KBRA Affirms Ratings for Orange County Bancorp, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Middletown, New York-based Orange County Bancorp, Inc. (NASDAQ: OBT) ("the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its main subsidiary, Orange Bank & Trust Company. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

OBT’s ratings are supported by its best-in-class deposit franchise, with deposit costs ranking among the lowest in the KBRA-rated universe (~1.0% in 2Q26). This positioning remains a key differentiator relative to peers, supported by respectable deposit market share among community banks across its operating footprint, as well as established specialty commercial deposit-gathering verticals, such as attorney trust and property management. Moreover, the favorable deposit mix, including NIB deposits representing 33% of total deposits at 2Q26, further supports the company’s enviable funding costs. Additionally, the company has consistently reported healthy core deposit growth in recent years despite the competitive backdrop, underscoring the strength of its value proposition across its markets. The strong core deposit generation has allowed management to limit reliance on noncore funding sources, with core deposits represented 99% of total funding at 2Q26. Even so, the balance sheet remains conservative, with a loan-to-deposit ratio of 81%, within management’s targeted 80%-85% range, providing additional flexibility for future loan growth. Although uninsured deposits remain comparatively elevated, the risk is partly mitigated by coverage of ~1.0x from on- and off-balance-sheet liquidity sources and the long-standing stability of the franchise. Looking ahead, continued organic core deposit generation should preserve OBT’s funding-cost advantage while providing sufficient capacity to support measured balance sheet growth.

The funding advantage has translated into a consistently strong earnings profile that compares favorably with similarly rated peers. ROA increased to a record 1.87% in 1H26, while NIM expanded to 4.38%, supported by declining deposit costs, and fairly stable loan yields from disciplined loan pricing and ongoing back-book repricing. Revenue remains predominantly spread driven, although the wealth management and trust platform provides meaningful diversification, with management continuing to invest in and more closely integrate these businesses with the broader banking franchise.

Given OBT’s concentrated CRE lending profile, the company has periodically been impacted by isolated credit issues, although these have generally been tied to loan participations rather than deterioration within the core originated portfolio. Recent credit volatility has largely been confined to identifiable CRE participation exposures rather than broader deterioration in the core portfolio, with the NPA ratio increasing to 1.12% at 2Q26, while the NCO ratio remained minimal at 0.05% in 1H26. Moreover, broader migration trends improved, with criticized and classified balances declining during the period, while management continues to reduce legacy participation exposures. Capital provides substantial loss-absorbing capacity, with a CET1 ratio of 17.2%, which is well above the rated peer average, benefiting from strong internal capital generation and slower loan growth over the past year - primarily due to elevated loan prepaypments. Accordingly, while CRE concentration and recent problem asset formation warrant continued monitoring, OBT’s robust earnings, reserve coverage, and strong core capital provide meaningful protection against potential credit stress.

Rating Sensitivities

A rating upgrade is not expected over the medium term; however, continued growth and diversification of the franchise, while maintaining peer-leading funding, profitability, and capital metrics, could support positive rating momentum over the longer term. A rating downgrade is not anticipated; however, any unexpected credit problems, or a deviation from its strong funding base, or a more aggressive capital or liquidity strategy could place pressure on the ratings.

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