PRESIDENT'S MESSAGE

PRESIDENT'S MESSAGE

　                                                                                                                                                 July, 2012

To Our Stockholders, Customers and Friends:

Orange County Bancorp, Inc. is pleased to present its financial statement for the first six months of 2012.

In spite of continuing challenges during the first six months, assets increased and earnings remained strong. Deposits increased almost $50 million to $482.5 million. Loan demand continued to be softer than expected through the first half of this year which, combined with normal amortization and prepayments, resulted in a diminution of our loan portfolio of $8.4 million to $283 million. Excess deposits were used to purchase investment securities, thereby increasing our investment portfolio by $62.3 million. Net income as of June 30, 2012 was $3.749 million compared to $3.746 million on June 30, 2011.

By all accounts, the low interest rate environment will continue for the foreseeable future. Federal regulators have indicated as much and the American economy appears stuck in neutral. Consequently, the commercial loan market remains fairly weak - though there are some signs of increasing activity. Our commercial loan pipeline is more active now than it has been for several quarters, which bodes well for the last half of the year and leading into 2013. Nonetheless, the generally distressed business cycle continues to affect some of our borrowers, resulting in the growth of our non-accrual loan balances to $8 million from $6.2 million during the period. Several loans that were previously non-performing have either been paid off or are once again performing, which we see as a sign of economic improvement locally. We fully expect the same outcome from the new loans currently in the non-performing mix. In any event, we are well positioned to cover any losses that may occur.

It is generally accepted that poor economic indicators and regulatory uncertainty have led directly to the reduced loan demand we, like other banks, are experiencing. While these conditions persist, Orange County Trust Company will continue to closely monitor expenses, develop new fee income opportunities and, of course, prudently manage our deposit and loan relationships. We are well positioned to continue our trend of strong earnings and growth and expect a very positive outcome at year end.

Maintaining the confidence of our Shareholders is of the utmost importance to the Directors, Officers and Employees of Orange County Trust Company. With your support, our team will continue to devote all our energies to the ongoing success of the Bank; for you and for our shared community.

Sincerely,

Terry R. Saturno
President and CEO