Orange County Bancorp, Inc. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022, compared with 2021. Although the request identifies 2022 Q4, this filing is an annual report and does not provide a clear standalone fourth-quarter results summary.
Business context
Orange County Bancorp is a bank holding company operating Orange Bank & Trust Company and Hudson Valley Investment Advisors. It provides commercial and consumer banking, trust, and wealth management services, principally in New York’s Lower Hudson Valley and metropolitan area. At year-end, the company reported $2.3 billion in assets, $1.6 billion in loans, $2.0 billion in deposits, and $138.1 million in stockholders’ equity. Trust and wealth management assets under management or administration were approximately $1.3 billion.
Financial performance and position
| Metric | 2022 | 2021 / change |
|---|---|---|
| Net income | $24.4 million | $21.3 million; up 14.5% |
| Basic and diluted EPS | $4.33 | $4.28 |
| Net interest income | $78.1 million | $60.5 million; up 29.2% |
| Net interest margin | 3.52% | 3.15% |
| Noninterest income | $12.0 million | $12.1 million; down 0.9% |
| Noninterest expense | $50.3 million | $43.5 million; up 15.7% |
| Provision for loan losses | $9.5 million | $2.4 million |
| Operating cash flow | $30.5 million | $20.3 million |
Loans increased 21.5% to $1.57 billion, driven mainly by commercial real estate (CRE) and construction lending. CRE was 70.0% of loans. Deposits rose 3.1% to $1.97 billion; core deposits were 95.3% of total deposits. Average cost of interest-bearing liabilities rose to 0.45% from 0.33%, while the reported year-end average deposit rate was 0.52%.
Cash and due from banks fell 71.9% to $86.1 million, while available-for-sale securities increased to $533.5 million. The company used $434.1 million in investing activities and generated $183.5 million from financing activities. Year-end FHLB advances were $131.5 million, with $441.5 million of additional stated borrowing capacity. It also had $19.4 million of subordinated notes outstanding, net of issuance costs; the former-shareholder note payable was repaid in 2022.
Stockholders’ equity declined 24.4% to $138.1 million, primarily due to a $64.8 million increase in accumulated other comprehensive loss, largely reflecting unrealized securities losses, and $4.7 million of dividends, partly offset by net income. The Bank was classified as well capitalized; its year-end total capital-to-risk-weighted-assets ratio was 13.95% and Tier 1 leverage ratio was 9.09%.
Material changes and notable items
- Net interest income and margin improved as asset yields rose faster than funding costs during 2022’s rate increases.
- Provision expense increased by $7.1 million. Net charge-offs rose to $5.3 million from $0.9 million, including charge-offs related to two syndicated loan relationships.
- Nonperforming assets increased to $8.5 million, or 0.37% of assets, from $6.0 million, or 0.28%. The allowance was $21.8 million, or 1.39% of loans.
- Available-for-sale securities had $76.6 million of gross unrealized losses at year-end, compared with $5.5 million in 2021; the filing reports no impairment charge and attributes losses primarily to interest rates and illiquidity rather than credit quality.
- Wealth management revenue declined 3.5% to $9.3 million, while reported AUM and administration assets fell to $1.27 billion from $1.33 billion, reflecting market-value declines partly offset by new assets.
- On March 12, 2023, Signature Bank was closed. The company held approximately $5 million of Signature Bank notes and expected an impairment charge in first-quarter 2023.
- Effective January 1, 2023, the company expected CECL adoption to leave the loan-loss allowance flat or increase it by up to $3.0 million pre-tax, plus up to $0.5 million for unfunded commitments; it expected no securities-portfolio adjustment.
Outlook, risks, and contingencies
Management expected interest rates to continue rising in 2023 and stated that the company’s asset sensitivity meant higher rates and a steeper yield curve could benefit net interest income. This is not quantified earnings guidance. Management also cautioned that funding costs could rise faster than asset yields and that competition for deposits and liquidity could intensify.
Key exposures include CRE concentration: CRE loans were 399% of risk-based capital, and the portfolio had grown 92% over the preceding 36 months, levels that may draw heightened regulatory scrutiny. The company also reported $1.2 billion of uninsured deposits, approximately 61% of total deposits, and $300.1 million of municipal deposits. It noted that deposit outflows could require greater use of borrowings, securities or loan sales, or slower loan growth, potentially raising funding costs. Other disclosed risks include local real estate and economic conditions, inflation, interest-rate changes, cybersecurity and third-party service providers, and wealth-management market sensitivity.
The company had $389.1 million in loan commitments and $13.6 million in standby letters of credit. Management did not expect material losses from these commitments. Management stated that pending legal matters were not expected to have a material effect. The quarterly dividend was $0.23 per share, subject to board discretion, capital, regulatory, and other restrictions. The independent auditor gave an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective as of year-end.
Important facts for investors to verify
- Whether the Signature Bank note impairment was recognized in first-quarter 2023 and its final amount.
- Subsequent credit performance, charge-offs, and allowance adequacy, especially for CRE and syndicated or purchased loans.
- Deposit stability and funding costs, including uninsured and municipal deposit concentrations, brokered deposits, and use of FHLB advances.
- The realized or regulatory-capital effects of securities losses and the final CECL allowance adjustment.
- Whether loan growth, margin performance, wealth-management fees, and the $0.23 quarterly dividend remain sustainable under changing rates and market conditions.