Orange County Bancorp, Inc. Announces First Quarter Results

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Orange County Bancorp reported a net income of $5.3 million for Q1 2022, representing a 6.1% increase from Q1 2021. However, return on average assets declined to 0.95%, and return on average equity fell to 11.87%, primarily due to an increase in shares post-IPO. Total assets grew by 6.5% to nearly $2.3 billion, driven by significant loan growth of 16.7%. Despite increased provisions for loan losses, non-interest income rose to $3.0 million. The tangible book value per share decreased by 10.3% amid rising interest rates, reflecting challenges in the current market.

Positive

Net income increased 6.1% to $5.3 million for Q1 2022.
Average loans grew by 16.7% year-over-year, reaching over $1.3 billion.
Total assets increased by 6.5% to almost $2.3 billion.
Non-interest income rose to $3.0 million, supported by trust operations.

Negative

Return on average assets declined 18 basis points to 0.95%.
Return on average equity fell 307 basis points to 11.87% due to IPO share issuance.
Tangible book value per share decreased by 10.3% from Q4 2021.
Provision for loan losses increased significantly to $923 thousand from $66 thousand.

04/27/2022 - 05:00 PM

Orange County Bancorp, Inc. Announces First Quarter Results:

Net Income for Q1 2022 increased $305 thousand, or 6.1%, over Q1 2021 to $5.3 million
Annualized return on average assets for Q1 2022 declined 18 basis points to 0.95% as compared to 1.13% for the same quarter in 2021 as a result of the strong deposit growth during the period
Annualized return on average equity for Q1 2022 declined 307 basis points to 11.87% as compared to 14.94% for the same quarter in 2021 due mainly to the effect of the initial public offering during the second half of 2021
Average loans (net of PPP) for Q1 2022 increased approximately 16.7%, to over $1.3 billion from $1.1 billion for Q1 2021
Provision for loan losses of $923 thousand for Q1 2022 increased from $66 thousand in Q1 2021 due to overall loan growth of CRE and Construction loans as well as new loans within the C&I portfolio
Average demand and money market deposits for Q1 2022 rose 25.5%, to $1.0 billion, from $801 million for Q1 2021
Total Assets grew $138.5 million, or 6.5%, from year-end 2021 to almost $2.3 billion at March 31, 2022
Trust and asset advisory business revenue increased 3.1%, to almost $2.4 million, for Q1 2022 as compared to the same quarter in 2021

MIDDLETOWN, NY / ACCESSWIRE / April 27, 2022 / Orange County Bancorp, Inc. (the "Company") (NASDAQ:OBT), parent company of Orange Bank & Trust Co. (the "Bank") and Hudson Valley Investment Advisors, Inc. ("HVIA"), today announced net income of $5.3 million, or $0.95 per basic and diluted share, for the three months ended March 31, 2022. This compares with net income of $5.0 million, or $1.12 per basic and diluted share, for the three months ended March 31, 2021. The decrease in earnings per share, basic and diluted, is due to the issuance of additional shares during August 2021 as part of the Company's Initial Public Offering.

Tangible book value per share experienced a decrease of $3.21, or 10.3%, from $31.18 at December 31, 2021 to $27.97 at March 31, 2022. The book value per share also experienced a decrease from $32.43 at December 31, 2021 to $29.21 at March 31, 2022. These decreases were driven by the change in market value associated with the available-for-sale investment portfolio which was impacted by the current rising interest rate environment. The Bank maintains the entire investment portfolio within the available-for-sale category.

"Economic data in the first quarter further confirmed the reemergence of inflation," said Company President and CEO Michael Gilfeather. "The Federal Reserve responded with a 25 basis points increase in rates and indicated additional hikes to come. This resulted in a sell off in stock and bond markets, broadly impacting the financial services sector. While our business isn't immune to such changes, our strategic focus on business banking served to blunt, and in some cases capitalize on, the challenges presented by these shifting policy dynamics."

"I am pleased to announce the operational momentum we enjoyed in 2021 continued into 2022," Gilfeather added, "with net income increasing 6.1% year-over-year, to $5.3 million, due to positive contributions from all of our businesses. Our average loan portfolio grew 16.7% during the quarter, to almost $1.3 billion, over the same period last year, while average deposits rose to over $2.0 billion. Due to significant growth in our loan portfolio, we increased our provision for loan losses for the quarter to $923 thousand from $66 thousand for the same period last year.

Our Wealth Management division revenues, which include our Trust and Asset Management businesses grew 3.1% year-over-year, to $2.4 million for the first quarter of 2022. During the same period, assets-under-management for the Trust and Asset Management group experienced a 2.2% increase and exceeded $1.2 billion at March 31, 2022. Given overall market performance, these results were much better than might have been expected, reflecting the group's holistic, relative performance approach to investment management.

While a shift toward higher interest rates is disruptive to any bank's business plan, we made a conscious decision early last year to keep over $350 million at the Fed without investing the money. This disadvantaged us in the short-term, as investment rates remained above the Fed rate on deposits, but longer-term the decision effectively insulated these funds from recent rate increases, and the decreases in fair value that have impacted securities held available-for-sale. If rates continue to rise, as anticipated, our plan will be to redeploy these funds, locking in higher yields and returns in the process.

The economy of the lower Hudson Valley region we serve remains robust and continued growth in our loan portfolio reflects the attractive opportunities our business partners are seeing. An ancillary benefit of a strong economy is consolidation, which the banking industry in our area has recently experienced. Orange Bank has consistently benefitted from the acquisition of competitors by larger banks, who often reduce their regional focus, as well as the inevitable downsizing that follows, giving us an opportunity to add quality professionals, which further support our growth. We have been highly opportunistic in this regard.

While 2022 began with a challenging shift in Fed policy, our business model proved its adaptability and resilience - both directly, through strategic, purposeful management and planning, and indirectly, by pursuing opportunity in the face of adversity. It also demonstrated our resolve and ability to grow in a disciplined and conservative manner. There is no guarantee we can repeat such results in the face of ongoing rate increases or an economic slowdown. None of this would be possible without the commitment of our dedicated employees, the understanding of our investors, and ongoing support and satisfaction of our business clients."

First Quarter 2022 Financial Review

Net Income

Net income for the first quarter of 2022 was $5.3 million, an increase of approximately $305 thousand, or 6.1%, over net income of approximately $5.0 million for the first quarter of 2021. Net income growth for the quarter was driven primarily by increases in net interest income and non-interest income. These growth trends were partially offset by increases in the provision for loan losses and noninterest expense during the quarter.

Net Interest Income

For the three months ended March 31, 2022, net interest income increased $2.6 million, or 18.9%, to $16.3 million, versus $13.7 million during the same time period last year. This increase included a $586 thousand decline in PPP fees when comparing first quarter 2022 against first quarter 2021.

Total interest income rose $2.5 million, or 17.0%, to $17.3 million for the three months ended March 31, 2022, compared to $14.8 million for the three months ended March 31, 2021. The increase in interest income was primarily due to interest and fees associated with loan growth, as well as an increase of approximately 45% in interest income from taxable investment securities. The securities related increase represents management's focus on deploying excess liquidity and strategically earning additional incremental investment earnings.

Total interest expense decreased $91 thousand in the first quarter of 2022, to $931 thousand, as compared to $1.0 million in the first quarter of 2021. The decrease was driven by a reduction in deposit interest expense associated with savings and time deposits. The control of interest expense remains an important management focus during 2022 as the interest rate environment experiences continued volatility.

Furthermore, the increase in Cash during the quarters presented had a negative effect on the calculation of the Net Interest Margin. Within the current interest rate environment, these excess cash balances represent an attractive reinvestment opportunity for the Bank.

Provision for Loan Losses

The Company recognized a provision for loan losses of $923 thousand for the three months ended March 31, 2022, as compared to $66 thousand for the three months ended March 31, 2021. The increased provision reflects continued growth of the loan portfolio as well as an increase in CRE construction loans and a modest increase in non-accrual loans and delinquency trends. The allowance for loan losses to total loans was 1.38% as of March 31, 2022 and 1.32% as of March 31, 2021.

Non-Interest Income

Non-interest income was $3.0 million for first quarter 2022, representing a $113 thousand increase from $2.9 million for the same period in 2021. With assets-under-management levels above $1.2 billion at March 31, 2022, non-interest income growth continues to be supported by increased success of the Bank's trust operations and HVIA asset management activities. Additionally, the Company has experienced increased earnings from the BOLI investment during the quarter.

Non-Interest Expense

Non-interest expense was $11.8 million for the first quarter of 2022, reflecting an increase of approximately $1.5 million, or 14.6%, as compared to $10.3 million for the same period in 2021. The increase in non-interest expense for the three month period was due to further investment in overall company growth. This investment consisted primarily of increases in compensation costs, occupancy costs, information technology, and deposit insurance costs. Our efficiency ratio improved to 61.11% for the three months ended March 31, 2022, from 62.03% for the same period in 2021.

Income Tax Expense

Our provision for income taxes for the three months ended March 31, 2022 was approximately $1.3 million, compared to approximately $1.2 million for the same period in 2021. The increase for this period was due to an increase in income before income taxes. Our effective tax rate for the three month period ended March 31, 2022 was 19.2% as compared to 19.6% for the same period in 2021.

Financial Condition

Total consolidated assets increased $138.5 million, or 6.5%, from $2.1 billion at December 31, 2021 to $2.3 billion at March 31, 2022. The increase was driven by growth in loans, cash, and investment securities during the quarter ended March 31, 2022 resulting from an increase in deposits during the same quarter.

Total cash and due from banks increased from $306.2 million at December 31, 2021, to $356.3 million at March 31, 2022, an increase of approximately $50.1 million, or 16.4%. This increase resulted primarily from increases in deposit balances driven by increases in local municipal deposits and ongoing success attracting business account assets, including attorney trust accounts.

Total investment securities rose $39.9 million, or 8.5%, from $467.0 million at December 31, 2021 to $506.2 million at March 31, 2022. The increase was due primarily to a $62.0 million increase in U.S. government agency backed securities, partially offset by an increase in unrealized losses of approximately $19.5 million on U.S. government securities since December 31, 2021.

Total loans increased $43.0 million, or 3.3%, from $1.29 billion at December 31, 2021 to $1.33 billion at March 31, 2022. The increase during the quarter was due primarily to $20.4 million of commercial real estate loan growth and $28.8 million of commercial real estate construction loan growth. PPP loans decreased $25.4 million, to $12.7 million at March 31, 2022 from $38.1 million at December 31, 2021. The majority of the remaining PPP loan balance is subject to forgiveness.

Total deposits grew $159.3 million, to $2.1 billion, at March 31, 2022, from $1.9 billion at December 31, 2021. This increase continues to be driven by continued success in business account development combined with attorney trust deposit growth and increased deposit levels for local municipal accounts. In fact, at March 31, 2022, the bank has been successful in creating a deposit composition which includes 52.4% of total deposits representing demand deposit accounts (including NOW accounts).

Stockholders' equity experienced a decrease of approximately $18.3 million, to $164.5 million, at March 31, 2022 from $182.8 million at December 31, 2021. The decrease was primarily due to a $22.4 million increase in unrealized losses on the market value of investment securities recognized within the Company's equity as accumulated other comprehensive income ("AOCI"), net of taxes. Offsetting the AOCI fluctuation, the Bank recognized an increase in retained earnings of approximately $4.2 million associated with earnings during the first quarter, net of dividends paid.

At March 31, 2022, the Bank maintained capital ratios in excess of regulatory standards for well capitalized institutions. The Bank's Tier 1 capital to average assets ratio was 8.04%, both common equity and Tier 1 capital to risk weighted assets were 12.40%, and total capital to risk weighted assets was 13.64%. These ratios included a contribution of $17.5 million of capital at the Bank level representing roughly half of the net proceeds from the Company's public offering of common stock during 2021.

Loan Quality

At March 31, 2022, the Bank had total non-performing loans of $6.8 million, or 0.51% of total loans, which included $3.5 million of Troubled Debt Restructured Loans ("TDRs"). The latter represents 0.27% of total loans and was relatively level as compared with $3.6 million at December 31, 2021. Accruing loans delinquent greater than 90 days were $2.2 million as of March 31, 2022, as compared to $1.4 million at December 31, 2021.

Orange County Bancorp, Inc., Wednesday, April 27, 2022, Press release picture

About Orange County Bancorp, Inc.

Orange County Bancorp, Inc. is the parent company of Orange Bank & Trust Company and Hudson Valley Investment Advisors, Inc. Orange Bank & Trust Company is an independent bank that began with the vision of 14 founders over 125 years ago. It has grown through innovation and an unwavering commitment to its community and business clientele to more than $2.0 billion in total assets. Hudson Valley Investment Advisors, Inc. is a Registered Investment Advisor in Goshen, NY. It was founded in 1996 and acquired by the Company in 2012.

Forward Looking Statements

Certain statements contained herein are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward looking statements may be identified by reference to a future period or periods, or by the use of forward looking terminology, such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue," or similar terms or variations on those terms, or the negative of those terms. Forward looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the real estate and economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, inflation, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity. Further, given its ongoing and dynamic nature, it is difficult to predict what the continuing effects of the COVID-19 pandemic will have on our business and results of operations. The pandemic and related local and national economic disruption may, among other effects, continue to result in a material adverse change for the demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; branch disruptions, unavailability of personnel and increased cybersecurity risks as employees work remotely.

The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions that may be made to any forward looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

For further information:
Robert L. Peacock
SEVP Chief Financial Officer
rpeacock@orangebanktrust.com
Phone: (845) 341-5005