Orange County Bancorp: A Tale of Steady Dividends and Mounting Credit Concerns

While numerous regional financial institutions grapple with the persistent challenges of a shifting interest rate environment, Orange County Bancorp presents a complex and contradictory narrative. The institution continues its reliable distribution of shareholder dividends, yet a simultaneous increase in troubling indicators within its loan portfolio raises fundamental questions about its underlying stability.

Operational Performance Shows Strength

The bank’s first-quarter 2025 results demonstrated considerable operational vigor. It reported a net income of $8.7 million, equating to $0.77 per share. A significant driver was a net interest income of $23.6 million, marking a 9.4 percent year-over-year increase. Furthermore, non-interest income, heavily fueled by the bank’s wealth management operations through Hudson Valley Investment Advisors, surged impressively by 18.2 percent.

Supporting this growth, the bank’s total assets expanded to $2.6 billion. Customer deposits also saw a healthy 6 percent rise, reaching $2.28 billion. This robust deposit growth provided the institution with the liquidity to substantially reduce its reliance on costly short-term borrowings, cutting its Federal Home Loan Bank (FHLB) liabilities by a notable $94 million.

The Dividend Constant

Amid this mixed operational backdrop, Orange County Bancorp has maintained one element with unwavering consistency: its dividend policy. The company declared a quarterly cash dividend of $0.13 per share, payable on September 16, 2025. This distribution offers shareholders a forward yield of approximately 2 percent, underscoring management’s stated commitment to delivering shareholder returns even during periods of uncertainty.

Should investors sell immediately? Or is it worth buying Orange County?

Leadership Shift Raises Questions

However, a recent and unexpected development has captured investor attention. Gustave “Gus” J. Scacco resigned from the board of the parent company in early September. Concurrently, he stepped down from his roles as Chief Executive Officer and Chief Investment Officer of the subsidiary, Hudson Valley Investment Advisors. This entity, acquired in 2012, is a cornerstone of the bank’s wealth management business. Sudden leadership changes in such critical positions are often scrutinized by the market as potential indicators of an impending strategic pivot.

Deteriorating Credit Metrics Signal Risk

The most concerning aspect of the quarterly report lies within the credit portfolio. Despite solid earnings, the bank is showing early signs of credit stress. Classified problem assets ballooned by 35.9 percent since the end of 2024, reaching $59.8 million. An even more pronounced increase was observed in “Special Mention” assets—loans showing potential weakness—which jumped 35.2 percent to $28.2 million.

This pronounced deterioration in these early-stage credit categories often serves as a precursor to future loan charge-offs. Should this trend persist, the bank will likely be compelled to allocate more capital to its loan loss provisions, which would directly pressure its net earnings in subsequent quarters.

For investors, the central dilemma is whether the attraction of a reliable dividend can adequately counterbalance the clearly emerging risks within the bank’s loan book. The forthcoming quarterly results will be critical in providing an answer to this pressing question.