Orange County Bancorp, Inc. Announces Record Second Quarter 2021 Results

• Net Income for Q2 2021 increased $2.3 million, or 80.4%, to a record $5.2 million versus Q2 2020 
• Return on average assets for Q2 2021 rose 28 basis points year-over-year to 1.05% 
• Return on common equity for Q2 2021 rose 603 basis points year-over-year to 15.0% 
• Provision for loan losses of $809 thousand declined 38% versus the same period last year due to stabilizing credit trends 
• Average Loans (net of PPP) for Q2 2021 increased 22.3% year-over-year, to $1.1 billion 
• Average Demand Deposits for Q2 2021 grew 37.4% year-over-year to $627.8 million 
• Total Assets grew $387.3 million, or 23.3%, from year-end 2020 to $2.1 billion at June 30, 2021 
• Trust and asset advisory business revenue increased 26.3%, to $2.4 million, for Q2 2021 

MIDDLETOWN, NY / ACCESSWIRE / August 12, 2021 / 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 $5.2 million, or $1.16 per basic and diluted share, for the three months ended June 30, 2021. This compares with net income of $2.9 million, or $0.64 per basic and diluted share, for the three months ended June 30, 2020. For the first six months of 2021, net income increased by $4.9 million, or 90.8%, over the prior year period, to $10.2 million, or $2.28 per basic and diluted share. This compares with net income of $5.4 million, or $1.19 per basic and diluted share, for the first six months of 2020.

"I am pleased to announce yet another record quarter of financial performance for the Bank and Company," said Orange County Bancorp President & CEO, Michael Gilfeather. "These results reflect significant growth across all facets of our business, with particularly noteworthy increases in assets and loans as liquidity initiatives took hold and credit uncertainty gave way to an increasingly favorable business outlook."

"The quarter also represents a very important transition period for the organization," Gilfeather added. "As the growth strategy we initiated several years ago continued to yield strong results, the Board and management team elected to leverage our success through a NASDAQ IPO. I am pleased to announce completion of our offering and subsequent NASDAQ Capital Market listing under the stock symbol "OBT" during the first week of August. Our transaction was upsized in the face of strong demand and culminated in the sale of 1.15 million shares to new investors at $33.50 per share, for gross proceeds of approximately $38.5 million. While technically a Q3 event, the groundwork for the transaction began in earnest in Q2 and entailed major contributions from all divisions of the Bank. It was a phenomenal success, particularly in conjunction with the financial results just reported, and positions the Company well for continued growth going forward.

To further highlight our financial accomplishments in Q2, net income of $5.2 million for the quarter pushed our first half net income over $10 million, nearly double the same period last year. Total assets of the Bank also exceeded $2 billion for the first time, increasing $387.3 million, or 23.3%, from year-end 2020.

Total loans were $1.29 billion as of June 30, 2021, representing a $134.1 million, or 11.6%, increase from $1.15 billion at December 31, 2020. This growth was primarily due to increases in commercial real estate and Payroll Protection Program (PPP) loans. Net of PPP, loans grew $94.4 million, reflecting improving economic strength and business opportunities our clients are seeing across the regions we serve. Since the government approved a second round of PPP funding in early 2021, the Bank's PPP loan balance has risen 58%, from nearly $69 million at year-end 2020 to nearly $109 million at the close of Q2 2021. While the program ended on May 31, 2021 we continue to work with our PPP borrowers to assess whether their loans qualify for government forgiveness and, if so, help them through the process.

Deposit growth was also strong for the quarter, with total deposits of $1.87 billion as of June 30, 2021 representing a $382.4 million, or 25.7%, increase from $1.49 billion at December 31, 2020. Over half of these deposits are in low to zero cost NOW and Demand Deposit accounts, resulting in our relatively low average cost of deposits.

Our net interest margin for the three months ended June 30, 2021 was 3.09%, compared to 3.34% for the three months ended June 30, 2020, and 3.18% for the six months ended June 30, 2021, compared to 3.51% for the same period last year.While we did experience margin compression, overall loan growth resulted in an increase in net interest income for the quarter of $2.9 million, or 24.2%, versus the same period last year. For the six months ended June 30, 2021, net interest income increased $5.2 million, or 22.6%, versus the same period last year.

The Company's Wealth Management initiative, which launched earlier this year, also enjoyed strong growth. Orange Wealth Management is a platform that provides a comprehensive suite of wealth management services delivered through the Company's Private Banking and Trust Services Division and HVIA subsidiary. Revenues grew 26.3%, to $2.4 million, for the second quarter 2021 verses the same quarter last year and are up 22.4% for the six months ended June 30, 2021 compared to the same period in 2020. Assets under management (AUM) ended Q2 at $1.24 billion, up $48.4 million for the first half of the year. HVIA, which until recently focused its marketing efforts on our historical operating region, is now actively expanding into Westchester to leverage and support our business relationships there. We remain excited by the growth prospects for this exciting initiative.

While pleased with these results, much remains to be done. We just opened a new branch in the Bronx with a seasoned team that is well respected in the local business community. Senior Vice President and Senior Commercial Loan Officer, Anthony Mormile, is leading this effort and we are very encouraged by the results to date. Additionally, our scheduled Nanuet branch opening later this year will strengthen our presence in Rockland County and, given its proximity to New Jersey, provide a point of entree into Bergen County. In keeping with our broader strategy for the Bank, we intend to remain disciplined and rigorous with branch initiatives.

The success we've enjoyed the past several years doesn't happen without a dedicated staff," Gilfeather concluded. "Last year, the pandemic and need to provide PPP loans to our business clients pushed the Bank beyond what even we thought possible. Our employees responded without hesitation, implementing new systems and processing more than $100 million in loans for clients in a matter of months. This quarter, we sought to raise the public profile of our efforts, improve liquidity, and fund further growth of the Company through an initial public offering. This required enormous effort from the entire organization and, again, our employees responded, assuming important responsibilities in addition to their daily work servicing clients and providing trust and investment assistance. Their efforts resulted in an outstanding transaction, ensuring future growth and viability for the Company. I thank them for a job well done."

Second Quarter and First Half 2021 Financial Review

Net Income 

Net income for the second quarter of 2021 was $5.2 million, compared to net income of $2.9 million for the second quarter of 2020, an increase of $2.3 million, or 80.4%. Net income for the six months ended June 30, 2021 was $10.2 million, compared to net income of $5.4 million for the same period of 2020, an increase of $4.8 million, or 90.8%. The increase for both the three and six month periods in 2021 compared to 2020 was driven primarily by an increase in net interest income and decrease in provision for loan losses, partially offset by increases in non-interest expense and provision for income taxes.

Net Interest Income 

For the three months ended June 30, 2021, net interest income increased by $2.9 million, or 24.2%, versus the same period last year. For the six months ended June 30, 2021, net interest income increased by $5.2 million, or 22.6%, versus the same period last year.

Total interest income increased $2.7 million, or 21.1%, and $4.8 million, or 19.0%, for the three and six months ended June 30, 2021, respectiveley, versus the corresponding periods last year. The increase in interest income was primarily due to loan growth and fees associated with PPP loan forgiveness.

Total interest expense decreased $121 thousand in the second quarter of 2021, to $1.0 million, compared to $1.1 million in the second quarter of the prior year, and decreased $388 thousand for the six months ended June 30, 2021, to $2.0 million from $2.4 million, for the six months ended June 30, 2020. The decrease resulted from a reduction in deposit interest expense partially offset by an increase in interest expense due to the subordinated debt issued in September 2020. Lower interest expense on deposits was consistent with the reduction of the Fed Funds rate in the first quarter of 2020 in response to the COVID-19 pandemic.

Provision for Loan Losses 

The Company recognized provisions for loan losses of $809 thousand and $875 thousand for the three and six months ended June 30, 2021, respectively, compared to $1.3 million and $2.5 million for the three and six months ended June 30, 2020, respectively. The lower provisions reflect improved credit metrics and declining loan deferrals. The allowance for loan losses to total loans was 1.32% as of June 30, 2021. Excluding PPP loans, the ratio was 1.45%.

Non-Interest Income 

Non-interest income was $3.0 million during both the second quarter of 2021 and 2020, while non-interest income was $5.9 million for the six months ended June 30, 2021 compared to $5.5 million for the same period in 2020, an increase of $372 thousand, or 6.7%. The increase was a result of continued growth in the Bank's trust operations and HVIA's asset management activities.

Non-Interest Expense 

Non-interest expense was $10.4 million and $9.9 million during the second quarters of 2021 and 2020, respectively, an increase of $497 thousand, or 5%, while non-interest expense was $20.7 million for the six months ended June 30, 2021, compared to $19.5 million for the same period in 2020, an increase of $1.2 million, or 6.3%. The increase in non-interest expense for the three and six month periods was due to the Bank's continued investment in growth. This investment was comprised primarily of increases in salaries, information technology, professional fees, and deposit insurance costs resulting from significant growth in deposit balances. The efficiency ratio improved to 58.90% for the three months ended June 30, 2021 from 66.98% for the same period in 2020, and improved to 60.41% for the six months ended June 30, 2021 from 67.97% for the six months ended June 30, 2020.

Income Tax Expense 

The provision for income taxes for the three months ended June 30, 2021 was $1.3 million compared to $695 thousand for the same period in 2020. The provision for income taxes for the six months ended June 30, 2021 was $2.5 million compared to $1.3 million for the same period in 2020. The increase for both periods was due to the increase in income before income taxes. The effective tax rate for the three and six month periods ended June 30, 2021 was 19.5%, versus 19.5% and 19.8%, respectively, for the same periods last year.

Financial Condition 

Total consolidated assets increased $387.3 million, or 23.3%, from $1.7 billion at December 31, 2020 to $2.1 billion at June 30, 2021. The increase reflects increases in cash and due from banks, loans receivable and investments.

Total cash and due from banks increased from $121.2 million at December 31, 2020 to $322.9 million at June 30, 2021, an increase of $201.7 million, or 166.4%. The increase was primarily due to increases in deposit account balances driven by seasonal increases in municipal deposits, ongoing success attracting business account assets, and government efforts to increase liquidity in the economy.

Total investments increased $47.6 million from $330.1 million at December 31, 2020 to $377.7 million at June 30, 2021. The increase was primarily in mortgage backed and municipal securities.

Total loans increased from $1.2 billion at December 31, 2020 to $1.3 billion at June 30, 2021, an increase of $134.1 million, or 11.6%. This increase was primarily due to an increase in commercial real estate loans of $82.9 million and PPP loans of $39.7 million.

Total deposits increased $382.4 million to $1.9 billion at June 30, 2021, from $1.5 billion at December 31, 2020. The increase was primarily related to business account activity, PPP loan proceeds and government liquidity efforts, combined with municipal deposit growth attributable to cyclical real estate tax collections.

Stockholders' equity increased $5.5 million to $140.9 million at June 30, 2021 from $135.4 million at December 31, 2020 due to an $8.4 million net increase in retained earnings partially offset by a $2.9 million decline in AOCI during the first half of 2021 resulting from a change in the market value of investments.

At June 30, 2021, 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 7.56%, both the common equity and Tier 1 capital to risk weighted assets were 12.13% and the total capital to risk weighted assets ratio was 13.38%.

Loan Quality 

At June 30, 2021, the Bank had total non-accrual loans of $2.0 million, or 0.16% of total loans, which included $959.0 thousand of Troubled Debt Restructured Loans ("TDRs"), or 0.07% of total loans. This total was unchanged from year end 2020. Accruing loans delinquent greater than 30 days were $1.1 million as of June 30, 2021, compared to $1.8 million at December 31, 2020. The following table shows the current status of loans deferred as a result of the COVID-19 pandemic.

At the outset of the pandemic, management identified certain industries, including hospitality, healthcare, and retail, it viewed as most susceptible to stress from a prolonged economic slowdown. Notwithstanding perceived industry risks, portfolio concentration and exposure across these segments is modest. Notably, Lodging and Food Services, which broadly reflect our exposure to hotels, food and beverage, constitute $44.9 million, or 3.5%, of our loan portfolio. At quarter end, these categories accounted for 61.1% of our total $12.4 million of loans on payment deferral.

Management continues to evaluate performance trends across industry groups to assess underlying business and liquidity risks due to the economic impacts of COVID-19. While the Bank has continued to provide relief from debt service through forbearance agreements, its focus has shifted toward the resumption of loan payments, as management believes clients in need of deferral have largely been accommodated at this time. Most borrowers requesting deferral early in the cycle resumed scheduled repayment of their loan obligations at the end of their initial 90-day deferral period. Deferred loans at June 30, 2021 were $12.4 million, or 1.0%, of our portfolio, compared with $48.8 million, or 4.2%, of our loan portfolio at December 31, 2020.

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 ongoing 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 was 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, 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
EVP Chief Financial Officer
rpeacock@orangebanktrust.com
Phone: (845) 341-5005

Note: There were minor changes made to the previously reported December 31, 2020 balance sheet related to corrections for the treatment of deferred costs on loans.

Note: There were minor changes made to the previously reported June 30, 2020 income statement periods related to corrections for the treatment of deferred costs on loans.

Notes: 
¹ The Interest rate spread is the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities
² Net interest margin is the annualized net interest income divided by average interest-earning assets

Notes: 
¹ The Interest rate spread is the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities
² Net interest margin is the annualized net interest income divided by average interest-earning assets

Notes:
(1) Annualized for the three and six month periods ended June 30, 2021 and 2020, respectively.
(2) Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the periods.
(3) The net interest margin represents net interest income as a percent of average interest-earning assets for the periods.
(4) The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.
(5) The dividend payout ratio represents dividends paid per share divided by net income per share.
(6) Ratios are for the Bank only.

Notes:
(1) Net tangible book value represents the amount of your total tangible assets reduced by our total liabilities. Tangible assets are calculated by reducing total assets, as defined by GAAP, by $5,358 in goodwill and $1,821, and $1,963 in other intangible assets for June 30, 2021 and December 31, 2020, respectively.

SOURCE: Orange County Bancorp, Inc.