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Orange County Bancorp, Inc. Announces Record Results for Q2, 2023
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Net Income increased $7.0 million, or 330.6%, to $9.1 million for the quarter ended June 30, 2023 from $2.1 million for the quarter ended June 30, 2022
Total Assets grew $206.6 million, or 9.0%, to $2.5 billion at June 30, 2023 from $2.3 billion at year-end 2022
Total Loans grew $143.7 million, or 9.2%, to $1.7 billion at June 30, 2023 from $1.6 billion at December 31, 2022
Total Deposits rose $163.9 million, or 8.3%, to $2.1 billion at June 30, 2023 from $1.9 billion at year-end 2022
Book value per share increased $1.77, or 7.2%, to $26.25 at June 30, 2023 from $24.48 at December 31, 2022
Non-performing loans fell to 0.32% of loans at June 30, 2023 from 0.54% at December 31, 2022
Trust and investment advisory income rose 10%, to approximately $2.6 million for Q2 2023 from $2.3 million for Q2, 2022
MIDDLETOWN, NY / ACCESSWIRE / July 26, 2023 / 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 $9.1 million, or $1.61 per basic and diluted share, for the three months ended June 30, 2023. This compares with net income of $2.1 million, or $0.38 per basic and diluted share, for the three months ended June 30, 2022. The increase in earnings per share, basic and diluted, was due primarily to strong growth in net interest income during the current period, reflecting increased interest income associated with loans, investments, and cash balances as well as a reduction in expense related to provision for credit losses.
Book value per share rose $1.77, or 7.2%, from $24.48 at December 31, 2022 to $26.25 at June 30, 2023. Tangible book value per share also increased $1.80, or 7.7%, from $23.28 at December 31, 2022 to $25.08 at June 30, 2023 (see "Non-GAAP Financial Measure Reconciliation" below for additional detail). These increases were due primarily to increased earnings during the six months ended June 30, 2023.
"Though we remain cautious in light of recent industry volatility, the Fed's ongoing inflation fighting efforts, and their potential impact on regional economic activity, I am pleased to report the outstanding business we have built the past several years has yielded another quarter of record results," announced Company President and CEO Michael Gilfeather. "For the second quarter of 2023, we generated net income of $9.1 million, which represented a $7.0 million increase over the same period last year, and the highest quarterly earnings in the Bank's history. Our performance was driven by several factors including, a substantial increase in interest income resulting from growth in our loan portfolio during the year to date as well as an increase in the average yield of the loan portfolio. For the six-months ended June 30, 2023 as compared to the same time period in 2022, the average balance of our loan portfolio grew $314.9 million, or 23.5%, from $1.3 billion to $1.7 billion, and the average yield on our loan portfolio rose 110 basis points to 5.57%. Total CRE concentration at June 30, 2023 represented approximately 77.6% of the loan portfolio, with office space and multifamily representing 9.3% and 15.3%, respectively. It is important to note that local economic activity and loan demand from quality borrowers throughout the region remains strong despite aggressive rate policy from the Federal Reserve. As always, we continue to work closely with our clients and remain well positioned to adjust loan growth in response to market and business conditions.
Year to date deposit growth has been steady and represents an ongoing focus throughout the Bank despite current interest rate pressure. This Bank-wide commitment is reflected in our consistently low cost of deposits. Higher interest rates and market concerns stemming from industry volatility last quarter have made deposit retention and growth more challenging, but we began the year with a focus on growing deposits that has proven successful. Core deposits, defined as total deposits less time deposits, represented 92.5% of total deposits at June 30, 2023. Notwithstanding the increase in deposit costs as function of rising interest rates, we were able to expand net interest margin from 3.14% for the quarter ended June 30, 2022 to 3.81% for the quarter ended June 30, 2023. I am proud of our team's ability to effectively manage core and non-interest-bearing deposits and overall costs which, like management of our loan portfolio, reflect the depth of dialogue we maintain with our clients and the broad range of services we offer.
Our Wealth Management division also continued to be a steady performer during the quarter. Trust and investment advisory income rose 10% to $2.6 million for Q2 2023 versus the same period last year. And though year-over-year equity market performance has generally been strong, fixed income markets have remained challenging, a fact that highlights the impressive job HVIA has done growing its revenue.
Overall, I believe our strong quarterly results further validate the robustness and flexibility of our business model. While industry concerns remain, including deposit uncertainty and potential regulatory responses to the recent bank failures, the quarter should make clear Orange Bank and Trust has a strong balance sheet, demonstrated deposit gathering ability, and the flexibility to adapt to challenging circumstances. We also have an established foundation in business banking which should generate consistent income over time and an ability to transition the platform between stability and/or growth as market conditions permit. None of this would be possible without the dedication, insight, and experience of our employees. I thank them again for their role in delivering uncompromising service to our clients and results like these to our shareholders."
Second Quarter 2023 Financial Review
Net Income
Net income for the second quarter of 2023 was $9.1 million, an increase of $7.0 million, or 330.6%, over net income of $2.1 million for the second quarter of 2022. The increase represents a combination of increased net interest income as well as the impact of a decrease in provision for credit losses over the same quarter last year. Net income for the six months ended June 30, 2023 was $12.3 million as compared to $7.4 million for the same period in 2022.
Net Interest Income
For the three months ended June 30, 2023, net interest income rose $5.1 million, or 29.1%, to $22.6 million, versus $17.5 million during the same period last year. The increase was driven primarily by an $8.7 million increase in interest and fees on loans during the current period. For the six months ended June 30, 2023, net interest income increased $9.9 million, or 29.2%, over the first half of 2022.
Total interest income rose $11.3 million, or 60.9%, to $29.7 million for the three months ended June 30, 2023, compared to $18.5 million for the three months ended June 30, 2022. The increase reflected growth in interest and fees associated with loans, a 48.9% increase in interest income from taxable investment securities, and a 305.2% increase in interest income related to fed funds interest and balances held at correspondent banks. For the six months ended June 30, 2023, total interest income rose $20.4 million, or 56.9%, to $56.1 million as compared to $35.8 million for the six months ended June 30, 2022.
Total interest expense increased $6.2 million during the second quarter of 2023, to $7.1 million, as compared to $975 thousand in the second quarter of 2022. The increase represented the combined effect of rising interest rates and the impact of FHLB borrowings to maintain higher cash positions as a preventative measure during the industry's liquidity crisis. Interest expense associated with savings and NOW accounts totaled $3.2 million during the second quarter of 2023 as compared to $651 thousand during the second quarter of 2022. Interest expense associated with FHLB advances drawn during the current quarter totaled $2.3 million. We had no such borrowings or related expense in the second quarter of 2022. During the six months ended June 30, 2023, total interest expense rose $10.5 million, to $12.4 million, as compared to $1.9 million for the same period last year.
Provision for Credit Losses
As of January 1, 2023, the Company adopted the current expected credit losses methodology ("CECL") accounting standard, which includes loans individually evaluated, as well as loans evaluated on a pooled basis to assess the adequacy of the allowance for credit losses. The Bank seeks to estimate lifetime losses in its loan and investment portfolio by using expected discounted cash flows and supplemental qualitative considerations, including relevant economic considerations, portfolio concentrations, and other external factors, as well as evaluating investment securities held by the Bank.
The Company recognized a provision for credit losses of $214 thousand for the three months ended June 30, 2023, as compared to $5.5 million for the three months ended June 30, 2022. This decrease reflected the impact of the methodology associated with estimated lifetime losses and the types of loans closed during the quarter. Additionally, the 2022 provision includes the recognition of loan impairments associated with certain syndicated loans. The allowance for credit losses to total loans was 1.45% as of June 30, 2023 versus 1.39% as of December 31, 2022. For the six months ended June 30, 2023, the provision for credit losses totaled $6.6 million as compared to $6.4 million for the six months ended June 30, 2022.
Non-Interest Income
Non-interest income rose $309 thousand, or 10.4%, to $3.3 million for the three months ended June 30, 2023 as compared to $3.0 million for the three months ended June 30, 2022. This growth was related to increased fee income within each of the Company's fee income categories, including investment advisory income, trust income, and service charges on deposit accounts. For the six months ended June 30, 2023, non-interest income increased approximately $474 thousand, to $6.5 million, as compared to $6.0 million for the six months ended June 30, 2022.
Non-Interest Expense
Non-interest expense was $14.5 million for the second quarter of 2023, reflecting an increase of $2.0 million, or 15.9%, as compared to $12.5 million for the same period in 2022. The increase in non-interest expense for the three-month period was the result of continued investment in Company growth. This investment consists primarily of increases in compensation, occupancy, information technology, and deposit insurance costs. Our efficiency ratio improved to 55.8% for the three months ended June 30, 2023, from 60.9% for the same period in 2022. For the six months ended June 30, 2023, our efficiency ratio improved to 56.7% from 61.0% for the same period in 2022. Non-interest expense for the six months ended June 30, 2023 reached $28.5 million, reflecting a $4.2 million increase over non-interest expense of $24.3 million for the six months ended June 30, 2022.
Income Tax Expense
Provision for income taxes for the three months ended June 30, 2023 was $2.1 million, compared to $400 thousand for the same period in 2022. The increase was directly related to higher income before income taxes. For the six months ended June 30, 2023, the provision for income taxes was $2.8 million as compared to $1.7 million for the six months ended June 30, 2022. Our effective tax rate for the three-month period ended June 30, 2023 was 19.1% as compared to 15.9% for the same period in 2022. Our effective tax rate for the six-month period ended June 30, 2023 was 18.7% as compared to 18.3% for the same period in 2022.
Financial Condition
Total consolidated assets increased $206.6 million, or 9.0%, from $2.3 billion at December 31, 2022 to $2.5 billion at June 30, 2023. The increase reflected continued growth in loans, deposits, and cash during the quarter.
Total cash and due from banks increased from $86.1 million at December 31, 2022, to $178.6 million at June 30, 2023, an increase of approximately $92.5 million, or 107.5%. This increase resulted primarily from increases in deposit balances and borrowings. The increase in borrowings reflected a strategic decision to bolster cash positions during the first half of 2023.
Total investment securities fell $28.3 million, or 5.2%, from $543.0 million at December 31, 2022 to $514.7 million at June 30, 2023. The decrease represented a combination of investment maturities and sales during the first half of 2023 as well as a write-off associated with Signature Bank subordinated debt resulting from that bank's failure.
Total loans increased $143.7 million, or 9.2%, from $1.6 billion at December 31, 2022 to $1.7 billion at June 30, 2023. The increase was due primarily to $115.1 million of commercial real estate loan growth and $7.3 million of commercial real estate construction loan growth. PPP loans decreased to $1.5 million at June 30, 2023 from $1.7 million at December 31, 2022, with the majority of this balance subject to forgiveness.
Total deposits increased $163.9 million, to $2.1 billion at June 30, 2023, from $2.0 billion at December 31, 2022. This increase was driven by $97.3 million of growth in core deposits as well as the effect of approximately $75.4 million of growth in time deposits associated with brokered deposits, which the Company increased as a precautionary measure to strengthen cash on hand. Deposit composition at June 30, 2023 included 50.2% in demand deposit accounts (including NOW accounts). Uninsured deposits, net of fully collateralized municipal relationships, remain stable and represent approximately 38% of total deposits at June 30, 2023 as compared to 43% of total deposits at December 31, 2022.
Stockholders' equity experienced an increase of approximately $10.0 million during the first half of 2023, to $148.2 million at June 30, 2023 from $138.1 million at December 31, 2022. The increase was due mainly to $12.3 million of net income during the first half of 2023 as well as a decrease in unrealized losses of approximately $1.7 million on the market value of investment securities within the Company's equity as accumulated other comprehensive income (loss) ("AOCI"), net of taxes.
At June 30, 2023, 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 8.86%, both common equity and Tier 1 capital to risk weighted assets were 12.22%, and total capital to risk weighted assets was 13.47%.
Loan Quality
At June 30, 2023, the Bank had total non-performing loans of $5.4 million, or 0.32% of total loans. Total non-accrual loans represented approximately $5.4 million of loans at June 30, 2023 compared to $6.1 million at December 31, 2022.
Liquidity
Management believes the Bank has the necessary liquidity to meet normal business needs. The Bank uses a variety of resources to manage its liquidity position. These include short term investments, cash from lending and investing activities, core-deposit growth, and non-core funding sources, such as time deposits exceeding $100,000, brokered deposits, FHLBNY advances, and other borrowings. As of June 30, 2023, the Bank's cash and due from banks totaled $178.6 million. The Bank maintains an investment portfolio of securities available for sale, comprised mainly of US Government agency and treasury securities, Small Business Administration loan pools, mortgage-backed securities, and municipal bonds. Although the portfolio generates interest income for the Bank, it also serves as an available source of liquidity and funding. As of June 30, 2023, the Bank's investment in securities available for sale was $503.2 million, of which $66.8 million was not pledged as collateral. Additionally, as of June 30, 2023, the Bank's overnight advance line capacity at the Federal Home Loan Bank of New York was $605.1 million, of which $108.0 million was used to collateralize municipal deposits and $156.5 million was utilized for overnight advances. As of June 30, 2023, the Bank's unused borrowing capacity at the FHLBNY was $340.6 million. The Bank also maintains additional borrowing capacity of $25 million with other correspondent banks. Additional funding is available to the Bank through the Bank Term Funding Program ("BTFP") and discount window lending by the Federal Reserve. The Bank maintains approximately $106.4 million of collateral under the BTFP but did not utilize this funding source during the first half of 2023.
The Bank also considers brokered deposits an element of its deposit strategy. As of June 30, 2023, the Bank had brokered deposit arrangements with various terms totaling $117.9 million.
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 almost $2.5 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, increased levels of loan delinquencies, problem assets and foreclosures, credit risk management, asset-liability management, cybersecurity risks, the continuing effects of the COVID-19 pandemic, the financial and securities markets and the availability of and costs associated with sources of liquidity.
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.
