TYSONS CORNER, Va., October 31, 2023 - We are pleased to report strong operating results for the third quarter of 2023 and nine months ended September 30, 2023. Third quarter earnings marked our fifteenth consecutive quarter of profitability with total assets, loans and deposits reaching record highs. We continue to execute upon our organic growth strategy, resulting in meaningful earnings and long-term franchise value for shareholders. Pretax income was a record $2.1 million in the current quarter, compared to $1.5 million in the second quarter of 2023.
Old Dominion National Bank (the “Bank”), the wholly-owned banking subsidiary of ODNB Financial Corporation (the “Company” or “ODNB”), 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.
The successful completion of our $28.1 million capital raise in June 2023 and growth of $119.2 million in deposits since January 1, 2023, or 19% annualized, has equipped us to continue serving the needs of our loan customers at a time when many banks in our market are lending less than a year ago. Gross loans grew to $996.8 million at September 30, 2023 from $893.0 million at December 31, 2022, representing an annualized growth rate of 16%.
From mid-2016, we embraced a vision of building a high-performing community bank to deliver concierge- level services to our clients, supported by team members fully committed to this vision. Our client-focused model has supported our ability to organically increase the number of clients we serve while deepening relationships with our existing customers. While our talented banking team continues to navigate through ongoing uncertainty in the banking industry and higher interest rates, we upheld a solid net interest margin (“NIM”) and pristine asset quality. We also maintained our high customer retention rate with our customer deposit base growing to its highest level by third quarter end.
Strong Earnings and Increased Operating Leverage
Net income for the third quarter of 2023 was $1.7 million, compared to $1.2 million in the linked quarter. Our third quarter earnings were driven by strong quarterly loan growth of $22.1 million and deposit growth of $67.2 million. The growth in earning assets was able to offset a modest decline in our NIM from 2.77% in the second quarter to 2.63% in the current quarter, resulting in total net revenue of $7.9 million, compared to $7.8 million in the second quarter of 2023. Non-interest expenses decreased modestly during the third quarter to $5.9 million, compared to $6.0 million in the preceding quarter, as we focused on limiting discretionary costs while growing revenue to increase operating leverage despite rising funding costs. We continued to drive down the ratio of non-interest expense to average assets to 2.13% for the first nine months of 2023, compared to 2.47% for the first nine months of 2022. For the current quarter, we have reduced this ratio to 2.02%.
At a time when higher 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 maintaining an acceptable NIM to produce an increased level of net interest income in the third quarter of 2023 versus the linked quarter. While our deposit and borrowing costs continue to rise, the ongoing repricing in the loan portfolio and new asset generation at higher rates should begin to stabilize the NIM in the near future from the intense pressure that began in the third quarter of 2022. We continue to prudently grow the balance sheet and identify areas to reduce discretionary spending costs and delay or eliminate certain planned expenditures to maintain an adequate level of net interest income and improve our efficiency ratio.
Continued Balance Sheet Growth
Total assets were $1.21 billion at September 30, 2023, compared to $1.14 billion at June 30, 2023, and $971.3 million at September 30, 2022. Year-over-year asset growth of 24.2% was driven primarily by an increase of $136.2 million, or 16.7%, in deposits combined with a $65.0 million increase in borrowings, and the $28.1 million in gross proceeds from our capital raise. Our organic asset growth was primarily driven by our high-performing banking team establishing new client relationships combined with their ability to move prior business relationships over to our Bank.
Gross loans increased 23.0% to $996.8 million at September 30, 2023, compared to $810.2 million a year earlier and grew 9.1% annualized during the third quarter of 2023. This strong growth in loan origination is a direct result of our high-performing lending team continuing to serve the financing needs of our community as we see increased lending opportunities across our markets, all while adhering to our stringent credit criteria.
Total deposits were $949.8 million at September 30, 2023, a 7.6% increase from three months earlier and a 16.7% increase compared to a year earlier. For the third quarter of 2023, ODNB grew its core customer deposits, which excludes brokered deposits, by $90.8 million, or 41% annualized. ODNB reduced its wholesale deposits (i.e., brokered CDs) by $23.6 million during the quarter. Wholesale deposits, combined with customer CDs, represent less than 25% of total deposits. Non-interest-bearing customer accounts totaled $241.7 million, or approximately 26% of total deposits. Interest bearing checking, savings and money market customer deposits totaled $478.3 million, or 50% of total deposits.
Deposit retention and acquisition remains competitive heading into the fourth quarter of 2023, but we remain grateful for our loyal client base and the positive response we are receiving from value-aligned depositors bringing their banking relationships to our community bank. Despite higher interest rates and 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 $170.0 million, or 15.7% of total liabilities as of September 30, 2023. Additionally, our Bank’s access to additional liquidity sources remains strong with over $148 million in available liquidity, defined as the sum of secured borrowings available from the Federal Reserve and the Federal Home Loan Bank.
Strong Asset Quality and Capital Strength
Asset quality remained pristine with non-performing assets of $185 thousand, representing just 0.02% of total assets at September 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. At September 30, 2023, our allowance for credit losses was $10.2 million, or 1.03% of gross loans. There were no charge-offs during the quarter.
Strengthened by the recent capital raise in the linked quarter, our Bank’s capital base exceeded regulatory “well capitalized” levels by a wide margin, with a tier one leverage ratio of 12.51% and total risk-based capital ratio of 14.46%, at September 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.
Tangible book value (“TBV”) per share was $10.93 at September 30, 2023, compared to $10.50 on September 30, 2022. The change in our TBV reflects retained earnings growth and our capital raise, which was partially offset by the change in unrealized losses in equity due to rising interest rates on marketable securities available-for-sale (“AFS”). Given our intent to hold these bonds to maturity, we anticipate a full recovery of TBV related to these temporary unrealized losses. Excluding a $0.69 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 $11.62 as of September 30, 2023. Our total bond portfolio assets, both AFS and held-to- maturity (“HTM”) represented only 6.2% of total assets as of September 30, 2023.
ODNB is a community bank built on relationships. We will continue to build upon this solid foundation, and believe we are on course for a stronger future. On behalf of our entire team, we thank you for your continued support and investment in ODNB. Additionally, thank you to our exemplary employees who volunteer endless hours across many projects serving our communities. Together, we are making a difference in our communities. 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.
