KBRA assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 to Middletown, New York-based Orange County Bancorp, Inc. (NASDAQ:OBT) ("Orange" or "the company"). In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 to its main subsidiary, Orange Bank & Trust Company ("the bank"). The Outlook for all long-term ratings is Stable.
Orange's ratings are supported by its best-in-class deposit franchise, which ranks among the lowest in terms of deposit costs in the KBRA rated universe (1.30% in 2Q25). This position is reinforced by conservative liquidity management, including a below average loan-to-deposit ratio (typically tracking below 85%), which, combined with steady core deposit inflows in recent years, allows for a minimal reliance on wholesale funding (core deposits generally represent 85%-95% of total funding). Additionally, management's ongoing commitment to preserving a strong core deposit base, including a focus on deposit-rich verticals in its commercial banking segment, notably in attorney trust and property management, helps facilitate a favorable deposit mix, including a 30% noninterest-bearing component. Another factor is OBT's respectable deposit market share in its legacy markets and throughout the Lower Hudson Valley region. This funding advantage has enabled the bank to maintain a healthy NIM and, in turn, deliver solid profitability in recent years, despite modestly elevated provisioning tied to some isolated credit issues. Looking ahead, returns are expected to remain peer leading (1.5% ROA during 1H25), supported by a meaningfully above-peer NIM (4.0% in 1H25) that is projected to remain fairly durable even in the event of further Fed rate cuts. Additionally, fee income – which tracks at a respectable level of around 15% of total revenues, a notable figure given the bank's high level of net interest income generation – is a strategic area of emphasis, particularly within wealth management ($1.8 billion of AUM), and should further bolster performance.
Credit quality metrics have generally remained at acceptable levels in recent years, though OBT did report slightly elevated NCOs in 2022 and 2024, primarily tied to loan participations, which is an area the bank no longer pursues and only utilized during a period of excess liquidity. The core portfolio, including loans originated directly by Orange, continues to perform well. That said, KBRA notes the presence of concentration risk within the loan book, both geographically and by lending segment, particularly in investor CRE (61% of total loans or 377% of total risk-based capital at 2Q25). Multifamily lending represents the largest portion of the CRE portfolio (21% of total loans), and despite the elevated exposure and proximity to the NYC markets, the bank reflects a modest exposure to NYC rent-regulated properties (~6% of total loans). These borrowers have continued to report solid underlying trends notwithstanding the higher interest rate environment and inflationary impacts on operating expenses, which demonstrates the strong underlying demographics of the Orange, Rockland, Westchester, and Bronx markets. Office properties are also a slightly higher concentration (8% of total loans), but the portfolio is highly granular (average loan size of $1.6 million), focused in suburban markets, and underwritten conservatively, with a weighted average LTV of 55%. Overall, the disciplined approach to these lending segments, which is supported by a management team with deep experience in these markets, helps mitigate some of the inherent risk factors.
The concentration risk is partially offset by robust loss absorbing capacity, including solid earnings, core capital, and reserve position (~1.5% of total loans). Capital ratios were recently strengthened by the company's recent $46 million common equity raise in 2Q25, which moved the TCE ratio and CET1 ratio to 9.5% and 15.8%, respectively, at the consolidated level. Moving forward, capital allocation is going to be largely geared toward organic balance sheet growth, which has been fairly robust over the years while most banks across the industry have reported little to no growth given the challenging environment (higher interest rates and suboptimal balance sheet positioning - "loaned up" and/or a high-level of negative AOCI). That said, the company has the capital flexibility to pursue opportunistic M&A if it makes strategic sense, though we acknowledge the growth history has been entirely organic since the change in leadership in 2014, and an M&A growth strategy appears unlikely at this time.
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Methodologies
- Financial Institutions: Bank & Bank Holding Company Global Rating Methodology
- ESG Global Rating Methodology
Disclosures
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan's Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.
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