To Our Stockholders, Customers, and Friends:
On behalf of the Board of Directors of Orange County Bancorp, Inc. (the “Company”), we are pleased to present our 2012 Annual Report. The year 2012 was both challenging and exciting. The challenge came from the continuing effects of the 2007-2008 financial crisis and the measures taken by the Federal Reserve to keep interest rates exceptionally low. The exciting part is further described on the second page of this report - the acquisition of Hudson Valley Investment Advisors. Our consolidated financial statements now include two wholly owned subsidiaries: Orange County Trust Company (the “Bank”) and Hudson Valley Investment Advisors, Inc. (HVIA).
On December 31, 2012, assets of the Company were $663.8 million, an increase of $30.9 million or 4.9% from $632.9 million on December 31, 2011. Our loan portfolio increased to $300.0 million from $292.9 million, an increase of $7.1 million or 2.4%. Deposits once again increased substantially from $447.8 million to $481.8 million, an increase of $34.0 million or 7.6%. This is largely a result of our initiative to support the needs of local municipalities by accepting and securing their deposits and bidding competitively on their bond requests. In spite of continued margin compression and the escalating costs of regulatory compliance, 2012 net income rose to $7.8 million from $7.6 million in 2011, an increase of 2.6%.
ORANGE COUNTY TRUST COMPANY
Strong earnings at the Bank highlight our ability to effectively manage assets in a low interest rate environment. Prolonged low rates, such as we have experienced in recent years, have a material impact on the net interest margin of all banks. With market loan demand still fairly weak, we have had a limited universe of qualified investment alternatives and investments deemed suitable have very low yields. By all accounts, this trend will continue along the same general course in 2013 and beyond. Management acknowledges these challenges and is dedicated to optimizing income opportunities and controlling expenses. Loan demand remained less robust than expected throughout most of 2012, but resulted in a moderate increase in the year over year portfolio balance. While commercial borrowers, in general, have very strong balance sheets and the capacity to add assets, there appears to be a great deal of fear based on market and political uncertainty. Some of this reluctance seems to be subsiding as we enter 2013. We have been asked to consider several high profile credits which exhibit strong credentials and we look forward to getting those loans on the books. However, during December, non-current loans jumped to 5.1% of gross loans compared to 2.9% in 2011. This was primarily due to the delinquency of two sizeable loans. We will continue to work with the borrowers to manage through these difficult situations.
Terry R. Saturno
President and CEO