OCBI - Orange County Bancorp Inc. Announces Record Q4 and FY 2020 Results

• Net Income for full-year 2020 increased 2.6% to $11.4 million
• Allowance for loan losses rose 31.7% year-over-year to $16.2 million following a $3.2 million increase in provision for loan losses in 2020
• Average Loans (net of PPP) increased 17.6% year-over-year to $961.8 million
• Average Demand Deposits grew 51.7% year-over-year to $449.4 million
• Total Assets grew $435.8 million, or 35.5%, year-over-year to $1.66 billion
• Tangible Book Value per Share of $28.26 rose $3.10, or 12.3%, versus year end 2019
• Return on common equity for full-year 2020 rose 23 basis points to 8.88%
• Return on average assets for full-year 2020 fell 19 basis points to 0.79%
• Revenues on our trust and asset advisory businesses increased 17.6% to $8.8 million

MIDDLETOWN, NY / ACCESSWIRE / February 1, 2021 / Orange County Bancorp, Inc. (the "Company") (OTCQX:OCBI), parent of Orange Bank & Trust Co. (the "Bank") and Hudson Valley Investment Advisors, Inc. (HVIA), today announced net income for the quarter and twelve month period ended December 31, 2020 of $3.3 million, or $0.74 per share, and $11.4 million, or $2.53 per share, respectively. These results compare favorably with $3.1 million, or $0.70 per share, and $11.1 million, or $2.46 per share for the three and twelve months ended December 31, 2019, respectively, and reflect record fourth quarter and full year results for the Company.

"2020 was a dynamic and challenging year for the Company and I am extremely proud of how our team responded," said Michael Gilfeather, Orange County President and Chief Executive Officer. "Despite continued economic and operational challenges related to COVID-19, we were able to generate record earnings despite taking a conservative and higher than normal provision for loan losses to account for the economic uncertainty brought on by the pandemic. Our loans, deposits and tangible book value all saw significant year-over-year increases. All this was accomplished while actively helping clients manage through an unprecedented health crisis and economic shut down.

New York State's ongoing efforts to balance economic interests and further spread of the virus recently allowed for partial re-opening of business in many of the economies we serve. The resulting increase in economic activity, though still below pre-COVID levels, enabled us to reduce deferred loan balances more than 84% at year end from their second quarter peak. We remain cautious, however, and will continue to closely monitor and work with clients through this challenging period. Barring any significant reversal, we expect loans brought current will remain so and that we will be able to further reduce deferrals as business in the markets we serve continues to improve.

At the national level, unprecedented federal response to the COVID shutdown has left the entire U.S. banking community with the challenge of historically low interest rates and high levels of liquidity. This has created significant margin pressure across the industry. Despite these challenges, we grew net interest income 16.6% in the 4^th quarter and 12.8% for full year 2020. These numbers include $59.2 million of Payroll Protection Program (PPP) loans held by the bank, which carry an interest rate of just 1%. This was an important program for our clients, which I am extremely proud of the Bank's role in, as we originated more than $100 million in loans for over 800 clients on an unusually accelerated basis. We stand ready to assist clients further as the loan forgiveness process unfolds and are already active in the second round of PPP funding with over $53 million in approved and pending applications through January 25, 2021.

Loans and deposits both showed strong growth during the quarter and year, even as we continued to maintain conservative lending standards in the current business and interest rate environment. Of particular note is our growth in average non-interest bearing deposits, which rose over 50% for the year to $449 million. While a portion of this increase represents liquidity added to the banking system through Fed action, it also reflects success in our efforts to expand business client outreach and earn a greater share of their banking business.

Though the current interest rate environment presents challenges, it also enabled us to secure $20 million in low-cost financing in the 3^rd quarter through the issuance of 10-year Subordinated Notes with a 5-year fixed interest rate of 4.25%. This debt, combined with our low-cost deposit base, strengthens the Bank's financial foundation and will support continued growth in the future. As of December 31, 2020, $10 million of these proceeds were down-streamed to the Bank as capital. The Company expects to contribute additional capital in this fashion as required. During the quarter we also authorized a $5 million share repurchase program. When market conditions resulted in our stock falling to levels we felt represented an attractive buying opportunity, we purchased 19,522 shares of common at an average price of $27.16 per share.

The Company's Trust Division and its investment advisory subsidiary, HVIA, also grew in 2020, finishing the year with over $1.2 billion in combined assets under management ("AUM"), a $108 million increase. The growth in new AUM totaled $104 million, while rising market values completely offset any attrition. In aggregate, revenue from these businesses rose $361 thousand, or 17.6%.

To build on this momentum and success of the Bank's Private Banking program, the Company reorganized its wealth management practices under a new umbrella at the holding company level at the end of the 4th quarter. Centralization of the Banks' investment management, banking and trust services is a natural evolution that will enable us to continue to develop superior asset management tools for our top business and consumer clients.

At the same time, the Bank announced its new "Orange Wealth Solutions" service. Orange Wealth Solutions combines best-in-class personal service with technology designed to provide sound and actionable financial planning. The service has two products: (i) "Orange Wealth Navigator" a cloud based account aggregation tool that delivers comprehensive, real-time analysis, insight and planning with a secure online portal, and a "data vault" where clients can retain and easily access important documents anywhere, anytime all on a single dynamic platform, and (ii) Financial Planning, comprehensive planning provided by a certified financial planner to assist clients to better evaluate their overall current and long term financial requirements.

In other important news, our new branches in the Bronx and Nanuet are under construction and expected to open in the spring. These new locations hold great, untapped potential and are natural extensions for the bank, especially for the business, trust and wealth services we offer.

With 2020 behind us, we hope for an improving, calmer, more stable operating environment in the year ahead. Many of last year's challenges, however, remain. Experience has repeatedly shown us dedication to our clients, adherence to conservative banking and lending standards, and excellence in the products and services we provide, are our best means of navigating such challenges and continuing to deliver outstanding results to our shareholders. We remain committed to doing so in 2021 and beyond."

Income Statement Summary
Net interest income for the twelve months ended December 31, 2020 increased $5.5 million, or 12.8%, to $49.0 million compared with the same period last year. The increase is primarily the result of a $329.6 million, or 29.5%, increase in average interest earning assets, including a $143.7 million, or 17.5%, increase in average core loans and $59.2 million of PPP loans. Despite higher net interest income, net interest margin for the twelve months ended December 31, 2020 fell to 3.39%, down 48 basis points versus the same period last year. The decline in margin is due primarily to the high level of Federal funds sold earning just 22 basis points, combined with lower earnings on the investment portfolio resulting from historically low market interest rates. The cost of interest-bearing deposits for the twelve months ended December 31, 2020 was 0.51%, compared to 0.64% for the twelve months ended December 31, 2019, a decrease of 13 basis points. The Company experienced exceptional growth in non-interest bearing demand accounts, with an increase of $153.1 million, or 51.7%, to $449.4 million in average non-interest bearing demand accounts for the twelve months ended December 31, 2020. The total cost of deposits for the twelve months ended December 31, 2020 was 0.34% compared to 0.46% for the twelve months ended December 31, 2019.

Net interest income for the three months ended December 31, 2020 rose $1.9 million, or 16.6%, to $13.2 million, versus the prior year. The increase is primarily the result of a $422.7 million, or 35.8%, increase in average interest earning assets and related $156.4 million, or 18.0%, increase in core average loans outstanding, plus $81.2 million of PPP loans. Net interest margin of 3.27% for the three months ended December 31, 2020 represents a 53 basis point, or 13.9%, decrease versus 3.80% for the same period last year.

The bank's total provision for loan losses was $5.4 million for the twelve months ended December 31, 2020, compared with $2.2 million for the year ended December 31, 2019. Non-accrual loans, as a percent of total loans outstanding, was 0.17% as of December 31, 2020, an increase of 0.07% versus the prior quarter and unchanged versus the same quarter last year.

Non-interest income increased $1.6 million to $12.0 million, on a year-over-year basis, primarily due to a $1.0 million increase in investment securities and a $543 thousand increase in Trust fee income. During the three months ended December 31, 2020, non-interest income rose $491 thousand, to $3.2 million, compared to the three months ended December 31, 2019, primarily as a result of a $221 thousand increase in Trust fee income and a $140 thousand increase of investment advisory income.

Non-interest expense rose $3.7 million, or 9.8%, to $41.5 million for the twelve months ended December 31, 2020, as a result of a $1.4 million increase in salaries and employee benefits associated with growth-related staffing, a $962 thousand increase in computer software expense, which included a $300 thousand expense related to a volume based fee on a terminated contract, a $764 thousand increase in professional expenses related to increased fees for internal and external auditing for organizations over $1 billion in assets and third party management of the investment function, as well as a $540 thousand increase in the Federal Deposit Insurance Corporation ("FDIC") insurance assessment resulting from deposit growth and absence of a $370 thousand FDIC insurance credit issued to small institutions in 2019. Non-interest expense increased $985 thousand, to $10.6 million, for the three months ended December 31, 2020 compared to the three months ended December 31, 2019.

Total income before taxes increased $230 thousand, or 1.7%, to $14.15 million for the twelve months ended December 31, 2020, from $13.92 million for the twelve months ended December 31, 2019. The Company's effective income tax rates for the quarter and twelve months ended December 31, 2020 were 19.1% and 19.5%, respectively. These compare with effective tax rates of 19.3% and 20.3% for the quarter and twelve months ended December 31, 2019.

Balance Sheet Summary
Total assets increased $435.8 million, or 35.5%, to $1.66 billion at December 31, 2020, from $1.23 billion at December 31, 2019. This was primarily due to increases of $260.2 million, or 29.2%, in loans receivable and $96.1 million, or 382.8%, in cash and cash equivalents. The increase in cash and cash equivalents is principally due to increases in deposits combined with the $20 million in proceeds from the subordinated debt offering, while the increase in loans receivable was the result of $298.0 million of new loan originations and $88.1 million in participations and purchases, partially offset by $125.2 million of net amortization and repayments on our existing portfolio. For the quarter ended December 31, 2020, new loan originations totaled $77.8 million, loan participations and purchases totaled $45.9, and net amortization and repayments totaled $50.1 million.

Total liabilities increased $422.8 million, or 38.2%, to $1.53 billion for the twelve months ended December 31, 2020, from $1.11 billion at December 31, 2019. This was due primarily to a $406.2 million increase in total deposits and the issuance of $20 million in subordinated notes in September of 2020, partially offset by a $5 million reduction in FHLB advances. Total liabilities decreased $64 million, from $1.59 billion, at September 30, 2020, driven by anticipated seasonal reductions in municipal deposit balances.

Total deposits as of December 31, 2020 were $1.49 billion, an increase of $406.2 million, or 37.5%, from the prior year. Commercial deposits increased $241.5 million, or 44.4%, to $785.8 million, or 52.8%, of total deposits at December 31, 2020 compared to $544.2 million, or 50.2%, of total deposits at December 31, 2019. Noninterest bearing demand deposits increased $185.6 million, or 55.3%, to $521.1 million during the twelve months ended December 31, 2020.

Total shareholders' equity increased $13.1 million, or 10.8%, to $134.0 million at December 31, 2020, from $120.9 million at December 31, 2019. This was due to an $8.1 million increase in retained earnings, a $4.9 million increase in the market value of securities available for sale, and a $1.4 million improvement in the unfunded pension liability, partially offset by a $530 thousand increase in treasury stock related to the share repurchase in 2020.

At December 31, 2020, the Company's book value per common share and tangible book value per common share were $29.89 and $28.26, respectively, compared to $26.85 and $25.16, respectively, at December 31, 2019. This represents increases of 11.3% and 12.3%, respectively. At December 31, 2020, the Bank exceeded the "well capitalized" thresholds under applicable regulatory guidelines.

Asset Quality Summary

Non-performing loans increased to $2.00 million or 0.17% of total loans as of December 31, 2020, from $1.55 million or 0.17% of total loans as of as of December 31, 2019.

Loans classified as substandard or doubtful decreased $2.3 million, or 16.6%, to $11.7 million at December 31, 2020 from $14.0 million at December 31, 2019. Watch rated loans increased $19.9 million to $31.2 million at December 31, 2020 from $11.2 million at December 31, 2019. The increase in "watch" loans is consistent with the uncertainties in the market due to COVID-19. Delinquencies decreased to $3.7 million or 0.32% of total loans at December 31, 2020, a decrease of $4.4 million from $8.2 million or 0.92% of total loans at December 31, 2019. The decrease in delinquencies is primarily attributable to a single relationship made current by the borrower subsequent to the year ended December 31, 2019.

Management continues to actively evaluate performance trends and industry dynamics across asset classes to assess underlying business and liquidity risks stemming from the economic impact of COVID-19. While the Bank is taking active steps to provide payment relief from debt service through forbearance agreements, the focus has shifted toward the resumption of loan payments, as management believes borrowers in need of payment deferrals have largely been accommodated at this time. This relief has been structured as 90-day deferments of principal and interest and effected broadly across the portfolio based on our analysis and input from customers. Most borrowers that requested payment deferrals early in the cycle commenced scheduled repayments of their loan obligations after the end of their initial 90 day deferral. Deferred loans at June 30, 2020 were $310.4 million, or 29.5%, of the loan portfolio. At December 31, 2020, deferred loan balances fell to $48.8 million, or 4.2%. of the portfolio. Through January 25, 2021, $13.6 million of deferred loans resumed payments and came off of deferral, reducing the deferred balance to $35.2, or 3.0% of total loans. Management anticipates this trend to continue into 2021 and believes the deferral program has proven instrumental in helping customers bridge this difficult economic environment.

Deferred loans at December 31, 2020 are shown in the table below:

Uncertainties about the credit environment during the pandemic prompted the increase in allowance for loan losses in 2020. The Company's allowance for loan losses increased $3.9 million, or 31.8%, to $16.2 million at December 31, 2020 from $12.2 million at December 31, 2019. At December 31, 2020, the allowance was 1.40% of total loans outstanding, an increase from 1.38% at December 31, 2019. Excluding the $69 million in PPP loans, which are characterized as a zero risk-weighted asset class, the allowance to loans ratio is 1.49% at December 31, 2020. The Bank will continue to prudently manage reserves through close monitoring of business conditions and higher risk loans, as well as thorough analysis of the profitability and cash flow of loan customers.

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 conservative banking practices, ongoing innovation and an unwavering commitment to its community and business clientele to $1.7 billion in total assets. In recent years, Orange Bank & Trust Company has added branches in Rockland and Westchester Counties and is opening a new office in the Bronx and one in Nanuet in 2021. 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. For more information, visit orangebanktrust.com or hviaonline.com.

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

Orange County Bancorp, Inc.
Selected Financial Data (unaudited)
(dollar amounts in thousands except per share data)