SEC Filing | Orange County Bancorp, Inc

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40711

Orange County Bancorp, Inc.

(Exact name of registrant as specified in its charter)


Delaware	26-1135778
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

212 Dolson Avenue

Middletown, New York 10940

(Address of Principal Executive Offices)

(845) 341-5000

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading symbol	Name of Exchange on which registered
Common Stock, par value $0.50 per share	OBT	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒	Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of September 8, 2021, there were 5,637,376 shares of the registrant’s common stock outstanding.

Table of Contents

TABLE OF CONTENTS


		Page

Part I	Financial Information

Item 1.	Financial Statements	3

	Condensed Consolidated Statements of Condition as of June 30, 2021 and December 31, 2020 (Unaudited)	3

	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2021 and 2020 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020 (Unaudited)	5

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	51

Item 4.	Controls and Procedures	51

Part II	Other Information

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	52

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3.	Defaults Upon Senior Securities	52

Item 4.	Mine Safety Disclosures	52

Item 5.	Other Information	52

Item 6.	Exhibits	53

Exhibit Index

Signatures

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

ORANGE COUNTY BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION

(UNAUDITED)

(Dollar amounts in thousands except per share data)


	June 30, 2021		December 31, 2020
ASSETS
Cash and due from banks	$	322,919	$	121,232
Investment securities – available-for-sale		377,738		330,105
Restricted investment in bank stocks		2,109		1,449
Loans		1,286,885		1,152,738
Allowance for loan losses		(17,049)		(16,172)
Loans, net		1,269,836		1,136,566
Net premises and equipment		14,124		14,017
Accrued interest receivable		7,090		6,295
Bank owned life insurance		29,064		28,520
Goodwill		5,359		5,359
Intangible assets		1,821		1,963
Other assets		22,172		19,430
TOTAL ASSETS	$	2,052,232	$	1,664,936
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	652,767	$	521,093
Interest bearing		1,218,898		968,201
Total deposits		1,871,665		1,489,294
Note payable		3,000		3,000
Subordinated notes, net of issuance costs		19,358		19,323
Accrued expenses and other liabilities		17,298		17,896
TOTAL LIABILITIES		1,911,321		1,529,513
STOCKHOLDERS’ EQUITY
Common stock, $0.50 par value; 15,000,000 shares authorized; 4,533,304 issued; 4,488,437 and 4,483,102 outstanding, at June 30, 2021 and December 31, 2020, respectively		2,266		2,266
Surplus		84,936		85,111
Retained Earnings		56,118		47,683
Accumulated other comprehensive income (loss), net of taxes		(1,116)		1,819
Treasury stock, at cost; 44,867 and 50,202 shares at June 30, 2021 and December 31, 2020, respectively		(1,293)		(1,456)
TOTAL STOCKHOLDERS’ EQUITY		140,911		135,423
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,052,232	$	1,664,936

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ORANGE COUNTY BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(Dollar amounts in thousands except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
INTEREST INCOME
Interest and fees on loans	$	14,033	$	11,444	$	27,261	$	22,446
Interest on investment securities:
Taxable		1,156		1,223		2,284		2,558
Tax exempt		408		233		771		359
Interest on Federal funds sold and other		61		28		104		208
TOTAL INTEREST INCOME		15,658		12,928		30,420		25,571
INTEREST EXPENSE
Savings and NOW accounts		617		851		1,209		1,807
Time deposits		137		254		295		535
FHLB advances		—		—		—		10
Note payable		42		42		84		84
Subordinated notes		230		—		460		—
TOTAL INTEREST EXPENSE		1,026		1,147		2,048		2,436
NET INTEREST INCOME		14,632		11,781		28,372		23,135
Provision for loan losses		809		1,310		875		2,510
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		13,823		10,471		27,497		20,625
NONINTEREST INCOME
Service charges on deposit accounts		158		117		333		325
Trust income		1,184		918		2,307		1,956
Investment advisory income		1,235		997		2,411		1,898
Investment securities gains		—		586		—		586
Earnings on bank owned life insurance		173		182		344		347
Other		278		206		524		435
TOTAL NONINTEREST INCOME		3,028		3,006		5,919		5,547
NONINTEREST EXPENSE
Salaries		4,726		4,634		9,273		8,819
Employee benefits		876		1,105		2,002		2,254
Occupancy expense		967		934		1,932		1,872
Professional fees		1,023		1,004		1,930		1,575
Directors’ fees and expenses		252		276		494		569
Computer software expense		1,032		920		2,090		1,714
FDIC assessment		267		197		555		366
Advertising expenses		285		338		568		651
Advisor expenses related to trust income		140		88		261		243
Telephone expenses		136		140		270		269
Intangible amortization		71		71		142		143
Other		626		197		1,199		1,020
TOTAL NONINTEREST EXPENSE		10,401		9,904		20,716		19,495
Income before income taxes		6,450		3,573		12,700		6,677
Provision for income taxes		1,257		695		2,482		1,323
NET INCOME	$	5,193	$	2,878	$	10,218	$	5,354

Basic and diluted earnings per share	$	1.16	$	0.64	$	2.28	$	1.19
Weighted average shares outstanding		4,488,602		4,514,345		4,485,886		4,512,382

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ORANGE COUNTY BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(Dollar amounts in thousands except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Net Income	$	5,193	$	2,878	$	10,218	$	5,354
Other comprehensive income:
Unrealized gains/losses on securities:
Unrealized holding gains/(losses) arising during the period		1,817		1,319		(3,722)		6,109
Reclassification adjustment for (gains)/losses included in net income		—		(586)		—		(586)
Tax effect		381		153		(782)		1,159
Net of tax		1,436		580		(2,940)		4,364
Defined benefit pension plans:
Reclassification adjustment for amortization of prior service cost and net gains included in net periodic pension cost		14		—		14		—
Tax effect		3		—		3		—
Net of tax		11		—		11		—
Deferred compensation liability:
Unrealized loss		(5)		(5)		(8)		(9)
Tax effect		(1)		(1)		(2)		(2)
Net of tax		(4)		(4)		(6)		(7)
Total other comprehensive income/(loss)		1,443		576		(2,935)		4,357
Total comprehensive income	$	6,636	$	3,454	$	7,283	$	9,711

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ORANGE COUNTY BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

(Dollar amounts in thousands except per share data)


							Accumulated Other
	Common				Retained		Comprehensive		Treasury
	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance, April 1, 2021	$	2,266	$	84,774	$	51,818	$	(2,559)	$	(1,218)	$	135,081
Net income		—		—		5,193		—		—		5,193
Other comprehensive income, net of taxes		—		—		—		1,443		—		1,443
Cash dividends declared ($0.20 per share)		—		—		(893)		—		—		(893)
Treasury stock purchased (2,536 shares)		—		—		—		—		(75)		(75)
Restricted stock expense		—		162		—		—		—		162
Balance, June 30, 2021	$	2,266	$	84,936	$	56,118	$	(1,116)	$	(1,293)	$	140,911

Balance, January 1, 2021	$	2,266	$	85,111	$	47,683	$	1,819	$	(1,456)	$	135,423
Net income		—		—		10,218		—		—		10,218
Other comprehensive loss, net of taxes		—		—		—		(2,935)		—		(2,935)
Cash dividends declared ($0.40 per share)		—		—		(1,783)		—		—		(1,783)
Issue of restricted stock (15,162 shares)		—		(436)		—		—		436		—
Treasury stock purchased (12,231 shares)		—		—		—		—		(343)		(343)
Restricted stock expense		—		262		—		—		—		262
Stock-based compensation (2,404 shares)		—		(1)		—		—		70		69
Balance, June 30, 2021	$	2,266	$	84,936	$	56,118	$	(1,116)	$	(1,293)	$	140,911


							Accumulated Other
	Common				Retained		Comprehensive		Treasury
	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance, April 1, 2020	$	2,266	$	84,792	$	41,169	$	(263)	$	(476)	$	127,488
Net income		—		—		2,878		—		—		2,878
Other comprehensive income, net of taxes		—		—		—		576		—		576
Cash dividends declared ($0.20 per share)		—		—		(898)		—		—		(898)
Treasury stock purchased (11,475 shares)		—		—		—		—		(350)		(350)
Restricted stock expense		—		102		—		—		—		102
Balance, June 30, 2020	$	2,266	$	84,894	$	43,149	$	313	$	(826)	$	129,796

Balance, January 1, 2020	$	2,266	$	85,178	$	39,589	$	(4,044)	$	(926)	$	122,063
Net income		—		—		5,354		—		—		5,354
Other comprehensive income, net of taxes		—		—		—		4,357		—		4,357
Cash dividends declared ($0.40 per share)		—		—		(1,794)		—		—		(1,794)
Issue of restricted stock (14,532 shares)		—		(442)		—		—		442		—
Treasury stock purchased (16,600 shares)		—		—		—		—		(502)		(502)
Restricted stock expense		—		189		—		—		—		189
Stock-based compensation (4,332 shares)		—		(31)		—		—		160		129
Balance, June 30, 2020	$	2,266	$	84,894	$	43,149	$	313	$	(826)	$	129,796

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ORANGE COUNTY BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Dollar amounts in thousands except per share data)


	Six Months Ended
	June 30,
	2021		2020
Cash flows from operating activities
Net income	$	10,218	$	5,354
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		875		2,510
Depreciation		657		637
Accretion on loans		(2,453)		(539)
Amortization of intangibles		142		143
Amortization of subordinated notes issuance costs		35		—
Investment securities (gains) losses		—		(586)
Restricted stock expense		262		189
Stock-based compensation		69		129
Net amortization of investment premiums		1,104		1,058
Earnings on bank owned life insurance		(344)		(347)
Net change in:
Accrued interest receivable		(795)		(4,236)
Other assets		(1,950)		(407)
Other liabilities		(603)		(643)
Net cash from operating activities		7,217		3,262
Cash flows from investing activities
Purchases of investment securities available-for-sale		(124,635)		(97,081)
Proceeds from sales and paydowns of investment securities available-for-sale		52,299		54,335
Proceeds from maturities and calls of investment securities available-for-sale		19,877		15,412
Purchase of restricted investment in bank stocks		(662)		(3,347)
Proceeds from redemptions of restricted investment in bank stocks		2		3,372
Loans purchased		(3,025)		(15,019)
Principal returned on loans purchased		9,322		5,766
Net increase in loans		(137,989)		(147,829)
Additions to premises and equipment		(764)		(506)
Purchase of bank owned life insurance		(200)		—
Net cash from investing activities		(185,775)		(184,897)
Cash flows from financing activities
Net increase in deposits		382,371		351,711
Net change in FHLB term advances		—		(5,000)
Cash dividends paid		(1,783)		(1,794)
Purchases of treasury stock		(343)		(502)
Net cash from financing activities		380,245		344,415
Net change in cash and cash equivalents		201,687		162,780
Beginning cash and cash equivalents		121,232		25,112
Ending cash and cash equivalents	$	322,919	$	187,892
Supplementary Cash Flow Information
Interest paid		2,064		2,471
Income taxes paid		2,132		1,241

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Note 1 — Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation: The unaudited consolidated financial statements include Orange County Bancorp, Inc., a Delaware bank holding company (“Orange County Bancorp”) and its wholly owned subsidiaries: Orange Bank & Trust Company, a New York trust company (the “Bank”) and Hudson Valley Investment Advisors (“HVIA”), a Registered Investment Advisor, together referred to as “the Company.” Intercompany transactions and balances are eliminated in consolidation.

The Company provides commercial and consumer banking services to individuals, small businesses and local municipal governments as well as trust and investment services through the Bank and HVIA. The Company is headquartered in Middletown, New York, with eight locations in Orange County, New York, five in Westchester County, New York and one in Rockland County, New York. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial real estate, commercial and residential mortgage loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the areas in which they operate.

Assets held by the Company in an agency or fiduciary capacity for its customers are excluded from the consolidated financial statements since they do not constitute assets of the Company. Assets held by the Company amounted to $1,237,523 and $1,189,119 at June 30, 2021 and December 31, 2020, respectively.

Certain information and footnote disclosures normally included in the audited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, included herein for the year ended December 31, 2020 for Orange County Bancorp, Inc. contained in the Company’s definitive prospectus dated August 4, 2021 as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(4) on August 5, 2021. In the opinion of the management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal and recurring accruals) necessary to present fairly the financial position as of June 30, 2021, the results of operations, comprehensive income, stockholders’ equity for the three and six months ended June 30, 2021 and 2020 and cash flow statements for the six months ended June 30, 2021 and 2020. The results of operations for any interim period are not necessarily indicative of the results that may be expected for the full year or for any future period.

Risk and Uncertainties: On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to, among other things, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic. The COVID-19 pandemic has adversely affected, and continues to adversely affect economic activity globally, nationally and locally. Actions taken around the world to help mitigate the spread of COVID-19 include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. COVID-19 and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the New York metropolitan area in which the Company primarily operates. Although the Company has been able to continue operations while taking steps to ensure the safety of employees and customers, COVID-19 could also potentially create widespread business continuity issues for the Company. This could cause the Company to experience a material adverse effect on business operations, asset valuations, financial condition and results of operations. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, and loans.

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Use of Estimates: To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Recent Accounting Pronouncements: On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2018-14, Compensation — Retirement Benefits Topic 715-20. This ASU amends Accounting Standards Codification (“ASC”) 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The ASU eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year, and also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. The adoption of the ASU did not have a significant impact on the Company’s consolidated financial statements.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments — Credit Losses Topic 326: Measurement of Credit Losses on Financial Instruments. The objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. In November 2019, the FASB adopted changes to delay the effective date of ASU 2016-13 to January 2023 for certain entities, including certain Securities and Exchange Commission filers, public business entities, and private companies. As a result, the Company is eligible for the delay and will adopt the ASU effective January 1, 2023. The Company is currently working with a third-party vendor in the development of certain methodologies and modeling techniques that will be implemented to accommodate this adoption. It is expected that the modeling of the new accounting standard will be run in parallel with the Company’s current incurred loss methodology throughout 2022 in an effort to evaluate and inform the potential impact the adoption of ASU 2016-13 will have on its consolidated financial statements and results of operations.

Note 2 — Investment Securities

The amortized cost and fair value of investment securities at June 30, 2021 and December 31, 2020:

Gross

Amortized

Unrealized

Fair

Cost

Gains

Losses