Orange County Bancorp, Inc. (NASDAQ:OBT) is a bank holding company that operates through its wholly-owned subsidiaries, Orange Bank & Trust Company and Hudson Valley Investment Advisors, Inc. The company provides a comprehensive suite of commercial and consumer banking services, as well as trust and wealth management offerings, to individuals, small businesses, and local municipalities across the Lower Hudson Valley region, the New York metropolitan area, and nearby markets in Connecticut and New Jersey.
Company History and Evolution
Orange County Bancorp was founded in 1896 when 14 local founders had the vision to establish a community bank in Middletown, New York. Originally named Orange Bank Trust Company, the institution has grown significantly over its 125-year history. In its early years, the bank focused on serving the banking needs of small businesses and individual customers in its local Middletown community. As the company expanded, it gradually opened additional branches throughout Orange County, New York, to better serve its growing customer base.
A significant milestone in the company’s history occurred in 2001 with the establishment of Hudson Valley Investment Advisors (HVIA), a registered investment advisory firm. This strategic move allowed Orange County Bancorp to diversify its business model beyond traditional banking and generate fee-based revenue streams through trust and wealth management services for individuals and institutions.
The company faced a major challenge during the Great Recession of 2008. Like many financial institutions, Orange County Bancorp experienced an increase in non-performing assets and loan delinquencies as the economic environment deteriorated. However, the company’s prudent risk management practices and focus on relationship banking helped it navigate the crisis relatively well compared to its peers.
In 2021, Orange County Bancorp achieved another significant milestone by completing a successful initial public offering and listing its common stock on the Nasdaq Stock Market. This event provided the company with access to public capital markets to support its continued growth and strategic initiatives.
Financials
The company’s financial performance has been robust, with a history of steady growth and profitability. As of September 30, 2024, Orange County Bancorp reported total assets of $2.50 billion, a 1.4% increase from the $2.49 billion reported at the end of 2023. Total loans, net of the allowance for credit losses, increased by 2.5% to $1.77 billion, while total deposits grew by 5.0% to $2.10 billion over the same period.
The company’s net interest income increased by 2.1% to $23.0 million for the third quarter of 2024, compared to $22.5 million in the same period of the prior year. This improvement was driven by a 15 basis point increase in the average yield on interest-earning assets, which reached 5.21% during the quarter. The net interest margin expanded by 3 basis points to 3.81% for the third quarter of 2024, reflecting the company’s disciplined pricing and funding strategies.
Noninterest income also contributed to Orange County Bancorp’s strong performance, rising by 29.6% to $4.17 million in the third quarter of 2024, compared to $3.22 million in the same period of the prior year. This growth was primarily driven by a 30.6% increase in investment advisory income and an 84.0% increase in earnings on bank-owned life insurance.
For the most recent fiscal year (2023), Orange County Bancorp reported revenue of $101.69 million, net income of $29.48 million, operating cash flow of $44.50 million, and free cash flow of $40.96 million. In the most recent quarter (Q3 2024), the company’s revenue increased by 4.4% to $31.44 million compared to Q3 2023. However, net income decreased by 64.4% to $3.22 million, primarily due to a $6.35 million increase in the provision for credit losses, which was partially offset by increases in net interest income and noninterest income. Operating cash flow for Q3 2024 was $10.25 million, with free cash flow of $9.96 million.
Liquidity
Despite the challenges posed by the current economic environment, Orange County Bancorp has maintained a robust capital position, exceeding all applicable regulatory capital requirements. As of September 30, 2024, the company’s total capital to risk-weighted assets ratio was 14.89%, well above the 10.0% requirement for well-capitalized institutions.
The company’s liquidity position remains strong, with a debt-to-equity ratio of 0.84 as of September 30, 2024. Cash and due from banks totaled $160.87 million at the end of Q3 2024. Orange County Bancorp has a $491.6 million borrowing capacity from the Federal Home Loan Bank of New York and a $4.5 million collateralized line of credit from the Federal Reserve Bank of New York discount window. The company’s current ratio and quick ratio both stood at 12.81 as of September 30, 2024, indicating a strong ability to meet short-term obligations.
Key Success Factors
One of the key factors contributing to Orange County Bancorp’s success is its focus on building strong relationships with its customers. The company’s relationship-based approach, combined with its commitment to providing personalized service, has allowed it to retain and grow its customer base, even in the face of increased competition from larger regional and national banks.
Moreover, Orange County Bancorp has consistently demonstrated its ability to adapt to changing market conditions. The company has strategically expanded its geographic footprint, diversified its revenue streams, and invested in technology to enhance its service offerings and operational efficiency.
Business Segments
Orange County Bancorp operates through two main business segments: the banking business segment and the wealth management business segment.
The banking business segment, which operates through Orange Bank & Trust Company, is the primary driver of the company’s overall financial performance. In Q3 2024, this segment reported net interest income of $22.97 million, a 2.1% increase compared to Q3 2023. The increase was driven by a 4.4% rise in total interest income to $31.44 million, partially offset by an 11.5% increase in interest expense to $8.47 million. The segment’s provision for credit losses increased significantly to $7.19 million in Q3 2024, compared to $837,000 in the prior year period, primarily due to a $5.6 million reserve established for a specific nonaccrual commercial real estate loan participation.
The wealth management business segment, which includes asset management and trust services provided through Hudson Valley Investment Advisors and the trust services department of Orange Bank & Trust Company, reported net income of $744,000 in Q3 2024, a 20.1% increase from Q3 2023. Noninterest income for this segment grew 20.0% to $3.12 million, driven by continued growth in assets under management and new customer relationships. As of September 30, 2024, the market value of assets under management and/or administration by the wealth management segment was $1.79 billion, up from $1.44 billion a year earlier.
Industry Trends and Performance
The banking industry has experienced steady loan growth and rising interest rates in recent years, which has generally benefited net interest margins for many banks. Orange County Bancorp has capitalized on this trend, with its loan portfolio growing at a compound annual growth rate (CAGR) of 5.8% over the past three years.
As a small-cap regional bank, Orange County Bancorp’s operations are primarily concentrated in the Lower Hudson Valley region, the New York metropolitan area, and nearby markets in Connecticut and New Jersey. The company has not reported any significant operations outside of this geographic footprint.
Future Outlook
Looking ahead, Orange County Bancorp remains well-positioned to navigate the challenges and capitalize on the opportunities presented by the evolving banking landscape. The company’s experienced management team, prudent risk management practices, and strong customer relationships provide a solid foundation for continued growth and success.
It is worth noting that the company has not reported any major scandals, short seller reports, or CEO departures. Orange County Bancorp continues to operate under the leadership of its current management team, maintaining stability in its governance and strategic direction.
In conclusion, Orange County Bancorp, Inc. is a community bank that has demonstrated its resilience and adaptability over its 125-year history. The company’s focus on serving the needs of its local communities, coupled with its strategic initiatives and robust financial performance, make it an attractive investment opportunity for those seeking exposure to the banking sector. Despite challenges such as increased credit loss provisions in recent quarters, Orange County Bancorp maintains a strong liquidity position and continues to deliver solid financial results in its core banking and wealth management segments.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.