer information and to ensure proper disposal. Customers must be notified when unauthorized disclosure involves sensitive customer information that may be misused. Data privacy and data security are areas of increasing state legislative focus.
For example, a financial institution experiencing or anticipating significant growth may be expected to maintain capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets.
Federal banking regulators may set capital requirements higher than the minimums described above for financial institutions whose circumstances warrant it. For example, a financial institution experiencing or anticipating significant growth may be expected to maintain capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets.
Recently, on March 6, 2024, the SEC adopted new rules that require public companies to disclose substantial information about the material impacts of climate-related risks on their business, financial condition, and governance.
On March 6, 2024, the SEC adopted new rules that require public companies to disclose substantial information about the material impacts of climate-related risks on their business, financial condition, and governance. These new rules require disclosure of a range of climate-related matters. The new rules are currently being challenged in the Eighth Circuit Court of Appeals.
These guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal stockholder. In October 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (“clawback”) provisions of the Dodd-Frank Act.
These guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal stockholder.
In general, the standards are designed to assist the federal banking agencies in identifying and addressing problems at insured depository institutions before capital becomes impaired.
Those guidelines relate to internal controls, information systems, internal audit systems, loan underwriting and documentation, compensation and interest rate exposure. In general, the standards are designed to assist the federal banking agencies in identifying and addressing problems at insured depository institutions before capital becomes impaired.
Financial institutions are further required to disclose their privacy policies to consumers annually. The GLBA also directs federal regulators to prescribe standards for the security of consumer information. We are subject to such standards, as well as standards for notifying consumers in the event of a security breach.
The GLBA also directs federal regulators to prescribe standards for the security of consumer information. We are subject to such standards, as well as standards for notifying consumers in the event of a security breach. We must disclose our privacy policy to consumers and permit consumers to “opt out” of having certain personal financial information disclosed to unaffiliated third parties.
Most of the final CRA rule’s requirements will be applicable beginning January 1, 2026, with certain requirements, including the data reporting requirements, applicable as of January 1, 2027.
Most of the final CRA rule’s requirements were to become be applicable beginning January 1, 2026, with certain requirements, including the data reporting requirements, applicable as of January 1, 2027. However, on March 29, 2024, a federal court enjoined the enforcement of the new CRA regulations.
If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan and institute enforcement proceedings, if an acceptable compliance plan is not submitted. 15 Table of Contents Compensation Federal banking agencies have issued joint guidance on incentive compensation designed to ensure that the incentive compensation policies of banking organizations such as the Company are consistent with the safety and soundness of the organization and its subsidiary banks.
Compensation Federal banking agencies have issued joint guidance on incentive compensation designed to ensure that the incentive compensation policies of banking organizations such as the Company are consistent with the safety and soundness of the organization and its subsidiary banks.
All other institutions are required to maintain a leverage ratio of at least 100 to 200 basis points above the 3% minimum, for a minimum of 4% to 5%.
All other institutions are required to maintain a leverage ratio of at least 100 to 200 basis points above the 3% minimum, for a minimum of 4% to 5%. Pursuant to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans.
In the event that the intended distribution from the Bank to the Company exceeds the restriction in the Financial Code, advance approval from the FRB is required. Management anticipates that there will be sufficient earnings at the Bank level to provide dividends to the Company to meet its cash requirements for 2024.
In the event that the intended distribution from the Bank to the Company exceeds the restriction in the Financial Code, advance approval from the FRB is required.
We also participated in the SBA’s Paycheck Protection Program (“PPP”) established in 2020 to provide economic assistance to small businesses during the COVID-19 pandemic. Consumer Loans. Consumer loans include personal loans, auto loans, home improvement loans, home mortgage loans, revolving lines of credit and other loans typically made by banks to individual borrowers.
Consumer loans include personal loans, auto loans, home improvement loans, home mortgage loans, revolving lines of credit and other loans typically made by banks to individual borrowers. We provide consumer loan products in an effort to diversify our product line.
None of our employees are currently represented by a union or covered by a collective bargaining agreement. We consider our relations with our employees to be good. Economic Conditions and Legislative and Regulatory Developments As is the case with financial institutions with our size and scope, our profitability primarily depends on interest rate differentials.
None of our employees are currently represented by a union or covered by a collective bargaining agreement. We consider our relations with our employees to be good. Human Capital Management We believe that our human capital is a key asset and a competitive advantage for our success as a community bank.
In addition, the California Privacy Rights Act (“CPRA”), which became effective in most material respects on January 1, 2023, significantly modifies the CCPA, including by expanding California residents’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency which will be vested with authority to implement and enforce the CCPA and the CPRA.
In addition, the CPRA significantly modifies the CCPA, including by expanding California residents’ rights with respect to certain sensitive personal information. We will continue to monitor developments related to the CPRA.
However, the proposed rules generally apply only to large banking organizations with total assets of $100 billion or more, and hence, would not be applicable to the Company. Dividends The payment of cash dividends by the Bank to the Company is subject to restrictions set forth in the Financial Code.
Its implementation may also cause changes in the financial markets which may affect the Company. Dividends The payment of cash dividends by the Bank to the Company is subject to restrictions set forth in the Financial Code.
Removed
In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total average assets, referred to as the leverage ratio.
Added
We invest in our human capital by attracting, developing, and retaining talented and diverse employees who share our vision, mission, and values. We foster a culture of premier service, teamwork, performance, community involvement, and integrity, and we reward our employees for their contributions and achievements.
Removed
Pursuant to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans. 14 Table of Contents Federal banking regulators may set capital requirements higher than the minimums described above for financial institutions whose circumstances warrant it.
Added
We also provide our employees with opportunities for professional growth, learning, and development, as well as competitive compensation and benefits. We are committed to maintaining a safe, healthy, and inclusive work environment that respects and values the diverse backgrounds of our employees and customers.
Removed
Proposed new rules for U.S. implementation of capital requirements under Basel IV rules, more recently referred to as the Basel III "Endgame", were issued by the U.S. federal banking agencies on July 27, 2023. These proposed rules include broad-based changes to the risk-weighting framework for various credit exposures and operational risk capital requirements.
Added
We comply with all applicable laws and regulations regarding labor and employment practices, and we support the principles of equal opportunity, nondiscrimination, and fair labor standards. Economic Conditions and Legislative and Regulatory Developments As is the case with financial institutions with our size and scope, our profitability primarily depends on interest rate differentials.
Removed
Safety and Soundness Standards Federal banking agencies have also adopted guidelines establishing safety and soundness standards for all insured depository institutions. Those guidelines relate to internal controls, information systems, internal audit systems, loan underwriting and documentation, compensation and interest rate exposure.
Added
The following discussion is not meant to cover all applicable rules and regulations and it is qualified in its entirety by reference to such laws, rules and regulations which may change from time to time.
Removed
The final rules direct stock exchanges to adopt listing standards that require listed companies to implement clawback policies to recover incentive-based compensation from current or former executive officers in the event of certain financial restatements and to disclose their clawback policies and their actions under those policies.
Added
The additional “countercyclical capital buffer” is also required for larger and more complex institutions.
Removed
In June 2023, the SEC approved the Nasdaq Stock Market and the New York Stock Exchange’s proposed clawback listing standards. Listed companies were required to adopt their clawback policy no later than December 1, 2023.The Company has adopted a Nasdaq compliant clawback policy which is included as an exhibit to this Annual Report on Form 10-K.
Added
The Basel IV framework was introduced in 2017 and focuses on the denominator of the capital ratio or the measurement of a bank’s risk positions, especially in credit, market, counterparty and operational risk for banks with over $100 billion in assets and has market risk provisions for banks with significant trading activity.
Removed
We must disclose our privacy policy to consumers and permit consumers to “opt out” of having certain personal financial information disclosed to unaffiliated third parties. We are required to have an information security program to safeguard the confidentiality and security of customer information and to ensure proper disposal.
Added
The U.S. targeted implementation of Basel IV to begin on July 1, 2025, subject to a three-year transition period with full compliance expected by July 1, 2028.
Removed
Many states have also recently implemented or modified their data breach notification and data privacy requirements. 17 Table of Contents Other Consumer Protection Laws and Regulations Bank regulatory agencies are increasingly focusing on compliance with consumer protection laws and regulations.
Added
The public comment period concluded in January 2024 for the proposed rules set forth by the U.S. banking regulators, with comment periods on ancillary rules and documentation ongoing throughout 2024, making it unlikely that any rule will be finalized or effective by July 1, 2025.
Removed
These new rules require disclosure of a range of climate-related matters, including: (i) any material climate-related risks and their impacts on the registrant’s business strategy, results of operations, and financial condition, as well as on the registrant’s outlook and business model, (b) any activities, plans, or processes to mitigate, adapt to, or manage material climate-related risks, including the use of transition plans, scenario analyses, or internal carbon prices, (c) Any board oversight and management role in assessing and managing material climate-related risks, (d) any targets or goals that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations, or financial condition, and (e) the financial statement effects of severe weather events and other natural conditions, including costs and losses.
Added
In addition, in light of the change in the presidential administration, it is unclear whether the banking agencies will pursue the proposal or issue a revised proposal for comment.
Removed
Compliance dates will be phased-in among different classes of registrants, with most disclosure and financial statement rules taking effect for smaller reporting companies beginning on fiscal year 2027.
Added
Although, Basel IV seeks to regulate banks with over $100 billion in assets and likely will not be applicable to the Company once implemented, proposed rules which would affect banks below $100 billion in assets have been proposed in the past and the final form of the rules is still undetermined.
Added
Management anticipates that there will be sufficient earnings at the Bank level to provide dividends to the Company to meet its cash requirements for 2025. 15 Table of Contents Safety and Soundness Standards Federal banking agencies have also adopted guidelines establishing safety and soundness standards for all insured depository institutions.
Added
If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan and institute enforcement proceedings, if an acceptable compliance plan is not submitted.
Added
As a result, the previous CRA regulations continue to govern and the effective date will be extended each day the injunction remains in place.
Added
On September 29, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued a final rule establishing a beneficial ownership information reporting requirement under the Corporate Transparency Act (“CTA”), which was passed as part of the Anti-Money Laundering Act of 2020.
Added
The rule, which became effective January 1, 2024, requires most entities created in or registered to do business in the United States, subject to certain exceptions, to report information about their beneficial owners to FinCEN. The compliance date was January 1, 2025, but the beneficial ownership information reporting requirement under the CTA is currently subject to ongoing litigation.
Added
On March 2, 2025, the Treasury Department announced it will not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, and further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the rule changes take effect.
Added
Treasury Department intends to further issue a proposed rulemaking that will narrow the scope of the rule for foreign reporting companies only.
Added
In 2024, federal regulators, including the Federal Reserve and the OCC, proposed amendments to update the requirements to establish, implement and maintain effective, risk-based and reasonably designed anti-money laundering programs, including the identification, evaluation and documentation of money laundering risks. We continue to monitor for updates related to the CTA and Anti-Money Laundering Act of 2020.
Added
Privacy, Data Security and Cybersecurity We are, or may become, subject to a variety of continuously evolving and developing laws and regulations in the United States at the federal, state and local level regarding privacy, data protection and data security, including those related to the collection, storage, handling, use, disclosure, transfer, security and other processing of personal information.
Added
In 2020, the California Privacy Rights Act (“CPRA”) was approved and became effective on January 1, 2023. The CPRA amended the CCPA by adding additional consumer privacy rights and obligations for businesses. It also established the California Privacy Protection Agency and tasked it with responsibilities including implementing and enforcing the law.
Added
The enactment of the Cyber Incident Reporting for Critical Infrastructure Act (the “CIRCIA”) in 2022, once rulemaking is complete, will require, among other things, certain companies to report significant cyber incidents to the Cybersecurity and Infrastructure Agency (the “CISA”) within 72 hours from the time the company reasonably believes the incident occurred (and within 24 hours of making a ransom payment as a result of a ransomware attack).
Added
On April 4, 2024, the CISA proposed a rule under the CIRCIA that would clarify the scope of cyber incidents to be reported and would further define covered entities subject to CIRCIA to expressly include companies in the financial services industry that are required to report cyber incidents to their primary federal regulators.
Added
We expect this trend of state-level activity in those areas to continue and are continually monitoring developments, particularly if the CFPB is no longer enforcing federal financial institution consumer privacy laws and regulations since it was instructed to cease all supervision, investigations, enforcement, rulemaking, and stakeholder activities in February 2025.
Added
We continue to monitor these developments and integrate applicable requirements into our operation and compliance frameworks. In February 2024, the National Institute of Standards and Technology ( “ NISTU”) released Cybersecurity Framework 2.0, expanding its original guidance to emphasize cybersecurity governance and supply chain risk management.
Added
While we are not mandated to adopt this updated framework, our cybersecurity policies, governance structures, vendor risk management practices, and employee training programs align substantively with the principles of the NIST Cybersecurity Framework 2.0. We continue to leverage this framework as a guiding best practice to enhance our cybersecurity posture and manage risks effectively.
Added
Mergers and Acquisitions On September 17, 2024, the Board of Directors of the FDIC approved a final Statement of Policy on Bank Merger Transactions (“FDIC Statement of Policy”), and the OCC approved a final rule updating its regulations for business combinations involving national banks and federal savings associations (“OCC Final Rule”).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

50 edited+13 added−6 removed167 unchanged
Biggest changeCommercial real estate loans also expose us to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be sold as easily as residential real estate. In addition, many of our commercial real estate loans are not fully amortizing and contain large balloon payments upon maturity.
Biggest changeIn addition, many of our commercial real estate loans are not fully amortizing and contain large balloon payments upon maturity. Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment.
The amount of this allowance is determined by our management through a periodic review and consideration of several factors, including, but not limited to: • an ongoing review of the quality, size and diversity of the loan portfolio; • evaluation of non-performing loans; • historical default and loss experience; • historical recovery experience; • existing economic conditions; • reasonable and supportable forecasts that affect the collectability of reported amounts; • risk characteristics of the various classifications of loans; and • the amount and quality of collateral, including guarantees, securing the loans. 22 Table of Contents If actual losses on our loans exceed our estimates used to establish our allowance for credit losses, our business, financial condition and profitability may suffer.
The amount of this allowance is determined by our management through a periodic review and consideration of several factors, including, but not limited to: • an ongoing review of the quality, size and diversity of the loan portfolio; • evaluation of non-performing loans; • historical default and loss experience; • historical recovery experience; • existing economic conditions; • reasonable and supportable forecasts that affect the collectability of reported amounts; • risk characteristics of the various classifications of loans; and • the amount and quality of collateral, including guarantees, securing the loans. 24 Table of Contents If actual losses on our loans exceed our estimates used to establish our allowance for credit losses, our business, financial condition and profitability may suffer.
Our ratings are subject to further adjustments based on a number of factors, including our financial strength and ability to generate earnings as well as factors not entirely within our control, such as conditions affecting the financial services industry generally. 21 Table of Contents In response to the bank failures, the United States government may adopt a variety of measures and new regulations designed to strengthen capital levels, liquidity standards, and risk management practices and otherwise restore confidence in financial institutions.
Our ratings are subject to further adjustments based on a number of factors, including our financial strength and ability to generate earnings as well as factors not entirely within our control, such as conditions affecting the financial services industry generally. 23 Table of Contents In response to the bank failures, the United States government may adopt a variety of measures and new regulations designed to strengthen capital levels, liquidity standards, and risk management practices and otherwise restore confidence in financial institutions.
Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors, could have material adverse effect on our liquidity and our current and/or projected business operations and financial condition and results of operations. Recent bank failures have created significant market volatility, regulatory uncertainty, and decreased confidence in the U.S. banking system.
Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors, could have material adverse effect on our liquidity and our business operations and financial condition and results of operations. Recent bank failures have created significant market volatility, regulatory uncertainty, and decreased confidence in the U.S. banking system.
Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental oversight. 25 Table of Contents Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business.
Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental oversight. 27 Table of Contents Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business.
If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. 26 Table of Contents Climate change manifesting as physical or transition risks could adversely affect our operations, businesses and customers.
If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. 28 Table of Contents Climate change manifesting as physical or transition risks could adversely affect our operations, businesses and customers.
The failure to properly execute on these strategic initiatives could adversely impact our business and results of operations. 24 Table of Contents Strong competition within our market areas may limit our growth and profitability. Competition in the banking and financial services industry is intense.
The failure to properly execute on these strategic initiatives could adversely impact our business and results of operations. 26 Table of Contents Strong competition within our market areas may limit our growth and profitability. Competition in the banking and financial services industry is intense.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our business operations and our financial condition and results of operations.
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.
The assessment of qualitative factors at the most recent Measurement Date (December 31, 2024), indicated that it was not more likely than not that impairment existed; as a result, no further testing was performed.
These assumptions, judgments and estimates are drawn from historical experience and various other factors that we believe are reasonable under the circumstances as of the date of the consolidated financial statements. Actual results could differ materially from our estimates, and such differences could significantly impact our financial results. 30 Table of Contents General Risks We depend on our key employees.
These assumptions, judgments and estimates are drawn from historical experience and various other factors that we believe are reasonable under the circumstances as of the date of the consolidated financial statements. Actual results could differ materially from our estimates, and such differences could significantly impact our financial results. General Risks We depend on our key employees.
Although we have established disaster recovery plans and procedures, and we monitor the effects of any such events on our loans, properties and investments, the occurrence of any such event could have a material adverse effect on us or our earnings or our financial condition. Anti-takeover provisions could negatively impact our stockholders.
Although we have established disaster recovery plans and procedures, and we monitor the effects of any such events on our loans, properties and investments, the occurrence of any such event could have a material adverse effect on us or our earnings or our financial condition. 33 Table of Contents Anti-takeover provisions could negatively impact our stockholders.
Any of these occurrences could have a material adverse effect on our financial condition and results of operations. 27 Table of Contents We rely on communications, information, operating and financial control systems technology from third party service providers, and we may suffer an interruption in those systems.
Any of these occurrences could have a material adverse effect on our financial condition and results of operations. We rely on communications, information, operating and financial control systems technology from third party service providers, and we may suffer an interruption in those systems.
Such volatility and disruption can reach unprecedented levels, resulting in downward pressure on stock prices and credit availability for certain issuers without regard to their underlying financial strength. A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation. 32 Table of Contents
Such volatility and disruption can reach unprecedented levels, resulting in downward pressure on stock prices and credit availability for certain issuers without regard to their underlying financial strength. A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation.
Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Additionally, there is no guarantee that the U.S.
Inflation and higher interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Additionally, there is no guarantee that the U.S.
Similar state laws may impose additional requirements on us. Regulatory Risks We operate in a highly regulated environment and our operations and income may be affected adversely by changes in laws, rules and regulations governing our operations. We are subject to extensive regulation and supervision by the DFPI, FRB and the FDIC.
Similar state laws may impose additional requirements on us. 30 Table of Contents Regulatory Risks We operate in a highly regulated environment and our operations and income may be affected adversely by changes in laws, rules and regulations governing our operations. We are subject to extensive regulation and supervision by the DFPI, FRB and the FDIC.
As of December 31, 2023, consumer and commercial real estate loans constituted 90% of our loan portfolio, of which 97% were commercial real estate loans.
As of December 31, 2024, consumer and commercial real estate loans constituted 90% of our loan portfolio, of which 97% were commercial real estate loans.
Given such an environment, we may experience more deposit volatility as customers react to adverse events or market speculation involving financial institutions. Inability to access short-term funding or the loss of client deposits could increase our cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization.
We may experience more deposit volatility as customers react to adverse events or market speculation involving financial institutions in the future. Inability to access short-term funding or the loss of client deposits could increase our cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization.
At December 31, 2023, the Company had a net deferred tax asset of $13.2 million. For additional information, see Note 10 to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. We may experience future goodwill impairment.
At December 31, 2024, the Company had a net deferred tax asset of $15.5 million. For additional information, see Note 10 to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. We may experience future goodwill impairment.
At December 31, 2023, we held bank owned life insurance (“BOLI”) on certain key and former employees and executives and our directors, with a cash surrender value of $31,506,000.
At December 31, 2024, we held bank owned life insurance (“BOLI”) on certain key and former employees and executives and our directors, with a cash surrender value of $37,558,000.
We may pay higher FDIC premiums in the future and increases in deposit insurance premiums and special FDIC assessments will negatively impact our earnings. Tax and Financial Risks The Company has a deferred tax asset that may or may not be fully realized. The Company has a deferred tax asset and cannot assure that it will be fully realized.
We may pay higher FDIC premiums in the future and increases in deposit insurance premiums and special FDIC assessments will negatively impact our earnings. 32 Table of Contents Tax and Financial Risks The Company has a deferred tax asset that may or may not be fully realized.
We expect that the Dodd-Frank Act, including current and future rules implementing its provisions and the interpretations of those rules, will reduce our revenues, increase our expenses, require us to change certain of our business practices, increase the regulatory supervision of us, increase our capital requirements and impose additional assessments and costs on us, and otherwise adversely affect our business.
We expect that the Dodd-Frank Act, including current and future rules implementing its provisions and the interpretations of those rules, will reduce our revenues, increase our expenses, require us to change certain of our business practices, increase the regulatory supervision of us, increase our capital requirements and impose additional assessments and costs on us, and otherwise adversely affect our business. 31 Table of Contents The short-term and long-term impact of the changing regulatory capital requirements and new capital rules is uncertain.
If one or more of the analysts who cover us downgrade our stock or change their opinion of our shares or publish inaccurate or unfavorable research about our business, our stock price would likely decline.
We do not have control over these analysts. If one or more of the analysts who cover us downgrade our stock or change their opinion of our shares or publish inaccurate or unfavorable research about our business, our stock price would likely decline.
We cannot accurately predict the possibility of the national or local economy’s return to recessionary conditions or to a period of economic weakness, which would adversely impact the markets we serve.
We cannot accurately predict the possibility of weakness in the national or local economy effecting our future operating results. We cannot accurately predict the possibility of the national or local economy’s return to recessionary conditions or to a period of economic weakness, which would adversely impact the markets we serve.
Our primary market area is concentrated in the Central Valley and the Eastern Sierras. Adverse economic conditions in any of these areas can reduce our rate of growth, affect our customers’ ability to repay loans and adversely impact our financial condition and earnings. General economic conditions, including inflation, unemployment and money supply fluctuations, also may affect our profitability adversely.
Our primary market area is concentrated in the Central Valley and the Eastern Sierras. Adverse economic conditions in any of these areas can reduce our rate of growth, affect our customers’ ability to repay loans and adversely impact our financial condition and earnings.
Like other lenders, we use credit bureau data in their underwriting activities. Use of such data is regulated under the Fair Credit Reporting Act (“FCRA”), and the FCRA also regulates reporting information to credit bureaus, prescreening individuals for credit offers, sharing of information between affiliates and using affiliate data for marketing purposes.
Use of such data is regulated under the Fair Credit Reporting Act (“FCRA”), and the FCRA also regulates reporting information to credit bureaus, prescreening individuals for credit offers, sharing of information between affiliates and using affiliate data for marketing purposes.
A successful challenge to our performance under the fair lending laws and regulations could adversely impact our rating under the CRA and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations. 29 Table of Contents Non-compliance with the USA Patriot Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions or operating restrictions.
A successful challenge to our performance under the fair lending laws and regulations could adversely impact our rating under the CRA and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations.
Additionally, commercial real estate loans generally have relatively large balances to single borrowers or groups of related borrowers. Accordingly, if we make any errors in judgment in the collectability of our commercial real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.
Accordingly, if we make any errors in judgment in the collectability of our commercial real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.
These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose increased capital requirements and restrictions on a bank’s operations, to reclassify assets, to determine the adequacy of a bank’s allowance for credit losses and to set the level of deposit insurance premiums assessed. 28 Table of Contents Congress, state legislatures and federal and state agencies continually review banking, lending and other laws, regulations and policies for possible changes.
These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose increased capital requirements and restrictions on a bank’s operations, to reclassify assets, to determine the adequacy of a bank’s allowance for credit losses and to set the level of deposit insurance premiums assessed.
The trading market for our common stock may be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have control over these analysts.
If securities or industry analysts do not publish research or reports about our business, or if they publish negative reports about our business, our stock price and trading volume could decline. The trading market for our common stock may be influenced by the research and reports that securities or industry analysts publish about us or our business.
These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. In addition, legal requirements relating to the collection, storage, handling, use, disclosure, transfer, and security of personal data continue to increase, along with enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations.
In addition, legal requirements relating to the collection, storage, handling, use, disclosure, transfer, and security of personal data continue to increase, along with enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations.
A deterioration in economic conditions in the market areas we serve could result in the following consequences, any of which could have a material adverse effect on our business, financial condition and results of operations: • Demand for our products and services may decline; • Loan delinquencies, problem assets and foreclosures may increase; • Collateral for our loans may further decline in value; and • The amount of our low cost or noninterest-bearing deposits may decrease. 20 Table of Contents We cannot accurately predict the possibility of weakness in the national or local economy effecting our future operating results.
A deterioration in economic conditions in the market areas we serve could result in the following consequences, any of which could have a material adverse effect on our business, financial condition and results of operations: ● Demand for our products and services may decline; ● Loan delinquencies, problem assets and foreclosures may increase; ● Collateral for our loans may further decline in value; ● Net interest income may decline; and ● The amount of our low cost or noninterest-bearing deposits may decrease. 22 Table of Contents In addition, any sudden or prolonged market downturn, as a result of the above factors or otherwise, could adversely affect our results of operations and financial condition, including capital and liquidity levels.
Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and the tax basis of assets and liabilities computed using enacted tax rates.
The Company has a deferred tax asset and cannot assure that it will be fully realized. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and the tax basis of assets and liabilities computed using enacted tax rates.
Any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or growth prospects. Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things.
Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things.
Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation, that applies to us or additional deposit insurance premiums could have a material adverse impact on our operations. Because our business is highly regulated, the laws and applicable regulations are subject to frequent change.
Congress, state legislatures and federal and state agencies continually review banking, lending and other laws, regulations and policies for possible changes. Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation, that applies to us or additional deposit insurance premiums could have a material adverse impact on our operations.
In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations could adversely affect the market price of our common stock.
The trading price of our common stock may fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies.
If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline. 34 Table of Contents The price of our common stock may fluctuate significantly, and this may make it difficult for you to sell shares of common stock owned by you at times or at prices you find attractive.
The Dodd-Frank Act and supporting regulations could have a material adverse effect on us. The Dodd-Frank Act provides for various capital requirements and new restrictions on financial institutions and their holding companies. These changes may result in additional restrictions on investments and other activities.
The Dodd-Frank Act provides for various capital requirements and new restrictions on financial institutions and their holding companies. These changes may result in additional restrictions on investments and other activities. Regulations under the Dodd-Frank Act significantly impact our operations, and we expect to continue to face increased regulation.
The failures of Silicon Valley Bank and Signature Bank in March 2023, followed by the failure of First Republic Bank in May 2023, have caused significant market volatility, regulatory uncertainty, and decreased confidence in the U.S. banking system.
Recent bank failures have caused significant market volatility, regulatory uncertainty, and decreased confidence in the U.S. banking system.
For example, if the cash flow from the borrower’s project is reduced as a result of leases not being obtained or renewed in a timely manner or at all, the borrower’s ability to repay the loan may be impaired.
For example, if the cash flow from the borrower’s project is reduced as a result of leases not being obtained or renewed in a timely manner or at all, the borrower’s ability to repay the loan may be impaired. 25 Table of Contents Commercial real estate loans also expose us to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be sold as easily as residential real estate.
Any reforms, if adopted, could have a significant impact on banks and bank holding companies. The premiums of the FDIC’s deposit insurance program are expected to increase, and banking regulators have signaled further review of regulatory requirements and the potential for changes to laws or regulations governing banks and bank holding companies.
Banking regulators have also signaled further review of regulatory requirements and the potential for changes to laws or regulations governing banks and bank holding companies.
The occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability.
We may be required to expend significant additional resources to continue to modify or enhance our information security infrastructure or to investigate and remediate any information security vulnerabilities in response to continuing information systems security threats. 29 Table of Contents The occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability.
Although we have entered into employment agreements with members of our senior management team, no assurance can be given that these individuals will continue to be employed by us.
We do not have any employment agreements with members of our senior management team that require them to continue to work for us for any specified period and they could terminate their employment with us at any time. Therefore, no assurance can be given that these individuals will continue to be employed by us.
Because we meet the thresholds set forth in the CCPA and the CPRA, we will be required to comply with these laws. We will continue to monitor developments related to the CCPA and the CPRA. The full impact of the CCPA and the CPRA on our business is yet to be determined.
Because we meet the thresholds set forth in or else are a covered entity under the CCPA, CPRA and CIRCIA, we will be required to comply with these laws. We will continue to monitor developments related to the CCPA, CPRA, CIRCIA and the enactment and implementation of new state laws.
A control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable assurance that the objectives of the control system will be met. 31 Table of Contents If securities or industry analysts do not publish research or reports about our business, or if they publish negative reports about our business, our stock price and trading volume could decline.
A control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable assurance that the objectives of the control system will be met.
Further, the new California Privacy Rights Act (“CPRA”) which was passed in November 2020, significantly modifies the CCPA. These modifications may result in additional uncertainty and require us to incur additional costs and expenses in our effort to comply.
Further, the new California Privacy Rights Act (“CPRA”) which was passed in November 2020, significantly modifies the CCPA.
The USA Patriot Act and Bank Secrecy Act require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network.
If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts.
Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment. 23 Table of Contents If we foreclose on a commercial real estate loan, our holding period for the collateral typically is longer than for residential mortgage loans because there are fewer potential purchasers of the collateral.
If we foreclose on a commercial real estate loan, our holding period for the collateral typically is longer than for residential mortgage loans because there are fewer potential purchasers of the collateral. Additionally, commercial real estate loans generally have relatively large balances to single borrowers or groups of related borrowers.
For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership.
Since 2023, several financial services institutions failed or required outside liquidity support, in many cases, as a result of the inability of the institutions to obtain needed liquidity. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver.
Threats to information security also exist in the processing of customer information through various other vendors and their personnel. We may be required to expend significant additional resources to continue to modify or enhance our information security infrastructure or to investigate and remediate any information security vulnerabilities in response to continuing information systems security threats.
Threats to information security also exist in the processing of customer information through various other vendors and their personnel.
Ratings agencies have also reacted to recent events by issuing updated ratings and assessments. On April 21, 2023, Moody’s lowered the macro profile of the U.S. banking system reflecting general concern around the banking industry as a whole.
Ratings agencies have also reacted to recent events by issuing updated ratings and assessments. In 2024, Moody’s changed the global outlook for banks to stable from negative, but has downgraded the ratings of several large U.S. banks.
Removed
Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC indicated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, it is not certain that the Federal Reserve or FDIC will treat future bank failures similarly.
Added
General economic conditions, including inflation, unemployment, consumer spending, wage stagnation, federal shutdowns and money supply fluctuations, also may affect our profitability adversely.
Removed
Hence, borrowers under credit agreements, letters of credit and certain other financial instruments with any financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder.
Added
Elevated inflation and interest rate levels, changes in trade policy, including the implementation of tariffs, monetary tightening by central banks, and geopolitical developments, including the Russia/Ukraine conflict and the conflicts in the Middle East, have adversely impacted and could continue to adversely impact financial markets and macroeconomic conditions, as well as result in additional market volatility and disruptions and recessionary risk.
Removed
In addition, if any of our customers, suppliers or other parties with whom we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected.
Added
This has led to additional risk for other financial services institutions and the financial services industry generally as a result of increased lack of confidence in the financial sector.
Removed
Regulations under the Dodd-Frank Act significantly impact our operations, and we expect to continue to face increased regulation.
Added
The failure of other banks and financial institutions and the measures taken by governments, businesses and other organizations in response to these events could adversely impact our business, financial condition and results of operations.
Removed
The short-term and long-term impact of the changing regulatory capital requirements and new capital rules is uncertain.
Added
Any reforms, if adopted, could have a significant impact on banks and bank holding companies. The premiums of the FDIC’s deposit insurance program are expected to increase and a special assessment was imposed to recover losses to the Deposit Insurance Fund, following the failure of Silicon Valley Bank.
Removed
The price of our common stock may fluctuate significantly, and this may make it difficult for you to sell shares of common stock owned by you at times or at prices you find attractive. The trading price of our common stock may fluctuate widely as a result of a number of factors, many of which are outside our control.
Added
In addition, if the rules and proposals under CIRCIA are adopted as anticipated, financial services companies will be required to report significant cyber incidents to the CISA within 72 hours from the time the company reasonably believes the incident occurred (and within 24 hours of making a ransom payment as a result of a ransomware attack).
Added
Finally, several states have passed, implemented or enacted new cybersecurity and data privacy laws. These modifications may result in additional uncertainty and require us to incur additional costs and expenses in our effort to comply.
Added
The full impact of the CCPA, CPRA, CIRCIA and newly enacted state laws on our business is yet to be determined. Like other lenders, we use credit bureau data in their underwriting activities.
Added
Because our business is highly regulated, the laws and applicable regulations are subject to frequent change. Any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or growth prospects.
Added
In addition, we expect the Trump administration will seek to implement a regulatory reform agenda that is significantly different than that of the Biden administration, thereby impacting the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies.
Added
Our results of operations could be adversely affected by changes in laws and regulations and in the way existing statutes and regulations are interpreted or applied by courts and government agencies. The Dodd-Frank Act and supporting regulations could have a material adverse effect on us.
Added
Non-compliance with the USA Patriot Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions or operating restrictions. The USA Patriot Act and Bank Secrecy Act require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities.
Added
These broad market fluctuations could adversely affect the market price of our common stock.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

1 edited+1 added−0 removed17 unchanged
Biggest changeThe Incident Response Plan is tested annually and includes technical and executive management in simulated crisis management cybersecurity tabletop exercises. 33 Table of Contents As of the date of this report, other than the risks discussed in “Risk Factors,” the Company knows of no risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition.
Biggest changeAs of the date of this report, other than the risks discussed in “Risk Factors,” the Company knows of no risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition. 36 Table of Contents
Added
The Incident Response Plan is tested annually and includes technical and executive management in simulated crisis management cybersecurity tabletop exercises.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed12 unchanged
Biggest changeShareholders are entitled to receive dividends only when and if dividends are declared by our Board of Directors. Although we have paid dividends in the past, it is no guarantee that we will pay cash dividends in the future.
Biggest changeShareholders are entitled to receive dividends only when and if dividends are declared by our Board of Directors. Although we have paid dividends in the past and anticipate paying comparable dividends in the future, there is no guarantee that we will pay cash dividends in the future.
Share Repurchases The Company has no repurchase plans or programs with respect to its common stock or equity securities in place and therefore there were no repurchased shares during the quarter ended December 31, 2023.
Share Repurchases The Company has no repurchase plans or programs with respect to its common stock or equity securities in place and therefore there were no repurchased shares during the quarter ended December 31, 2024.
Trading Symbol and Holders of Common Stock Our common stock is traded on the Nasdaq Capital Market under the symbol “OVLY.” On February 29, 2024, there were approximately 360 shareholders of record of the common stock and 8,359,556 outstanding shares of common stock.
Trading Symbol and Holders of Common Stock Our common stock is traded on the Nasdaq Capital Market under the symbol “OVLY.” On March 18, 2025, there were approximately 349 shareholders of record of the common stock and 8,382,062 outstanding shares of common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTreasury Constant Maturity Rates and have provisions to reset five years after their origination dates. 46 Table of Contents The following table summarizes our commercial real estate loan portfolio by the geographic location in which the property is located as of December 31, 2023 and 2022: (Dollars in Thousands) December 31, 2023 December 31, 2022 Commercial real estate loans by geographic location (County) Amount % of Commercial Real Estate Loans Amount % of Commercial Real Estate Loans Stanislaus $ 209,505 23.4 % $ 202,239 25.5 % San Joaquin 180,408 20.2 % 177,455 22.4 % Sacramento 107,270 12.0 % 83,116 10.5 % Fresno 64,578 7.2 % 54,747 6.9 % Tuolumne 32,950 3.7 % 33,563 4.2 % Shasta 27,979 3.1 % 19,547 2.5 % Merced 26,620 3.0 % 29,211 3.7 % Marin 20,703 2.3 % 11,175 1.4 % Yolo 19,091 2.1 % 11,911 1.5 % Solano 17,942 2.0 % 12,217 1.5 % Sonoma 14,102 1.6 % 12,792 1.6 % Contra Costa 13,941 1.6 % 12,044 1.5 % Alameda 13,675 1.5 % 13,307 1.7 % Sutter 12,758 1.4 % 8,537 1.1 % Placer 11,804 1.3 % 9,979 1.3 % Tulare 10,037 1.1 % 3,394 0.4 % San Diego 9,180 1.0 % 9,905 1.3 % Santa Clara 8,833 1.0 % 5,642 0.7 % Other 92,376 10.5 % 81,845 10.3 % Total $ 893,752 100.0 % $ 792,626 100.0 % 47 Table of Contents Construction and land loans are classified as commercial real estate loans and increased $18.6 million in 2023 as compared to 2022.
Biggest changeThe following table summarizes our commercial real estate loan portfolio by the geographic location in which the property is located as of December 31, 2024 and 2023: (Dollars in Thousands) December 31, 2024 December 31, 2023 Commercial real estate loans by geographic location (County) Amount % of Commercial Real Estate Loans Amount % of Commercial Real Estate Loans Stanislaus $ 209,459 21.8 % $ 209,505 23.4 % San Joaquin 174,615 18.2 % 180,408 20.2 % Sacramento 130,976 13.6 % 107,270 12.0 % Fresno 73,123 7.6 % 64,578 7.2 % Tuolumne 34,852 3.6 % 32,950 3.7 % Merced 28,349 3.0 % 26,620 3.0 % Shasta 28,066 2.9 % 27,979 3.1 % Contra Costa 23,019 2.4 % 13,941 1.6 % Yolo 21,752 2.3 % 19,091 2.1 % Marin 20,454 2.1 % 20,703 2.3 % Solano 18,515 1.9 % 17,942 2.0 % Placer 17,066 1.8 % 11,804 1.3 % Alameda 15,130 1.6 % 13,675 1.5 % Sutter 15,109 1.6 % 12,758 1.4 % Santa Clara 13,961 1.5 % 8,833 1.0 % Sonoma 13,506 1.4 % 14,102 1.6 % Tulare 12,732 1.3 % 10,037 1.1 % Inyo 8,443 0.9 % 5,218 0.6 % San Diego 8,427 0.9 % 9,180 1.0 % Other 92,104 9.6 % 87,158 9.8 % Total $ 959,658 100.0 % $ 893,752 100.0 % 49 Table of Contents 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.
Those factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the Federal Reserve Board. 39 Table of Contents For a detailed analysis of interest income and interest expense, see the “Average Balance Sheets” and the “Rate/Volume Analysis” below.
Those factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the Federal Reserve Board. 41 Table of Contents For a detailed analysis of interest income and interest expense, see the “Average Balance Sheets” and the “Rate/Volume Analysis” below.
We currently maintain eighteen full-service offices. We intend to continue our growth strategy in future years through the opening of additional branches and loan production offices as our needs and resources permit. 2024 Outlook As we begin our strategic business plan for 2024, we remained focused on relationship-based expansion throughout our market area.
We currently maintain eighteen full-service offices. We intend to continue our growth strategy in future years through the opening of additional branches and loan production offices as our needs and resources permit. 2025 Outlook As we begin our strategic business plan for 2025, we remained focused on relationship-based expansion throughout our market area.
Additional sources of liquidity may include institutional deposits, advances from the FHLB and other short-term borrowings, such as federal funds purchased. Since our deposit growth strategy emphasizes core deposit growth, we have avoided relying on brokered deposits as a consistent source of funds. The Company had no brokered deposits as of December 31, 2023 and 2022.
Additional sources of liquidity may include institutional deposits, advances from the FHLB and other short-term borrowings, such as federal funds purchased. Since our deposit growth strategy emphasizes core deposit growth, we have avoided relying on brokered deposits as a consistent source of funds. The Company had no brokered deposits as of December 31, 2024 and 2023.
FHLB Borrowings Although deposits are the primary source of funds for our lending and investment activities and for general business purposes, we may obtain advances from the FHLB as an alternative to retail deposit funds. We had no outstanding balances as of December 31, 2023 and 2022. The average balance of FHLB advances outstanding in 2023 and 2022 was $0.
FHLB Borrowings Although deposits are the primary source of funds for our lending and investment activities and for general business purposes, we may obtain advances from the FHLB as an alternative to retail deposit funds. We had no outstanding balances as of December 31, 2024 and 2023. The average balance of FHLB advances outstanding in 2024 and 2023 was $0.
In addition, the Company had lines of credit with its correspondent banks to purchase overnight federal funds totaling $70 million at December 31, 2023 and 2022. No advances were made on these lines of credit as of December 31, 2023 and 2022. The Company’s liquidity depends primarily on dividends paid to it as the sole shareholder of the Bank.
In addition, the Company had lines of credit with its correspondent banks to purchase overnight federal funds totaling $70 million at December 31, 2024 and 2023. No advances were made on these lines of credit as of December 31, 2024 and 2023. The Company’s liquidity depends primarily on dividends paid to it as the sole shareholder of the Bank.
LGD utilized in the DCF is derived from the application of models that correlate LGD and PD based on historical peer data. 50 Table of Contents Management recognizes that there are additional factors impacting risk of loss in the loan portfolio beyond what is captured in the quantitative portion of collectively evaluated reserves.
LGD utilized in the DCF is derived from the application of models that correlate LGD and PD based on historical peer data. 52 Table of Contents Management recognizes that there are additional factors impacting risk of loss in the loan portfolio beyond what is captured in the quantitative portion of collectively evaluated reserves.
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of financial condition as of December 31, 2023 and 2022 and results of operations for each of the years in the two-year period ended December 31, 2022 should be read in conjunction with our consolidated financial statements and related notes thereto, included in this report.
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of financial condition as of December 31, 2024 and 2023 and results of operations for each of the years in the two-year period ended December 31, 2024 should be read in conjunction with our consolidated financial statements and related notes thereto, included in this report.
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.
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.
For LIHTC investments, we receive the return in the form of tax credits and tax deductions over a period of approximately 15 years. 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.
For LIHTC investments, we receive the return in the form of tax credits and tax deductions over a period of approximately 15 years. 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 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.
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.
(See “Description of Business-Regulation and Supervision-Capital Adequacy Requirements” in this report for exact definitions and regulatory capital requirements.) As of December 31, 2023, we were qualified as a “well capitalized institution” under the regulatory framework for prompt corrective action.
(See “Description of Business-Regulation and Supervision-Capital Adequacy Requirements” in this report for exact definitions and regulatory capital requirements.) As of December 31, 2024, we were qualified as a “well capitalized institution” under the regulatory framework for prompt corrective action.
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. 41 Table of Contents Rate/Volume Analysis The following table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated.
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. 43 Table of Contents Rate/Volume Analysis The following table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated.
For more information on our capital resources and capital adequacy requirements, see Note 19 to the Consolidated Financial Statements in Item 8 of this report. 56 Table of Contents
For more information on our capital resources and capital adequacy requirements, see Note 19 to the Consolidated Financial Statements in Item 8 of this report. 58 Table of Contents
For 2024, management remains focused on the above challenges and opportunities and other factors affecting the business similar to the factors driving the 2023 results as discussed in this section.
For 2025, management remains focused on the above challenges and opportunities and other factors affecting the business similar to the factors driving the 2024 results as discussed in this section.
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. 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.
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. 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.
The FHLB determines limitations on the amounts of advances by assigning a percentage to each eligible loan category that will count towards the borrowing capacity. As of December 31, 2023 and 2022, the Company had no FHLB advances outstanding and had sufficient collateral to borrow an additional $333.1 million and $322.4 million, respectively.
The FHLB determines limitations on the amounts of advances by assigning a percentage to each eligible loan category that will count towards the borrowing capacity. As of December 31, 2024 and 2023, the Company had no FHLB advances outstanding and had sufficient collateral to borrow an additional $364.4 million and $333.1 million, respectively.
Cash Equivalents and Interest-bearing Deposits in other Financial Institutions 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.
Cash Equivalents and Interest-bearing Deposits in other Financial Institutions 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.
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.
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.
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.
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.
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.
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.
Although management has allocated a portion of the allowance to specific loan categories, the adequacy of the allowance is considered in its entirety. 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.
Although management has allocated a portion of the allowance to specific loan categories, the adequacy of the allowance is considered in its entirety. 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.
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.
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.
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.
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.
Also, retained earnings was reduced by the common stock dividend payments totaling $2.6 million during 2023. As of December 31, 2023, we had no material commitments for capital expenditures. We are subject to various regulatory capital requirements administered by federal banking agencies.
Also, retained earnings was reduced by the common stock dividend payments totaling $3.7 million during 2024. As of December 31, 2024, we had no material commitments for capital expenditures. We are subject to various regulatory capital requirements administered by federal banking agencies.
As of December 31, 2023 and 2022, our aggregate payment obligations under this plan totaled $11.4 million and $11.3 million, respectively 54 Table of Contents Liquidity and Asset/Liability Management Management seeks to ascertain optimum and stable utilization of available assets and liabilities as a vehicle to attain our overall business plans and objectives.
As of December 31, 2024 and 2023, our aggregate payment obligations under this plan totaled $14.1 million and $11.4 million, respectively. 56 Table of Contents Liquidity and Asset/Liability Management Management seeks to ascertain optimum and stable utilization of available assets and liabilities as a vehicle to attain our overall business plans and objectives.
For this purpose, we maintain a portion of our funds in cash and cash equivalents, loans and securities available for sale. Our liquid assets at December 31, 2023 and 2022 totaled approximately $489.0 million and $754.9 million, respectively.
For this purpose, we maintain a portion of our funds in cash and cash equivalents, loans and securities available for sale. Our liquid assets at December 31, 2024 and 2023 totaled approximately $431.8 million and $489.0 million, respectively.
Currently, all of our investment securities are classified as available-for-sale, except for one mutual fund classified as an equity security. 45 Table of Contents The fair value of the equity security was $3,132,000 and $2,990,000 at December 31, 2023 and December 31, 2022, respectively.
Currently, all of our investment securities are classified as available-for-sale, except for one mutual fund classified as an equity security. 47 Table of Contents 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 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.
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.
During 2023, the Company recognized net loan recoveries of $112,000 as compared to $80,000 in 2022. Management reviews these conditions with our senior credit officers.
During 2024, the Company recognized net loan recoveries of $2,184,000 as compared to $112,000 in 2023. Management reviews these conditions with our senior credit officers.
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. Over the past several years, our network of branches and loan production offices have expanded geographically.
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. Over the past several years, our network of branches and loan production offices have expanded geographically.
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.
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.
However, management remains committed to cost-control and efficiency, and we expect to keep these increases to a minimum relative to growth. 44 Table of Contents Provision for Income Taxes We reported a provision for income taxes of $9,458,000 and $6,787,000 for the years 2023 and 2022, respectively.
However, management remains committed to cost-control and efficiency, and we expect to keep these increases to a minimum relative to growth. 46 Table of Contents Provision for Income Taxes We reported a provision for income taxes of $7,244,000 and $9,458,000 for the years 2024 and 2023, respectively.
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.
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.
As a result of management’s analysis, a range of the potential amount of the allowance for credit losses is determined. 42 Table of Contents 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.
As a result of management’s analysis, a range of the potential amount of the allowance for credit losses is determined. 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 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.
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.
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.
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.
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.
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 majority of the Company's noninterest expenses are operating costs that relate to providing a full range of banking services to our customers. Overview 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 majority of the Company's noninterest expenses are operating costs that relate to providing a full range of banking services to our customers. 40 Table of Contents Overview 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.
Our liquidity level measured as the percentage of liquid assets to total assets was 26.5% and 38.4% as of December 31, 2023, and 2022, respectively.
Our liquidity level measured as the percentage of liquid assets to total assets was 22.7% and 26.5% as of December 31, 2024, and 2023, respectively.
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.
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.
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%.
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.
Furthermore, consumer loan accounts are charged-off automatically based on regulatory requirements. 51 Table of Contents The table below summarizes, for the periods indicated, loan balances at the end of each period, the daily averages during the period, changes in the allowance for credit losses arising from loans charged off, recoveries on loans previously charged off, additions to the allowance and certain ratios related to the allowance for credit losses: Allowance for Credit Losses December 31, December 31, (Dollars in thousands) 2023 2022 Balances: Average total loans outstanding during period $ 949,429 $ 888,135 Total loans outstanding at end of period $ 1,016,579 $ 915,758 Net loan recoveries $ 112 $ 80 Provision for (Reversal of) credit losses $ 970 $ (1,350 ) Allowance for credit losses at end of period $ 10,896 $ 9,468 Ratios: Net loan recoveries to average total loans 0.01 % 0.01 % Allowance for credit losses to total loans at end of period 1.07 % 1.03 % Nonperforming loans as a percentage of total loans 0.00 % 0.00 % Allowance for credit losses as a percentage of nonperforming loans NA NA The table below summarizes the allowance for credit loss balance by type of loan balance at the end of each period (See “Loan Portfolio” above for a description of each type of loan balance): Allocation of the Allowance for Credit Losses (Dollars in thousands) December 31, 2023 December 31, 2022 Amount % of Allowance for Loan Losses Amount % of Allowance for Loan Losses Applicable to: Commercial real estate Construction & land $ 1,227 11.3 % $ 1,055 11.1 % Multi-family 667 6.1 % 479 5.1 % Owner occupied 1,805 16.6 % 1,798 19.0 % Non-owner occupied 4,805 44.0 % 4,211 44.4 % Farmland 1,468 13.5 % 830 8.8 % Commercial and Industrial 650 6.0 % 612 6.5 % Consumer 227 2.1 % 311 3.3 % Agriculture 47 0.4 % 172 1.8 % Total Allowance $ 10,896 100.0 % $ 9,468 100.0 % 52 Table of Contents Other Earning Assets For various business purposes, we make investments in earning assets other than the interest-earning securities and loans discussed above.
Furthermore, consumer loan accounts are charged-off automatically based on regulatory requirements. 53 Table of Contents The table below summarizes, for the periods indicated, loan balances at the end of each period, the daily averages during the period, changes in the allowance for credit losses arising from loans charged off, recoveries on loans previously charged off, additions to the allowance and certain ratios related to the allowance for credit losses: Allowance for Credit Losses December 31, December 31, (Dollars in thousands) 2024 2023 Balances: Average total loans outstanding during period $ 1,058,294 $ 949,429 Total loans outstanding at end of period $ 1,106,535 $ 1,016,579 Net loan recoveries $ 2,184 $ 112 (Reversal of) provision for credit losses $ (1,620 ) $ 970 Allowance for credit losses at end of period $ 11,460 $ 10,896 Ratios: Net loan recoveries to average total loans 0.21 % 0.01 % Allowance for loan losses to total loans at end of period 1.04 % 1.07 % Net loan recoveries to allowance for loan losses at end of period 19.06 % 1.03 % Net loan recoveries to (reversal of) provision for loan losses (134.81% ) 11.55 % Nonperforming loans as a percentage of total loans 0.00 % 0.00 % Allowance for loan losses as a percentage of nonperforming loans NA NA The table below summarizes the allowance for credit loss balance by type of loan balance at the end of each period (See “Loan Portfolio” above for a description of each type of loan balance): Allocation of the Allowance for Credit Losses (Dollars in thousands) December 31, 2024 December 31, 2023 Amount % of Allowance for Loan Losses Amount % of Allowance for Loan Losses Applicable to: Commercial real estate Construction & land $ 258 2.3 % $ 1,227 11.3 % Multi-family 737 6.4 % 667 6.1 % Owner occupied 1,503 13.1 % 1,805 16.6 % Non-owner occupied 6,401 55.9 % 4,805 44.0 % Farmland 1,665 14.5 % 1,468 13.5 % Commercial and Industrial 645 5.6 % 650 6.0 % Consumer 175 1.5 % 227 2.1 % Agriculture 76 0.7 % 47 0.4 % Total Allowance $ 11,460 100.0 % $ 10,896 100.0 % 54 Table of Contents Other Earning Assets For various business purposes, we make investments in earning assets other than the interest-earning securities and loans discussed above.
As of December 31, 2023, $288,199,000 of the investment securities were pledged to secure public deposits. 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.
As of December 31, 2024, $305,513,000 of the investment securities were pledged to secure public deposits. 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.
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 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%.
Loans Our residential loan portfolio includes no sub-prime loans, nor is it our normal practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or collateral compositions reflecting high loan-to-value ratios. Substantially all of our residential loans are indexed to U.S.
Securities are reported at the earliest possible call, repricing or maturity date. 48 Table of Contents Loans Our residential loan portfolio includes no sub-prime loans, nor is it our normal practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or collateral compositions reflecting high loan-to-value ratios.
Potentially, the most volatile deposits in a financial institution are jumbo certificates of deposit, meaning time deposits with balances that equal or exceed $250,000, as customers with balances of that magnitude are typically more rate-sensitive than customers with smaller balances. 53 Table of Contents The following tables summarize the distribution of average daily deposits and the average daily rates paid for the periods indicated: Distribution of Average Daily Deposits Average Deposits 2023 2022 Average Average Average Average (Dollars in Thousands) Balance Rate Balance Rate Demand $ 1,146,198 0.12 % $ 1,190,665 0.04 % Money market 374,828 0.72 % 417,896 0.12 % Savings 147,181 0.13 % 167,582 0.05 % Time deposits $250,000 and under 24,172 1.55 % 23,365 0.25 % Time deposits over $250,000 16,443 1.35 % 17,339 0.27 % Total deposits $ 1,708,822 0.28 % $ 1,816,847 0.06 % The scheduled maturities of our time deposits in denominations of more than $250,000 at December 31, 2023 are as follows: Maturities of Time Deposits over $250,000 (Dollars in Thousands) Three months or less $ 5,443 Over three months through six months 3,835 Over six months through twelve months 10,450 Over twelve months 2,395 Total $ 22,123 Because our client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks.
Potentially, the most volatile deposits in a financial institution are jumbo certificates of deposit, meaning time deposits with balances that equal or exceed $250,000, as customers with balances of that magnitude are typically more rate-sensitive than customers with smaller balances. 55 Table of Contents The following tables summarize the distribution of average daily deposits and the average daily rates paid for the periods indicated: Distribution of Average Daily Deposits Average Deposits 2024 2023 Average Average Average Average (Dollars in Thousands) Balance Rate Balance Rate Demand $ 1,068,523 0.23 % $ 1,146,198 0.12 % Money market 383,171 1.99 % 374,828 0.72 % Savings 128,203 0.14 % 147,181 0.13 % Time deposits $250,000 and under 47,311 3.57 % 24,172 1.55 % Time deposits over $250,000 28,837 3.35 % 16,443 1.35 % Total deposits $ 1,656,045 0.78 % $ 1,708,822 0.28 % The scheduled maturities of our time deposits in denominations of more than $250,000 at December 31, 2024 are as follows: Maturities of Time Deposits over $250,000 (Dollars in Thousands) Three months or less $ 17,752 Over three months through six months 10,692 Over six months through twelve months 8,858 Over twelve months 290 Total $ 37,592 Because our client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks.
We believe the following were key indicators of our performance during 2023: ● Total assets decreased to $1.84 billion at the end of 2023, a decrease of 6.4%, from $1.97 billion at the end of 2022. ● Total deposits decreased to $1.65 billion at the end of 2023, a decrease of 9.0%, from $1.81 billion at the end of 2022. ● Total net loans increased to $1.00 billion at the end of 2023, an increase of 11.0%, from $905 million at the end of 2022. ● Net interest income increased to $75.8 million in 2023, an increase of $15.7 million or 26.2%, compared to $60.1 million in 2022, mainly as a result of rising interest rates and growth of our loan portfolio. ● Provisions for credit losses of $970,000 and a reversal of credit loss provisions totaling $1,350,000 were recorded in 2023 and 2022, respectively.
We believe the following were key indicators of our performance during 2024: ● Total assets increased to $1.90 billion at the end of 2024, an increase of 3.2%, from $1.84 billion at the end of 2023. ● Total deposits increased to $1.70 billion at the end of 2024, an increase of 2.7%, from $1.65 billion at the end of 2023. ● Total net loans increased to $1.09 billion at the end of 2024, an increase of 8.9%, from $1.0 billion at the end of 2023. ● Net interest income decreased to $70.0 million in 2024, a decrease of $5.7 million or 7.6%, compared to $75.8 million in 2023, mainly as a result of rising interest rates on deposit accounts. ● A reversal of credit losses provisions totaling $1,620,000 and a provision for credit losses of $970,000 were recorded in 2024 and 2023, respectively.
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.
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.
The first is net interest income, which is interest income generated by earning assets less interest expense on interest-bearing liabilities. The second is noninterest income, which primarily consists of deposit service charges and fees, the increase in cash surrender value of life insurance, investment advisory service fee income and mortgage commissions.
The second is noninterest income, which primarily consists of deposit service charges and fees, the increase in cash surrender value of life insurance, investment advisory service fee income and mortgage commissions.
Some of these included audit expenses, software license fees and ATM processing expenses. 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.
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.
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.
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.
The Company continues to evaluate its deposit product offerings with the intention of continuing to expand its offerings to the consumer and business depositors. 43 Table of Contents Noninterest Expense The following table sets forth a summary of noninterest expenses for the periods indicated: (in thousands) For the Year Ended December 31, 2023 2022 Year-Over-Year Amount % Amount % $ Change % Change Salaries and employee benefits $ 26,109 63.4 % $ 23,045 61.8 % $ 3,064 13.3 % Occupancy expenses 4,541 11.0 % 4,151 11.1 % 390 9.4 % Data processing fees 2,729 6.6 % 2,343 6.3 % 386 16.5 % Regulatory assessments (FDIC & DFPI) 1,020 2.5 % 927 2.5 % 93 10.0 % Other operating expenses 6,758 16.5 % 6,842 18.3 % (84 ) -1.2 % Total non-interest expense $ 41,157 100.0 % $ 37,308 100.0 % $ 3,849 10.3 % Average assets $ 1,879,465 $ 1,962,622 Noninterest expenses as a % of average assets 2.2 % 1.9 % 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.
The Company continues to evaluate its deposit product offerings with the intention of continuing to expand its offerings to the consumer and business depositors. 45 Table of Contents Noninterest Expense The following table sets forth a summary of noninterest expenses for the periods indicated: (in thousands) For the Year Ended December 31, 2024 2023 Year-Over-Year Amount % Amount % $ Change % Change Salaries and employee benefits $ 28,640 62.2 % $ 26,109 63.4 % $ 2,531 9.7 % Occupancy expenses 4,610 10.0 % 4,541 11.0 % 69 1.5 % Data processing fees 2,814 6.1 % 2,729 6.6 % 85 3.1 % Regulatory assessments (FDIC & DFPI) 1,090 2.4 % 1,020 2.5 % 70 6.9 % Other operating expenses 8,863 19.3 % 6,758 16.5 % 2,105 31.1 % Total non-interest expense $ 46,017 100.0 % $ 41,157 100.0 % $ 4,860 11.8 % Average assets $ 1,853,315 $ 1,879,465 Noninterest expenses as a % of average assets 2.5 % 2.2 % 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.
Construction and Land Loans Outstanding by Type and Geographic Location (Dollars in Thousands) December 31, 2023 December 31, 2022 Construction and land loans by type Amount % of Construction and Land Loans Amount % of Construction and Land Loans Single family non-owner-occupied $ 2,707 3.8 % $ 1,679 3.8 % Single family owner-occupied 533 0.8 % 275 0.6 % Commercial non-owner-occupied 40,092 56.4 % 21,984 49.5 % Commercial owner-occupied 7,181 8.8 % 7,946 17.9 % Land non-owner-occupied 12,547 30.2 % 12,539 28.2 % Total $ 63,060 100.0 % $ 44,423 100.0 % Construction and land loans by geographic location (County) Amount % of Construction and Land Loans Amount % of Construction and Land Loans Stanislaus $ 10,665 16.9 % $ 4,818 10.8 % San Joaquin 9,621 15.3 % 11,771 26.5 % Fresno 7,804 12.4 % 7,215 16.2 % Shasta 7,606 12.1 % 4,854 10.9 % Yolo 6,860 10.9 % 1,306 2.9 % Tulare 6,125 9.7 % 962 2.2 % Solano 4,109 6.5 % 49 0.1 % Placer 2,360 3.7 % 1,860 4.2 % Sacramento 2,028 3.2 % 3,929 8.8 % Merced 1,626 2.6 % 4,474 10.1 % Mono 1,469 2.3 % 762 1.7 % Other 2,787 4.4 % 2,423 5.6 % Total $ 63,060 100.0 % $ 44,423 100.0 % 48 Table of Contents Loan Maturities The following table shows the contractual maturity distribution and repricing intervals of the outstanding loans in our portfolio, as of December 31, 2023.
Construction and Land Loans Outstanding by Type and Geographic Location (Dollars in Thousands) December 31, 2024 December 31, 2023 Construction and land loans by type Amount % of Construction and Land Loans Amount % of Construction and Land Loans Single family non-owner-occupied $ 1,613 9.1 % $ 2,707 3.8 % Single family owner-occupied 0 0.0 % 533 0.8 % Commercial non-owner-occupied 9,656 54.2 % 40,092 56.4 % Commercial owner-occupied 923 5.2 % 7,181 8.8 % Land non-owner-occupied 5,620 31.5 % 12,547 30.2 % Total $ 17,812 100.0 % $ 63,060 100.0 % Construction and land loans by geographic location (County) Amount % of Construction and Land Loans Amount % of Construction and Land Loans Stanislaus $ 3,116 17.5 % $ 10,665 16.9 % Santa Clara 2,547 14.3 % 0 0.0 % Placer 2,435 13.7 % 2,360 3.7 % Fresno 2,180 12.2 % 7,804 12.4 % Shasta 2,150 12.1 % 7,606 12.1 % San Joaquin 1,734 9.7 % 9,621 15.3 % Merced 1,478 8.3 % 1,626 2.6 % Contra Costa 989 5.6 % 0 0.0 % Yolo 0 0.0 % 6,860 10.9 % Tulare 0 0.0 % 6,125 9.7 % Solano 0 0.0 % 4,109 6.5 % Sacramento 0 0.0 % 2,028 3.2 % Mono 0 0.0 % 1,469 2.3 % Other 1,183 6.6 % 2,787 4.4 % Total $ 17,812 100.0 % $ 63,060 100.0 % 50 Table of Contents Loan Maturities The following table shows the contractual maturity distribution and repricing intervals of the outstanding loans in our portfolio, as of December 31, 2024.
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.
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.
We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. 55 Table of Contents The following tables summarizes short- and long-term material cash requirements as of December 31, 2023, which we believe that we will be able to fund these obligations through cash generated from our operations and available alternative sources of funds (dollars in thousands): Less than 1 year 1-3 years 3-5 years More than 5 years Total Operating lease obligations $ 1,400 $ 2,279 $ 1,692 $ 2,892 $ 8,263 Supplemental retirement plans 62 220 502 10,665 11,449 Time deposit maturities 49,275 5,967 279 0 55,521 Total $ 50,737 $ 8,466 $ 2,473 $ 13,557 $ 75,233 Capital Resources and Capital Adequacy Requirements In the past two years, our primary source of capital has been internally generated operating income through retained earnings.
We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. 57 Table of Contents The following tables summarizes short- and long-term material cash requirements as of December 31, 2024, which we believe that we will be able to fund these obligations through cash generated from our operations and available alternative sources of funds (dollars in thousands): (in thousands) Less than 1 year 1-3 years 3-5 years More than 5 years Total Operating lease obligations $ 1,490 $ 2,380 $ 2,015 $ 2,110 $ 7,995 Supplemental retirement plans 135 366 527 13,048 14,076 Time deposit maturities 88,814 2,467 114 0 91,395 Total $ 90,439 $ 5,213 $ 2,656 $ 15,158 $ 113,466 Capital Resources and Capital Adequacy Requirements In the past two years, our primary source of capital has been internally generated operating income through retained earnings.
(4) Represents net interest income as a percentage of average interest-earning assets. 40 Table of Contents 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.
(4) Represents net interest income as a percentage of average interest-earning assets. 42 Table of Contents 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.
Nonperforming assets consist of loans on non-accrual status, loans 90 days or more past due and still accruing interest, loans restructured, where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal and OREO.
Nonperforming assets consist of loans on non-accrual status, loans 90 days or more past due and still accruing interest, loans restructured, where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal and OREO. 51 Table of Contents Loans are generally placed on non-accrual status when they become 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection.
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. 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.
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. 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.
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%.
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%.
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. There were no short-term borrowing or long-term debt outstanding balances at December 31, 2023 and 2022.
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. There were no short-term borrowing or long-term debt outstanding balances at December 31, 2024 and 2023.
Investment Activities Investments are a key source of interest income. Management of our investment portfolio is set in accordance with strategies developed and overseen by our Investment Committee. Investment balances, including cash equivalents and interest-bearing deposits in other financial institutions, are subject to change over time based on our asset/liability funding needs and interest rate risk management objectives.
Investment balances, including cash equivalents and interest-bearing deposits in other financial institutions, are subject to change over time based on our asset/liability funding needs and interest rate risk management objectives.
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.
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.
Allowance for credit losses In anticipation of credit risk inherent in our lending business, we set aside allowances through charges to earnings. Such charges are not only made for the outstanding loan portfolio, but also for off-balance sheet items, such as commitments to extend credits or letters of credit.
Such charges are not only made for the outstanding loan portfolio, but also for off-balance sheet items, such as commitments to extend credits or letters of credit.
Because of uncertainties inherent in estimating the appropriate level of the allowance for credit losses, actual results may differ from management’s estimate of credit losses and the related allowance.
The Company will continue to monitor the adequacy of the allowance for credit losses and make additions to the allowance in accordance with the analysis referred to above. Because of uncertainties inherent in estimating the appropriate level of the allowance for credit losses, actual results may differ from management’s estimate of credit losses and the related allowance.
At December 31, 2023, total shareholders’ equity increased to $166.1 million, representing an increase of $39.5 million from December 31, 2022.
At December 31, 2024, total shareholders’ equity increased to $183.4 million, representing an increase of $17.4 million from December 31, 2023.
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. 38 Table of Contents Highlights of the financial results are presented in the following table: As of and for the years ended December 31, (Dollars in thousands, except per share data) 2023 2022 For the period: Net income available to common shareholders $ 30,848 $ 22,902 Net income per common share: Basic $ 3.76 $ 2.80 Diluted $ 3.75 $ 2.79 Return on average common equity 21.87 % 18.21 % Return on average assets 1.64 % 1.17 % Common stock dividend payout ratio of earnings during the period 8.53 % 10.75 % Efficiency ratio 48.81 % 54.29 % At period end: Book value per common share $ 20.03 $ 15.33 Total assets $ 1,842,422 $ 1,968,346 Total gross loans $ 1,016,579 $ 915,758 Total deposits $ 1,650,534 $ 1,814,297 Net loan-to-deposit ratio 60.85 % 49.88 % Net Interest Income and Net Interest Margin Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets and interest paid on liabilities obtained to fund those assets.
Highlights of the financial results are presented in the following table: As of and for the years ended December 31, (Dollars in thousands, except per share data) 2024 2023 For the period: Net income available to common shareholders $ 24,948 $ 30,848 Net income per common share: Basic $ 3.04 $ 3.76 Diluted $ 3.02 $ 3.75 Return on average common equity 14.39 % 21.87 % Return on average assets 1.35 % 1.64 % Common stock dividend payout ratio of earnings during the period 14.90 % 8.53 % Efficiency ratio 60.08 % 49.93 % At period end: Book value per common share $ 21.95 $ 20.03 Total assets $ 1,900,604 $ 1,842,422 Total gross loans $ 1,106,535 $ 1,016,579 Total deposits $ 1,695,690 $ 1,650,534 Net loan-to-deposit ratio 64.49 % 60.85 % Net Interest Income and Net Interest Margin Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets and interest paid on liabilities obtained to fund those assets.
Noninterest Income The following table sets forth a summary of noninterest income for the periods indicated: (in thousands) For the Year Ended December 31, 2023 2022 Year-Over-Year Amount % Amount % $ Change % Change Service charges on deposits $ 1,813 27.3 % $ 1,596 28.6 % $ 217 13.6 % Debit card transaction fee income 1,773 26.7 % 1,734 31.1 % 39 2.2 % Earnings on cash surrender value of life insurance 788 11.9 % 749 13.4 % 39 5.2 % Mortgage commissions 20 0.3 % 73 1.3 % (53 ) -72.6 % Gain on sales and calls of available-for-sale securities 156 2.4 % 0 0.0 % 156 0.0 % Other income 2,081 31.4 % 1,419 25.6 % 662 46.7 % Total non-interest income $ 6,631 100.0 % $ 5,571 100.0 % $ 1,060 19.0 % Average assets $ 1,879,465 1,962,622 Noninterest expenses as a % of average assets 0.4 % 0.3 % Noninterest income was $6,631,000 for the year ended December 31, 2023, compared to $5,571,000 for the year 2022.
Noninterest Income The following table sets forth a summary of noninterest income for the periods indicated: (in thousands) For the Year Ended December 31, 2024 2023 Year-Over-Year Amount % Amount % $ Change % Change Service charges on deposits $ 1,682 25.7 % $ 1,813 27.3 % $ (131 ) -7.2 % Debit card transaction fee income 1,738 26.5 % 1,773 26.7 % (35 ) -2.0 % Earnings on cash surrender value of life insurance 1,052 16.0 % 788 11.9 % 264 33.5 % Mortgage commissions 31 0.5 % 20 0.3 % 11 55.0 % Gain on sale of other real estate owned 114 1.7 % 156 2.4 % (42 ) -26.9 % Other income 1,938 29.6 % 2,081 31.4 % (143 ) -6.9 % Total non-interest income $ 6,555 100.0 % $ 6,631 100.0 % $ (76 ) -1.1 % Average assets $ 1,853,315 1,879,465 Noninterest expenses as a % of average assets 0.4 % 0.4 % Noninterest income was $6,555,000 for the year ended December 31, 2024, compared to $6,631,000 for the year 2023.
Rate/Volume Analysis of Net Interest Income For the Year Ended December 31, For the Year Ended December 31, (Dollars in Thousands) 2023 vs. 2022 2022 vs. 2021 Increases (Decreases) Increases (Decreases) Due to Change In Due to Change In Volume Rate Total Volume Rate Total Interest income: Net loans (1) $ 2,690 $ 3,192 $ 5,882 $ (2,616 ) $ (2,264 ) $ (4,880 ) Securities - tax exempt 1,290 830 2,120 5,135 630 5,765 Securities - taxable 1,507 3,108 4,615 1,839 2,343 4,182 Federal funds sold 94 905 999 (12 ) 391 379 Interest-earning deposits (3,444 ) 9,607 6,163 80 7,057 7,137 Total interest income 2,137 17,642 19,779 4,426 8,157 12,583 Interest expense: Interest-Earning DDA $ 11 $ 895 $ 906 $ 110 $ (69 ) $ 41 Money market deposits (50 ) 2,280 2,230 63 41 104 Savings deposits (10 ) 125 115 13 0 13 Time deposits $250,000 and under 2 315 317 4 (7 ) (3 ) Time deposits over $250,000 (2 ) 178 176 1 (8 ) (7 ) Borrowed funds 0 1 1 0 0 0 Total interest expense (49 ) 3,794 3,745 191 (43 ) 148 Change in net interest income $ 2,186 $ 13,848 $ 16,034 $ 4,235 $ 8,200 $ 12,435 (1) Loan fees have been included in the calculation of interest income.
For the Year Ended December 31, For the Year Ended December 31, (Dollars in Thousands) 2024 vs. 2023 2023 vs. 2022 Increases (Decreases) Increases (Decreases) Due to Change In Due to Change In Volume Rate Total Volume Rate Total Interest income: Net loans (1) $ 5,143 $ 3,486 $ 8,629 $ 2,690 $ 3,192 $ 5,882 Securities - tax exempt (865 ) (332 ) (1,197 ) 1,290 830 2,120 Securities - taxable 360 447 807 1,507 3,108 4,615 Federal funds sold 110 23 133 94 905 999 Interest-earning deposits (6,854 ) 201 (6,653 ) (3,444 ) 9,607 6,163 Total interest income (2,106 ) 3,825 1,719 2,137 17,642 19,779 Interest expense: Interest-earning DDA $ (25 ) $ 1,081 $ 1,056 $ 11 $ 895 $ 906 Money market deposits 60 4,845 4,905 (50 ) 2,280 2,230 Savings deposits (25 ) 3 (22 ) (10 ) 125 115 Time deposits $250,000 and under 359 956 1,315 2 315 317 Time deposits over $250,000 167 577 744 (2 ) 178 176 Borrowed funds (1 ) 0 (1 ) 0 1 1 Total interest expense 535 7,462 7,997 (49 ) 3,794 3,745 Change in net interest income $ (2,641 ) $ (3,637 ) $ (6,278 ) $ 2,186 $ 13,848 $ 16,034 (1) Loan fees have been included in the calculation of interest income.
Loans may be restructured by management when a borrower has experienced some changes in financial status, causing an inability to meet the original repayment terms, and where we believe the borrower will eventually overcome those circumstances and repay the loan in full. OREO consists of properties acquired by foreclosure or similar means and which management intends to offer for sale.
The past due loans may or may not be adequately collateralized, but collection efforts are continuously pursued. Loans may be restructured by management when a borrower has experienced some changes in financial status, causing an inability to meet the original repayment terms, and where we believe the borrower will eventually overcome those circumstances and repay the loan in full.
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. Deposits are the Company’s primary source of funds.
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.
The yields are calculated using a weighted average method based on the investment security balances as of December 31, 2023. Securities are reported at the earliest possible call, repricing or maturity date.
The yields are calculated using a weighted average method based on the investment security balances as of December 31, 2024.
The provision in 2023 was mainly due to macro-economic conditions and loan growth. ● The ratio of total non-performing loans to total loans remained at 0.00% as of December 31, 2023 and 2022. ● Total noninterest income increased to $6.6 million in 2023, an increase of 19.0%, from $5.6 million in 2022, which is mainly due to positive changes in the fair value of equity securities and increases in service charges on deposit accounts. ● Total noninterest expense increased from $37.3 million in 2022 to $41.2 million in 2023, primarily due to staffing increases and general operating costs necessary to support the growing loan and deposit portfolios. ● Provision from income taxes increased by $2.7 million to $9.5 million in 2023, due to higher pre-tax income.
The reversal in 2024 was mainly due to loan recoveries of $2.2 million. ● The ratio of total non-performing loans to total loans remained at 0.00% as of December 31, 2024 and 2023. ● Total noninterest income decreased to $6.56 million in 2024, a decrease of 1.1%, from $6.63 million in 2023, which is mainly due to negative changes in the fair value of equity securities and decreases in NSF fee income resulting from changes in the NSF fee structure charged to deposit customers. ● Total noninterest expense increased from $41.2 million in 2023 to $46.0 million in 2024, primarily due to staffing increases and general operating costs necessary to support the growing loan and deposit portfolios. ● Provision from income taxes decreased by $2.2 million to $7.2 million in 2024, due to lower pre-tax income.
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.
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.
The balances of other earning assets as of December 31, 2023 and December 31, 2022 were as follows: (Dollars in Thousands) December 31, 2023 December 31, 2022 BOLI $ 31,506 $ 30,218 LIHTCs $ 12,655 $ 13,627 Small business private equity partnership $ 1,029 $ 955 Federal Reserve Bank Stock $ 755 $ 755 Federal Home Loan Bank Stock $ 5,202 $ 4,482 Deposits and Other Sources of Funds Deposits 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 balances of other earning assets as of December 31, 2024 and December 31, 2023 were as follows: (in thousands) December 31, 2024 December 31, 2023 BOLI $ 37,558 $ 31,506 LIHTCs $ 11,354 $ 12,655 Small business private equity partnership $ 1,063 $ 1,029 Federal Reserve Bank Stock $ 755 $ 755 Federal Home Loan Bank Stock $ 5,531 $ 5,202 Deposits and Other Sources of Funds Deposits 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.
Accounting for our allowance for credit losses involves significant judgment and assumptions by management and is based on historical data as well as reasonable and supportable forecasts of future events.
Management has determined the following accounting estimates and related policies to be critical: Allowance for credit losses Credit risk is inherent in the business of lending and making commercial loans. Accounting for our allowance for credit losses involves significant judgment and assumptions by management and is based on historical data as well as reasonable and supportable forecasts of future events.
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 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.
Distribution, Yield and Rate Analysis of Net Income For the Years Ended December 31, (Dollars in Thousands) 2023 2022 Average Balance Interest Income/ Expense Avg Rate/ Yield Average Balance Interest Income/ Expense Avg Rate/ Yield Assets: Earning assets: Gross loans (1) (2) $ 949,429 $ 44,854 4.72 % $ 888,135 $ 38,972 4.39 % Securities - tax-exempt (2) 313,559 12,487 3.98 % 278,859 10,367 3.72 % Securities - taxable 243,300 10,550 4.34 % 194,034 5,935 3.06 % Federal funds sold 27,197 1,414 5.20 % 22,164 415 1.87 % Interest-earning deposits 275,160 13,901 5.05 % 495,854 7,738 1.56 % Total interest-earning assets 1,808,645 83,206 4.60 % 1,879,046 63,427 3.38 % Total noninterest earning assets 70,820 83,576 Total Assets $ 1,879,465 $ 1,962,622 Liabilities and Shareholders' Equity: Interest-bearing liabilities: Demand 493,164 1,358 0.28 % 481,515 452 0.09 % Money market 374,828 2,711 0.72 % 417,896 481 0.12 % Savings 147,180 197 0.13 % 167,582 82 0.05 % Time deposits $250,000 and under 24,172 375 1.55 % 23,365 58 0.25 % Time deposits over $250,000 16,443 222 1.35 % 17,339 46 0.27 % Borrowed funds 20 1 5.00 % 0 0 0.00 % Total interest-bearing liabilities 1,055,807 4,864 0.46 % 1,107,697 1,119 0.10 % Noninterest-bearing liabilities: Noninterest-bearing demand deposits 653,034 709,150 Other liabilities 29,585 20,004 Total noninterest-bearing liabilities 682,619 729,154 Shareholders' equity 141,039 125,771 Total liabilities and shareholders' equity $ 1,879,465 $ 1,962,622 Net interest income $ 78,342 $ 62,308 Net interest spread (3) 4.14 % 3.27 % Net interest margin (4) 4.33 % 3.32 % (1) Loan fees have been included in the calculation of interest income.
Distribution, Yield and Rate Analysis of Net Income For the Years Ended December 31, (Dollars in Thousands) 2024 2023 Average Balance Interest Income/ Expense Avg Rate/ Yield Average Balance Interest Income/ Expense Avg Rate/ Yield Assets: Earning assets: Gross loans (1) (2) $ 1,058,294 $ 53,483 5.05 % $ 949,429 $ 44,854 4.72 % Securities - tax-exempt (2) 291,826 11,290 3.87 % 313,559 12,487 3.98 % Securities - taxable 251,610 11,357 4.51 % 243,300 10,550 4.34 % Federal funds sold 29,317 1,547 5.28 % 27,197 1,414 5.20 % Interest-earning deposits 139,489 7,248 5.20 % 275,160 13,901 5.05 % Total interest-earning assets 1,770,536 84,925 4.80 % 1,808,645 83,206 4.60 % Total noninterest earning assets 82,779 70,820 Total Assets $ 1,853,315 $ 1,879,465 Liabilities and Shareholders' Equity: Interest-bearing liabilities: Demand 484,046 2,414 0.50 % 493,164 1,358 0.28 % Money market 383,171 7,616 1.99 % 374,828 2,711 0.72 % Savings 128,203 175 0.14 % 147,180 197 0.13 % Time deposits $250,000 and under 47,311 1,690 3.57 % 24,172 375 1.55 % Time deposits over $250,000 28,837 966 3.35 % 16,443 222 1.35 % Borrowed funds 0 0 0.00 % 20 1 5.00 % Total interest-bearing liabilities 1,071,568 12,861 1.20 % 1,055,807 4,864 0.46 % Noninterest-bearing liabilities: Noninterest-bearing demand deposits 584,477 653,034 Other liabilities 23,935 29,585 Total noninterest-bearing liabilities 608,412 682,619 Shareholders' equity 173,335 141,039 Total liabilities and shareholders' equity $ 1,853,315 $ 1,879,465 Net interest income $ 72,064 $ 78,342 Net interest spread (3) 3.60 % 4.14 % Net interest margin (4) 4.07 % 4.33 % (1) Loan fees have been included in the calculation of interest income.
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 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.
Deposit interest rates are determined based on customer demand, market surveys of offerings from competitive institutions, and overall liquidity position. 36 Table of Contents 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.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−1 removed24 unchanged
Biggest changeThe relative level of asset sensitivity as of December 31, 2023 has decreased from 2022 primarily due to a decrease in interest-bearing cash balances that have floating rates. In the decreasing interest rate environments, we show a decline in net interest income as interest-bearing assets re-price lower while deposits reach their floors and cannot be reduced further.
Biggest changeFor all of 2024, we were relatively neutral but slightly "asset-sensitive" meaning we expect our net interest income to increase as market rates increase and to decrease as market rates decrease. The relative level of asset sensitivity as of December 31, 2024 has decreased from 2023 primarily due to a decrease in interest-bearing cash balances that have floating rates.
These rate projections can be shocked (an immediate and parallel change in all base rates, up or down) and ramped (an incremental increase or decrease in rates over a specified time period), based on current trends and econometric models or stable economic conditions (unchanged from current actual levels). 57 Table of Contents Asset sensitivity indicates that in a rising interest rate environment the Company's net interest income would increase and in a decreasing interest rate environment the Company's net interest income would decrease.
These rate projections can be shocked (an immediate and parallel change in all base rates, up or down) and ramped (an incremental increase or decrease in rates over a specified time period), based on current trends and econometric models or stable economic conditions (unchanged from current actual levels). 59 Table of Contents Asset sensitivity indicates that in a rising interest rate environment the Company's net interest income would increase and in a decreasing interest rate environment the Company's net interest income would decrease.
Our business is generally not seasonal. 58 Table of Contents
Our business is generally not seasonal. 60 Table of Contents
Second, because our model projects cash flows of each financial instrument under different interest rate environments, it can incorporate the effect of embedded options on an institution's interest rate risk exposure.
First, it does not use arbitrary repricing intervals and accounts for all expected future cash flows. Second, because our model projects cash flows of each financial instrument under different interest rate environments, it can incorporate the effect of embedded options on an institution's interest rate risk exposure.
Liability sensitivity indicates that in a rising interest rate environment a Company's net interest income would decrease and in a decreasing interest rate environment the Company's net interest income would increase. For all of 2023, we were "asset-sensitive" meaning we expect our net interest income to increase as market rates increase and to decrease as market rates decrease.
Liability sensitivity indicates that in a rising interest rate environment a Company's net interest income would decrease and in a decreasing interest rate environment the Company's net interest income would increase.
Removed
Management believes that our interest rate risk modeling overcomes three shortcomings of the typical maturity gap methodology. First, it does not use arbitrary repricing intervals and accounts for all expected future cash flows.
Added
In the decreasing interest rate environments, we show a decline in net interest income as interest-bearing assets re-price lower while deposits reach their floors and cannot be reduced further. Management believes that our interest rate risk modeling overcomes three shortcomings of the typical maturity gap methodology.

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