TYSONS CORNER, Va., July 31, 2023 - We are pleased to report strong second quarter 2023 financial results. The quarter was highlighted by a record level of assets, loans and deposits, while bolstered by our successful common equity capital raise of $28.1 million. Net income for the second quarter of 2023 was $1.2 million, an increase of 11.1% from $1.1 million in the prior quarter.

We delivered our fourteenth consecutive quarter of profitability for the quarter ended June 30, 2023, as a result of the continued investments in our people, products and technology, further validating our high-touch and personalized approach to client service. We continue to grow deposit market share to deliver long-term franchise value to our shareholders. ODNB Financial Corporation (the “Company” or “ODNB”), the holding company for Old Dominion National Bank (the “Bank”) continues to serve its growing number of customers across Northern Virginia and the Washington, D.C. metro area, Central Virginia and the Charlottesville area, and Pennsylvania through its Centre 1st Bank division.

Our access to capital and growth in deposits have equipped us to continue serving the needs of our loan customers at a time when many banks in our market have pulled back lending efforts. Our talented team continues to navigate through the rapidly changing interest rate environment and uncertainties in the economy to maintain an acceptable net interest margin (“NIM”) and superior credit quality. Our total assets and loans both increased by approximately 5%, a 20% annualized rate, during the quarter. Additionally, we achieved nearly 2% in deposit growth during the quarter. While the cost of our deposits continued to be impacted from the rapid increase in short-term interest rates, we are pleased to report that we have maintained our high customer retention rate through the end of the second quarter, and our customer deposit base is growing. Our experienced and focused Board of Directors, executives and team members are committed to positioning our Bank to manage through continued interest rate volatility and uncertainty in the banking industry.

The key highlight of the quarter was our capital raise that closed on June 23, 2023. We raised $28.1 million in gross offering proceeds through a private placement of the Company’s common stock to 160 individual, accredited investors at a price of $11.00 per share. Investors in our recent offering were primarily from the Washington, D.C. metro area, where our executive offices are located, and also included individuals from Pennsylvania and New Jersey, where the Bank operates its Centre 1st Bank division. The success of this capital raise is a reflection of the strong financial performance of our Company and the execution of our business plan as a premier community bank in the markets we serve. This additional capital will enhance our strategic capabilities to grow our franchise and support the banking needs of our customers. Prior to June 30, 2023, the Company downstreamed $20.0 million of the offering proceeds to the Bank.

Continued Profitability and Increased Operating Leverage

Net income for the second quarter of 2023 was $1.2 million, compared to $1.1 million in the linked quarter. Our second quarter results were driven by strong quarterly loan growth of $42.0 million, and a net interest margin of 2.77%, resulting in total net revenue of $7.8 million, compared to $7.2 million in the first quarter of 2023. Non-interest expense increased modestly during the second quarter of 2023 to $6.0 million, compared to $5.8 million in the preceding quarter, primarily due to costs related to professional services, FDIC insurance premiums, bank franchise taxes, and data processing to support our operations and continued growth. We continue to drive down non-interest expense to average assets from 2.37% for the first six months of 2022 to 2.19% for the same period of 2023.

At a time when rising short-term interest rates and a prolonged inverted yield curve continue to have a significant negative affect on net interest margins across the banking industry, we have been effective at expanding our NIM modestly in the most recent quarter. While our deposit and borrowing costs continue to rise, the rate of increase has slowed from prior quarters allowing the ongoing repricing in the loan portfolio and new asset generation at higher rates to stabilize the NIM from the intense pressure that began in the third quarter of 2022. The NIM in the second quarter of 2023 was 2.77% compared to 2.72% in the preceding quarter. While our NIM improved five basis points compared to the linked quarter, it has decreased 73 basis points from 3.50% compared to the second quarter a year ago. NIM compression has largely offset the contribution to net revenue from growth in net earning assets and limits our ability to grow the bottom line without short-term cost reductions to our productive workforce which would have a long-lasting negative impact on our high growth franchise. Instead, we have identified areas to reduce discretionary costs and delay or eliminate certain planned expenditures to maintain earnings while we navigate the challenging interest rate environment and ultimately move back to more normalized NIM levels in the industry which should have a material positive affect to future net interest income.

Strong Balance Sheet Growth

Total assets were $1.14 billion on June 30, 2023, compared to $1.08 billion on March 31, 2023, and $941.4 million at June 30, 2022. Year-over-year asset growth of 20.9% was driven primarily by 8.8% deposit growth combined with an increased level of borrowings, and the $28.1 million capital raise. Our organic asset growth was primarily driven by our high-performing commercial banking team fostering new client relationships, and their ability to move prior business relationships over to our Bank.

Gross loans increased 32.1% to $974.8 million at June 30, 2023, compared to $738.0 million a year earlier and grew 4.5% compared to $932.8 million three months earlier. During the quarter, we participated nearly $21.0 million in high quality loans to other financial institutions to reduce the rate of loan growth commensurate with the rate of deposit and borrowing growth. Without the participation of loans, our loan portfolio would have been approximately $996.0 million, representing nearly 27% annualized growth in the quarter. This strong growth in loan origination is a direct result of our high-performing commercial lending team continuing to be the primary driver of our loan activity in the second quarter of 2023, all while adhering to our stringent credit criteria.

Total deposits were $882.6 million at June 30, 2023, a 1.7% increase from three months earlier and an 8.8% increase compared to a year earlier. Deposit retention and acquisition remains competitive, but we are grateful for our loyal client base and the response from prospective value-aligned depositors. Non-interest bearing customer deposits totaled $247.9 million and represented 28.1% of total deposits on June 30, 2023. The cost of deposits and borrowed funds has increased significantly with the extraordinary move in higher market interest rates since the beginning of 2022. Despite higher interest rates leading to intense competition for deposits, the Company’s balance sheet remains highly liquid. Our liquidity ratio, defined as the sum of cash and unencumbered marketable securities totaled approximately $125.6 million, or 12.4% of total liabilities as of June 30, 2023. Additionally, our Bank’s access to additional liquidity sources remains strong with over $145 million in available liquidity, defined as the sum of secured borrowings available at the Federal Reserve and the Federal Home Loan Bank.

Strong Asset Quality and Capital Strength

Asset quality remained pristine with nonperforming assets of $347 thousand, representing just 0.03% of total assets on June 30, 2023. Beginning January 1, 2023, we implemented the Current Expected Credit Losses (“CECL”) standard, which replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model. On June 30, 2023, our allowance for credit losses was 1.06% of gross loans compared to 1.20% at June 30, 2022.

Strengthened by the recent capital raise, our Bank’s capital base exceeded regulatory “well capitalized” levels by a wide margin, with a tier one leverage ratio of 12.99% and total risk-based capital ratio of 14.71%, at June 30, 2023. Additionally, we maintain rigorous risk management practices and adhere to strict regulatory guidelines to ensure the safety and security of our customers' deposits.

Common tangible book value (“TBV”) per share was $10.91 at June 30, 2023, compared to $10.62 at June 30, 2022. The change in our TBV reflects retained earnings growth, which was partially offset by the change in unrealized losses in equity as a result of rising interest rates on marketable securities available-for-sale (“AFS”). Accounting for these unrealized losses reduces accumulated other comprehensive income (“AOCI”) as a component of stockholders’ equity on the balance sheet, which in turn affects TBV per share, even though there is no impact on the income statement or earnings. While the application of these accounting rules may create volatility in our TBV per share, given our intent to hold these bonds to maturity, we anticipate a full recovery of TBV related to these temporary unrealized losses. Excluding a $0.60 impact of the unrealized mark-to-market losses on the AFS portfolio (a non-GAAP financial measure), the common TBV per share would have been $11.51 as of June 30, 2023. Our total bond portfolio assets represented only 6.8% of total assets as of June 30, 2023.

In summary, we are encouraged by our continued strong financial performance extending into the second quarter. We are well-positioned to begin the second half of 2023 with very strong capital and liquidity, along with a growing team of highly qualified professionals building on our loan and deposit pipeline as our team continues to execute upon our growth strategy. On behalf of our entire team, we thank you for your support as a shareholder in ODNB Financial Corporation. We ask for your continued support in initiating or expanding your deposit relationship with our Bank. We welcome customer referrals looking for more personalized banking services with insured deposit products and solutions. As always, we stand ready to address any questions you may have or client referrals you wish to share with us. For shareholder information, please visit our Investor Relations webpage or email us at shareholders@ODNB.bank.