Orange County Bancorp, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY 2022. The company is a New York community banking and wealth management holding company operating through Orange Bank & Trust Company and Hudson Valley Investment Advisors.
Financial performance and condition
| Metric | FY 2023 / Dec. 31, 2023 | FY 2022 / Dec. 31, 2022 |
|---|---|---|
| Total assets | $2.485 billion | $2.287 billion |
| Loans, net | $1.722 billion | $1.548 billion |
| Deposits | $2.039 billion | $1.974 billion |
| Net interest income | $88.4 million | $78.1 million |
| Net interest margin | 3.78% | 3.52% |
| Net income | $29.5 million | $24.4 million |
| Diluted earnings per share | $5.24 | $4.33 |
| Stockholders’ equity | $165.4 million | $138.1 million |
- Revenue: Net interest income plus noninterest income was $101.8 million, up 13.0%. Noninterest income was $13.4 million, including $10.3 million from trust and investment advisory services.
- Profit and expenses: Net income rose 21.0%. Noninterest expense increased 12.9% to $56.8 million; the efficiency ratio was approximately 55.8%, broadly unchanged from 2022.
- Credit costs and quality: FY 2023 provision for loan credit losses was $2.9 million, versus $9.5 million in 2022. The loan allowance was $25.2 million, or 1.44% of loans. Nonperforming loans were $4.4 million (0.25% of loans), down from $8.5 million (0.54%) at year-end 2022. Special-mention assets rose to $32.8 million from $8.0 million.
- Cash flow: Operating activities provided $44.5 million; investing activities used $144.9 million; financing activities provided $161.7 million. Cash and due from banks ended the year at $147.4 million.
- Liquidity and funding: Core deposits were 89.1% of deposits, with a reported core funding cost of 1.26%. The year-end average rate on total deposits was 1.29%. Brokered deposits were $172.4 million, excluding reciprocal deposits. FHLB advances totaled $234.5 million, with $495.6 million of additional stated borrowing capacity.
- Debt and capital: The company had $19.5 million of subordinated notes, net of issuance costs, bearing 4.25% through September 2025 before resetting to three-month SOFR plus 413 basis points. The Bank was classified as well capitalized; its total risk-based capital ratio was 14.16% and Tier 1 leverage ratio was 9.42%.
- Other balance-sheet items: Available-for-sale securities were $489.9 million, with $71.2 million of gross unrealized losses. Accumulated other comprehensive loss was $64.1 million. Assets under management or administration were $1.58 billion, up from $1.27 billion.
Material changes versus FY 2022
- Loans grew 11.3%, led by commercial real estate (CRE), which rose 14.7% to $1.26 billion. CRE represented 72.1% of total loans; construction loans declined to $85.7 million from $109.6 million.
- Deposit growth was 3.3%, but the mix shifted toward higher-cost certificates of deposit: CDs increased to $221.5 million from $93.0 million. Noninterest-bearing deposits fell to $699.2 million from $723.2 million.
- Interest income increased 39.8%, while interest expense rose 378.9% to $29.4 million, reflecting higher market rates, deposit repricing, and increased FHLB borrowing. Net interest margin improved, although net interest rate spread narrowed to 3.13% from 3.34%.
- Noninterest expense increased $6.5 million, principally from salaries, employee benefits, and professional fees. Wealth management revenue increased 11.2% to $10.3 million.
- Stockholders’ equity increased 19.7%, helped by retained earnings and a $4.1 million reduction in accumulated other comprehensive loss, largely reflecting improved securities values.
Outlook, risks, contingencies, and unusual items
- Outlook: The filing gives no numerical earnings or balance-sheet guidance. Management describes organic growth, expanding business relationships and fee-based services, and maintaining liquidity as priorities. It also anticipates continued competitive pressure on net interest margins and expects maturing time deposits to be substantially retained, with borrowing capacity available if needed.
- CRE concentration: The company disclosed CRE loans at 417% of risk-based capital and 102% portfolio growth over the preceding 36 months—levels that meet the filing’s cited supervisory CRE concentration indicators. Management could face heightened regulatory scrutiny or additional risk-management expectations.
- Funding and rate risks: Deposit competition, municipal deposit withdrawals, higher funding costs, interest-rate changes, and unrealized securities losses could affect liquidity, earnings, and capital. Uninsured deposits totaled approximately $1.0 billion at year-end.
- Credit and geographic risks: The loan book is concentrated in CRE and the Lower Hudson Valley/New York metropolitan area. Office and other income-producing property performance, local real estate values, and borrower cash flows are material risk factors. Special-mention assets increased materially even as nonperforming loans declined.
- Unusual item/accounting change: The company recognized $5.0 million of credit-loss provision and wrote off its Signature Bank subordinated debt investment following that bank’s failure. It adopted CECL on January 1, 2023, recording a $1.6 million after-tax reduction to retained earnings, including reserves for unfunded commitments.
- Legal and audit matters: Management stated pending litigation was not expected to have a material adverse effect. Crowe LLP issued an unqualified audit opinion; management concluded disclosure controls and internal control over financial reporting were effective. The auditor did not provide an internal-control attestation because the company is an emerging growth company.
- Dividend: The company stated its intent to continue a quarterly $0.23-per-share cash dividend, subject to Board discretion, regulatory restrictions, and subsidiary dividend capacity. A $0.23 dividend was declared in February 2024 and paid in March 2024.
Important facts for investors to verify
- Track CRE exposures, particularly office and other property categories, the rise in special-mention assets, and the effect of any deterioration in borrower cash flows or collateral values.
- Review deposit stability, uninsured and municipal deposit levels, brokered and reciprocal funding, deposit pricing, and the cost and availability of FHLB or other borrowings.
- Assess whether loan growth and future charge-offs remain adequately covered by the allowance, including the effects of CECL assumptions and forecasts.
- Monitor net interest margin and spread as deposits reprice and loans reset, and examine the securities portfolio’s unrealized losses and the company’s capacity to avoid selling securities at a loss.
- Confirm regulatory capital headroom, dividend capacity, and progress in managing the heightened CRE concentration indicators.