EXHIBIT 13

                       2007 ANNUAL REPORT TO STOCKHOLDERS

<PAGE>

Oneida Financial Corp.

Consolidated Financial Statements

December 31, 2007 and 2006

<PAGE>

             Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Oneida Financial Corp.
Oneida, New York

We have audited the accompanying  consolidated statements of condition of Oneida
Financial  Corp.  as of December 31, 2007 and 2006 and the related  consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the  three  years  in the  period  ended  December  31,  2007.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its internal  controls  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Oneida Financial
Corp. as of December 31, 2007 and 2006 and the results of its operations and its
cash flows for each of the three years in the period ended  December 31, 2007 in
conformity with U.S. generally accepted accounting principles.

/s/ Crowe Chizek and Company LLC

Crowe Chizek and Company LLC
March 24, 2008
Livingston, New Jersey

<PAGE>

Oneida Financial Corp.

Consolidated Statements of Condition
December 31, 2007 and 2006
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                   2007             2006
<S>                                                                                          <C>              <C>
Assets
Cash and due from banks                                                                      $   14,743,978   $   12,513,825
Federal funds sold                                                                                1,716,576        6,196,350
                                                                                             --------------   --------------
       Total cash and cash equivalents                                                           16,460,554       18,710,175

Investment securities, at fair value                                                             96,111,253       85,716,934
Mortgage-backed securities, at fair value                                                        46,583,345       29,081,093

Mortgage loans held for sale                                                                      3,593,329        1,581,354

Loans receivable                                                                                283,335,827      247,940,422
Allowance for loan losses                                                                        (2,511,310)      (2,080,913)
                                                                                             --------------   --------------
       Net loans receivable                                                                     280,824,517      245,859,509

Federal Home Loan Bank stock                                                                      3,403,700        3,227,600
Premises and equipment, net                                                                      22,532,492       17,427,771
Accrued interest receivable                                                                       2,657,712        2,088,005
Cash surrender value - life insurance                                                            14,480,218       11,675,590
Other assets                                                                                     10,234,472        7,698,857
Goodwill                                                                                         22,792,602       18,137,040
Other intangible assets                                                                           2,640,586        1,733,011
                                                                                             --------------   --------------

       Total Assets                                                                          $  522,314,780   $  442,936,939
                                                                                             ==============   ==============
Liabilities and Stockholders' Equity

Interest bearing deposits                                                                    $  334,444,264   $  260,172,614
Non-interest bearing deposits                                                                    65,685,030       53,097,399
Federal funds purchased                                                                                  --        4,000,000
Borrowings                                                                                       56,400,000       61,400,000
Notes payable                                                                                       158,274        1,410,959
Other liabilities                                                                                 6,286,988        4,456,181
                                                                                             --------------   --------------
       Total liabilities                                                                        462,974,556      384,537,153
                                                                                             --------------   --------------
Commitments and contingent liabilities (Note 14)                                                         --               --

Stockholders' equity:
   Preferred stock, 1,000,000 shares authorized                                                          --               --
   Common stock, $.01 par value, 20,000,000 shares authorized;
     8,322,452 shares issued                                                                         83,225           83,225
   Additional paid-in capital                                                                    19,053,113       18,704,350
   Retained earnings                                                                             46,434,898       44,579,507
   Accumulated other comprehensive loss                                                          (3,161,222)      (1,786,692)
   Treasury stock (at cost, 537,256 and 541,621 shares)                                          (3,069,790)      (3,038,926)
   Common shares issued under employee stock plans - unearned                                            --         (141,678)
                                                                                             --------------   --------------
       Total stockholders' equity                                                                59,340,224       58,399,786
                                                                                             --------------   --------------

       Total Liabilities and Stockholders' Equity                                            $  522,314,780   $  442,936,939
                                                                                             ==============   ==============
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                   statements.

<PAGE>

Oneida Financial Corp.

Consolidated Statements of Income
Years Ended December 31, 2007, 2006 and 2005
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                       2007            2006           2005
<S>                                                                             <C>               <C>             <C>
Interest and dividend income:
   Interest and fees on loans                                                   $    18,551,557   $  16,164,799   $ 14,197,105
   Interest and dividends on investment securities:
     U. S. Government and agency obligations                                          1,727,445       1,436,634      1,465,414
     Corporate debt and equity obligations                                            2,080,557       2,038,255      2,387,865
     Mortgage-backed securities                                                       1,588,704       1,278,233      1,585,572
     Tax exempt securities                                                              600,702         916,936      1,171,125
     Other                                                                              294,781         248,205        155,257
   Interest on federal funds sold
     and interest-earning deposits                                                      829,079         177,568         49,112
                                                                                ---------------   -------------   ------------

       Total interest and dividend income                                            25,672,825      22,260,630     21,011,450
                                                                                ---------------   -------------   ------------
Interest expense:
   Savings deposits                                                                     569,628         483,296        395,480
   Money market and interest-bearing checking                                         2,095,836       1,278,245        836,691
   Time deposits                                                                      6,371,634       4,202,134      3,313,306
   Federal funds purchased                                                               53,120          35,799             --
   Short-term borrowings                                                                364,976         673,905        339,640
   Long-term borrowings                                                               2,572,589       2,772,769      2,801,648
                                                                                ---------------   -------------   ------------

       Total interest expense                                                        12,027,783       9,446,148      7,686,765
                                                                                ---------------   -------------   ------------
       Net interest income                                                           13,645,042      12,814,482     13,324,685

Provision for loan losses                                                                    --         280,000        360,000
                                                                                ---------------   -------------   ------------
       Net interest income after
         provision for loan losses                                                   13,645,042      12,534,482     12,964,685

Net investment security gains                                                           352,825         307,546        274,934
Other income                                                                         17,837,947      16,671,167     11,617,476
Other expenses                                                                       26,963,857      23,789,303     19,609,518
                                                                                ---------------   -------------   ------------
       Income before income taxes                                                     4,871,957       5,723,892      5,247,577

Provision for income taxes                                                            1,367,650       1,525,900      1,390,000
                                                                                ---------------   -------------   ------------

       Net Income                                                               $     3,504,307   $   4,197,992   $  3,857,577
                                                                                ===============   =============   ============

Earnings per share - basic                                                      $          0.46   $        0.55   $       0.51
                                                                                ===============   =============   ============

Earnings per share - diluted                                                    $          0.45   $        0.54   $       0.50
                                                                                ===============   =============   ============
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                   statements.

<PAGE>

Oneida Financial Corp.

Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2007, 2006 and 2005
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                Additional
                                                            Common Stock          Paid-In       Retained     Comprehensive
                                                          Shares     Amount       Capital       Earnings         Income
<S>                                                     <C>         <C>        <C>            <C>            <C>
Balance at December 31, 2004                            8,242,452   $ 82,425   $ 17,946,002   $ 39,196,498
Net income                                                                                       3,857,577   $   3,857,577
                                                                                                             -------------
   Other comprehensive income, net of tax
   Unrealized losses on securities arising
      during period                                                                                             (3,109,267)
   Reclassification adjustment for gains included
      in net income                                                                                               (274,934)
                                                                                                             -------------
      Net unrealized holding losses                                                                             (3,384,201)
      Change in unrealized loss on pension benefits                                                               (111,339)
                                                                                                             -------------
   Other comprehensive loss before tax                                                                          (3,495,540)
   Income tax benefit                                                                                            1,398,216
                                                                                                             -------------
   Other comprehensive loss, net of tax                                                                         (2,097,324)
                                                                                                             -------------
Comprehensive income                                                                                         $   1,760,253
                                                                                                             =============
Shares issued under stock plans                                                      16,160
Shares issued under ESOP plan                                                       211,567
Shares earned under stock plans
Tax benefit from stock plans                                                        127,497
Common stock cash dividends: $.41 per share                                                     (1,343,335)
Treasury stock purchased
Treasury stock reissued                                                              (1,214)
                                                        --------------------------------------------------

Balance at December 31, 2005                            8,242,452   $ 82,425   $ 18,300,012   $ 41,710,740              --
Reclassification of unearned stock based
   compensation in accordance with SFAS No. 123R                                    (51,404)
Cumulative adjustment related to SAB 108 adoption                                                  184,253
Net income                                                                                       4,197,992   $   4,197,992
                                                                                                             -------------
   Other comprehensive income, net of tax
   Unrealized gains on securities arising
      during period                                                                                              2,101,309
   Reclassification adjustment for gains included
      in net income                                                                                               (307,546)
                                                                                                             -------------
      Net unrealized holding gains                                                                               1,793,763
      Change in unrealized loss on pension benefits                                                                414,385
                                                                                                             -------------
   Other comprehensive income before tax                                                                         2,208,148
   Income tax provision                                                                                           (883,259)
                                                                                                             -------------
   Other comprehensive income, net of tax                                                                        1,324,889
                                                                                                             -------------
Comprehensive income                                                                                         $   5,522,881
                                                                                                             =============
Adjustment to initially apply SFAS No. 158
   net of tax, (Note 1)
Shares issued under stock plans                            80,000        800           (800)
Shares issued under ESOP plan                                                       195,141
Shares earned under stock plans                                                     229,779
Tax benefit from stock plans                                                         31,950
Common stock cash dividends: $.45 per share                                                     (1,513,478)
Treasury stock reissued                                                                (328)
                                                        --------------------------------------------------

Balance at December 31, 2006                            8,322,452   $ 83,225   $ 18,704,350   $ 44,579,507              --
                                                        =========   ========   ============   ============

<CAPTION>
                                                                                       Common Stock
                                                         Accumulated                   Issued Under     Unearned
                                                            Other                        Employee         Stock
                                                        Comprehensive     Treasury    Stock Plans -       Based
                                                         Income(Loss)      Stock         Unearned     Compensation       Total
<S>                                                     <C>             <C>           <C>             <C>            <C>
Balance at December 31, 2004                            $    (993,691)  $(3,029,880)  $    (434,674)  $   (122,229)  $ 52,644,451
Net income                                                                                                              3,857,577
   Other comprehensive income, net of tax
   Unrealized losses on securities arising
      during period
   Reclassification adjustment for gains included
      in net income
      Net unrealized holding losses
      Change in unrealized loss on pension benefits
   Other comprehensive loss before tax
   Income tax benefit
   Other comprehensive loss, net of tax                    (2,097,324)                                                 (2,097,324)
Comprehensive income
Shares issued under stock plans                                                                            (16,160)            --
Shares issued under ESOP plan                                                               146,498                       358,065
Shares earned under stock plans                                                                             86,985         86,985
Tax benefit from stock plans                                                                                              127,497
Common stock cash dividends: $.41 per share                                                                            (1,343,335)
Treasury stock purchased                                                    (93,000)                                      (93,000)
Treasury stock reissued                                                      48,588                                        47,374
                                                        -------------   ---------------------------------------------------------

Balance at December 31, 2005                            $  (3,091,015)  $(3,074,292)  $    (288,176)  $    (51,404)  $ 53,588,290
Reclassification of unearned stock based
   compensation in accordance with SFAS No. 123R                                                            51,404             --
Cumulative adjustment related to SAB 108 adoption                                                                         184,253
Net income                                                                                                              4,197,992
   Other comprehensive income, net of tax
   Unrealized gains on securities arising
      during period
   Reclassification adjustment for gains included
      in net income
      Net unrealized holding gains
      Change in unrealized loss on pension benefits
   Other comprehensive income before tax
   Income tax provision
   Other comprehensive income, net of tax                   1,324,889                                                   1,324,889
Comprehensive income
Adjustment to initially apply SFAS No. 158
   net of tax, (Note 1)                                       (20,566)                                                    (20,566)
Shares issued under stock plans                                                                                                --
Shares issued under ESOP plan                                                               146,498                       341,639
Shares earned under stock plans                                                                                           229,779
Tax benefit from stock plans                                                                                               31,950
Common stock cash dividends: $.45 per share                                                                            (1,513,478)
Treasury stock reissued                                                      35,366                                        35,038
                                                        -------------   ----------------------------------------------------------

Balance at December 31, 2006                            $  (1,786,692)  $(3,038,926)  $    (141,678)  $         --   $ 58,399,786
                                                        =============   ===========   =============   ============   ============
</TABLE>

                                   (Continued)

<PAGE>

Oneida Financial Corp.

Consolidated Statements of Stockholders' Equity (Continued)
Years Ended December 31, 2007, 2006 and 2005
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                Additional
                                                            Common Stock          Paid-In       Retained     Comprehensive
                                                          Shares     Amount       Capital       Earnings         Income
<S>                                                     <C>         <C>        <C>            <C>            <C>
Balance at December 31, 2006 (continued)                8,322,452   $ 83,225   $ 18,704,350   $ 44,579,507
Net income                                                                                       3,504,307   $   3,504,307
                                                                                                             -------------
   Other comprehensive income, net of tax
   Unrealized losses on securities arising
      during period                                                                                             (2,167,052)
   Reclassification adjustment for gains included
      in net income                                                                                               (352,825)
                                                                                                             -------------
      Net unrealized holding losses                                                                             (2,519,877)
      Change in unrealized loss on pension benefits                                                                228,994
                                                                                                             -------------
   Other comprehensive loss before tax                                                                          (2,290,883)
   Income tax benefit                                                                                              916,353
                                                                                                             -------------
   Other comprehensive loss, net of tax                                                                         (1,374,530)
                                                                                                             -------------
Comprehensive income                                                                                         $   2,129,777
                                                                                                             =============
Shares issued under ESOP plan                                                       195,730
Shares earned under stock plans                                                     153,210
Common stock cash dividends: $.48 per share                                                     (1,648,916)
Treasury stock purchased
Treasury stock reissued                                                                (177)
                                                        --------------------------------------------------
Balance at December 31, 2007                            8,322,452   $ 83,225   $ 19,053,113   $ 46,434,898              --
                                                        =========   ========   ============   ============

<CAPTION>
                                                                                        Common Stock
                                                         Accumulated                    Issued Under     Unearned
                                                            Other                         Employee         Stock
                                                        Comprehensive     Treasury     Stock Plans -       Based
                                                         Income(Loss)       Stock         Unearned     Compensation      Total
<S>                                                     <C>             <C>            <C>             <C>            <C>
Balance at December 31, 2006 (continued)                $  (1,786,692)  $ (3,038,926)  $    (141,678)  $         --   $ 58,399,786
Net income                                                                                                               3,504,307
   Other comprehensive income, net of tax
   Unrealized losses on securities arising
      during period
   Reclassification adjustment for gains included
      in net income
      Net unrealized holding losses
      Change in unrealized loss on pension benefits
   Other comprehensive loss before tax
   Income tax benefit
   Other comprehensive loss, net of tax                    (1,374,530)                                                  (1,374,530)
Comprehensive income
Shares issued under ESOP plan                                                                141,678                       337,408
Shares earned under stock plans                                                                                            153,210
Common stock cash dividends: $.48 per share                                                                             (1,648,916)
Treasury stock purchased                                                     (65,159)                                      (65,159)
Treasury stock reissued                                                       34,295                                        34,118
                                                        -------------   ----------------------------------------------------------

Balance at December 31, 2007                            $  (3,161,222)  $ (3,069,790)  $          --   $         --   $ 59,340,224
                                                        =============   ============   =============   ============   ============
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                   statements.

<PAGE>

Oneida Financial Corp.

Consolidated Statements of Cash Flows
Years Ended December 31, 2007, 2006 and 2005
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                       2007             2006             2005
<S>                                                                               <C>              <C>              <C>
Operating activities:
   Net income                                                                     $   3,504,307    $   4,197,992    $   3,857,577
   Adjustments to reconcile net income to net cash provided by operating
     activities:
      Depreciation and amortization                                                   1,954,067        1,476,978        1,106,754
      Amortization of premiums and (accretion of discounts) on securities, net           75,141           81,758          208,509
      Provision for loan losses                                                              --          280,000          360,000
      Provision for deferred income taxes                                               109,065          285,229          (98,000)
      (Gain) Loss on sale of premises and equipment                                     (15,000)        (132,027)          15,396
      (Gain) Loss on available for sale securities, net                                (352,825)        (307,546)        (274,934)
      ESOP shares earned                                                                337,408          341,639          358,065
      Stock compensation earned                                                         174,806          229,779           86,985
      Loss (Gain) on sale of foreclosed assets                                           (1,808)          17,185               --
      Gain on sale of loans                                                            (137,415)        (142,469)        (161,132)
      Income taxes payable                                                             (318,216)        (192,145)          79,203
      Accrued interest receivable                                                      (298,312)         105,737          (89,608)
      Other assets                                                                   (1,890,753)         (43,736)      (1,363,202)
      Other liabilities                                                                (328,794)      (1,352,519)         798,158
      Origination of loans held for sale                                            (19,949,867)     (17,242,456)     (13,304,521)
      Proceeds from sale of loans                                                    18,075,307       17,157,303       15,005,972
                                                                                  -------------    -------------    -------------

      Net cash provided by operating activities                                         937,111        4,760,702        6,585,222
                                                                                  -------------    -------------    -------------

Investing activities:
   Purchase of investment securities                                                (35,636,460)      (9,259,208)     (32,625,847)
   Proceeds of maturities, sales or calls from investment securities                 34,166,801       31,883,800       29,724,694
   Purchase of mortgage-backed securities                                           (21,842,837)      (5,086,281)      (8,531,200)
   Principal collected on and proceeds from sales of mortgage-backed securities      11,437,010        5,212,971       22,834,766
   Net increase in loans                                                             (9,004,402)     (11,506,154)     (26,152,104)
   Purchase of bank premises and equipment                                           (4,604,612)      (6,418,547)      (3,858,181)
   Proceeds from sale of bank premises and equipment                                     15,000          732,429               --
   Proceeds from sale of foreclosed assets                                               23,950           72,733           53,382
   Purchase of insurance agency                                                         (66,153)      (1,781,617)      (1,207,206)
   Purchase of employee benefits company                                               (131,417)      (1,512,759)              --
   Purchase of bank, net of cash received                                               907,934               --               --
                                                                                  -------------    -------------    -------------

      Net cash (used in) provided by investing activities                           (24,735,186)       2,337,367      (19,761,696)
                                                                                  -------------    -------------    -------------
</TABLE>

                                   (Continued)

<PAGE>

Oneida Financial Corp.

Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2007, 2006 and 2005
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                       2007             2006             2005
<S>                                                                               <C>              <C>              <C>
Financing activities:
   Net increase in demand deposits, savings, money market, interest-bearing
     checking and mortgagor's escrow accounts                                     $  15,924,715    $   2,708,805    $   5,859,639
   Net increase (decrease) in time deposits                                          16,303,696        9,374,724       (6,319,867)
   Proceeds from borrowings                                                          67,180,000       80,930,000       89,467,000
   Repayment of borrowings                                                          (76,180,000)     (92,800,000)     (76,597,000)
   Cash dividends                                                                    (1,648,916)      (1,513,478)      (1,343,335)
   Exercise of stock options (using treasury stock)                                      34,118           35,038           47,374
   Purchase of treasury stock                                                           (65,159)              --          (93,000)
                                                                                  -------------    -------------    -------------

       Net cash provided by (used in) financing activities                           21,548,454       (1,264,911)      11,020,811
                                                                                  -------------    -------------    -------------

       (Decrease) increase in cash and cash equivalents                              (2,249,621)       5,833,158       (2,155,663)

Cash and cash equivalents at beginning of year                                       18,710,175       12,877,017       15,032,680
                                                                                  -------------    -------------    -------------

       Cash and Cash Equivalents at End of Year                                   $  16,460,554    $  18,710,175    $  12,877,017
                                                                                  =============    =============    =============

Supplemental disclosures of cash flow information:
   Cash paid during the year for:
     Interest on deposits and obligations                                         $  12,106,305    $   9,524,670    $   7,695,565
     Income taxes                                                                     1,615,000        1,105,000        1,171,285
   Non-cash investing activities:
     Transfer of loans to foreclosed assets                                              22,142           89,918           53,382
     Notes payable issued in connection with acquisition                                     --        2,593,325               --
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                   statements.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies

      Nature of Operations

      The consolidated  financial statements include Oneida Financial Corp. (the
      "Company")  and its  wholly-owned  subsidiary,  Oneida  Savings  Bank (the
      "Bank").   Inter-company  transactions  and  balances  are  eliminated  in
      consolidation.

      The Bank is  located  in  Central  New York  with  offices  in the City of
      Oneida,  Rome and South  Utica and the  Villages of  Cazenovia,  Hamilton,
      Canastota,  Camden, Chittenango,  Bridgeport,  Vernon and Westmoreland and
      owns  two  banking  related   subsidiaries;   Oneida   Preferred   Funding
      Corporation  (OPFC)  and  State  Bank of  Chittenango  (SBC).  The Bank is
      engaged  primarily in accepting  deposits and  providing  various types of
      loans to the  community.  The  Bank  also  provides  trust  and  brokerage
      services.  OPFC,  a Real Estate  Investment  Trust,  primarily  engages in
      investing  activities of residential and commercial real estate mortgages.
      SBC is a special purpose  commercial bank subsidiary which is permitted to
      accept  municipal  deposit  accounts from various  municipalities,  school
      districts and other public sources; a source of funds not available to the
      Bank under New York Law. The Bank also owns one  insurance  and  financial
      services subsidiary; Bailey & Haskell Associates, Inc. (B&H) which has six
      central New York  offices.  During  2006,  the Bank  purchased an employee
      benefits  consulting  and retirement  plan  administration  firm,  Benefit
      Consulting  Group  Inc.  (BCG)  which has an office in  central  New York.
      During 2007, the Bank purchased Vernon Bank Corporation, the stock holding
      company  for  National  Bank  of  Vernon  which  had  offices  in  Vernon,
      Westmoreland and South Utica.

      Oneida  Financial MHC, (the "Holding  Company") a mutual  holding  company
      whose activity is not included in the accompanying  financial  statements,
      owns approximately 55.4% of the outstanding common stock of the Company at
      December  31, 2007.  Salaries,  employee  benefits and rent  approximating
      $21,000 were allocated  from the Company to the MHC during 2007,  2006 and
      2005.

      Use of Estimates

      To prepare financial  statements in conformity with accounting  principles
      generally  accepted  in the United  States of  America,  management  makes
      estimates and assumptions based on available information.  These estimates
      and assumptions  affect the amounts  reported in the financial  statements
      and the  disclosures  provided,  and  actual  results  could  differ.  The
      allowance  for loan losses,  loan  servicing  rights,  the  evaluation  of
      other-than-temporary  impairment for  securities  whose fair value is less
      than  amortized  cost  and  fair  values  of  financial   instruments  are
      particularly subject to change.

      Cash and Cash Equivalents

      Cash  and cash  equivalents  include  cash,  deposits  in other  financial
      institutions  with  original  maturities  under 90 days and federal  funds
      sold. Generally, federal funds are purchased and sold for one-day periods.

      Investment Securities (including Mortgage-Backed Securities)

      Securities  available-for-sale  are carried at fair value, with unrealized
      holding gains and losses reported in other  comprehensive  income,  net of
      the applicable income tax effect. Interest income includes amortization of
      purchase  premium or discount.  Premiums and discounts on  securities  are
      amortized on the  level-yield  method  without  anticipating  prepayments.
      Gains and losses on sales are  recorded  on the trade date and  determined
      using the specific identification method, except for

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies (Continued)

      Investment Securities (including Mortgage-Backed Securities) (Continued)

      mutual funds which is based on the average  cost  method.  Declines in the
      fair value of  securities  below their cost that are  other-than-temporary
      are  reflected  as realized  losses.  In  estimating  other-than-temporary
      losses,  management  considers:  (1) length of time and  extent  that fair
      value has been less than cost,  (2) the financial  condition and near term
      prospects of the issuer,  and (3) the Company's ability and intent to hold
      the security for a period sufficient to allow for any anticipated recovery
      in fair value.

      Federal Home Loan Bank (FHLB) Stock

      The Bank is a member of the FHLB  system.  Members  are  required to own a
      certain  amount  of stock  based  on the  level of  borrowings  and  other
      factors, and may invest additional amounts.  FHLB stock is carried at cost
      and periodically  evaluated for impairment based on the ultimate  recovery
      of par value. Both cash and stock dividends are reported as income.

      Loans Held for Sale

      Mortgage loans  originated  and intended for sale in the secondary  market
      are carried at the lower of aggregate  cost or market,  as  determined  by
      outstanding commitments from investors. Net unrealized losses, if any, are
      recorded as a valuation allowance and charged to earnings.

      As of December  31, 2007,  the Company has $3.6  million of mortgage  loan
      forward  sale  commitments.  The fair  value of these  commitments  is not
      material.

      Loans

      Loans  that  management  has  the  intent  and  ability  to  hold  for the
      foreseeable  future  or until  maturity  or  payoff  are  reported  at the
      principal balance outstanding,  net of deferred origination fees and costs
      and the  allowance  for loan  losses.  Interest  income is  accrued on the
      unpaid principle  balance.  Loan  origination  fees, net of certain direct
      origination  costs,  are deferred and recognized in interest  income using
      the level-yield method without anticipating prepayments.

      Interest  income on loans is  discontinued at the time the loan is 90 days
      delinquent  unless the loan is well-secured  and in process of collection.
      Past due  status is based on the  contractual  terms of the  loan.  In all
      cases, loans are placed on nonaccrual or charged-off at an earlier date if
      collection or principal or interest is considered doubtful.

      All interest  accrued but not received for loans placed on  nonaccrual  is
      reversed  against  interest  income.  Interest  received  on such loans is
      accounted for on the  cash-basis  until  qualifying for return to accrual.
      Loans are returned to accrual  status when all the  principal and interest
      amounts  contractually  due are brought  current and future  payments  are
      reasonably assured.

      Allowance for Loan Losses

      The  allowance  for loan  losses is a  valuation  allowance  for  probable
      incurred credit losses. Loan losses are charged against the allowance when
      management  believes the  uncollectibility of a loan balance is confirmed.
      Subsequent recoveries,  if any, are credited to the allowance.  Management
      estimates the allowance  balance required using past loan loss experience,
      the  nature  and  volume  of the  portfolio,  information  about  specific
      borrower situations and estimated collateral values,  economic conditions,
      and other  factors.  Allocations of the allowance may be made for specific
      loans,  but the  entire  allowance  is  available  for any loan  that,  in
      management's judgment, should be

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies (Continued)

      Allowance for Loan Losses (Continued)

      charged off. The  allowance  consists of specific and general  components.
      The specific  component relates to loans that are individually  classified
      as impaired or loans otherwise classified as substandard or doubtful.  The
      general component covers  non-classified  loans and is based on historical
      loss  experience  adjusted  for  current  factors.  Quarterly,  management
      evaluates  the adequacy of the allowance and  determines  the  appropriate
      level of provision  for loan losses by applying a range of estimated  loss
      percentages to each category of performing loans and classified loans. The
      allowance  adjustment  is based  upon  the net  change  in each  portfolio
      category,  as well as  adjustments  related to impaired  loans,  since the
      prior quarter. Management monitors and modifies the level of the allowance
      for loan losses to maintain it at a level which it  considers  adequate to
      provide for probable incurred loan losses.

      A loan is considered impaired, based on current information and events, if
      it is  probable  that the Bank  will be unable to  collect  the  scheduled
      payments of principal or interest  when due  according to the  contractual
      terms  of  the  loan  agreement.   Factors  considered  by  management  in
      determining  impairment include payment status,  collateral value, and the
      probability of collecting  scheduled  principal and interest payments when
      due. The  measurement of impaired loans is generally  based on the present
      value of expected future cash flows discounted at the historical effective
      interest rate, except that all collateral dependent loans are measured for
      impairment based on the estimated fair value of the collateral.

      Premises and Equipment

      Land is carried at cost.  Premises and equipment are stated at cost,  less
      accumulated depreciation. Buildings and related components are depreciated
      using the  straight-line  method with useful  lives  ranging  from 5 to 39
      years.  Furniture,  fixtures  and  equipment  are  depreciated  using  the
      straight-line  method  with  useful  lives  ranging  from  3 to 10  years.
      Maintenance and repairs are charged to operating expense as incurred.

      Goodwill and Other Intangible Assets

      Goodwill  results from business  acquisitions and represents the excess of
      the  purchase  price over the fair value of acquired  tangible  assets and
      liabilities and identifiable  intangible  assets.  Goodwill is assessed at
      least annually for impairment and any such  impairment  will be recognized
      in the period identified.

      Other  intangible  assets  consist of core deposit and  acquired  customer
      relationship   intangible   assets  arising  from  whole  bank  and  other
      acquisitions.  They are  initially  measured  at fair  value  and then are
      amortized on an accelerated method over their estimated useful lives. Core
      deposit intangibles are being amortized over a range of 10 to 12 years and
      acquired customer relationship intangible over 5 years.

      Mortgage Servicing Rights

      Servicing rights are recognized  separately when they are acquired through
      sales of loans.  For sales of mortgage  loans prior to January 1, 2007,  a
      portion of the cost of the loan was allocated to the servicing right based
      on relative  fair values.  The Company  adopted SFAS No. 156 on January 1,
      2007, and for sales of mortgage loans beginning in 2007,  servicing rights
      are  initially  recorded  at fair value with the income  statement  effect
      recorded in gains on sales of loans. Fair value is based

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies (Continued)

      Mortgage Servicing Rights (Continued)

      on a valuation model that calculates the present value of estimated future
      net  servicing  income  based  on  certain  assumptions.  All  classes  of
      servicing assets are subsequently  measured using the amortization  method
      which requires  servicing rights to be amortized into non-interest  income
      in  proportion  to,  and over the  period  of,  the  estimated  future net
      servicing income of the underlying loans.

      Servicing assets are evaluated for impairment based upon the fair value of
      the rights as compared to carrying  amounts.  Impairment  is determined by
      stratifying    rights   into   groupings   based   on   predominant   risk
      characteristics,  such as  interest  rate,  loan type and  investor  type.
      Impairment is recognized  through a valuation  allowance for an individual
      grouping,  to the extent that fair value is less than the carrying amount.
      If the Company later determines that all or a portion of the impairment no
      longer exists for a particular  grouping, a reduction of the allowance may
      be recorded as an increase in income.

      Servicing fee income is recorded for fees earned for servicing  loans. The
      fees are based on a contractual  percentage of the outstanding  principal;
      or a fixed  amount per loan and are  recorded as income when  earned.  The
      amortization of mortgage servicing rights is netted against loan servicing
      fee income. Servicing fees totaled $295,526, $276,436 and $205,579 for the
      years ended December 31, 2007, 2006 and 2005.

      Foreclosed Assets

      Assets  acquired  through  or instead of loan  foreclosure  are  initially
      recorded at fair value less costs to sell when  acquired,  establishing  a
      new cost  basis.  If fair value  declines  subsequent  to  foreclosure,  a
      valuation  allowance is recorded  through  expense.  Operating costs after
      acquisition are expensed.

      Bank Owned Life Insurance

      The Company has purchased life insurance policies on certain key officers.
      Upon adoption of EITF 06-5, which is discussed  further below,  Bank owned
      life  insurance  is recorded at the amount that can be realized  under the
      insurance  contract at the balance sheet date, which is the cash surrender
      value adjusted for other charges or other amounts due that are probable at
      settlement.  Prior to adoption of EITF 06-5,  the Company  recorded  owned
      life insurance at its cash surrender value.

      In September 2006, the FASB Emerging Issues Task Force finalized Issue No.
      06-5,  Accounting for Purchases of Life Insurance - Determining the Amount
      That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4
      (Accounting for Purchases of Life  Insurance).  This issue requires that a
      policyholder  consider  contractual  terms of a life  insurance  policy in
      determining  the  amount  that  could  be  realized  under  the  insurance
      contract.  It also  requires  that if the contract  provides for a greater
      surrender  value if all individual  policies in a group are surrendered at
      the  same  time,  that the  surrender  value  be  determined  based on the
      assumption  that policies  will be  surrendered  on an  individual  basis.
      Lastly,   the  Issue  requires   disclosure  when  there  are  contractual
      restrictions on the Company's ability to surrender a policy.  The adoption
      of EITF 06-5 on January 1, 2007 had no impact on the  Company's  financial
      condition or results of operations.

      Insurance

      Commissions  from sales of insurance  products are recorded as income when
      earned.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies (Continued)

      Income Taxes

      Income tax  expense  is the total of the  current  year  income tax due or
      refundable and the change in deferred tax assets and liabilities. Deferred
      tax assets and  liabilities  are the  expected  future tax amounts for the
      temporary differences between carrying amounts and tax basis of assets and
      liabilities,  computed using enacted tax rates. A valuation allowance,  if
      needed, reduces deferred tax assets to the amount expected to be realized.

      The Company adopted FASB  Interpretation 48, Accounting for Uncertainty in
      Income  Taxes  ("FIN48"),  as  of  January  1,  2007.  A tax  position  is
      recognized  as a benefit only if it is "more likely than not" that the tax
      position would be sustained in a tax examination,  which a tax examination
      being  presumed to occur.  The amount  recognized is the largest amount of
      tax  benefit  that is  greater  than  50%  likely  of  being  realized  on
      examination.  For tax  positions  not meeting  the "more  likely than not"
      test,  no tax  benefit  is  recorded.  The  adoption  had no affect on the
      Company's  financial  statements.

      The Company  recognizes  interest and/or  penalties  related to income tax
      matters in income tax expense.

      Trust Department Assets

      Assets  held in  fiduciary  or agency  capacities  for  customers  are not
      included in the accompanying  consolidated statements of condition,  since
      such items are not assets of the Company.  Fees  associated with providing
      trust  management  services  are recorded on the accrual  method,  and are
      included in Other Income.  At December 31, 2007,  the Bank  maintained 541
      trust/fiduciary  accounts,  with  total  assets  of $137.5  million  under
      management as compared to 538 trust/fiduciary accounts with $110.5 million
      total assets at December 31, 2006.

      Employee Benefits

      Pension  expense is the net of service and interest  cost,  return on plan
      assets and  amortization of gains and losses not  immediately  recognized.
      Employee 401(k) expense is the amount of matching contributions.  Deferred
      compensation allocates the benefits over years of service.

      Fair Value of Financial Instruments

      Fair values of financial  instruments  are estimated using relevant market
      information and other  assumptions,  as more fully disclosed in a separate
      note.  Fair  value  estimates   involve   uncertainties   and  matters  of
      significant  judgment regarding interest rates, credit risk,  prepayments,
      and  other  factors,  especially  in the  absence  of  broad  markets  for
      particular  items.  Changes in assumptions or in market  conditions  could
      significantly affect the estimates.

      Loan Commitments

      Financial  instruments include off-balance sheet credit instruments,  such
      as commitments to make loans and commercial  letters of credit,  issued to
      meet customer  financing needs. The face amount for these items represents
      exposure to loss,  before  considering  customer  collateral or ability to
      repay. Such financial instruments are recorded when they are funded.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies (Continued)

      Loss Contingencies

      Loss  contingencies,  including  claims and legal  actions  arising in the
      ordinary  course  of  business,  are  recorded  as  liabilities  when  the
      likelihood  of loss is  probable  and an  amount  or  range of loss can be
      reasonably  estimated.  Management does not believe there are such matters
      that will have a material  effect on the financial  statements.

      Operating Segment

      Internal  financial  information  is primarily  reported and aggregated in
      three  lines  of  business;   banking,   insurance  and  employee  benefit
      consulting.

      Reclassification

      Some items in the prior year financial  statements  were  reclassified  to
      conform to the current presentation.

      Equity

      Common stock has $0.01 par and 20,000,000 shares authorized.  In addition,
      one million shares of serial preferred stock were authorized.  There is no
      serial preferred stock outstanding as of December 31, 2007.

      Employee Stock Ownership Plan

      The  cost  of  shares  issued  to the  ESOP,  but  not  yet  allocated  to
      participants,   is  shown  as  a  reduction   of   stockholders'   equity.
      Compensation  expense is based on the  market  price of shares as they are
      committed to be released to participant  accounts.  Dividends on allocated
      ESOP shares reduce  retained  earnings;  dividends on unearned ESOP shares
      reduce debt and accrued interest.

      Stock-Based Compensation

      Effective  January 1, 2006,  the Company  adopted  Statement  of Financial
      Accounting  Standards  ("SFAS") No. 123R,  Share-Based  Payment (FAS123R),
      using the modified prospective transition method. Accordingly, the Company
      has recorded stock-based  employee  compensation cost using the fair value
      method starting in 2006.

      Prior to  January 1,  2006,  employee  compensation  expense  under  stock
      options was reported  using the  intrinsic  value  method;  therefore,  no
      stock-based  compensation  cost is  reflected  in net  income for the year
      ended December 31, 2005, as all options had an exercise price equal to the
      market price of the underlying common stock at date of grant.

      The following table  illustrates the effect on net income and earnings per
      share if expense was measured using the fair value recognition  provisions
      of FASB Statement No. 123, "Accounting for Stock-Based Compensation."

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies (Continued)

      Stock-Based Compensation (Continued)

                                                                       2005
      Net income:
         As reported                                               $  3,857,577
      Deduct: Total stock-based compensation expense
         determined under fair value based method,
         net of related tax effects                                     (78,298)
                                                                   ------------
         Pro forma                                                 $  3,779,279
                                                                   ============
      Earnings per share:
         As reported
           Basic                                                   $       0.51
           Diluted                                                 $       0.50
         Pro forma
           Basic                                                   $       0.50
           Diluted                                                 $       0.49

      Earnings per Share

      Basic  earnings per share is net income  divided by the  weighted  average
      number of common  shares  outstanding  during the period.  ESOP shares are
      considered  outstanding  for  the  calculation  unless  unearned.  Diluted
      earnings per share give effect to weighted average shares,  which would be
      outstanding  assuming the exercise of issued  options and awards using the
      treasury  stock method.  Earnings and dividends per share are restated for
      all stock splits and stock  dividends  through the date of issuance of the
      financial  statements.  Earnings per common share have been computed based
      on the following for the years ended December 31:

<TABLE>
<CAPTION>
Twelve Months Ended December 31, 2007           Income       Shares     Per Share
<S>                                          <C>           <C>          <C>
Net income                                   $ 3,504,307
                                             ===========
Basic earnings per share                       3,504,307    7,684,053   $    0.46
                                                                        =========
Effect of dilutive securities:
   Stock options and awards                                    67,485
                                             -----------   ----------   ---------
     Diluted earnings per share              $ 3,504,307    7,751,538   $    0.45
                                             ===========   ==========   =========

Twelve Months Ended December 31, 2006           Income       Shares     Per Share
Net income                                   $ 4,197,992
                                             ===========
Basic earnings per share                       4,197,992    7,633,365   $    0.55
                                                                        =========
Effect of dilutive securities:
   Stock options and awards                                    70,917
                                             -----------   ----------   ---------
     Diluted earnings per share              $ 4,197,992    7,704,282   $    0.54
                                             ===========   ==========   =========
</TABLE>

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies (Continued)

      Earnings per Share (Continued)

<TABLE>
<CAPTION>
Twelve Months Ended December 31, 2005           Income       Shares     Per Share
<S>                                          <C>           <C>          <C>
Net income                                   $ 3,857,577
                                             ===========
Basic earnings per share                       3,857,577    7,575,836   $    0.51
                                                                        =========
Effect of dilutive securities:
   Stock options and awards                                    98,909
                                             -----------   ----------   ---------
     Diluted earnings per share              $ 3,857,577    7,674,745   $    0.50
                                             ===========   ==========   =========
</TABLE>

      Stock  options for 53,820,  54,559 and 52,368  shares of common stock were
      not  considered in computing  diluted  earnings per common share for 2007,
      2006 and 2005 respectively because they were anti-dilutive.

      Treasury Stock

      Common  stock  that upon  purchase  is  classified  as  treasury  stock is
      recorded at cost.  During 2007 and 2006, the Company  purchased  2,860 and
      5,634 shares  classified as treasury stock at an average cost of $9.61 and
      $11.72  per share  respectively.  During  2007 and 2006,  7,225 and 13,425
      shares of treasury  stock were  reissued  at an average  cost of $4.75 and
      $4.75, respectively.  The shares reissued during 2007 and 2006 were issued
      on the exercise of stock options.

      Other Comprehensive Income (Loss)

      Comprehensive  income  consists  of net  income  and  other  comprehensive
      income. Other comprehensive income includes unrealized gains and losses on
      securities  available  for sale and  changes  in funded  status of pension
      plans which are also recognized as separate components of equity.

      Other comprehensive  income (loss) components and related tax effects were
      as follows:

<TABLE>
<CAPTION>
                                                           2007           2006          2005
<S>                                                    <C>            <C>           <C>
Unrealized (losses) gains on securities
   Unrealized holding (losses) gains arising
      during period                                    $ (2,167,052)  $ 2,101,309   $ (3,109,267)
   Less: reclassification adjustment for
      gains realized in income                             (352,825)     (307,546)      (274,934)
                                                       ------------------------------------------
   Net unrealized (losses) gains                         (2,519,877)    1,793,763     (3,384,201)
   Tax effect                                             1,007,951      (717,505)     1,353,680
                                                       ------------------------------------------
         Net-of-tax amount                               (1,511,926)    1,076,258     (2,030,521)
                                                       ------------------------------------------
   Change in unrealized loss on pension liability           228,994       414,385       (111,339)
   Tax effect                                               (91,598)     (165,754)        44,536
                                                       ------------------------------------------
         Net-of-tax amount                                  137,396       248,631        (66,803)
                                                       ------------------------------------------
                                                       $ (1,374,530)  $ 1,324,889   $ (2,097,324)
                                                       ==========================================
</TABLE>

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies (Continued)

      Effect of Newly Issued But Not Yet Effective Accounting Standards

      In  September  2006,  the  FASB  issued  Statement  No.  157,  Fair  Value
      Measurements.  This Statement defines fair value,  establishes a framework
      for  measuring  fair  value  and  expands  disclosures  about  fair  value
      measurements.  This Statement establishes a fair value hierarchy about the
      assumptions  used to measure fair value and  clarifies  assumptions  about
      risk and the effect of a restriction  on the sale or use of an asset.  The
      standard is effective for fiscal years  beginning after November 15, 2007.
      In February 2008,  the FASB issued Staff  Position (FSP) 157-2,  Effective
      Date of FASB  Statement No. 157. This FSP delays the effective date of FAS
      157 for all nonfinancial assets and nonfinancial liabilities, except those
      that are  recognized  or disclosed at fair value on a recurring  basis (at
      least  annually) to fiscal years  beginning  after  November 15, 2008, and
      interim  periods within those fiscal years.  The Company has not completed
      its evaluation of the impact of the adoption of this standard.

      In February 2007, the FASB issued Statement No. 159, The Fair Value Option
      for Financial  Assets and  Financial  Liabilities.  The standard  provides
      companies  with  an  option  to  report  selected   financial  assets  and
      liabilities  at fair value and  establishes  presentation  and  disclosure
      requirements  designed to facilitate  comparisons  between  companies that
      choose  different  measurement  attributes for similar types of assets and
      liabilities.  The new standard is effective  for the Company on January 1,
      2008.  The Company has not completed  its  evaluation of the impact of the
      adoption of this standard.

      In September  2006, the FASB Emerging Tax Force  finalized Issue No. 06-4,
      Accounting for Deferred Compensation and Postretirement Benefit Aspects of
      Endorsement Split-Dollar Life Insurance Arrangements.  This issue requires
      that a liability be recorded during the service period when a split-dollar
      life  insurance  agreement  continues  after  participants'  employment or
      retirement.  The required  accrued  liability  will be based on either the
      post-employment  cost for the  continuing  life  insurance or based on the
      future death benefit  depending on the contractual terms of the underlying
      agreement.  This issue is  effective  for  fiscal  years  beginning  after
      December 15, 2007. The impact of adoption was not material.

      On November 5, 2007,  the SEC issued  Staff  Accounting  Bulletin No. 109,
      Written Loan  Commitments  Recorded at Fair Value through  Earnings  ("SAB
      109").  Previously,  SAB 105, Application of Accounting Principles to Loan
      Commitments,  stated that in measuring the fair value of a derivative loan
      commitment,  a company should not incorporate the expected net future cash
      flows related to the  associated  servicing of a loan.  SAB 109 supersedes
      SAB 105 and  indicates  that the expected net future cash flows related to
      the associated  servicing of the loan should be included in measuring fair
      value for all written  loan  commitments  that are  accounted  for at fair
      value through earnings.  SAB 105 also indicated that  internally-developed
      intangible  assets  should not be  recorded as part of the fair value of a
      derivative  loan  commitment,  and SAB 109 retains  that view.  SAB 109 is
      effective for  derivative  loan  commitments  issued or modified in fiscal
      quarters  beginning  after  December 15, 2007. The Company does not expect
      the impact of this standard to be material.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

2.    Investment Securities and Mortgage-Backed Securities

      Investment securities and mortgage-backed securities consist of the
      following at December 31:

<TABLE>
<CAPTION>
                                                                          2007
                                                       ------------------------------------------
                                                                             Gross Unrealized
                                                         Fair Value       Gains         Losses
<S>                                                    <C>              <C>          <C>
Investment Securities
   Available for sale portfolio:
   -----------------------------
     Debt securities:
       U. S. Agencies                                  $   37,948,945   $  145,881   $    202,212
       Corporate                                           22,455,191       45,032      1,380,635
       State and municipals                                19,251,713      148,430         16,768
                                                       --------------   ----------   ------------
                                                           79,655,849      339,343      1,599,615
     Equity investments:
       Preferred and other equity stocks                   13,258,876           --      2,195,924
       Mutual fund                                          3,196,528           --        336,311
                                                       --------------   ----------   ------------
                                                       $   96,111,253   $  339,343   $  4,131,850
                                                       ==============   ==========   ============

Mortgage-Backed Securities
   Available for sale portfolio:
   -----------------------------
     Federal National Mortgage Association             $   15,481,031   $   98,407   $     98,517
     Federal Home Loan Mortgage Corp.                      21,826,180       46,496        110,645
     Government National Mortgage Assoc.                    2,466,782       25,943             --
     Small Business Administration                             14,303           --              6
     Collateralized Mortgage Obligations                    6,795,049       32,010         23,556
                                                       --------------   ----------   ------------
                                                       $   46,583,345   $  202,856   $    232,724
                                                       ==============   ==========   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                          2006
                                                       ------------------------------------------
                                                                             Gross Unrealized
                                                          Fair Value      Gains         Losses
<S>                                                    <C>              <C>          <C>
Investment Securities
   Available for sale portfolio:
   -----------------------------
     Debt securities:
       U. S. Agencies                                  $   36,245,166   $   13,321   $    659,172
       Corporate                                           18,067,131       93,610        387,802
       State and municipals                                15,705,832       75,160        116,710
                                                       --------------   ----------   ------------
                                                           70,018,129      182,091      1,163,684
     Equity investments:
       Preferred and other equity stocks                   12,942,822      378,739         45,417
       Mutual fund                                          2,755,983           --         26,856
                                                       --------------   ----------   ------------
                                                       $   85,716,934   $  560,830   $  1,235,957
                                                       ==============   ==========   ============

Mortgage-Backed Securities
   Available for sale portfolio:
   -----------------------------
     Federal National Mortgage Association             $   10,008,173   $   16,299   $    232,163
     Federal Home Loan Mortgage Corp.                      16,196,889        2,310        376,608
     Government National Mortgage Assoc.                      988,709           --          5,110
     Small Business Administration                             16,599           --             83
     Collateralized Mortgage Obligations                    1,870,723           --         32,011
                                                       --------------   ----------   ------------
                                                       $   29,081,093   $   18,609   $    645,975
                                                       ==============   ==========   ============
</TABLE>

      The fair value of available-for-sale  debt securities at December 31, 2007
      by contractual  maturity are shown below.  Expected maturities will differ
      from contractual  maturities  because borrowers may have the right to call
      or  prepay  obligations  with or  without  call or  prepayment  penalties.
      Securities not due at a single  maturity date,  primarily  mortgage-backed
      securities, are shown separately.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

2.    Investment Securities and Mortgage-Backed Securities (Continued)

                                                                     Fair Value

      Due within one year                                          $   8,956,443
      Due after one year through five years                           24,838,053
      Due after five years through ten years                          20,285,624
      Due after ten years                                             25,575,729
                                                                   -------------
         Total                                                        79,655,849
      Mortgage-backed securities                                      46,583,345
                                                                   -------------
         Total                                                     $ 126,239,194
                                                                   =============

<TABLE>
<CAPTION>
                                             2007          2006          2005
<S>                                      <C>           <C>           <C>
Sales of available for sale securities
   were as follows
Proceeds                                 $ 22,928,266  $ 26,402,866  $ 36,948,055
Gross Gains                              $    372,074  $    379,215  $    603,656
Gross Losses                             $     19,249  $     71,669  $    328,722
</TABLE>

      Investment securities with a carrying value of $73,767,388 and $61,842,457
      at December 31, 2007 and 2006  respectively  were pledged to collateralize
      borrowing  arrangements,  secure  public  deposits and for other  purposes
      required or  permitted  by law. At year-end  2007 and 2006,  there were no
      holdings of securities of any one issuer,  other than the U.S.  Government
      and its agencies, in an amount greater than 10% of stockholders' equity.

      Securities with unrealized losses at year end 2007 and 2006, aggregated by
      investment  category and length of time that  individual  securities  have
      been in a continuous unrealized loss position, are as follows:

<TABLE>
<CAPTION>
December 31, 2007                            Less than 12 Months           More than 12 Months                 Total
                                              Fair        Unrealized      Fair        Unrealized        Fair        Unrealized
Description of Securities                    Value          Loss          Value           Loss          Value          Loss
------------------------------------------------------   -----------   ------------   -----------   ------------   ------------
<S>                                      <C>             <C>           <C>            <C>           <C>            <C>
U. S. Agencies                           $   4,289,788   $     7,558   $ 16,243,069   $   194,654   $ 20,532,857   $    202,212
Corporate                                    3,303,250       171,517     14,877,882     1,209,118     18,181,132      1,380,635
State and municipals                                --            --      3,070,883        16,768      3,070,883         16,768
Mutual funds and other stocks               12,655,404     2,532,235             --            --     12,655,404      2,532,235
Federal National Mortgage Assoc.               872,109         2,430      4,632,238        96,087      5,504,347         98,517
Government National Mortgage Assoc.                 --            --             --            --             --             --
Federal Home Loan Mortgage Corp.               979,766        11,022     11,064,251        99,623     12,044,017        110,645
Small Business Administration                   14,252             6             --            --         14,252              6
Collateralized Mortgage Obligations                 --            --      1,709,780        23,556      1,709,780         23,556
                                         -------------   -----------   ------------   -----------   ------------   ------------
Total temporarily impaired               $  22,114,569   $ 2,724,768   $ 51,598,103   $ 1,639,806   $ 73,712,672   $  4,364,574
                                         =============   ===========   ============   ===========   ============   ============
</TABLE>

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

2.    Investment Securities and Mortgage-Backed Securities (Continued)

<TABLE>
<CAPTION>
December 31, 2006                            Less than 12 Months           More than 12 Months                  Total
                                             Fair         Unrealized       Fair        Unrealized        Fair       Unrealized
Description of Securities                    Value           Loss         Value           Loss           Value         Loss
------------------------------------------------------   -----------   ------------   -----------   ------------   ------------
<S>                                      <C>             <C>           <C>            <C>           <C>            <C>
U. S. Agencies                           $     289,536   $       464   $ 28,355,474   $   658,708   $ 28,645,010   $    659,172
Corporate                                    2,427,103        72,898     13,320,801       314,904     15,747,904        387,802
State and municipals                         1,170,122         6,575      5,668,785       110,135      6,838,907        116,710
Mutual funds and other stocks                7,648,067        72,273             --            --      7,648,067         72,273
Federal National Mortgage Assoc.               296,163         1,047      7,169,352       231,116      7,465,515        232,163
Government National Mortgage Assoc.            988,709         5,110             --            --        988,709          5,110
Federal Home Loan Mortgage Corp.                49,728            73     15,091,177       376,535     15,140,905        376,608
Small Business Administration                   16,599            83             --            --         16,599             83
Collateralized Mortgage Obligations                 --            --      1,870,722        32,011      1,870,722         32,011
                                         -------------   -----------   ------------   -----------   ------------   ------------
Total temporarily impaired               $  12,886,027   $   158,523   $ 71,476,311   $ 1,723,409   $ 84,362,338   $  1,881,932
                                         =============   ===========   ============   ===========   ============   ============
</TABLE>

      The Company evaluates  securities for  other-than-temporary  impairment at
      least on a quarterly  basis,  and more  frequently when economic or market
      concerns warrant such evaluation.  Consideration is given to the length of
      time and the extent to which the fair  value has been less than cost,  the
      financial  condition and near-term prospects of the issuer, and the intent
      and ability of the Company to retain its  investments  in the issuer for a
      period of time  sufficient to allow for any  anticipated  recovery in fair
      value.  In  analyzing  an issuer's  financial  condition,  the Company may
      consider  whether the securities  are issued by the federal  government or
      its agencies,  whether  downgrades by bond rating  agencies have occurred,
      and the results of reviews of the issuer's financial condition.

      Unrealized  losses  on other  investments  have not been  recognized  into
      income because the issuer(s)  securities  are of investment  grade (except
      for a General Motors Acceptance Corp. bond), management has the intent and
      ability to hold for the  foreseeable  future and the decline in fair value
      is largely due to declines in market  interest  rates since the securities
      were purchased. The fair value is expected to recover as the securities(s)
      approach their maturity  dates.  The Company  currently has a $2.0 million
      General Motors  Acceptance  Corp.  (GMAC) bond,  maturing October 15, 2010
      which has a rating below investment grade. The unrealized loss at December
      31,  2007 and  2006 of  $264,000  and  $20,000  respectively  has not been
      considered  other than  temporary  in that the  Company has the intent and
      ability to retain the investment for a period of time  sufficient to allow
      for recovery in the market value and that the repayment of the  investment
      is probable at maturity.

      The Company  currently has a $2.5 million SLMA bond,  maturing May 1, 2012
      which is rated investment  grade. The unrealized loss at December 31, 2007
      and 2006 of $431,000  and  $73,000  respectively  has not been  considered
      other-than-temporary  in that the  company  has the intent and  ability to
      retain  the  investment  for a period  of time  sufficient  to  allow  for
      recovery  in the  market  value  and that  based  on  credit  ratings  and
      assessment  of  likelihood  of default  the Company  has  concluded  it is
      probable that payment will be made at maturity.

      At December 31, 2007, the Company owned $6.5 and $1.0 million of FHLMC and
      SLMA preferred stock respectively.  The unrealized loss on these preferred
      securities  at December  31, 2007  totaled  $1.7 million as compared to an
      unrealized  gain of $120,000 at December  31,  2006.  Based on  forecasted
      recovery in prices  based on expected  future  rate  movements  and market
      conditions,  the Company has concluded that the unrealized losses on these
      preferred securities have not been considered other-than-temporary.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

3.    Loans Receivable

      The components of loans receivable at December 31 are as follows:

                                                    2007             2006

      Residential                             $  128,365,505   $  109,370,423
      Consumer loans                              43,776,873       44,041,481
      Commercial real estate                      71,260,110       59,236,381
      Commercial loans                            39,933,339       35,292,137
                                              --------------   --------------
                                                 283,335,827      247,940,422
      Allowance for loan losses                   (2,511,310)      (2,080,913)
                                              --------------   --------------
         Net loans                            $  280,824,517   $  245,859,509
                                              ==============   ==============

      The Bank grants  commercial,  consumer  and  residential  loans  primarily
      throughout   Madison  and  Oneida  counties.   Although  the  Bank  has  a
      diversified loan portfolio,  a substantial portion of its debtors' ability
      to honor their  contracts is dependent  upon the  employment  and economic
      conditions within the counties.

      At  December  31,  2007 and 2006  loans to  officers  and  directors  were
      approximately $3.2 million and $3.1 million respectively.  During 2007 and
      2006,  $628,000  and  $922,000  of new  loans  were made to  officers  and
      directors respectively.  Net paydowns and repayments in aggregate on loans
      to officers and directors were approximately  $427,000 and $646,000 during
      2007 and 2006  respectively.  Effect  of  changes  in the  composition  of
      related  parties was  approximately  $106,000 and $117,000 during 2007 and
      2006 respectively.

      At December 31, 2007,  FHLB  advances are  collateralized  by  residential
      mortgages in the amount of $61,446,070  pledged under a blanket collateral
      agreement.

      An analysis of the change in the  allowance  for loan losses for the years
      ended December 31 is as follows:

<TABLE>
<CAPTION>
                                                     2007          2006           2005
<S>                                              <C>           <C>            <C>
Balance at beginning of year                     $ 2,080,913   $  1,958,974   $  1,981,504
Loans charged off                                   (230,877)      (426,567)      (520,714)
Recoveries                                           135,703        268,506        138,184
Provision for loan losses                                 --        280,000        360,000
NBV Acquisition                                      525,571             --             --
                                                 -----------   ------------   ------------
   Balance at end of year                        $ 2,511,310   $  2,080,913   $  1,958,974
                                                 ===========   ============   ============
</TABLE>

Impaired loans were as follows:

<TABLE>
<CAPTION>
                                                     2007          2006          2005
<S>                                              <C>           <C>            <C>
Impaired loans                                   $        --   $         --   $     38,559
Allocated allowance for loan losses              $        --   $         --   $     13,559

Average of impaired loans during the year        $        --   $      7,712   $     54,708
Cash-basis interest income recognized            $        --   $      1,366   $      3,228
</TABLE>

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

3.    Loans Receivable (Continued)

      Nonperforming loans were as follows:

                                                         2007          2006
      Loans past due over 90 days still on accrual  $         --   $         --
      Nonaccrual loans                              $    375,414   $     51,093

      Nonperforming  loans includes both smaller balance  homogeneous loans that
      are  collectively  evaluated for  impairment and  individually  classified
      impaired loans.

      Loans having  carrying  values of $22,142 and $89,918 were  transferred to
      foreclosed assets in 2007 and 2006, respectively.

4.    Secondary Mortgage Market Activities

      Mortgage  loans  serviced for others are not included in the  accompanying
      consolidated statements of condition. The principal balance of these loans
      at year end are as follow:

                                                        2007           2006

      Mortgage loan portfolios serviced for:
               FHLMC                                $ 93,504,591   $ 97,958,591
               FHLB                                 $  8,397,756   $  1,285,842

      Custodial  escrow  balances  maintained in connection  with serviced loans
      were  approximately  $1,265,000  and  $1,146,000  at December 31, 2007 and
      2006, respectively.

      Activity for mortgage servicing rights and the related valuation allowance
      follows:

                                          2007           2006           2005
      Servicing rights:
      Balance at beginning of year     $  326,081   $    336,628   $    353,797
      Additions                           117,026         98,629         96,223
      Disposals                                --             --             --
      Amortized to expense               (110,120)      (109,176)      (113,392)
                                       ----------   ------------   ------------
         Balance at end of year        $  332,987   $    326,081   $    336,628
                                       ==========   ============   ============

                                       ----------   ------------   ------------
      Valuation Allowance              $       --   $         --   $         --
                                       ==========   ============   ============

      The fair value of mortgage servicing rights  approximated book value as of
      year-end  2007  and  2006.  Fair  value  at  year-end  2007  and  2006 was
      determined  using a discount rate of 7.5%,  prepayment  speed 20% of and a
      weighted average default rate of 5%.

      The  weighted   average   amortization   period  is  8  years.   Estimated
      amortization expense for each of the next five years is:

                              2008            $  97,072
                              2009               70,167
                              2010               50,445
                              2011               36,036
                              2012               24,427

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

5.    Premises and Equipment

      Premises and equipment consist of the following at December 31:

                                                      2007             2006

      Land                                       $    2,730,638   $   1,650,303
      Buildings                                      22,080,267      14,691,424
      Equipment and fixtures                          8,749,117       6,871,858
      Construction in progress                           82,105       3,745,455
                                                 --------------   -------------
                                                     33,642,127      26,959,040
      Accumulated depreciation                      (11,109,635)     (9,531,269)
                                                 --------------   -------------
         Net book value                          $   22,532,492   $  17,427,771
                                                 ==============   =============

      Depreciation expense was $1,406,308, $1,093,796 and $993,655 in 2007, 2006
      and 2005 respectively.

6.    Goodwill and Other Intangible Assets

      Other intangible assets consist of the following at December 31:

<TABLE>
<CAPTION>
                                                      As of December 31, 2007
                                          ---------------------------------------------
                                              Gross
                                            Carrying      Accumulated
                                              Value       Amortization         Net
                                          ------------    ------------     ------------
<S>                                       <C>             <C>              <C>
Core deposit intangible                   $  2,705,391    $   (805,366)    $  1,900,025
Customer relationship intangible             1,265,543        (524,982)         740,561
                                          ------------    ------------     ------------
       Total                              $  3,970,934    $ (1,330,348)    $  2,640,586
                                          ============    ============     ============
</TABLE>

<TABLE>
<CAPTION>
                                                      As of December 31, 2006
                                          ---------------------------------------------
                                              Gross
                                            Carrying      Accumulated
                                              Value       Amortization          Net
                                          ------------    ------------     ------------
<S>                                       <C>             <C>              <C>
Core deposit intangible                   $  1,250,057    $   (498,211)    $    751,846
Customer relationship intangible             1,265,543        (284,378)         981,165
                                          ------------    ------------     ------------
       Total                              $  2,515,600    $   (782,589)    $  1,733,011
                                          ============    ============     ============
</TABLE>

      Aggregate  amortization expense was $547,759,  $383,182,  and $113,099 for
      2007, 2006 and 2005.

      Estimated amortization expense for each of the next five years:

                 2008                  $ 540,585
                 2009                    470,070
                 2010                    411,990
                 2011                    361,307
                 2012                    312,507

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

6.    Goodwill and Other Intangible Assets (Continued)

      The changes in the carrying amount of goodwill for the year ended December
      31 is as follows:

<TABLE>
<CAPTION>
                                              Banking        Insurance      Benefit Consulting
                                            Activities      Activities          Activities          Total
<S>                                        <C>             <C>              <C>                  <C>
Balance as of December 31, 2004            $  5,577,913    $   6,705,878    $               --   $ 12,283,791
Goodwill acquired                                    --        1,207,206                    --      1,207,206
                                           ------------    -------------    ------------------   ------------
Balance as of December 31, 2005               5,577,913        7,913,084                    --     13,490,997
Goodwill acquired                                    --        2,132,217             2,513,826      4,646,043
                                           ------------    -------------    ------------------   ------------
Balance as of December 31, 2006               5,577,913       10,045,301             2,513,826     18,137,040
Goodwill acquired                             4,457,992           66,153               131,417      4,655,562
                                           ------------    -------------    ------------------   ------------
Balance as of December 31, 2007            $ 10,035,905    $  10,111,454    $        2,645,243   $ 22,792,602
                                           ============    =============    ==================   ============
</TABLE>

      During 2000, the Company  completed its  acquisition of Bailey and Haskell
      Associates,  Inc.  Under the terms of the agreement,  contingent  purchase
      payments  based on future  performance  levels  were made over a five-year
      period  ending  December  31, 2005.  Additional  goodwill in the amount of
      $1,556,070 was recorded for the contingent  purchase  payment made in 2006
      based on 2005 results. Additional goodwill in the amount of $1,196,035 was
      recorded for the  contingent  purchase  payment made in 2005 based on 2004
      results.

      During 2006,  the Company  completed its  acquisition  of Parsons,  Cote &
      Company  and  Benefit  Consulting  Group  LLC.  Goodwill  in the amount of
      $576,000  and  intangible  assets in the amount of $71,000 was recorded as
      part of the Parsons,  Cote & Company  acquisition.  Under the terms of the
      agreement, contingent purchase payments based on future performance levels
      may be made over a five-year  period ending December 31, 2010.  Additional
      goodwill in the amount of $66,153 was recorded for the contingent purchase
      payment made in 2007.

      During 2006, the Company  completed its acquisition of Benefit  Consulting
      Group LLC.  Goodwill in the amount of $2.5  million  and other  intangible
      assets  in the  amount  of  $1.1  million  were  recorded  as  part of the
      acquisition  of  Benefit  Consulting  Group  LLC.  Under  the terms of the
      agreement,  continent purchase payments based on future performance levels
      may be made over a five-year  period ending December 31, 2010.  Additional
      goodwill  in the  amount  of  $131,417  was  recorded  for the  contingent
      purchase payment made in 2007.

      During  2007,  the  Company  completed  its  acquisition  of  Vernon  Bank
      Corporation,  the stock  holding  company of the National  Bank of Vernon.
      Goodwill in the amount of $4.5 million and other intangible  assets in the
      amount of $1.5 million were recorded as part of the acquisition.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

7.    Due to Depositors

      Amounts due to depositors at December 31 are as follows:

                                                       2007             2006

      Non-interest bearing demand                  $  65,685,030   $  53,097,399
      Savings                                         70,412,840      63,482,406
      Money market and interest-bearing checking     110,201,231      77,771,403
      Time deposits                                  152,898,233     118,023,875
      Mortgage escrow funds                              931,960         894,930
                                                   -------------   -------------
          Total due to depositors                  $ 400,129,294   $ 313,270,013
                                                   =============   =============

      At December 31, 2007 and 2006,  time  deposits  with balances in excess of
      $100,000 totaled $47,029,375 and $30,178,140, respectively.

      The  contractual  maturity  of time  deposits  as of  December  31, are as
      follows:

                                        2007                    2006
                            -----------------------   -------------------------
           Maturity            Amount      Percent       Amount      Percent

      One year or less      $ 119,077,952     77.9%   $ 80,337,097        68.1%
      One to two years         20,172,112     13.2      22,001,622        18.7
      Two to three years        6,642,426      4.3       6,373,324         5.4
      Three to four years       3,680,983      2.4       5,684,762         4.8
      Four to five years        3,324,760      2.2       3,565,469         3.0
      Over five years                  --      0.0          61,601         0.0
                            -------------  -------    ------------   ---------
                            $ 152,898,233    100.0%   $118,023,875       100.0%
                            =============  =======    ============   =========

8.    Borrowings and Notes Payable

      Outstanding borrowings as of December 31 are as follows:

                                                        2007           2006

      Short-term borrowings:
         Federal Home Loan Bank advances           $  15,900,000   $   7,500,000
      Long-term borrowings:
         Federal Home Loan Bank advances              40,500,000      53,900,000
                                                   -------------   -------------
                                                   $  56,400,000   $  61,400,000
                                                   =============   =============

      Borrowings at December 31, 2007 have maturity dates as follows:

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

8.    Borrowings and Notes Payable (Continued)

                                        Range of    Average
                                         Rates        Rate

      2008                           3.75% - 5.73%   4.78%     $ 15,900,000
      2009                           4.31% - 5.71%   5.01%       16,000,000
      2010                           4.40% - 6.74%   5.73%       12,500,000
      2011                               5.74%       5.74%        1,000,000
      2012                               3.34%       3.34%        5,000,000
      Thereafter                     5.00% - 5.33%   5.06%        6,000,000
                                                               ------------
                                                               $ 56,400,000
                                                               ============

      The Bank has available a $90,778,600  line of credit with the Federal Home
      Loan Bank of which $0 is outstanding at December 31, 2007. At December 31,
      2007,  borrowings are  collateralized by pledged  securities,  which had a
      carrying value of $73,767,388 and  residential  mortgages in the amount of
      $61,446,070  pledged under a blanket collateral  agreement.  The Bank also
      has available a $5,000,000 unsecured line of credit with Key Bank of which
      $0 is  outstanding  at December 31, 2007.  In addition,  the Bank also has
      available a $5,000,000  unsecured line of credit with M&T Bank of which $0
      is outstanding at December 31, 2007.

      The Bank  currently  has  notes  payable  outstanding  of  $158,000  as of
      December 31, 2007.  The balance as of December 31, 2006 was $1.4  million.
      Notes  payable in the amount of $419,570  was  established  as part of the
      acquisition  of  Parsons,  Cote & Company  to be paid over 36 months  with
      interest  at  5.00%  per  annum.  A  note  payable  of  $2.2  million  was
      established as part of the acquisition of Benefit  Consulting Group LLC to
      be paid over 24 months with interest to be paid at 5.00% per annum.

9.    Income Taxes

      The provision for income taxes for the years ended  December 31,  consists
      of the following:

                                         2007          2006           2005
      Current:
         Federal                     $ 1,154,383    $ 1,060,886    $ 1,336,269
         State                           104,202        179,785        151,731
      Deferred:
         Federal                          21,267        240,014        (96,269)
         State                            87,798         45,215         (1,731)
                                     -----------    -----------    -----------
                                     $ 1,367,650    $ 1,525,900    $ 1,390,000
                                     ===========    ===========    ===========

      A reconciliation of the federal statutory rate to the effective income tax
      rate for the years ended December 31, is as follow

                                                         2007      2006   2005

      Federal statutory income tax rate                   34%       34%    34%
      State tax, net of federal benefit                    3%        2%     2%
      Tax exempt investment income                        (4)%      (5)%   (8)%
      Other                                               (5)%      (4)%   (2)%
                                                         ---       ---    ---
         Effective tax rate                               28%       27%    26%
                                                         ---       ---    ---

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

9.    Income Taxes (Continued)

      The  components of deferred  income taxes  included in other assets in the
      statements of condition are approximately as follows:

<TABLE>
<CAPTION>
                                                            2007          2006
                                                            Asset (Liability)
<S>                                                      <C>            <C>
Allowance for loan losses                                $   919,000    $ 802,000
Deferred compensation                                        254,000       74,000
Investment security charges                                  181,000      174,000
Unrealized losses on securities available for sale         1,529,000      521,000
Depreciation                                                 (53,000)      38,000
Pension benefits                                            (147,000)      14,000
Mortgage related fees                                       (315,000)    (381,000)
Intangible amortization                                      (88,000)     (47,000)
Purchase accounting adjustments                             (422,000)    (296,000)
Prepaid expenses                                            (188,000)    (116,000)
Other                                                        (15,000)     (14,000)
                                                         -----------    ---------
   Total deferred income tax asset, net                  $ 1,655,000    $ 769,000
                                                         ===========    =========
</TABLE>

      The  adoption of FIN 48 at January 1, 2007 had no impact on the  Company's
      financial  statements.  At  January 1, 2007 and  December  31,  2007,  the
      Company had no unrecognized  tax benefits  recorded.  The Company does not
      expect the amount of  unrecognized  tax benefits to  significantly  change
      within the next twelve months.

      The  total  amount  of  interest  and  penalties  recorded  in the  income
      statement for the year ended December 31, 2007 was $0. In addition,  there
      was no amount accrued for interest and penalties at December 31, 2007.

      The  Company  is subject  to U.S.  federal  income tax as well as New York
      state  income tax.  The  Company is no longer  subject to federal or state
      examinations  for tax years prior to 2004. The tax years 2004-2006  remain
      open to federal and state examination.

10.   Benefit Plans

      The  Bank   provides  a   noncontributory   defined   benefit   retirement
      accumulation   plan  (cash  balance  plan)  covering   substantially   all
      employees. Under the plan, retirement benefits are primarily a function of
      the employee's years of service and level of compensation.  As of June 15,
      2004,  the Bank had a plan  amendment to freeze the plan benefits for plan
      participants. The Bank uses a December 31 measurement date for its pension
      plan.

      Information  about changes in obligations and funded status of the defined
      benefit pension plan follows:

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

10.   Benefit Plans (Continued)

<TABLE>
<CAPTION>
                                                                      2007           2006
<S>                                                               <C>            <C>
Change in benefit obligation:
   Benefit obligation at beginning of year                        $ 4,568,021    $ 5,129,826
   Service cost                                                            --             --
   Interest cost                                                      220,862        239,998
   Actuarial loss                                                    (124,326)      (178,815)
   Benefits paid                                                     (352,071)      (622,988)
                                                                  -----------    -----------
     Benefit obligation at end of year                            $ 4,312,486    $ 4,568,021

Change in plan assets, at fair value:
   Beginning plan assets                                          $ 4,006,529    $ 4,253,487
   Actual return                                                      223,726        340,404
   Benefits paid                                                     (352,071)      (622,988)
   Employer contributions                                             131,985         35,626
   Settlements                                                             --             --
                                                                  -----------    -----------
     Ending plan assets                                           $ 4,010,169    $ 4,006,529
                                                                  -----------    -----------

Funded status at year end (plan assets less benefit obligation)   $  (302,317)   $  (561,492)
                                                                  ===========    ===========
</TABLE>

      Amounts recognized in accumulated other comprehensive income at December
      31 consist of:

<TABLE>
<CAPTION>
                                                                      2007           2006
<S>                                                               <C>            <C>
Net actuarial loss (gain)                                         $ 1,527,069    $ 1,641,047
Prior service cost (credit)                                                --             --
                                                                  -----------    -----------
                                                                  $ 1,527,069    $ 1,641,047
                                                                  ===========    ===========
</TABLE>

      The accumulated benefit obligation for the pension plan was $4,312,486 and
      $4,568,021, at year-end 2007 and 2006 respectively.

      The net  periodic  pension  cost and  other  amounts  recognized  in other
      comprehensive  income  for  the  years  ended  December  31  includes  the
      following components:

<TABLE>
<CAPTION>
                                                       2007           2006           2005
<S>                                                 <C>           <C>            <C>
Service cost benefits earned during the period      $       --    $        --    $        --
Interest cost on projected benefit obligation          220,870        239,998        305,660
Expected return on plan assets                        (292,236)      (356,383)      (383,759)
Net amortization and deferral                           58,154        251,549        135,613
                                                    ----------    -----------    -----------
   Net periodic pension (benefit) cost              $  (13,212)   $   135,164    $    57,514

Net loss (gain)                                       (113,978)      (448,661)       111,339
Prior service cost (credit)                                 --             --             --
Amortization of prior service cost                          --             --             --
                                                    ----------    -----------    -----------
   Total recognized in other comprehensive income     (113,978)      (448,661)       111,339
                                                    ----------    -----------    -----------
   Total recognized in net periodic benefit
     cost and other comprehensive income            $ (127,190)   $  (313,497)   $   168,853
                                                    ----------    -----------    -----------
</TABLE>

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

10.   Benefit Plans (Continued)

      The estimated  net loss and prior  service  costs for the defined  benefit
      pension plan that will be amortized from accumulated  other  comprehensive
      income  into net  periodic  benefit  cost  over the next  fiscal  year are
      $63,000 and $0 respectively.

<TABLE>
<S>                                                           <C>     <C>     <C>
Assumptions                                                   2007    2006    2005

Weighted-average assumptions used to determine
   benefit obligation at year-end
Discount rate                                                 5.18%   5.08%   6.13%

Weighted-average assumptions used to determine
   net cost
Discount rate                                                 5.18%   5.08%   6.13%
Expected return on plan assets                                7.50%   9.00%   9.00%
</TABLE>

      The  Company's  pension plan asset  allocation  at year-end 2007 and 2006,
      target allocation for 2008, and expected long-term rate of return by asset
      category are as follows:

<TABLE>
<CAPTION>
                                              Percentage of            Weighted-
                             Target            Plan Assets         Average Expected
                           Allocation         at December 31        Long Term Rate
Asset Category                2008            2007      2006           of Return
<S>                        <C>                <C>       <C>        <C>
   Equity Securities               70%         65%       43%            5% - 10%
   Debt Securities                 30%         35%       57%            2% - 6%
   Other                            0%          0%        0%
                           ----------         --------------
      Total                       100%        100%      100%              6-9%
                           ==========         ==============
</TABLE>

      Plan assets are  invested in twelve  diversified  investment  funds at ING
      Life  Insurance  and Annuity  Company.  The  investment  funds are offered
      through a MAP Plus Group Annuity. There are eight equity mutual funds, two
      bond mutual funds,  one fixed account and one money market fund  currently
      used for  Plan  investments;  each  with  its own  investment  objectives,
      investment  strategies and risks,  as detailed in each fund's  prospectus.
      The Advisor,  Benefit  Consulting  Group Inc. has been given discretion by
      the Plan Sponsor to determine the appropriate  strategic asset  allocation
      versus  plan  liabilities,   as  governed  by  the  Trust's  Statement  of
      Investment  Objectives and  Guidelines.  The investment goal is to achieve
      investment  results  that will  contribute  to the  proper  funding of the
      pension plan by exceeding the rate of inflation over the long-term.

      The Company expects to contribute  $90,000 to the Plan for the year ending
      December 31, 2008.

      The following benefit payments are expected to be paid:

          Fiscal year ending December 31:

              2008                                      $   350,000
              2009                                          368,000
              2010                                          386,000
              2011                                          405,000
              2012                                          425,000
              Years 2013 - 2017                           2,468,000

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

10.   Benefit Plans (Continued)

      State  Bank of  Chittenango  participated  in the New York  State  Bankers
      Retirement  System plan which was a  noncontributory  defined benefit plan
      covering substantially all employees.  Under the plan, retirement benefits
      were primarily a function of the employee's  years of service and level of
      compensation.  The plan  was  frozen  as of May 31,  2002.  State  Bank of
      Chittenango uses a September 30 measurement date for its pension plan.

      The following table represents a  reconciliation  of the change in benefit
      obligation, plan assets and funded status of the plan as of December 31:

<TABLE>
<CAPTION>
                                                                      2007           2006
<S>                                                               <C>            <C>
Change in benefit obligation:
   Beginning benefit obligation                                   $ 2,219,705    $ 2,400,487
   Service cost                                                        24,400         22,100
   Interest cost                                                      133,564        127,479
   Actuarial gain (loss)                                               95,738       (138,420)
   Benefits paid                                                     (209,608)      (191,941)
                                                                  -----------    -----------
     Ending benefit obligation                                    $ 2,263,799    $ 2,219,705
                                                                  -----------    -----------
Change in plan assets, at fair value:
   Beginning plan assets                                          $ 2,791,081    $ 2,680,805
   Actual return on plan assets                                       413,884        302,217
   Benefits paid                                                     (209,608)      (191,941)
                                                                  -----------    -----------
      Ending plan assets                                          $ 2,995,357    $ 2,791,081
                                                                  -----------    -----------
Funded status at year end (plan assets less benefit obligation)   $   731,558    $   571,376
                                                                  -----------    -----------
</TABLE>

      Amounts recognized in accumulated other comprehensive income at December
      31 consist of:

<TABLE>
<CAPTION>
                                                                      2007          2006
<S>                                                               <C>            <C>
Net actuarial loss (gain)                                         $   (80,740)   $    34,276
Prior service cost (credit)                                                --             --
                                                                  -----------    -----------
                                                                  $   (80,740)   $    34,276
                                                                  ===========    ===========
</TABLE>

      The accumulated benefit obligation for the pension plan was $2,263,799 and
      $2,219,705 at year-end 2007 and 2006 respectively.

      The net  periodic  pension  cost and  other  amounts  recognized  in other
      comprehensive  income  for  the  years  ended  December  31  includes  the
      following components.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

10.   Benefit Plans (Continued)

<TABLE>
<CAPTION>
                                                       2007          2006           2005
<S>                                                 <C>           <C>            <C>
Service cost benefits earned during the period      $   24,400    $    22,100    $    19,700
Interest cost on projected benefit obligation          133,564        127,479        131,747
Expected return on plan assets                        (203,130)      (207,850)      (198,683)
                                                    ----------    -----------    -----------
   Net periodic pension benefit                     $  (45,166)   $   (58,271)   $   (47,236)

Net loss (gain)                                       (115,016)        34,276             --
Prior service cost (credit)                                 --             --             --
Amortization of prior service cost                          --             --             --
                                                    ----------    -----------    -----------
   Total recognized in other comprehensive income     (115,016)        34,276             --
                                                    ----------    -----------    -----------
   Total recognized in net periodic benefit
     cost and other comprehensive income            $ (160,182)   $   (23,995)   $   (47,236)
                                                    ----------    -----------    -----------
</TABLE>

      The estimated  net loss and prior  service  costs for the defined  benefit
      pension plan that will be amortized from accumulated  other  comprehensive
      income into net periodic benefit cost over the next fiscal year are $0 and
      $0 respectively.

<TABLE>
<CAPTION>
Assumptions                                               2007           2006           2005
<S>                                                       <C>            <C>            <C>
Weighted-average assumptions used to determine
   benefit obligation at year-end
Discount rate                                             6.25%          6.25%          5.50%

Weighted-average assumptions used to determine
   net cost
Discount rate                                             6.25%          6.25%          5.50%
Expected return on plan assets                            7.50%          7.50%          8.00%
</TABLE>

      The  Company's  pension plan asset  allocation  at year-end 2007 and 2006,
      target allocation for 2008 and expected  long-term rate of return by asset
      category are as follows:

<TABLE>
<CAPTION>
                                             Percentage of            Weighted-
                           Target             Plan Assets         Average Expected
                         Allocation         at September 30,       Long Term Rate
Asset Category              2008           2007        2006           of Return
<S>                      <C>               <C>         <C>        <C>
Equity Securities                60%        58%        60.0%              8%
Debt Securities                  40%        40%        40.0%              6%
Other                             0%         2%         0.0%
                          ----------       -----------------
   Total                         100%      100%         100%            7.5%
                          ----------       -----------------
</TABLE>

      The  New  York  State  Bankers   Retirement   System  (the  "System")  was
      established in 1938 to provide for the payment of benefits to employees of
      participating  banks. The System utilizes two investment  management firms
      each  investing  to achieve an  allocation  approximating  60% invested in
      equity securities and 40% invested in debt securities.  Firm 1 is employed
      for  expertise as a Value  Manager and is allowed to invest  approximately
      68% of the  portfolio.  The  equities  managed by Firm 1 are  invested  in
      international   securities  while  the  equities  managed  by  Firm  2  of
      approximately  32% are in a commingled  Large Cap Equity Fund. The Fund is
      invested in a

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

10.   Benefit Plans (Continued)

      diversified portfolio of common or capital stocks, bonds,  debentures,  or
      preferred stocks or in other types of equity investment whether foreign or
      domestic. For the debt securities, Firm 1 manages a fixed income portfolio
      while Firm 2 manages a fixed income fund. Both portfolios'  guidelines are
      set forth in the System's investment policy.

      The Company  expects to  contribute  $0 for the year ending  December  31,
      2008.

      The following benefit payments are expected to be paid:

         Fiscal year ending December 31:

                2008                                $   106,482
                2009                                    104,080
                2010                                    101,308
                2011                                     98,405
                2012                                    110,168
                Years 2013 - 2017                     1,121,156

      In addition to the retirement  plan, the Company sponsors a 401(k) savings
      plan which enables employees who meet the plan's eligibility  requirements
      to defer income on a pre-tax  basis.  Employees  may elect to contribute a
      portion of their compensation,  with the Company matching the contribution
      up to 5% of compensation.  Employer contributions associated with the plan
      amounted to $493,218,  $378,526 and $350,227 for the years ended  December
      31, 2007, 2006 and 2005, respectively.

      The Bank provides The Oneida  Savings Bank Employee  Stock  Ownership Plan
      with all employees  meeting the age and service  requirements  eligible to
      participate  in the Plan.  Employees are eligible for the Plan if they are
      twenty-one  years of age and have one year of service  with at least 1,000
      hours. The ESOP purchased  299,655 shares of common stock which was funded
      by a loan from the Company payable in ten equal installments over 10 years
      bearing a variable  interest  rate of prime at the  beginning  of the year
      which was 8.25% and 7.25% for 2007 and 2006,  respectively.  Loan payments
      are to be funded  by cash  contributions  from the  Bank.  The loan can be
      prepaid without penalty.  Shares purchased by the ESOP are maintained in a
      suspense account and held for allocation among the  participants.  As loan
      payments are made,  shares are  committed to be released and  subsequently
      allocated to employee  accounts at each  calendar  year end.  Compensation
      expense is recognized related to the shares committed to be released based
      on the average market price during the period.  Cash dividends received on
      unallocated  shares  are  used to pay debt  service.  For the  purpose  of
      computing  earnings per share,  unallocated ESOP shares are not considered
      outstanding.

      Compensation expense approximated $337,000,  $342,000 and $358,000 for the
      years  ended 2007,  2006 and 2005,  respectively.  Of the  299,655  shares
      acquired on behalf of the ESOP 29,045,  30,034 and 30,034 were released in
      December 31, 2007,  2006 and 2005. As of December 31, 2007, all shares had
      been released and allocated to participants.

11.   Stock Based Compensation Plans

      The Company has two share based  compensation  plans as  described  below.
      Total  compensation  cost that has been charged  against  income for those
      plans was  $174,806,  $229,779  and $86,985 for 2007,  2006 and 2005.  The
      total income tax benefit was $67,300, $88,500, and $33,500.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

11.   Stock Based Compensation Plans (Continued)

      Stock Option Plan

      The  Company's  2000 Stock Option  Plan,  which is  shareholder  approved,
      permits the granting of share  options to its  directors,  officer and key
      employees for up to 374,568 share of common stock.  The exercise  price of
      options  granted is equal to the market value of the  Company's  shares at
      the date of grant.  All options  granted  expire by April 2010 and options
      vest and become  exercisable  ratably over a one to five-year period.  The
      plan also has a reload feature which  entitles the option holder,  who has
      delivered  common stock as payment of the exercise price for option stock,
      to a new option to acquire  additional  shares in the amount  equal to the
      shares  traded in. The option period during which the reload option may be
      exercised expires at the same time as that of the original option that the
      holder has  exercised.  The Company  has a policy of using  shares held as
      treasury stock to satisfy share option exercises.  There were 9,243 shares
      available for future grants under the plan described  above as of December
      31, 2007 and 2006.

      The fair  value of each  option  award is  estimated  on the date of grant
      using a closed form option valuation  (Black-Scholes)  model that uses the
      assumptions noted in the table below.  Expected  volatilities are based on
      historical  volatilities of the Company's  common stock.  The Company uses
      historical data to estimate option exercise and  post-vesting  termination
      behavior. The expected term of options granted is based on historical data
      and represents the period of time that options  granted are expected to be
      outstanding,   which  takes  into   account   that  the  options  are  not
      transferable.  The  risk-free  interest  rate for the expected term of the
      option is based on the U.S.  Treasury yield curve in effect at the time of
      the grant.  The fair value of options  granted  was  determined  using the
      following weighted-average assumptions as of grant date:

                                                 2007       2006         2005
                                                ------   ----------   ----------
        Risk-free interest rate                    N/A        5.00%        4.27%
        Expected stock price volatility            N/A       43.16%       43.01%
        Expected dividend rate                     N/A        3.00%        3.00%
        Expected life                              N/A   4.10 years   5.00 years

      A summary of the activity in the stock option plan for 2007 follows:

<TABLE>
<CAPTION>
                                            Options         Range of       Weighted Average
                                          Outstanding        Option         Exercise Price
                                              and             Price             Shares        Intrinsic
                                          Exercisable       Per Share         Outstanding       Value
<S>                                       <C>           <C>                <C>                <C>
Outstanding at December 31, 2006              186,492   $4.722 - $18.167   $          7.561   $ 622,824
  Granted                                          --                 --
  Exercised                                    (7,225)            $4.722
  Forfeited                                        --                 --
                                          -----------
Outstanding at December 31, 2007              179,267   $4.722 - $18.167   $          7.676   $ 587,508
                                          -----------
</TABLE>

      There was no unrecognized  compensation  cost for this plan as of December
      31, 2007 as all shares are vested under the terms of the plan.  There were
      no new grants during the year.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

11.   Stock Based Compensation Plans (Continued)

      Information related to the stock option plan during each year follows:

<TABLE>
<CAPTION>
                                                        2007        2006        2005
                                                     ---------   ---------   ---------
<S>                                                  <C>         <C>         <C>
Intrinsic value of options exercised                 $  49,378   $  88,238   $ 501,879
Cash received from option exercises                     34,118      35,038      47,374
Tax benefit realized from option exercises                  --      31,950     127,497
Weighted average fair value of options granted              --       3.719       4.817
</TABLE>

      At December 31, 2007, the weighted average information for outstanding and
      exercisable shares is as follows:

                         Options Outstanding                 Options Exercisable
                                       Weighted Average                 Weighted
          Range of                              Remaining                Average
          Exercise                   Exercise     Life                  Exercise
            Price          Shares      Price     (Years)     Shares       Price

       $3.633 - $5.45      119,990   $  4.722        2.32    119,990    $  4.722
       $9.084 - $10.90       4,465   $  9.419        2.32      4,465    $  9.419
      $10.90 - $12.717      19,221   $ 11.985        2.27     19,221    $ 11.985
      $12.717 - $14.534     18,689   $ 14.000        2.32     18,689    $ 14.000
      $14.534 - $16.350      6,600   $ 14.794        2.32      6,600    $ 14.794
      $16.350 - $18.167     10,302   $ 17.247        2.32     10,302    $ 17.247
                          --------   --------               --------    --------
        Total/Average      179,267   $  7.676        2.31    179,267    $  7.676
                          --------   --------               --------    --------

      Recognition Plan

      The Management Recognition and Retention Plan provides for the issuance of
      shares of  restricted  stock to  directors,  officers  and key  employees.
      Compensation expense equal to the market value of Oneida Financial Corp.'s
      stock on the grant date is  recognized  ratably over the five year vesting
      period for shares of restricted stock granted that will be fully vested at
      December 31, 2010.  Compensation  recorded in conjunction with these plans
      was $174,806, $220,566 and $86,985 for 2007, 2006, and 2005, respectively.
      Shares unallocated under the plan available for future awards were 12,886,
      12,886 and 10,886 as of December 31, 2007, 2006 and 2005 respectively.

      A summary  of  changes  in the  Company's  nonvested  shares  for the year
      follows:

                                                               Weighted Average
                                                                  Grant-Date
              Nonvested Shares                      Shares        Fair Value

         Nonvested at January 1, 2007                 62,400   $          11.44
           Granted                                        --
           Vested                                    (16,800)
           Forfeited                                      --
                                                   ---------
         Nonvested at December 31, 2007               45,600   $          11.44
                                                   ---------

      As of December  31,  2007,  there was a total of $638,414 of  unrecognized
      compensation  cost related to nonvested shares granted under the Plan. The
      cost is expected to be recognized over a weighted  average of 3 years. The
      total fair value of shares  vested  during the years  ended  December  31,
      2007, 2006 and 2005 were $164,552, $184,236 and $421,200 respectively.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

12.   Other Income and Expenses

      Other income and other expenses for the years ended December 31 consist of
      the following:

<TABLE>
<CAPTION>
                                                                         2007            2006            2005
<S>                                                                 <C>             <C>             <C>
Other income:
  Service charges on deposit accounts                               $   2,546,514   $   2,362,258   $   2,145,412
  Commissions and fees on sales
    of non-banking products                                            13,520,891      12,661,490       8,163,291
  Cash surrender value increase                                           626,385         494,472         472,568
  Other                                                                 1,144,157       1,152,947         836,205
                                                                    -------------   -------------   -------------
    Total other income                                              $  17,837,947   $  16,671,167   $  11,617,476
                                                                    =============   =============   =============

Other expenses:
  Salaries and employee benefits                                    $  16,984,755   $  15,491,443   $  12,413,494
  Building occupancy and equipment                                      4,427,212       3,646,718       3,314,952
  FDIC and N.Y.S. assessment                                               94,849          90,869          85,571
  Advertising                                                             577,474         508,062         482,180
  Postage and telephone                                                   717,718         631,297         618,281
  Director compensation                                                   242,508         180,600         179,300
  Professional fees                                                       372,793         313,121         207,760
  Travel and meetings                                                     918,049         804,335         626,589
  Insurance                                                               388,703         258,052         269,939
  Dues and subscriptions                                                  205,661         211,634         190,463
  Service fees                                                            566,729         469,390         452,627
  ORE expenses                                                             26,344          18,983          26,014
  Contributions                                                            83,178          67,928          64,850
  Sales tax                                                                 8,376          29,521          12,665
  Other                                                                   801,749         684,168         551,734
  Intangible amortization                                                 547,759         383,182         113,099
                                                                    -------------   -------------   -------------
    Total other expenses                                            $  26,963,857   $  23,789,303   $  19,609,518
                                                                    =============   =============   =============
</TABLE>

13.   Disclosures about Fair Value of Financial Instruments

      The following methods and assumptions were used to estimate the fair value
      of each class of  financial  instruments  for which it is  practicable  to
      estimate that value:

      Carrying   amounts  is  the  estimated   fair  value  for  cash  and  cash
      equivalents,  interest  bearing  deposits,  Federal  Home Loan Bank stock,
      accrued interest receivable and payable, demand deposits,  short-term debt
      and variable  rate loans or deposits  that reprice  frequently  and fully.
      Security fair values are based on market prices or dealer  quotes,  and if
      no such information is available, on the rate and term of the security and
      information  on the  issuer.  For fixed  rate  loans or  deposits  and for
      variable  rate loans or deposits  with  infrequent  repricing or repricing
      limits,  fair value is based on discounted cash flows using current market
      rates  applied to the  estimated  life and  credit  risk.  Fair  values of
      impaired loans are estimated using  discounted  cash flows.  Fair value of
      debt is based on current  rates for similar  financing.  The fair value of
      off-balance-sheet  items is not considered material.  The carrying amounts
      reported in the statements of condition for cash and cash  equivalents are
      a reasonable estimate of fair value.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

13. Disclosures about Fair Value of Financial Instruments (Continued)

      The  estimated  fair  values of the  Company's  financial  instruments  at
      December 31:

<TABLE>
<CAPTION>
                                                    (Amounts in thousands)
                                                2007                       2006
                                      -------------------------   ------------------------
                                       Carrying      Estimated     Carrying    Estimated
                                        Amount      Fair Value      Amount     Fair Value
<S>                                   <C>          <C>            <C>          <C>
Financial assets:
  Cash and cash equivalents           $   16,461   $     16,461   $   18,710   $   18,710
  Investment securities                   96,111         96,111       85,717       85,717
  Mortgage-backed securities              46,583         46,583       29,081       29,081
  Mortgage loans held for sale             3,593          3,601        1,581        1,584

  Loans receivable                       283,336        300,213      247,940      261,838
  Allowance for loan losses               (2,511)        (2,511)      (2,081)      (2,081)
                                      ----------   ------------   ----------   ----------
    Net loans                            280,825        297,702      245,859      259,757

  Accrued interest receivable              2,658          2,658        2,088        2,088
                                      ----------   ------------   ----------   ----------
    Total financial assets            $  446,231   $    463,116   $  383,036   $  396,937
                                      ==========   ============   ==========   ==========
Financial liabilities:
  Due to depositors                   $  400,129   $    401,347   $  313,270   $  316,517
  Borrowings                              56,400         61,059       61,400       67,499
  Federal funds purchased                     --             --        4,000        4,000
  Notes payable                              158            158        1,411        1,411
  Accrued interest payable                   341            341          315          315
                                      ----------   ------------   ----------   ----------
    Total financial liabilities       $  457,028   $    462,905   $  380,396   $  389,742
                                      ==========   ============   ==========   ==========
</TABLE>

14.   Commitments

      Some  financial  instruments,  such as  loan  commitments,  credit  lines,
      letters of credit, and overdraft  protection,  are issued to meet customer
      financing needs.  These are agreements to provide credit or to support the
      credit of others,  as long as conditions  established  in the contract are
      met, and usually have  expiration  dates.  Commitments  may expire without
      being  used.  Off-balance-sheet  risk to credit loss exists up to the face
      amount of these instruments, although material losses are not anticipated.
      The same credit policies are used to make such commitments as are used for
      loans, including obtaining collateral at exercise of the commitment.

      The contractual  amounts of financial  instruments with  off-balance-sheet
      risk at year end were as follows:

<TABLE>
<CAPTION>
                                                             2007                        2006
                                                   -------------------------   ------------------------
                                                      Fixed       Variable        Fixed       Variable
                                                      Rate          Rate          Rate          Rate
                                                   -------------------------   ------------------------
<S>                                                <C>          <C>            <C>          <C>
Financial instruments whose contract
  amounts represent credit risk:
    Commitments to extend credit                   $8,933,003   $  2,793,143   $6,895,008   $   105,000
    Unused lines of credit                          3,005,597     43,002,311    4,076,967    35,380,140
</TABLE>

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

14.   Commitments (Continued)

      Commitments  to make loans are  generally  made for  periods of 60 days or
      less.  The fixed rate loan  commitments  have interest  rates ranging from
      4.75%  to  7.00%  and  maturities  ranging  from  15  years  to 30  years.
      Commitments  to extend credit are agreements to lend to a customer as long
      as there is no violation of any  condition  established  in the  contract.
      Commitments  generally have fixed  expiration  dates or other  termination
      clauses and may require payment of a fee. The commitments for equity lines
      of credit  may expire  without  being  drawn  upon.  Therefore,  the total
      commitment amounts do not necessarily  represent future cash requirements.
      The Bank  evaluates  each  customer's  creditworthiness  on a case-by-case
      basis. The amount of collateral obtained,  if deemed necessary by the Bank
      upon extension of credit,  is based on management's  credit  evaluation of
      the  counterparty.  Collateral held varies,  but includes  residential and
      commercial  real  estate.

      The Bank is required to maintain a reserve balance,  as established by the
      Federal  Reserve Bank of New York. The required  average total reserve for
      the 14-day  maintenance  period  including  December 31, 2007 and 2006 was
      $137,000 and $0 respectively,  which was represented by cash on hand or on
      deposit with the Federal Reserve Bank.

15.   Dividends and Restrictions

      The  Company's  ability to pay  dividends to its  shareholders  is largely
      dependent  on the  Bank's  ability to pay  dividends  to the  Company.  In
      addition to state law requirements and the capital requirements  discussed
      below,  the  circumstances  under  which  the Bank may pay  dividends  are
      limited by federal statutes,  regulations, and policies. Retained earnings
      of the Bank are  subject  to  certain  restrictions  under New York  State
      Banking regulations. The amount of retained earnings legally available for
      dividends  under these  regulations  was  $7,054,147  and $7,279,104 as of
      December 31, 2007 and 2006 respectively.

      In  addition,  the Office of Thrift  Supervision  and the Federal  Deposit
      Insurance   Corporation   are   authorized  to  determine   under  certain
      circumstances  that the payment of dividends would be an unsafe or unsound
      practice  and to  prohibit  payment  of such  dividends.  The  payment  of
      dividends that deplete a bank's capital base could be deemed to constitute
      such an  unsafe  or  unsound  practice.  The  Federal  Reserve  Board  has
      indicated that banking  organizations  could  generally pay dividends only
      out of current operating earnings.

      The Board of Trustees of Oneida  Financial MHC determines  whether the MHC
      will waive or receive cash dividends declared by the Company each time the
      Company declares a cash dividend, which is expected to be on a semi-annual
      basis.  The MHC may elect to receive  dividends  and utilize such funds to
      pay  expenses  or for  other  allowable  purposes.  The  Office  of Thrift
      Supervision  (the  "OTS")  has  indicated  that it does not  object to the
      waiver of cash  dividends  by MHC subject to the  following:  (i) the Bank
      notifies  OTS prior to paying any cash  dividends to the Company if such a
      capital  distribution  becomes necessary and (ii) the Board of Trustees of
      the MHC  must  ratify  the  determination  that  the  dividend  waiver  is
      consistent  with the  director's  fiduciary  duties to the  members of the
      federally chartered mutual holding company.

16.   Regulatory Matters

      The Bank is subject to regulatory capital requirements administered by the
      federal banking agencies.  Capital adequacy  guidelines and,  additionally
      for banks,  prompt  corrective  action  regulations  involve  quantitative
      measures  of assets,  liabilities,  and  certain  off-balance-sheet  items
      calculated  under  regulatory  accounting  practices.  Capital amounts and
      classifications are also

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

16.   Regulatory Matters (Continued)

      subject to qualitative  judgments by  regulators.  Failure to meet capital
      requirements can initiate regulatory action.

      Prompt corrective action regulations  provide five  classifications:  well
      capitalized,  adequately  capitalized,  under  capitalized,  significantly
      undercapitalized,  and critically  undercapitalized,  although these terms
      are not used to  represent  overall  financial  condition.  If  adequately
      capitalized,  regulatory approval is required to accept brokered deposits.
      If undercapitalized, capital distributions are limited, as is asset growth
      and expansion,  and capital  restoration  plans are required.  At year-end
      2007 and 2006, the most recent  regulatory  notifications  categorized the
      Bank as  well  capitalized  under  the  regulatory  framework  for  prompt
      corrective   action.   There  are  no  conditions  or  events  since  that
      notification  that  management  believes  have  changed the  institution's
      category.

      The Bank's actual capital amounts and ratios are as follows:

<TABLE>
<CAPTION>
                                                                                                  To Be Well
                                                                                               Capitalized Under
                                                                       For Capital             Prompt Corrective
                                                Actual              Adequacy Purposes         Action Provisions
                                        -----------------------   ----------------------   ------------------------
                                             Amount       Ratio       Amount       Ratio       Amount        Ratio
<S>                                     <C>               <C>     <C>              <C>     <C>               <C>
As of December 31, 2007:
   Total Capital
     (to Risk Weighted Assets)          $   35,220,978    10.18%  $   27,681,916    8%     $   34,602,395     10%
   Tier I Capital
     (to Risk Weighted Assets)          $   32,709,667     9.45%  $   13,840,958    4%     $   20,761,437      6%
   Tier I Capital
     (to Average Assets)                $   32,709,667     6.60%  $   19,829,967    4%     $   24,787,459      5%

As of December 31, 2006:
   Total Capital
     (to Risk Weighted Assets)          $   39,203,925    13.36%  $   23,521,967    8%     $   29,402,459     10%
   Tier I Capital
     (to Risk Weighted Assets)          $   37,045,402    12.63%  $   11,760,984    4%     $   17,641,576      6%
   Tier I Capital
     (to Average Assets)                $   37,045,402     8.89%  $   16,706,429    4%     $   20,883,037      5%
</TABLE>

      The  Qualified  Thrift  Lender  test  requires  at least  65% of assets be
      maintained in  housing-related  finance and other specified areas. If this
      test is not met, limits are placed on growth,  branching, new investments,
      FHLB  advances and new  dividends.  Management  believes this test is met.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

17.   Parent Company Statements

                            Condensed Balance Sheets

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                      2007             2006
<S>                                                                             <C>               <C>
Assets:
   Cash                                                                         $       824,278   $        613,087
   Investments, fair value                                                                   --            426,000
   Investments in and advances to subsidiary                                         58,355,965         56,005,598
   Premises and equipment                                                             3,221,259          3,039,220
   Other assets                                                                          20,886             35,640
                                                                                ---------------   ----------------
     Total assets                                                               $    62,422,388   $     60,119,545
                                                                                ===============   ================

Liabilities and shareholders' equity:
   Other liabilities                                                            $        76,169   $        188,600
   Due to related parties                                                             3,005,995          1,531,159
   Shareholders' equity                                                              59,340,224         58,399,786
                                                                                ---------------   ----------------
     Total liabilities and shareholders' equity                                 $    62,422,388   $     60,119,545
                                                                                ===============   ================
</TABLE>

                         Condensed Statements of Income

<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                                                    2007             2006              2005
<S>                                                            <C>              <C>               <C>
Revenue:
   Dividends from subsidiary                                   $           --   $            --   $             --
   Interest on investments and deposits                                52,941            46,857             46,316
   Rental income                                                      307,935           192,025             90,000
                                                               --------------   ---------------   ----------------
     Total revenue                                                    360,876           238,882            136,316
                                                               --------------   ---------------   ----------------

Expenses:
   Compensations and benefits                                          93,739           134,880            112,045
   Other expenses                                                     254,117           166,794            158,796
                                                               --------------   ---------------   ----------------
     Total expenses                                                   347,856           301,674            270,841
                                                               --------------   ---------------   ----------------

     Income before taxes and equity
       in undistributed net income of subsidiary                       13,020           (62,792)          (134,525)

Benefit for income taxes                                                   --           (15,000)           (30,000)
                                                               --------------   ---------------   ----------------
     Income (loss) before equity in undistributed
       net income of subsidiary                                        13,020           (47,792)          (104,525)

Equity in undistributed net income:
   Subsidiary bank                                                  3,491,287         4,245,784          3,962,102
                                                               --------------   ---------------   ----------------

     Net income                                                $    3,504,307   $     4,197,992   $      3,857,577
                                                               ==============   ===============   ================
</TABLE>

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

17.   Parent Company Statements (Continued)

                        Condensed Statements of Cash Flow

<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                     2007             2006              2005
<S>                                                            <C>              <C>               <C>
Operating activities:
   Net income                                                  $    3,504,307   $     4,197,992   $      3,857,577
   Adjustments to reconcile net income to
     net cash provided by operating activities:
       Depreciation expense                                           105,377            73,325             54,993
       ESOP shares earned                                             337,408           341,639            358,065
       Other assets/liabilities, net                                  (44,077)          275,890           (128,649)
       Equity in undistributed net income of subsidiary bank       (3,491,287)       (4,245,784)        (3,962,102)
                                                               --------------   ---------------   ----------------

       Net cash provided by operating activities                      411,728           643,062            179,884
                                                               --------------   ---------------   ----------------

Investing activities:
   Purchase of investments                                                 --                --           (292,000)
   Proceeds from sales of investment securities                       292,000                --                 --
   Purchase of premises and equipment                                (287,416)       (1,475,433)          (460,547)
   Change in due from related parties                               1,474,836         1,393,873            281,495
                                                               --------------   ---------------   ----------------

       Net cash provided by (used in) investing activities          1,479,420           (81,560)          (471,052)
                                                               --------------   ---------------   ----------------
Financing activities:

   Purchase of treasury stock                                         (65,159)               --            (93,000)
   Dividends paid                                                  (1,648,916)       (1,513,478)        (1,343,335)
   Exercise of stock options (using treasury stock)                    34,118            35,038             47,374
                                                               --------------   ---------------   ----------------

       Net cash used in financing activities                       (1,679,957)       (1,478,440)        (1,388,961)
                                                               --------------   ---------------   ----------------

       Net increase (decrease) in cash and cash equivalents           211,191          (916,938)        (1,680,129)

Cash and cash equivalents at beginning of year                        613,087         1,530,025          3,210,154
                                                               --------------   ---------------   ----------------

       Cash and cash equivalents at end of year                $      824,278   $       613,087   $      1,530,025
                                                               --------------   ---------------   ----------------
</TABLE>

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

18.   Segment Information

      The Company has determined  that it has three primary  business  segments,
      its banking  franchise,  its  insurance  activities  and employee  benefit
      consulting  activities.  For the years ended  December 31, 2007,  2006 and
      2005,  the Company's  insurance  activities  consisted of those  conducted
      through its wholly owned subsidiary, Bailey & Haskell Associates, Inc. For
      the  year  ended  December  31,  2007 and  2006,  the  benefit  consulting
      activities   consisted  of  those  conducted   through  its  wholly  owned
      subsidiary, Benefit Consulting Group Inc. Information about the Company is
      presented in the following table for the periods indicated:

<TABLE>
<CAPTION>
                                                                       2007
                                              Banking        Insurance     Consulting
                                             Activities     Activities     Activities        Total
<S>                                        <C>             <C>            <C>            <C>
Net interest income                        $  13,645,042   $         --   $         --   $  13,645,042
Provision for loan losses                             --             --             --              --
                                           -------------   ------------   ------------   -------------
   Net interest income after provision
      for loan losses                         13,645,042             --             --      13,645,042

Other income                                   4,669,881      9,925,204      3,595,687      18,190,772
Other expenses                                13,802,743      8,197,710      3,009,337      25,009,790
Depreciation and amortization                  1,492,222        236,843        225,002       1,954,067
                                           -------------   ------------   ------------   -------------

     Income before taxes                       3,019,958      1,490,651        361,348       4,871,957

Income tax expense                               759,650        500,000        108,000       1,367,650
                                           -------------   ------------   ------------   -------------

     Net income                            $   2,260,308   $    990,651   $    253,348   $   3,504,307
                                           =============   ============   ============   =============

Total Assets                               $ 505,109,464   $ 19,631,205   $  4,083,910   $ 528,824,579
                                           =============   ============   ============   =============
</TABLE>

<TABLE>
<CAPTION>
                                                                       2006
                                              Banking        Insurance     Consulting
                                             Activities     Activities     Activities        Total
<S>                                        <C>             <C>            <C>            <C>
Net interest income                        $  12,814,482   $         --   $         --   $  12,814,482
Provision for loan losses                        280,000             --             --         280,000
                                           -------------   ------------   ------------   -------------
   Net interest income after provision
      for loan losses                         12,534,482             --             --      12,534,482

Other income                                   4,317,223      9,597,394      3,064,096      16,978,713
Other expenses                                12,005,792      7,912,277      2,394,256      22,312,325
Depreciation and amortization                  1,024,948        200,036        251,994       1,476,978
                                           -------------   ------------   ------------   -------------

     Income before taxes                       3,820,965      1,485,081        417,846       5,723,892

Income tax expense                               918,000        480,000        127,900       1,525,900
                                           -------------   ------------   ------------   -------------

     Net income                            $   2,902,965   $  1,005,081   $    289,946   $   4,197,992
                                           =============   ============   ============   =============

Total Assets                               $ 430,462,154   $ 13,798,385   $  4,102,303   $ 448,362,842
                                           =============   ============   ============   =============
</TABLE>

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

18.   Segment Information (Continued)

<TABLE>
<CAPTION>
                                                                       2005
                                              Banking        Insurance     Consulting
                                             Activities     Activities     Activities        Total
<S>                                        <C>             <C>            <C>            <C>
Net interest income                        $  13,324,685   $         --   $         --   $  13,324,685
Provision for loan losses                        360,000             --             --         360,000
                                           -------------   ------------   ------------   -------------
   Net interest income after provision
      for loan losses                         12,964,685             --             --      12,964,685

Other income                                   3,729,119      8,163,291             --      11,892,410
Other expenses                                11,449,477      7,053,287             --      18,502,764
Depreciation and amortization                    897,651        209,103             --       1,106,754
                                           -------------   ------------   ------------   -------------

     Income before taxes                       4,346,676        900,901             --       5,247,577

Income tax expense                             1,105,000        285,000             --       1,390,000
                                           -------------   ------------   ------------   -------------

     Net income                            $   3,241,676   $    615,901   $         --   $   3,857,577
                                           =============   ============   ============   =============

Total Assets                               $ 427,717,128   $ 12,531,750   $         --   $ 440,248,878
                                           =============   ============   ============   =============
</TABLE>

      The  following  represents  a  reconciliation  of the  Company's  reported
      segment assets to consolidated assets as of December 31:

                                                       2007            2006
                           Assets

      Total assets for reportable segments        $ 528,824,579   $ 448,362,842
      Elimination of intercompany cash balances      (6,509,799)     (5,425,903)
                                                  -------------   -------------

         Consolidated total                       $ 522,314,780   $ 442,936,939
                                                  =============   =============

      The accounting  policies of the segment are the same as those described in
      the summary of significant accounting policies.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

19.   Quarterly Financial Data (Unaudited)

                           Interest   Net Interest     Net
          2007              Income       Income       Income    Basic   Diluted

      First Quarter        $  5,716   $      3,088   $   748   $ 0.10   $  0.10
      Second Quarter          6,440          3,435       754     0.10      0.10
      Third Quarter           6,659          3,542       931     0.12      0.12
      Fourth Quarter          6,858          3,580     1,072     0.14      0.14

          2006

      First Quarter        $  5,345   $      3,188   $   928   $ 0.12   $  0.12
      Second Quarter          5,529          3,235     1,047     0.14      0.14
      Third Quarter           5,656          3,214       815     0.11      0.11
      Fourth Quarter          5,731          3,178     1,408     0.18      0.17

20.   Business Combinations

      On February 23, 2006, the Bank completed its acquisition of Parsons,  Cote
      & Company,  Inc., an insurance agency.  The Bank paid $214,376 in cash and
      established  a note  payable  for  $419,570 to be paid over 36 months with
      interest at 5.00% per annum for fixed assets and other intangible  assets.
      Goodwill in the amount of $576,000 and intangible  assets in the amount of
      $71,000 was recorded in conjunction with the transaction.  Parsons, Cote &
      Co., has been merged into Bailey and Haskell Associates, Inc.

      On June 28, 2006, the Bank completed its acquisition of Benefit Consulting
      Group  LLC,  an  employee   benefits   consulting  and   retirement   plan
      administration  firm  for $1.5  million  in cash  and  established  a note
      payable for $2.2 million to be paid over 24 months with  interest at 5.00%
      per annum for intangible assets. There were no tangible assets acquired as
      part of the  acquisition.  Goodwill  in the  amount  of $2.5  million  and
      intangible   assets  in  the  amount  of  $1.1  million  was  recorded  in
      conjunction with the transaction. The resulting company Benefit Consulting
      Group Inc. is a wholly-owned subsidiary of Oneida Savings Bank.

      On April 2,  2007,  the Bank  completed  its  acquisition  of Vernon  Bank
      Corporation,  the stock  holding  company of the National  Bank of Vernon.
      Under the terms of the  agreement,  Oneida Savings Bank paid $11.4 million
      or $54.00  in cash for each of the  210,447  outstanding  shares of common
      stock of Vernon Bank Corporation. The merger was an opportunity to enhance
      technological  capabilities,  expand  product lines and broaden the branch
      network in  contiguous  markets  for our  collective  customer  base.  The
      results of Vernon Bank  Corporation have been included in the consolidated
      financial  statements since April 2, 2007.  Assets acquired as a result of
      the acquisition  totaled $66.9 million and resulted in additional goodwill
      and core deposit  intangibles of approximately $5.9 million.  Amortization
      expense of the core deposit  intangible was $198,455 for the twelve months
      ended  December 31, 2007. The core deposit  intangible is being  amortized
      using a 10-year accelerated method amortization term. Goodwill will not be
      amortized  but will  instead be  evaluated  periodically  for  impairment.
      Goodwill and intangible assets are not deductible for tax purposes.

<PAGE>

Oneida Financial Corp.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

20.   Business Combinations (Continued)

      The following  table  summarizes  the estimated  fair values of the assets
      acquired  and  liabilities  assumed  at the  date of  acquisition.  Oneida
      Savings Bank is in the process of  obtaining  third party  valuations  for
      certain  assets;   thus  the  purchase  price  allocation  is  subject  to
      refinement.

                                                                        At
                                                                  April 2, 2007
                                                                   (unaudited)
      Cash and cash equivalents                                   $  12,272,073
      Investment and mortgage-backed securities                      18,263,277
      Loans receivable, net                                          25,982,748
      Property, plant and equipment                                   1,906,417
      Goodwill                                                        4,457,992
      Intangible assets                                               1,455,334
      Bank-owned life insurance                                       2,237,936
      Other assets                                                      294,644
                                                                  -------------
           Total assets acquired                                     66,870,421

      Deposits                                                      (54,630,871)
      Other liabilities                                                (875,412)

                                                                  -------------
           Net Assets Acquired                                    $  11,364,138
                                                                  =============

      The following  table presents pro forma  information as if the acquisition
      had occurred at the beginning of 2007 and 2006. The pro forma  information
      includes adjustments for interest income on loans and securities acquired,
      amortization  of intangibles  arising from the  transaction,  depreciation
      expense on property acquired,  interest expense on deposits acquired,  and
      the related income tax effects. The pro forma financial information is not
      necessarily  indicative  of the results of  operations  as they would have
      been had the transaction been effected on the assumed dates.

                                                        2007           2006
                                                    ------------   ------------
                                                            (unaudited)
       Net Interest income                          $ 14,185,344   $ 14,788,494

       Net income                                   $  3,342,300   $  3,822,195
                                                    ============   ============

       Basic earnings per share                     $       0.44   $       0.50
                                                    ============   ============
       Diluted earnings per share                   $       0.43   $       0.50
                                                    ============   ============

<PAGE>

   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations

      This section presents Management's  Discussion and Analysis of and Changes
to the  Company's  Consolidated  Financial  Condition  and Results of Operations
should be read in conjunction with the Company's financial  statements and notes
thereto included herein.

      When used in this Annual Report the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated,"  "estimate,"  "project" or
similar expressions are intended to identify "forward-looking statements" within
the  meaning of the  Private  Securities  Litigation  Reform  Act of 1995.  Such
statements  are subject to certain  risks and  uncertainties,  including,  among
other  things,  changes in economic  conditions  in the  Company's  market area,
changes in policies by  regulatory  agencies,  fluctuations  in interest  rates,
demand for loans in the Company's market area and competition,  that could cause
actual results to differ materially from historical earnings and those presently
anticipated  or projected.  The Company  wishes to caution  readers not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made.  The Company  wishes to advise  readers  that the factors  listed
above  could  affect the  Company's  financial  performance  and could cause the
Company's  actual  results  for  future  periods to differ  materially  from any
opinions or statements  expressed  with respect to future periods in any current
statements.

      The Company does not undertake,  and specifically declines any obligation,
to  publicly  release  the  result  of any  revisions  which  may be made to any
forward-looking  statements to reflect events or circumstances after the date of
such  statements or to reflect the occurrence of  anticipated  or  unanticipated
events.

Operating Strategy

      In guiding  the Bank's  operations,  management  has  implemented  various
strategies designed to enhance the institution's  profitability  consistent with
safety and soundness considerations.  These strategies include: (i) operating as
a community  bank that provides  quality  service by monitoring the needs of its
customers  and  offering  customers   personalized   service;  (ii)  originating
fixed-rate  residential  real estate loans primarily for resale in the secondary
market and  originating  adjustable  rate mortgage  ("ARM") loans and hybrid ARM
loans for retention by the Bank;  (iii)  increasing the level of higher yielding
consumer, commercial real estate and commercial business loans; (iv) maintaining
asset quality; and (v) increasing fee income and diversifying income sources.

      Community Banking. The Oneida Savings Bank, the wholly owned subsidiary of
Oneida Financial Corp., was established in Oneida, New York in 1866 and has been
operating  continuously  since that time.  Throughout its history,  the Bank has
been committed to meeting the financial  needs of the  communities it serves and
providing  quality service to its customers.  Management  believes that the Bank
can be more  effective  than many of its  competitors  in serving its  customers
because of its ability to promptly and effectively respond to customer needs and
inquiries.  The Bank's ability to succeed in its service area is enhanced by the
stability of senior management. Senior Management has an average tenure with the
Bank of fifteen years and each  individual who comprises  senior  management has
over twenty years experience in the banking industry.

      In recent  years  management  has  increased  the  services  and  products
provided by the Bank to the communities it serves by offering  services  through
its insurance agency subsidiary,  offering trust services, offering new loan and
deposit products,  and seeking to expand into markets desiring the services of a
community  bank. Our special purpose  commercial bank subsidiary  ("SBC") allows
the  combined  banking  enterprise  to solicit  and  service  municipal  deposit
accounts  from the various  municipalities,  school  districts  and other public
funding sources  throughout the market area. During 2007, the Bank completed its
acquisition  of Vernon Bank  Corporation  and its wholly owned  subsidiary,  the
National  Bank of Vernon  ("NBV").  In  addition,  the  Company  completed a new
banking,  insurance  and retail center at the Griffiss  Business and  Technology
Park in Rome,  New York.  During 2006,  the Bank  completed its  acquisition  of
Benefit  Consulting  Group LLC, an employee  benefits  consulting and retirement
plan administration firm located in Syracuse, New York. This type of service was
not offered prior to 2006.

      Originating  One-to-Four  Family Loans for Resale in the Secondary  Market
and Retaining ARM Loans.  Historically,  the Bank has emphasized the origination
of  one-to-four   family   residential  loans  within  Madison  County  and  the
surrounding counties.  As of December 31, 2007,  approximately $99.6 million, or
34.7% of the loan portfolio consisted of one-to-four family residential mortgage
loans, of which $62.6 million were  adjustable  rate mortgage  ("ARM") loans and
$37.0  million had fixed rates of interest.  During the year ended  December 31,
2007 and the year ended December 31, 2006, the Bank originated $35.2 million and
$30.5 million,  respectively,  of one-to-four family mortgage loans.  During the
past year, the Bank's  one-to-four  family loan originations have been primarily
fixed-rate  loans.  The Bank generally sells its fixed-rate  one-to-four  family
loans.  Such  loans are sold  without  recourse  to the Bank and on a  servicing
retained  basis.  During the year ended December 31, 2007 and December 31, 2006,
the Bank sold $17.9  million  and $17.0  million,  respectively,  in  fixed-rate
one-to-four  family  loans.  ARM loans and hybrid ARM loans,  which have a fixed
rate  of  interest  for  the  first  three  to  five  years  adjusting  annually
thereafter,  represented a lower percentage of total originations.  Of the $35.2

<PAGE>

million in one-to-four  family loans  originated  during the twelve months ended
December 31, 2007,  $24.3 million had fixed rates of interest.  Loan origination
volume has remained relatively stable during 2007 and 2006.

      Complementing  the  Bank's  Traditional  Mortgage  Lending  by  Increasing
Consumer,  Commercial Business and Commercial Real Estate Lending. To complement
the Bank's  traditional  emphasis on one-to-four  family residential real estate
lending,  management  has sought to  increase  the Bank's  consumer,  commercial
business and  commercial  real estate  lending in a  controlled,  safe and sound
manner. At December 31, 2007, the Bank's portfolio of consumer,  commercial real
estate and commercial  business  loans totaled $43.8 million,  $71.3 million and
$39.9  million,  respectively.  In the  aggregate,  these loans  totaled  $155.0
million,  or 54.0%, of the Bank's total loan portfolio,  as compared with $138.6
million or 55.5% of the total loan  portfolio at December 31, 2006.  Because the
yields on these loans are generally higher than the yields on one-to-four family
residential real estate loans, the Bank's goal is to increase the origination of
these  loans  consistent  with  safety and  soundness  considerations.  Although
consumer,  commercial  real estate and  commercial  business  loans offer higher
yields than single-family mortgage loans, they also involve greater credit risk.

      Maintaining   Asset  Quality.   The  Bank's  asset  quality  reflects  our
conservative  underwriting  standards,  the  diligence  of our  loan  collection
personnel and the stability of the local economy. In addition,  the Bank invests
in mortgage-backed  securities issued by federal  government  agencies and other
investment  securities,  including U.S. Government securities and federal agency
obligations.  The Bank  also  invests  in  corporate  debt and  trust  preferred
securities.  The Bank will only purchase  investment  securities which are rated
investment grade or higher by Moody's Investment Rating Service.

      At December 31, 2007,  the Bank's  ratio of  nonperforming  loans to total
assets was 0.07%  compared  to 0.01% and 0.05% at  December  31,  2006 and 2005,
respectively.  At December  31, 2007,  the Bank's  ratio of  allowance  for loan
losses to net loans was 0.88%  compared  to 0.84% and 0.83% for the years  ended
December 31, 2006 and 2005. The Bank's ratio of net charge-offs to average loans
for the year ended  December 31, 2007 was 0.04%  compared  with a ratio of 0.06%
and 0.17% during 2006 and 2005 respectively.

      Increasing Fee Income and Diversifying Income Sources. The Bank has sought
to  increase  its  income  by  increasing   fee  income  and  other  sources  of
non-interest  income. In this regard, the Bank continues to expand the insurance
and financial services business of Bailey & Haskell Associates, Inc. ("B&H"), an
insurance agency subsidiary of the Bank with five Central New York offices.  The
expansion of the Bank's financial  services business has continued to provide an
increasing revenue source for the Company. Total revenue earned from the sale of
financial  products was $9.9 million  during 2007 as compared  with $9.6 million
for 2006 and $8.2 million during 2005. In February  2006, the Company  completed
its acquisition of Parsons,  Cote & Company,  Inc. an insurance  agency in North
Syracuse,  NY. Subsequently,  Parsons, Cote & Company, Inc. has been merged into
B&H. In addition, in June 2006, the Company completed its acquisition of Benefit
Consulting  Group LLC, an  employee  benefits  consulting  and  retirement  plan
administration  firm. The resulting  company Benefit  Consulting Group Inc. is a
wholly-owned  subsidiary of Oneida Savings Bank.  Benefit  Consulting Group Inc.
contributed  $3.6  million  and $3.1  million  in revenue  during  2007 and 2006
respectively.

      During  2007 the  Bank  continued  a  marketing  program  to  attract  new
fee-based  deposit accounts as well as the  implementation of a checking account
overdraft program for new and existing customers. The overdraft program allows a
customer to occasionally  overdraw their account with the Bank honoring  payment
of the overdraft based upon a variety of account  information and prior customer
spending  experience.  The  combination  of new account  generation and the fees
derived from the  overdraft  program has resulted in a  significant  increase in
deposit account service fee revenue. The Bank also offers its customers internet
banking and e-commerce  capabilities as well as debit cards.  These products and
services  represent  growing  sources of fee income.  Service charges on deposit
accounts totaled $2.5 million for the year ended December 31, 2007 compared with
$2.4  million  and $2.1  million  for the  comparable  periods in 2006 and 2005,
respectively.

      The Bank  continues  to expand  the  visibility  of its Trust  Department.
Management  expects that fees generated by the Trust Department will increase as
the assets under management grow. At December 31, 2007, the Trust Department had
$137.5  million in assets  under  management  compared  with  $110.5  million at
December 31, 2006. In addition,  the Bank receives fee income from the servicing
of loans sold in the secondary  market.  At December 31, 2007, loans serviced by
the Bank for others  totaled  $101.9  million  compared  with  $99.2  million at
December 31, 2006.

Financial Condition

      Assets. Total assets at December 31, 2007 were $522.3 million, an increase
of $79.4  million or 17.9%,  from  $442.9  million at  December  31,  2006.  The
increase in total assets was primarily  attributable  to the  acquisition of NBV
completed  on April 2,  2007.  Assets  acquired  as a result of the  acquisition
totaled  $66.9  million.   The  acquisition  provided  $26.0  million  in  loans
receivable,  net and $18.3 million in mortgage-backed and investment securities.
The  acquisition  resulted in  additional  goodwill and deposit  intangibles  of
approximately $5.9 million.

      Management   continues  to  seek  to  increase  the  Bank's  consumer  and
commercial  business loan  portfolios  with the intent of increasing the average
yield on the Bank's interest-earning  assets. This strategy is supported through
the origination for sale in the secondary market of lower

<PAGE>

yielding  fixed-rate  one-to-four  family  residential real estate loans.  Total
consumer,  commercial  business and  commercial  real estate loans  increased by
$16.4 million  during 2007.  Through the  acquisition  of NBV,  total  consumer,
commercial  business  and  commercial  real  estate  loans  acquired  were $15.3
million.  Residential  real estate loans increased $19.0 million during 2007, of
which $10.7 million was  attributable to the  acquisition.  During the period of
January 1, 2007 through December 31, 2007 a total of $17.9 million in fixed-rate
residential  mortgage loans were sold, compared with loan sales of $17.0 million
during 2006.

      The  increase  in  premises  and   equipment  was  partially  due  to  the
acquisition  of NBV.  Fixed assets in the amount of $1.9  million were  acquired
presenting the fair value of bank buildings and equipment. In addition, the Bank
completed  its  construction  of a banking,  insurance  and retail center at the
Griffiss Business and Technology Park in Rome, New York.

      Cash and cash  equivalents  decreased  $2.2 million due to the purchase of
Vernon Bank Corporation, a decline in borrowings and increases in investment and
mortgage-backed  securities and loans. This was partially offset by increases in
deposits.

      The Bank  reinvests  proceeds  from loan  sales and  investment  sales and
investment  security  maturities in other loans as new loan  origination  volume
warrants.  Investment and mortgage-backed  securities provide improved liquidity
as  compared  with  individual  mortgage  loans  thereby  allowing  the  Bank to
accommodate periods of increased loan demand.

      Liabilities.  Total  liabilities  increased  by $78.5  million or 20.4% to
$463.0  million at December  31, 2007 from $384.5  million at December 31, 2006.
The  increase  was  primarily  the result of an  increase  in  deposits of $86.9
million, partially offset by a decrease in borrowings of $9.0 million.

      Deposit  accounts  increased  to $400.1  million at December 31, 2007 from
$313.3 million at December 31, 2006. Interest-bearing deposit accounts decreased
by $74.2 million or 28.5% and non-interest  bearing deposit  accounts  increased
$12.6 million or 23.7%, to $65.7 million at December 31, 2007 from $53.1 million
at December 31, 2006. Core deposit accounts which include checking,  savings and
money market accounts  increased $51.9 million or 26.6%. Time deposits increased
$34.9 million or 29.6%. The increase in deposit accounts resulted primarily from
the acquisition of NBV, which provided approximately $54.6 million in deposits.

      Borrowings decreased $5.0 million or 8.1% to $56.4 million at December 31,
2007 from the level outstanding at December 31, 2006. The decrease in borrowings
is result of not  renewing a portion of the  advances  that  matured  during the
year. At December 31, 2007 and 2006 there were no outstanding overnight lines of
credit.  The  overnight  advances  are  accessed  from time to time to fund loan
originations and short-term deposit outflows.

      Other liabilities  increased $578,000 to $6.4 million at December 31, 2007
from $5.9  million at December  31,  2006.  Notes  payable of $2.6  million were
established during 2006 relating to the acquisitions of Parsons,  Cote & Company
and Benefit  Consulting  Group LLC that had a cost of 5% per annum  payable over
24-36 months. As of December 31, 2007, notes payable outstanding was $158,000.

      Stockholders'  Equity. Total stockholders' equity at December 31, 2007 was
$59.3 million,  an increase of $900,000 from $58.4 million at December 31, 2006.
The increase in  stockholders'  equity reflects net income of $3.5 million.  The
increase was partially offset by a decrease in accumulated  other  comprehensive
loss of $1.4  million at  December  31,  2007  resulting  from a decrease in the
market value of mortgage-backed and investment  securities and the change in the
unrealized  loss on pension  benefits.  Changes in interest rates resulted in an
increase in the net unrealized loss on the Bank's available for sale securities.
Share based  compensation  earned under the  Company's  stock plans was $175,000
during 2007 as compared to $230,000  during 2007.  Unearned common shares issued
under the Bank's  ESOP plan were  reduced by  $146,000  representing  ESOP stock
earned by plan  participants  during 2007.  As of December 31, 2007,  all shares
have been released and allocated to participants.

      Partially offsetting the increases in stockholders' equity was the payment
of cash dividends to stockholders.  Stockholders were paid dividends during 2007
of $0.48 per share  resulting  in a reduction  in  stockholders'  equity of $1.6
million.

Analysis of Net Interest Income

      The Bank's  principal  business  has  historically  consisted  of offering
savings  accounts and other  deposits to the general  public and using the funds
from such  deposits to make loans secured by  residential  and  commercial  real
estate, as well as consumer and commercial business loans. The Bank also invests
a significant portion of its assets in investment securities and mortgage-backed
securities,  both of which are  classified  as  available  for sale.  The Bank's
results of operations  depend primarily upon its net interest  income,  which is
the difference between income earned on  interest-earning  assets, such as loans
and  investments,  and interest paid on  interest-bearing  liabilities,  such as
deposits and borrowings.  Net interest income is directly affected by changes in
volume and mix of interest-earning assets and interest-bearing liabilities which
support those assets,  as well as the changing  interest rates when  differences
exist in the repricing of assets and liabilities.

<PAGE>

      Average Balance Sheet. The following table sets forth certain  information
relating to the Bank for the years ending  December 31, 2007, 2006 and 2005. For
the periods  indicated,  the total dollar amount of interest income from average
interest-earning  assets  and the  resultant  yields,  as  well as the  interest
expense on average interest-bearing liabilities is expressed both in dollars and
rates.  No tax  equivalent  adjustments  were made.  The  average  balance is an
average daily balance.  Income on non-accruing  loans has been excluded from the
yield calculations in this table.

<TABLE>
<CAPTION>
                                                                      For the Years Ending December 31,
                                                        2007                         2006                         2005
                                            ---------------------------  ---------------------------  ---------------------------
                                             Average             Yield/   Average             Yield/   Average             Yield/
                                             Balance   Interest   Rate    Balance   Interest   Rate    Balance   Interest   Rate
                                            ---------  --------  ------  ---------  --------  ------  ---------  --------  ------
                                                                            (dollars in thousands)
<S>                                         <C>        <C>       <C>     <C>        <C>       <C>     <C>        <C>       <C>
Interest-earning assets:
   Loans receivable                         $ 271,789  $ 18,552   6.83%  $ 243,661  $ 16,165   6.63%  $ 226,940  $ 14,197   6.26%
   Investment and MBS securities              107,120     5,442   5.08%    107,479     5,080   4.73%    132,251     6,026   4.56%
   Federal funds                               15,814       829   5.24%      3,014       178   5.91%      1,349        49   3.63%
   Equity securities                           13,648       850   6.23%     17,677       838   4.74%     19,934       740   3.71%
---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets                 408,371    25,673   6.29%    371,831    22,261   5.99%    380,474    21,012   5.52%
---------------------------------------------------------------------------------------------------------------------------------
Non interest-earning assets:
   Cash and due from banks                     14,771                       10,440                       10,781
   Other assets                                71,107                       53,147                       41,566
                                            ---------                    ---------                    ---------
     Total Assets                           $ 494,249                    $ 435,418                    $ 432,821
                                            =========                    =========                    =========
Interest-bearing liabilities:
   Money market deposits                    $  58,370  $  1,831   3.14%  $  43,664  $  1,135   2.60%  $  44,352  $    706   1.59%
   Savings accounts                            74,332       570   0.77%     68,165       483   0.71%     73,036       395   0.54%
   Interest-bearing checking                   36,024       265   0.74%     30,979       143   0.46%     29,348       132   0.45%
   Time deposits                              138,651     6,372   4.60%    109,711     4,202   3.83%    109,030     3,313   3.04%
   Borrowings                                  59,710     2,948   4.94%     67,749     3,383   4.99%     68,372     3,139   4.59%
   Notes payable                                  836        42   5.02%      1,016       100   9.84%         37         2   5.41%
---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities            367,923    12,028   3.27%    321,284     9,446   2.94%    324,175     7,687   2.37%
---------------------------------------------------------------------------------------------------------------------------------
Non interest-bearing liabilities:
   Demand deposits                             61,187                       51,737                       50,490
   Other liabilities                            6,661                        7,629                        5,321
                                            ---------                    ---------                    ---------
     Total liabilities                        435,771                      380,650                      379,986
                                            ---------                    ---------                    ---------
   Stockholders' equity                        58,478                       54,768                       52,835
                                            ---------                    ---------                    ---------
     Total Liabilities and
       Stockholders' Equity                 $ 494,249                    $ 435,418                    $ 432,821
                                            =========                    =========                    =========

     Net interest income                               $ 13,645                     $ 12,815                     $ 13,325
                                                       --------                     --------                     --------
     Net interest spread                                          3.02%                        3.05%                        3.15%
                                                                 ------                       ------                       ------
     Net earning assets                     $  40,448                    $  50,547                    $  56,299
                                            ---------                    ---------                    ---------
     Net interest margin                                   3.34%                        3.45%                        3.50%
                                                       --------                     --------                     --------
     Ratio of interest-earning assets
       to interest-bearing liabilities                   110.99%                      115.73%                      117.37%
                                                       --------                     --------                     --------
</TABLE>

<PAGE>

Rate and Volume  Analysis.  The  following  table  presents  the extent to which
changes in interest rates and changes in volume of  interest-earning  assets and
interest-bearing  liabilities  have  affected  the  Bank's  interest  income and
interest expense during the periods  indicated.  Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by current rate);  (ii) changes  attributable to changes in
rate (changes in rate multiplied by prior volume) and (iii) the net change.  The
changes  attributable  to the  combined  impact  of  volume  and rate  have been
allocated  proportionately  to the  changes due to volume and the changes due to
rate.

<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                     ------------------------------------------------------------------------
                                                                2007 vs. 2006                        2006 vs. 2005
                                                     ------------------------------------------------------------------------
                                                     Increase / (Decrease)                Increase / (Decrease)
                                                            Due to              Total             Due to             Total
                                                     ---------------------    Increase/   ---------------------    Increase/
                                                       Volume       Rate     (Decrease)     Volume       Rate     (Decrease)
                                                     ------------------------------------------------------------------------
                                                                                 (In Thousands)
<S>                                                  <C>          <C>        <C>          <C>          <C>        <C>
Interest-earning assets:
   Loans receivable                                  $    1,920   $    467   $    2,387   $    1,109   $    859   $    1,968
   Investment and mortgage-backed securities                (18)       380          362       (1,171)       225         (946)
   Federal funds                                            671        (20)         651           98         31          129
   Equity securities                                       (251)       263           12         (107)       205           98
-----------------------------------------------------------------------------------------------------------------------------
     Total interest-earning assets                   $    2,322   $  1,090   $    3,412   $      (71)  $  1,320   $    1,249
-----------------------------------------------------------------------------------------------------------------------------

Interest-bearing liabilities:
   Money market deposits                             $      461   $    235   $      696   $      (18)  $    447   $      429
   Savings accounts                                          47         40           87          (35)       123           88
   Interest-bearing checking                                 37         85          122            8          3           11
   Time deposits                                          1,330        840        2,170           26        863          889
   Borrowings                                              (397)       (38)        (435)         (31)       275          244
   Notes payable                                             (9)       (49)         (58)          96          2           98
-----------------------------------------------------------------------------------------------------------------------------
     Total interest-bearing liabilities              $    1,469   $  1,113   $    2,582   $       46   $  1,713   $    1,759
-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------
     Net increase (decrease) in net interest income                          $      830                           $     (510)
=============================================================================================================================
</TABLE>

Comparison  of  Operating  Results  for the Years  Ended  December  31, 2007 and
December 31, 2006.

      General.  Net income for the year ended  December  31, 2007  decreased  by
$694,000,  to $3.5  million  from $4.2  million for the year ended  December 31,
2006.  Basic  earnings per share  decreased  16.4%,  to $0.46 for the year ended
December 31, 2007 as compared with the 2006 reported basic earnings per share of
$0.55.  The  decrease  in net income was due  primarily  to an increase in other
expenses.  Partially  offsetting the increase in expenses was an increase in net
interest income and non-interest  income and decreases in the provision for loan
losses and the provision for income taxes.

      Interest and Dividend  Income.  Interest and dividend income  increased by
$3.4  million or 15.3%,  to $25.7  million for the year ended  December 31, 2007
from $22.3  million for the year ended  December 31, 2006.  Interest and fees on
loans increased by $2.4 million for the year ended December 31, 2007 as compared
with the same  period in 2006.  Interest  income  earned on  federal  funds sold
increased  $651,000  during 2007 as compared  with the year ended  December  31,
2006.  Interest  and dividend  income on  mortgage-backed  and other  investment
securities  increased  $374,000 to $6.3 million for the year ended  December 31,
2007 from $5.9 million for the year ended December 31, 2006.

      The increase in income on loans resulted from an increase of $28.1 million
in the average balance of loans to $271.8 million in 2007 from $243.7 million in
2006 as well as a 20 basis point increase in the average yield on loans to 6.83%
from  6.63%.  The  increase  in  loans  reflects  the  acquisition  of  NBV  and
management's  strategy to emphasize the  origination  of consumer and commercial
business  loans for  retention  in the  Bank's  portfolio  while  maintaining  a
consistent  level of  residential  real estate loans with excess  production  of
longer-term fixed-rate residential real estate

<PAGE>

loans sold in the secondary market on a servicing retained basis. As of December
31, 2007  residential  real estate loans totaled $132.0 million,  an increase of
$21.0  million from  December  31,  2006.  During the 2007 year a total of $17.9
million in fixed-rate  residential  real estate loans were sold in the secondary
market.  In addition,  commercial  real estate loans  increased $12.0 million to
$71.3  million at December 31, 2007 from $59.2  million at December 31, 2006. At
December 31, 2007 total loans  receivable  were $286.9  million as compared with
$249.5  million at December 31, 2006, an increase of 15.0%.  The increase in the
yield on loans is a result of the higher  market  interest  rates during 2007 as
compared with 2006 and the changes in the  composition  of the loan portfolio to
higher yielding loans.

      The  increase  in  interest  income from  investment  and  mortgage-backed
securities was the result of an increase of 35 basis points in the average yield
on investment and  mortgage-backed  securities off set by a decrease of $359,000
in the average  balance of investment and  mortgage-backed  securities to $107.1
million at December  31, 2007 from $107.5  million at  December  31,  2006.  The
decrease in the average balance on investment and mortgage-backed  securities is
the  result of sales,  maturities  and  repayments  early in the year to provide
liquidity  during periods of increased loan demand and deposit  outflows as well
as provide  liquidity for the acquisition of Vernon Bank  Corporation  offset by
the acquisition of investment and mortgage-backed securities.

      Interest income on federal funds sold increased as a result of an increase
in the average  balance of federal  funds sold of $12.8 million to $15.8 million
during the 2007 period as compared with $3.0 million  2006.  The increase in the
average  balance of federal funds sold reflects a decision to reallocate  assets
from investment securities during the year.

      Income from equity securities  increased $12,000 due to an increase in the
average yield of 149 basis points. The increase in average yield was offset by a
decrease  in the  average  balance  of $4.1  million  from  $17.7  million as of
December  31, 2006 to $13.6  million as of December 31, 2007 due to sales during
the year and an increase in the unrealized loss on securities.

      Interest  Expense.  Interest  expense was $12.0 million for the year ended
December  31, 2007 an increase of $2.6  million,  or 27.3% from $9.4 million for
the year ended December 31, 2006. The increase in interest expense was primarily
due to an  increase  in interest  paid on deposit  accounts  during 2007 of $3.0
million,  increasing to $9.0 million  during 2007 from $6.0 million during 2006.
In addition,  borrowing expense decreased to $3.0 million for 2007 compared with
$3.4  million for 2006.

      The increase in interest  expense paid on deposits was primarily due to an
increase in the average  balance of deposits.  Core  deposits,  including  money
market  accounts,  savings  accounts  and  interest-bearing  checking  accounts,
increased on average $25.9  million,  or 18.1%,  to $168.7 million at an average
cost of 1.58% during 2007 from $142.8 million at an average cost of 1.23% during
2006.  During the same period the  average  balance of time  deposits  increased
$29.0 million or 26.4%,  to $138.7  million in 2007 from $109.7  million  during
2006 and the average rate paid on time deposits increased 77 basis points.

      The decrease in  borrowing  expense was due to the decrease in the average
balance  of  borrowings  outstanding  in the 2007  period  to $59.7  million  as
compared  with $67.7  million  during the 2006 period.  The average rate paid on
borrowed  funds  decreased  5 basis  points  to 4.94% for the 2007  period.

      The decrease in notes  payable  expense was due to the decrease in average
balance of $180,000 as well as a decrease in the average yield outstanding.  The
notes payable represent the balances owed to Parsons, Cote & Company and Benefit
Consulting Group LLC as part of the acquisition of the companies during the year
ended December 31, 2006.

      Provision  for Loan  Losses.  The  Bank  establishes  provisions  for loan
losses, which are charged to operations,  in order to maintain the allowance for
loan losses at a level deemed  appropriate to absorb  probable  incurred  credit
losses. Management estimates the allowance balance required using past loan loss
experience,  the nature and volume of the portfolio,  information about specific
borrower  situations and estimated  collateral values,  economic  conditions and
other factors.  Allocations of the allowance may be made for specific loans, but
the entire  allowance is available for any loan that, in management's  judgment,
should be charged off.  Management  evaluates  the adequacy of the allowance and
determines  the  appropriate  level of  provision  for loan losses by applying a
range  of  estimated  loss  percentages  to  each  category  of  performing  and
classified loans. The evaluation  considers volume changes in the loan portfolio
mix in response  to the  redirection  of loan asset  origination  and  retention
toward  consumer and commercial  business loan assets,  and provides  within the
allowance  adequacy  formula  for the  higher  relative  degree of  credit  risk
associated  with this activity as compared  with  traditional  residential  real
estate lending. Management assesses the allowance for loan losses on a quarterly
basis and makes appropriate provisions for loan losses.

      For the year ended  December,  31 2007,  there was no  provision  for loan
losses made as compared  with 2006 when a provision  of $280,000 was made to the
allowance  for loan  losses.  The  decrease in  provisions  made during 2007 was
primarily the result of the continued  low  delinquency  levels during the year.
Nonperforming  loans  remained at low levels during the years ended December 31,
2007 and 2006,  totaling  $375,000 or 0.07% of total loans at December  31, 2007
compared  with  $51,000  or 0.01%  of total  loans at  December  31,  2006.  Net
charge-off activity for the year

<PAGE>

ended December 31, 2007 was $95,000 as compared with $158,000 in net charge-offs
during 2006.  The balance of the  allowance  for loan losses was $2.5 million or
0.88% of loans  receivable  at December 31, 2007  compared  with $2.1 million or
0.84% of loans receivable at December 31, 2006.

      Non-interest  Income.  Non-interest  income increased by $1.2 million,  or
7.1%, to $18.2  million for the year ended  December 31, 2007 from $17.0 million
for the year ended December 31, 2006. The increase in other non-interest  income
was the  result  of  increases  in  commissions  and fees  earned on the sale of
non-banking products and an increase in service charges on deposit accounts.

      Revenue derived from the Company's insurance agency subsidiary  activities
increased  $328,000 or 3.4% to $9.9 million  during 2007 as compared  with 2006.
Revenue  derived from the  Company's  financial  services  and employee  benefit
consulting division provided non-interest income of $3.6 million during 2007, an
increase of  $532,000 or 17.4%  compared to 2006.  The  financial  services  and
employee benefit consulting division was acquired in 2006.

      Deposit  account  service  fees also  contributed  to the  improvement  in
non-interest  income,  increasing to $2.5 million in income during  December 31,
2007 from $2.4 million during December 31, 2006. The combination of fees charged
on new  accounts  generated  and  acquired  resulted in the  increase in deposit
account service fee revenue.

      The Company  experienced an increase in income from the sale and servicing
of fixed-rate  residential real estate loans.  Such income increased to $433,000
during 2007 compared with  $419,000  during 2006.  The increase is primarily the
result of an  increase in the volume of loan  activity in 2007 as compared  with
2006.  Revenue  in the  amount  of  $626,000  was  recognized  as a result of an
increase in the cash  surrender  value of  Bank-Owned  Life  Insurance  ("BOLI")
during 2007 as compared with  $494,000 in revenue  recognized  during 2006.  The
increase  in revenue is the result of an increase  in the  variable  rate earned
during 2007 on the insurance  policies  owned in addition to the  acquisition of
$2.2 million in NBV insurance policies.

      Net investment securities gains realized increased $45,000 during the year
ended December 31, 2007 as compared with the year ended December 31, 2006.

      Non-interest  Expense.  Non-interest  expense increased by $3.2 million to
$27.0  million for the year ended  December 31, 2007 from $23.8  million for the
year ended  December 31, 2006.  The  increase  was  primarily  due to salary and
employee  benefits expense which increased $1.5 million to $17.0 million for the
year ended  December 31, 2007 from $15.5 million for the year ended December 31,
2006.  Building  occupancy and equipment also increased $780,000 to $4.4 million
for the 2007 period as compared to $3.6 million during the same period in 2006.

      Salaries,  wages and other  compensation  paid to employees of the Company
during 2007 was $13.4 million, an increase of $1.5 million or 13.0%, as compared
with  compensation  expense  of $11.9  million  during  2006.  The  increase  in
compensation  expense was  primarily the result of the addition of NBV employees
and the office in Griffiss  Park.  In 2006,  the Company  approved a  Management
Recognition  and Retention Plan for directors,  officers and key employees.  The
expense  associated  with this benefit was  $175,000  for 2007 as compared  with
$221,000 in the 2006 implementation year of the Plan.

      Building  occupancy  and  equipment  expense  increased  $780,000  to $4.4
million for the year ended  December 31, 2007 as compared to $3.6 million during
2006. The increase was due to the addition of four banking offices during 2007.

      Provision  for Income  Taxes.  Income tax expense was $1.4 million for the
year ended  December  31, 2007 a decrease  of $158,000  from the 2006 income tax
provisions  of $1.5 million.  The decrease in income tax provision  reflects the
decrease in net income for the year ended  December 31, 2007.  The effective tax
rate was 28.1% during 2007 as compared  with 26.7% during 2006.  The increase in
the  effective  tax rate is due to the decrease in tax exempt and tax  preferred
investment  income  of  the  Company  which  qualifies  for  dividends  received
deductions.

Comparison  of  Operating  Results  for the Years  Ended  December  31, 2006 and
December 31, 2005.

      General.  Net income for the year ended  December  31, 2006  increased  by
$340,000,  to $4.2  million  from $3.9  million for the year ended  December 31,
2005.  Basic  earnings  per share  increased  7.8%,  to $0.55 for the year ended
December 31, 2006 as compared with the 2005 reported basic earnings per share of
$0.51.  The  increase  in net income was due  primarily  to an increase in other
income and a decrease in the provision for loan losses. Partially offsetting the
increases  in income was a decrease  in net  interest  income and  increases  in
non-interest  expense and the provision  for income  taxes.  The decrease in net
interest  income is due  primarily  to a decrease  in net  earning  assets and a
decrease in net  interest  margin  given the impact  caused by rising short term
rates and the inverted yield curve.

      Interest and Dividend  Income.  Interest and dividend income  increased by
$1.3 million or 5.9%, to $22.3 million for the year ended December 31, 2006 from
$21.0 million for the year ended  December 31, 2005.  Interest and fees on loans
increased by $2.0 million for the year ended  December 31, 2006 as compared with
the same period in 2005.  Interest income earned on federal funds sold increased
$129,000  during  2006 as  compared  with  the year  ended  December  31,  2005.
Offsetting  these  increases  in income  was  interest  and  dividend  income on
mortgage-

<PAGE>

backed and other investment  securities which decreased $848,000 to $5.9 million
for the year  ended  December  31,  2006 from $6.8  million  for the year  ended
December 31, 2005.

      The increase in income on loans resulted from an increase of $16.7 million
in the average balance of loans to $243.7 million in 2006 from $226.9 million in
2005 as well as a 37 basis point increase in the average yield on loans to 6.63%
from 6.26%.  The increase in loans reflects  management's  strategy to emphasize
the  origination of consumer and commercial  business loans for retention in the
Bank's portfolio while maintaining a consistent level of residential real estate
loans with excess production of longer-term  fixed-rate  residential real estate
loans sold in the secondary market on a servicing retained basis. As of December
31, 2006  residential  real estate loans totaled $109.4 million,  an increase of
$5.5  million  from  December  31,  2005.  During the 2006 year a total of $17.0
million in fixed-rate  residential  real estate loans were sold in the secondary
market.  In addition,  commercial  real estate loans  increased  $4.9 million to
$59.2  million at December 31, 2006 from $54.3  million at December 31, 2005. At
December 31, 2006 total loans  receivable  were $249.5  million as compared with
$238.0  million at December 31, 2005,  an increase of 4.8%.  The increase in the
yield on loans is a result of the higher  market  interest  rates during 2006 as
compared with 2005 and the changes in the  composition  of the loan portfolio to
higher yielding loans.

      The  decrease  in  interest  income from  investment  and  mortgage-backed
securities was the result of a decrease of $24.8 million in the average  balance
of investment and  mortgage-backed  securities to $107.5 million at December 31,
2006 from $132.3  million at December 31, 2005 offset by an increase of 17 basis
points in the average yield on investments and mortgage-backed  securities.  The
decrease in the average balance on investment and mortgage-backed  securities is
the result of sales,  maturities and  repayments  throughout the year to provide
liquidity  during periods of increased loan demand and deposit  outflows as well
as provide liquidity for the acquisition of Vernon Bank Corporation.

      Interest income on federal funds sold increased as a result of an increase
of 228 basis  points in the  average  yield  earned on  federal  funds sold as a
result of the Federal  Reserve's  actions to increase short term interest rates.
Contributing to the increase in interest income on federal funds was an increase
in the average  balance of federal funds sold during the 2006 period as compared
with 2005. The increase in the average  balance of federal funds sold reflects a
decision to reallocate assets from investment securities during the year.

      Income from equity securities  increased $98,000 due to an increase in the
average yield of 103 basis points. The increase in average yield was offset by a
decrease  in the  average  balance  of $2.3  million  from  $19.9  million as of
December  31, 2005 to $17.7  million as of December 31, 2006 due to sales during
the year.

      Interest  Expense.  Interest  expense was $9.4  million for the year ended
December  31, 2006 an increase of $1.8  million,  or 22.9% from $7.7 million for
the year ended December 31, 2005. The increase in interest expense was primarily
due to an  increase  in interest  paid on deposit  accounts  during 2006 of $1.4
million,  increasing to $6.0 million  during 2006 from $4.5 million during 2005.
In addition,  borrowing expense increased to $3.4 million for 2006 compared with
$3.1 million for 2005.

      The increase in interest  expense paid on deposits was primarily due to an
increase in the average rate paid on deposits.  Core deposits,  including  money
market  accounts,  savings  accounts  and  interest-bearing  checking  accounts,
decreased on average $3.9 million, or 2.7%, to $142.8 million at an average cost
of 1.23%  during 2006 from  $146.7  million at an average  cost of 0.84%  during
2005.  During the same period the  average  balance of time  deposits  increased
$681,000 or 0.6%, to $109.7  million in 2006 from $109.0 million during 2005 and
the average rate paid on time deposits increased 79 basis points.

      The increase in the cost of retail  deposits was  primarily a result of an
increase in market  interest rates during 2006  resulting in increased  rates of
interest paid on retail  deposits,  particularly  short-term,  core deposits and
variable rate deposit accounts. Time deposit accounts are typically offered at a
fixed rate of interest for a fixed maturity  period.  The increase in short term
market interest rates during 2006 are expected to continue to result in a higher
cost of funds for deposits during 2007.

      The  increase in  borrowing  expense  was due to the  increase of 40 basis
points in the average  rate paid on borrowed  funds  offset by a decrease in the
average balance of borrowings outstanding in the 2006 period to $67.7 million as
compared with $68.4 million during the 2005 period.  The increase in the average
rate paid on borrowed  funds was due to higher  short term rates  during 2006 as
compared with 2005.

      The increase in notes  payable  expense was due to the increase in average
balance of $979,000 as well as an increase in the average yield outstanding. The
notes  payable  represent  balances  owed to both  Parsons,  Cote & Company  and
Benefit  Consulting  Group  LLC as part of the  acquisition  of those  companies
during the year.

      Provision  for Loan  Losses.  The  Bank  establishes  provisions  for loan
losses, which are charged to operations,  in order to maintain the allowance for
loan losses at a level deemed  appropriate to absorb  probable  incurred  credit
losses. Management estimates the allowance balance required using past loan loss
experience,  the nature and volume of the portfolio,  information about specific
borrower

<PAGE>

situations  and  estimated  collateral  values,  economic  conditions  and other
factors.  Allocations of the allowance may be made for specific  loans,  but the
entire  allowance  is available  for any loan that,  in  management's  judgment,
should be charged off.  Management  evaluates  the adequacy of the allowance and
determines  the  appropriate  level of  provision  for loan losses by applying a
range  of  estimated  loss  percentages  to  each  category  of  performing  and
classified loans. The evaluation  considers volume changes in the loan portfolio
mix in response  to the  redirection  of loan asset  origination  and  retention
toward  consumer and commercial  business loan assets,  and provides  within the
allowance  adequacy  formula  for the  higher  relative  degree of  credit  risk
associated  with this activity as compared  with  traditional  residential  real
estate lending. Management assesses the allowance for loan losses on a quarterly
basis and makes appropriate provisions for loan losses.

      Provisions  of $280,000 and $360,000  were made to the  allowance for loan
losses  during the years ended  December  31, 2006 and 2005,  respectively.  The
additions  made to the allowance for loan losses during 2006 were deemed prudent
due to the continued  origination  for retention in the Bank's loan portfolio of
commercial  real estate  loans,  commercial  business  loans and consumer  loans
during 2006 and 2005.  During 2006 a total of $57.4 million of  commercial  real
estate loans,  commercial  business loans and consumer loans were  originated as
compared with $74.1 million  during 2005. At December 31, 2006  commercial  real
estate  loans,  commercial  business  loans and consumer  loans  totaled  $138.6
million as compared  with $132.8  million at December 31,  2005,  an increase of
4.3%. Nonperforming loans remained at low levels during the years ended December
31, 2006 and 2005, totaling $51,000 or 0.01% of total loans at December 31, 2006
compared  with  $225,000  or 0.05% of total  loans at  December  31,  2005.  Net
charge-off  activity  for the year  ended  December  31,  2006 was  $158,000  as
compared  with  $383,000  in net  charge-offs  during  2005.  The balance of the
allowance  for loan  losses  was $2.1  million or 0.84% of loans  receivable  at
December 31, 2006  compared  with $2.0 million or 0.83% of loans  receivable  at
December 31, 2005.

      Non-interest  Income.  Non-interest  income increased by $5.1 million,  or
42.8%,  to $17.0 million for the year ended December 31, 2006 from $11.9 million
for the year ended December 31, 2005. The increase in other non-interest  income
was the  result  of  increases  in  commissions  and fees  earned on the sale of
non-banking products and an increase in service charges on deposit accounts.

      Revenue derived from the Company's insurance agency subsidiary  activities
increased  $1.4  million or 17.6% to $9.6 million  during 2006 as compared  with
2005 due in part to the February 2006 acquisition of a Syracuse,  New York based
insurance  agency.  During 2006, the Company also acquired a financial  services
and employee benefit  consulting firm operating as Benefit Consulting Group Inc.
This acquired business provided non-interest income of $3.1 million during 2006,
a revenue source and business  activity that did not exist for the Company prior
to 2006.

      Deposit  account  service  fees also  contributed  to the  improvement  in
non-interest  income,  increasing to $2.4 million in income during  December 31,
2006 from $2.1 million during  December 31, 2005. The combination of new account
generation  and the fees  derived  from the  overdraft  program  resulted in the
increase in deposit account service fee revenue.

      The Company  experienced an increase in income from the sale and servicing
of fixed-rate  residential real estate loans.  Such income increased to $419,000
during 2006 compared with  $369,000  during 2005.  The increase is primarily the
result of an  increase in the volume of loan  activity in 2006 as compared  with
2005.  Revenue  in the  amount  of  $494,000  was  recognized  as a result of an
increase in the cash  surrender  value of  Bank-Owned  Life  Insurance  ("BOLI")
during 2006 as compared with  $473,000 in revenue  recognized  during 2005.  The
increase  in revenue is the result of an increase  in the  variable  rate earned
during 2006 on the insurance policies owned.

      Net investment securities gains realized increased $33,000 during the year
ended December 31, 2006 as compared with the year ended December 31, 2005.

      Non-interest  Expense.  Non-interest  expense increased by $4.2 million to
$23.8  million for the year ended  December 31, 2006 from $19.6  million for the
year ended  December 31, 2005.  The  increase  was  primarily  due to salary and
employee  benefits expense which increased $3.1 million to $15.5 million for the
year ended  December 31, 2006 from $12.4 million for the year ended December 31,
2005.

      Salaries,  wages and other  compensation  paid to employees of the Company
during 2006 was $11.9 million, an increase of $2.4 million or 25.0%, as compared
with  compensation  expense  of  $9.5  million  during  2005.  The  increase  in
compensation  expense was  primarily  the result of an increase in  compensation
expense paid to insurance  sales  representatives  consistent with the increased
level of commissions  earned by the Company from the sale of financial  products
and the addition of employees  following the  acquisition of Benefit  Consulting
Group.  In addition,  the Company  approved a 2006  Management  Recognition  and
Retention Plan for directors,  officers and key employees. The implementation of
this plan  resulted  in benefit  expense of $221,000  for 2006 as compared  with
$87,000  in 2005 which was for the 2000  Management  Recognition  and  Retention
Plan.

      Building  occupancy  and  equipment  expense  increased  $332,000  to $3.6
million for the year ended  December 31, 2006 as compared to $3.3 million during
2005. The increase was largely due to the addition of

<PAGE>

Benefit Consulting Group Inc. which incurred $227,000 of expense during 2006.

      Provision  for Income  Taxes.  Income tax expense was $1.5 million for the
year ended  December  31, 2006 an increase of $136,000  from the 2005 income tax
provisions of $1.4  million.  The increase in income tax provision is due to the
decrease in tax exempt and tax preferred  investment income of the Company which
qualifies for dividends  received  deductions.  The effective tax rate was 26.7%
during 2006 as compared with 26.5% during 2005.

Application of Critical Accounting Policies

      The Company's consolidated financial statements are prepared in accordance
with accounting  principles  generally  accepted in the United States and follow
general  practices  within the  industries in which it operates.  Application of
these  principles  requires  management  to  make  estimates,  assumptions,  and
judgments  that affect the  amounts  reported in the  financial  statements  and
accompanying  notes.  These estimates,  assumptions,  and judgments are based on
information available as of the date of the financial  statements;  accordingly,
as this information  changes,  the financial  statements could reflect different
estimates,  assumptions,  and  judgments.  Certain  policies  inherently  have a
greater reliance on the use of estimates, assumptions, and judgments and as such
have a  greater  possibility  of  producing  results  that  could be  materially
different than originally reported.  Estimates,  assumptions,  and judgments are
necessary when assets and liabilities are required to be recorded at fair value,
when a decline in the value of an asset not carried on the financial  statements
at fair value  warrants an  impairment  write-down  or  valuation  reserve to be
established,  or when an asset or liability needs to be recorded contingent upon
a future event. Carrying assets and liabilities at fair value inherently results
in more financial statement volatility. The fair values and the information used
to record  valuation  adjustments  for certain assets and  liabilities are based
either on quoted  market  prices or are provided by other  third-party  sources,
when  available.  When  third-party  information  is  not  available,  valuation
adjustments are estimated in good faith by management  primarily through the use
of internal cash flow modeling techniques.

      The most  significant  accounting  policies  followed  by the  Company are
presented in Note 1 to the consolidated  financial  statements.  These policies,
along with the disclosures  presented in the other financial statement notes and
in this financial  review,  provide  information on how  significant  assets and
liabilities  are recorded in the financial  statements  and how those values are
determined.  Based  on the  valuation  techniques  used and the  sensitivity  of
financial  statement  amounts  to  the  methods,   assumptions,   and  estimates
underlying  those amounts,  management has identified the  determination  of the
allowance for loan losses,  the valuation of mortgage servicing assets, the fair
value  of  investment  securities  and the  evaluation  of  other-than-temporary
impairment on securities whose fair value is less than amortized cost, actuarial
assumptions  associated  with the  Company's  pension  plan  and the fair  value
methodologies used to review the carrying value of goodwill to be the accounting
areas that require the most subjective or complex  judgments,  and as such could
be most subject to revision as new information becomes available.

      The allowance for loan losses represents management's estimate of probable
incurred  credit  losses in the loan  portfolio.  Determining  the amount of the
allowance for loan losses is considered a critical  accounting  estimate because
it  requires  significant  judgment  and the  use of  estimates  related  to the
collateral  value and timing of expected  future  cash flows on impaired  loans,
estimated  losses  on pools  of  homogeneous  loans  based  on  historical  loss
experience,  and consideration of current economic trends and conditions, all of
which  may be  susceptible  to  significant  change.  The  loan  portfolio  also
represents the largest asset type on the consolidated  balance sheet.  Note 1 to
the  consolidated   financial  statements  describes  the  methodology  used  to
determine the allowance for loan losses and a discussion of the factors  driving
changes  in the  amount of the  allowance  for loan  losses is  included  in the
Allowance for Loan Losses section of the annual report.

      Mortgage  servicing  assets,  are  recorded  and  accounted  for  based on
discounted  cash flow  modeling  techniques  which  require  management  to make
estimates  regarding  the amount  and  timing of  expected  future  cash  flows,
including  assumptions about loan repayment rates,  credit loss experience,  and
costs to service,  as well as discount  rates that  consider the risk  involved.
Because the values of these assets are sensitive to changes in assumptions,  the
valuation  of mortgage  servicing  assets is  considered  a critical  accounting
estimate.

      All of our investment  securities are classified as available for sale and
recorded at current market value on our statement of condition. Unrealized gains
or losses, net of the deferred tax effect,  are reported in other  comprehensive
income as a separate  component of  stockholders'  equity.  Recorded  values are
based on prices  obtained  from  nationally  recognized  resources or securities
dealer's  valuations.  We  conduct a  quarterly  review  and  evaluation  of the
securities  portfolios to determine if any declines in fair value are other than
temporary.  Any valuation  decline that is determined to be other than temporary
would  require us to write down the  security to fair value  through a charge to
current period operations.

      The valuation of the Company's  obligations  associated with pension plans
utilizes various actuarial assumptions.  These assumptions include discount rate
and expected return on plan assets.  Specific discussion of the assumptions used
by management is discussed in Note 10.

<PAGE>

      Although  goodwill  is not  subject  to  amortization,  we must  test  the
carrying value for impairment at least annually or more  frequently if events or
circumstances  indicate  that the asset might be  impaired.  Impairment  testing
requires that the fair value of each of the  reporting  units be compared to the
carrying  amount of its net assets,  including  goodwill.  Determining  the fair
value  of  reporting  units  requires  us to use a  high  degree  of  subjective
judgment. We utilize discounted cash flow valuation models that incorporate such
variables as revenue growth rates, expense trends,  interest rates, and terminal
values.  Future  changes  in  the  economic  environment  or  operations  of our
reporting  units could cause changes to these  variables,  which could result in
impairment being identified.

Management of Market Risk

      The Bank's most  significant form of market risk is interest rate risk, as
the majority of the Bank's  assets and  liabilities  are sensitive to changes in
interest rates.  Ongoing  monitoring and management of this risk is an important
component of the Company's asset and liability management process. The Bank does
not own any trading  assets.  The Bank does not engage in hedging  transactions,
such as interest  rate swaps and caps,  other than forward sale  commitments  on
certain  committed  mortgage  loans.  The Bank's  interest rate risk  management
program  focuses  primarily on evaluating  and managing the  composition  of the
Bank's assets and liabilities in the context of various interest rate scenarios.
Factors  beyond  Management's   control,  such  as  market  interest  rates  and
competition,  also have an impact  on  interest  income  and  interest  expense.

      Interest  Rate  Risk.  In recent  years,  the Bank has used the  following
strategies to manage  interest rate risk: (i)  emphasizing  the  origination and
retention   of   residential    adjustable-rate   mortgage   loans,   commercial
adjustable-rate  mortgage loans, other business purpose loans and consumer loans
consisting  primarily  of auto  loans;  (ii)  selling  substantially  all  newly
originated  longer-term fixed rate one-to-four family residential mortgage loans
into the secondary  market without  recourse and on a servicing  retained basis;
(iii)  seeking to  increase  and  diversify  the  Company's  sources of revenue,
particularly  non-interest  income and (iv)  managing the  Company's  investment
activities  in a  prudent  manner  in  the  context  of  overall  balance  sheet
asset/liability management.  Investing in shorter-term securities will generally
bear lower  yields as  compared to  longer-term  investments,  but which  better
position the Bank for increases in market  interest rates and better matches the
maturities  of the Bank's  certificate  of  deposit  accounts.  Certificates  of
deposit that mature in one year or less,  at December  31, 2007  totaled  $119.1
million,  or 32.4% of total  interest-bearing  liabilities.  Borrowed funds that
mature in one year or less at December 31, 2007 totaled $15.9  million,  or 4.3%
of total  interest-bearing  liabilities.  Management believes that this balanced
approach to investing will reduce the exposure to interest rate fluctuations and
will enhance long-term profitability.

      The  Company  uses a  computer  simulation  model to assist in  monitoring
interest rate risk. As of December 31, 2007 a 200 basis point increase in market
interest rates was estimated to have a negative  impact of 0.11% on net interest
income  during  2007  while a 200 basis  point  decline  in rates  would  have a
negative  impact of 2.0% on net interest  income  during 2007.  This analysis is
based on numerous  assumptions  including the nature and timing of interest rate
levels,  prepayment  on loans  and  securities,  deposit  decay  rates,  pricing
decisions on loans and deposits and other assumptions,  and should not be relied
upon as being indicative of expected operating results.

      Credit Risk. The Bank's loan and corporate bond  portfolios are subject to
varying  degrees of credit  risk.  Credit risk is  mitigated  through  portfolio
diversification,   limiting   exposure  to  any  single  industry  or  customer,
collateral  protection,  standard  lending  and  investment  policies  and  loan
underwriting criteria.

      Note 1 to the consolidated  financial  statements describes the accounting
policies  related to  nonperforming  loans and  charge-offs  and  describes  the
methodologies  used to develop  the  allowance  for loan  losses.  The  policies
governing  nonperforming  loans and  charge-offs  are consistent with regulatory
standards.  The Bank maintains an allowance for loan losses sufficient to absorb
estimated probable incurred losses in the loan portfolio. The evaluation of each
element  and the  overall  allowance  are  based on the size  and  current  risk
characteristics  of the loan  portfolio  and include an assessment of individual
problem  loans,  actual loss  experience,  current  economic  events in specific
industries and geographical  areas,  including  unemployment  levels,  and other
pertinent   factors,   including   regulatory   guidance  and  general  economic
conditions.

      While  management  considers  the allowance for loan losses to be adequate
based on information  currently  available,  future adjustments to the allowance
may be necessary due to changes in economic  conditions,  delinquencies  or loss
rates,  and management's  intent with regard to asset  disposition  options.  In
addition,  the  allowance for loan losses is  periodically  reviewed by the bank
regulatory agencies as an integral part of their examination  process.  Based on
their review, the agencies may require the Bank to adjust the allowance for loan
losses based on their judgments about information  available to them at the time
of their review.

      The securities investment policy is established by the Board of Directors.
This policy dictates that investment  decisions will be made based on the safety
of the investment, liquidity requirements,  potential returns, cash flow targets
and desired risk parameters. In pursuing these objectives,  management considers
the ability of an investment to

<PAGE>

provide earnings consistent with factors of quality, maturity, marketability and
risk diversification. The Bank will only purchase securities rated as investment
grade by a nationally  recognized  investment  rating agency.  The ability of an
issuer of a corporate debt instrument to repay the obligation is influenced by a
number of factors  including general economic  conditions,  cash flow, events in
specific  industries,  regional  crisis,  bankruptcy  and  many  other  factors.
Corporate  bonds are not typically  guaranteed  beyond the Company's  ability to
repay and therefore  may result in a loss to the Bank if conditions  change from
those in place at the time the  investment  was  acquired.  The Bank  conducts a
quarterly evaluation of the securities portfolio to determine if any declines in
fair value are other-than-temporary.  Part of this analysis includes forecasting
of rate  projections  and  investment  spreads  over bond indices as compared to
historical  performance.  Fluctuations  in market  conditions  could  impact the
evaluation and outcome of projections.

      Concentration  Risk. The Bank's lending activities are primarily conducted
in Madison and Oneida Counties, located in Central New York State, and the towns
and  villages  in  adjacent  counties.   The  Bank's  mortgage  loan  portfolio,
consisting primarily of loans on residential real property located in its market
area,  is  subject  to risks  associated  with the local  economy.  If the local
economy, national economy or real estate market weakens, the financial condition
and results of operations of the Bank could be adversely  affected.  A weakening
in the local real estate market or a decline in the local economy could increase
the  number of  delinquent  or  nonperforming  loans and reduce the value of the
collateral securing such loans, which would reduce the Bank's net income.

      Much of the Bank's market area is included in the 250,000-acre  land claim
of the Oneida Indian Nation  ("Oneidas").  The land claim area is held primarily
by private  persons.  Over 15 years ago the United States Supreme Court ruled in
favor of the Oneidas in a lawsuit  which  management  believes  was  intended to
encourage  the State of New York to negotiate an equitable  settlement in a land
dispute that has existed for 200 years.

      In June 1998,  the United  States  Justice  Department  intervened  in the
action on behalf of the Oneidas  against Madison County and Oneida County in New
York  State.  In  September  1998,  a U.S.  District  Court  removed  a stay  of
litigation,  having  been in place  since  the late  1980's  pending  settlement
negotiations. In December 1998, both the Oneidas and the U.S. Justice Department
filed motions to amend the long outstanding claim against the State of New York.
The motion  attempts to include in the claim,  various named and 20,000  unnamed
additional  defendants,  who own real  property  in parts of Madison  and Oneida
counties,  thereby including the additional defendants in the original suit. The
U.S.  District  Court granted the motions to add as a defendant the State of New
York, but denied the motions to add the private landowners. Neither the Bank nor
the Company is a named  defendant in the motion.  The Court further  rejected as
not being viable the remedies of ejectment  and/or of monetary  damages  against
private  landowners.  In January  2001,  amended  complaints  were served by the
Oneidas and the United  States  which seek to eject the  Counties of Madison and
Oneida from lands owned by the counties, and the Oneidas also seek a declaration
that they have the right to possess all land within the land claim area. In June
2001,  the Court  determined  that certain land purchased by the Oneidas in 1997
and 1998 are exempt from real estate taxes,  accepting the Oneidas argument that
the acquired parcels lie within the boundaries of the "reservation"  established
in 1794 by the Federal  Government.  In July 2003,  the United  States  Court of
Appeals  affirmed the  decision of the lower court  against the City of Sherrill
but appeals  continue  relative to the decision  against the Counties of Madison
and Oneida.

      In February  2002, a joint  statement was issued by the Oneidas,  State of
New York and the counties of Madison and Oneida,  indicating  that the framework
for a  settlement  had been  agreed  upon  subject to the  approval by the State
legislature  and the  federal  government.  The  Oneidas  of  Wisconsin  and the
Stockbridge-Munsee  Band of Mohican Indians have commenced  separate  actions in
the  United  States  District  Court for the  Northern  District  of New York to
dispute and interrupt any settlement pending.

      To date,  neither  the  original  claim nor the motion to amend has had an
adverse impact on the local economy or real property values. In addition,  title
insurance  companies continue to underwrite policies in the land claim area with
no change  in  premiums  or  underwriting  standards.  The Bank  requires  title
insurance on all  residential  real estate loans,  excluding  home equity loans.
Both the State of New York and the Oneidas have  indicated  in their  respective
communications that individual  landowners will not be adversely affected by the
ongoing litigation. The Company continues to monitor the situation.

      Liquidity  Risk.  The  objective of liquidity  management is to ensure the
cash flow  requirements  of depositors and  borrowers,  as well as the operating
cash needs of the Company,  are met, taking into account all on- and off-balance
sheet funding  demands.  Liquidity  management also includes  ensuring cash flow
needs are met at a reasonable  cost.  Liquidity risk arises from the possibility
the Company may not be able to satisfy current or future financial  commitments,
or the Company may become unduly reliant on  alternative  funding  sources.  The
Company  maintains a liquidity risk management policy to address and manage this
risk.  The policy  identifies  the  primary  sources of  liquidity,  establishes
procedures for  monitoring  and measuring  liquidity,  and  establishes  minimum
liquidity  requirements which comply with regulatory  guidance.  The policy also
includes a contingency  funding plan to address  liquidity needs in the event of
an  institution-specific  or a systemic  financial market crisis.  The liquidity
position is continually

<PAGE>

monitored and reported on monthly to the Asset/Liability Management Committee.

      The  Bank's  primary  sources  of funds  are  deposits;  FHLB  borrowings;
proceeds from the principal and interest payments on loans and mortgage-related,
debt and equity  securities;  and to a lesser extent,  proceeds from the sale of
fixed rate  residential  real  estate  loans and  additional  borrowing  ability
available as needed.  While  maturities and scheduled  amortization of loans and
securities  are  predictable  sources  of  funds,  deposit  outflows,   mortgage
prepayments,  mortgage  loan sales and  borrowings  are  greatly  influenced  by
general interest rates, economic conditions and competition.

      Liquidity management is both a short-term and long-term  responsibility of
Management.  The Bank  adjusts  its  investments  in liquid  assets  based  upon
Management's assessment of (i) expected loan demand, (ii) projected purchases of
investment and mortgage-backed  securities,  (iii) acquisition activities,  (iv)
expected deposit flows, (v) yields available on interest-bearing  deposits,  and
(vi) liquidity of its asset/liability  management  program.  Excess liquidity is
generally invested in interest-earning  overnight  deposits,  federal funds sold
and other  short-term  U.S. agency  obligations.  At December 31, 2007, cash and
interest-earning deposits totaled $16.5 million, or 3.2% of total assets.

      If the Bank requires funds beyond its ability to generate them internally,
it has the ability to borrow  funds from the FHLB.  The Bank may borrow from the
FHLB under a blanket  agreement,  which assigns all investments in FHLB stock as
well as qualifying first mortgage loans equal to 150% of the outstanding balance
as collateral to secure the amounts borrowed. At December 31, 2007, the Bank has
available a $90.8  million  line of credit  with the  Federal  Home Loan Bank of
which no amounts were outstanding.  In addition, the Bank can utilize investment
and mortgage-backed securities as collateral for repurchase agreements. The Bank
also maintains  lines of credit with various  commercial  banks as an additional
source of short-term borrowing.  At December 31, 2007 the Bank had approximately
$10.0 million available to it under these borrowing arrangements.

      The Bank must also maintain  adequate  levels of liquidity to satisfy loan
commitments.  At December  31, 2007,  the Bank had  outstanding  commitments  to
originate  loans  of  $57.7  million.  The Bank  anticipates  that it will  have
sufficient funds to meet current loan commitments.

      Certificates of deposit, which are scheduled to mature in one year or less
from December 31, 2007, totaled $119.1 million. Based upon the Bank's experience
and current pricing strategy,  Management believes that a significant portion of
such deposits will remain with the Bank.

      Management believes the Company maintains effective liquidity policies and
sources to satisfy current and anticipated financial commitments.

      Capital  Requirements.  The FDIC has adopted risk-based capital guidelines
to which the Bank is subject. The guidelines  establish a systematic  analytical
framework  that  makes  regulatory   capital   requirements  more  sensitive  to
differences in risk profiles among banking  organizations.  The Bank is required
to maintain  certain  levels of  regulatory  capital in  relation to  regulatory
risk-weighted  assets.  The  ratio  of such  regulatory  capital  to  regulatory
risk-weighted  assets is referred to as the Bank's  "risk-based  capital ratio."
Risk-based  capital  ratios are  determined by  allocating  assets and specified
off-balance  sheet items to four  risk-weighted  categories  ranging  from 0% to
100%, with higher levels of capital being required for the categories  perceived
as representing greater risk.

      These guidelines divide a savings bank's capital into two tiers. The first
tier  ("Tier  I")   includes   common   equity,   retained   earnings,   certain
non-cumulative  perpetual  preferred stock  (excluding  auction rate issues) and
minority  interests  in  equity  accounts  of  consolidated  subsidiaries,  less
goodwill and other  intangible  assets  (except  mortgage  servicing  rights and
purchased   credit   card   relationships   subject  to  certain   limitations).
Supplementary  ("Tier  II")  capital  includes,  among other  items,  cumulative
perpetual and long-term  limited-life  preferred  stock,  mandatory  convertible
securities,  certain hybrid capital instruments,  term subordinated debt and the
allowance  for loan and lease  losses,  subject  to  certain  limitations,  less
required deductions.

      Based  on the  foregoing,  the  Bank is  currently  classified  as a "well
capitalized" savings institution.

-------------------------------------------------------------
                                             MINIMUM
                                            REQUIRED   ACTUAL
-------------------------------------------------------------
Tier I Capital to Average Assets               4%       6.60%
Tier I Capital to Risk-Weighted Assets         4%       9.45%
Total Capital to Risk-Weighted Assets          8%      10.18%
-------------------------------------------------------------

<PAGE>

Contractual Obligations,  Commitments,  and Off-Balance Sheet Arrangements.  The
Company has various financial obligations, including contractual obligations and
commitments that may require future cash payments.

      Contractual  Obligations:  The following table presents as of December 31,
2007,  significant  fixed  and  determinable  contractual  obligations  to third
parties by payment date.  Further discussion of the nature of each obligation is
included in the referenced note to the consolidated financial statements.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
     (Dollars in thousands)                                      Payments Due In
---------------------------------------------------------------------------------------------------------
                             Note      One Year    One to Three   Three to Five   Over Five
Contractual Obligation    Reference    or Less        Years          Years          Years         Total
---------------------------------------------------------------------------------------------------------
<S>                       <C>         <C>          <C>            <C>             <C>         <C>
Certificates of Deposit        7      $  119,078   $     26,814   $       7,006          --   $   152,898
---------------------------------------------------------------------------------------------------------
Borrowings                     8      $   15,900   $     28,500   $       6,000   $   6,000   $    56,400
---------------------------------------------------------------------------------------------------------
Notes payable                  8      $      158             --              --          --   $       158
---------------------------------------------------------------------------------------------------------
</TABLE>

      Commitments and Off-Balance  Sheet  Arrangements:  In the normal course of
business,  to meet  the  financing  needs of its  customers  and to  reduce  its
exposure to  fluctuations  in  interest  rates,  the Bank is party to  financial
instruments with  off-balance  sheet risk, held for purposes other than trading.
The financial  instruments  involve, to varying degrees,  elements of credit and
interest  rate risk in  excess  of the  amount  recognized  in the  consolidated
balance   sheets.   The  Bank's   exposure  to  credit  loss  in  the  event  of
nonperformance  by  the  other  party  to the  financial  instrument,  for  loan
commitments  and standby  letters of credit,  is represented by the  contractual
amount of those  instruments,  assuming that the amounts are fully  advanced and
that collateral or other security is of no value.  The Bank uses the same credit
policies in making such  commitments as it does for on-balance  sheet loans. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit,  is based on management's  credit  evaluation of the borrower  originate
loans, unused lines of credit, and unadvanced portions of construction loans are
agreements to lend to a customer provided there is no violation of any condition
established in the contract.  Commitments  generally have fixed expiration dates
or other  termination  clauses  and may  require  payment of a fee.  Many of the
commitments  are expected to expire  without  being drawn upon.  Therefore,  the
amounts presented below do not necessarily  represent future cash  requirements.
Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the performance by a customer to a third party.  These  guarantees are
issued  primarily to support  public and private  borrowing  arrangements,  bond
financing, and similar transactions. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan commitments
to customers.

<PAGE>

The following  table details the amounts and expected  maturities of significant
commitments and off-balance sheet  arrangements as of December 31, 2007. Further
discussion of these commitments and off-balance  sheet  arrangements is included
in Note 14 to the consolidated financial statements.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
       (In thousands)
                                               One to                    Over
                                 One Year      Three      Three to       Five
Commitments to extend credit:     or Less      years     Five years     years       Total
-------------------------------------------------------------------------------------------
<S>                             <C>          <C>         <C>          <C>         <C>
Commercial                      $   37,109   $   2,679   $      549   $       1   $  40,338
Residential real estate              3,132          --           --          --       3,132
Revolving home equity lines            387         590        1,273      10,198      12,448
Consumer revolving credit            1,444          --           --          --       1,444
Standby letters of credit              362          10           --          --         372
-------------------------------------------------------------------------------------------
</TABLE>

Effect of Newly Issued But Not Yet Effective Accounting Standards

      In  September  2006,  the  FASB  issued  Statement  No.  157,  Fair  Value
Measurements.  This  Statement  defines fair value,  establishes a framework for
measuring fair value and expands disclosures about fair value measurements. This
Statement  establishes  a fair value  hierarchy  about the  assumptions  used to
measure  fair  value and  clarifies  assumptions  about risk and the effect of a
restriction on the sale or use of an asset. The standard is effective for fiscal
years beginning after November 15, 2007. In February 2008, the FASB issued Staff
Position (FSP) 157-2,  Effective Date of FASB Statement No. 157. This FSP delays
the  effective  date of FAS 157 for all  nonfinancial  assets  and  nonfinancial
liabilities,  except those that are  recognized  or disclosed at fair value on a
recurring basis (at least annually) to fiscal years beginning after November 15,
2008,  and  interim  periods  within  those  fiscal  years.  The Company has not
completed its evaluation of the impact of the adoption of this standard.

      In February 2007, the FASB issued Statement No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities.  The standard provides companies
with an option to report selected financial assets and liabilities at fair value
and establishes  presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different  measurement  attributes for
similar types of assets and  liabilities.  The new standard is effective for the
Company on January 1, 2008.  The Company has not completed its evaluation of the
impact of the adoption of this standard.

      In September  2006, the FASB Emerging Tax Force  finalized Issue No. 06-4,
Accounting  for Deferred  Compensation  and  Postretirement  Benefit  Aspects of
Endorsement Split-Dollar Life Insurance Arrangements. This issue requires that a
liability  be  recorded  during the  service  period  when a  split-dollar  life
insurance agreement continues after participants' employment or retirement.  The
required accrued liability will be based on either the  post-employment  or cost
for the continuing life insurance or based on the future death benefit depending
on the contractual  terms of the underlying  agreement.  This issue is effective
for fiscal years  beginning  after  December 15, 2007. The impact of adoption of
the  issue  was  not  material  to  the  Company's  operations  and  results  of
operations.

      On November 5, 2007,  the SEC issued  Staff  Accounting  Bulletin No. 109,
Written Loan  Commitments  Recorded at Fair Value through  Earnings ("SAB 109").
Previously SAB 105,  Application of Accounting  Principles to Loan  Commitments,
stated that in  measuring  the fair value of a  derivative  loan  commitment,  a
company should not incorporate the expected net future cash flows related to the
associated  servicing of a loan.  SAB 109  supersedes SAB 105 and indicates that
the expected net future cash flows  related to the  associated  servicing of the
loan should be included in measuring fair value for all written loan commitments
that are accounted for at fair value through  earnings.  SAB 105 also  indicated
that  internally-developed  intangible  assets should not be recorded as part of
the fair value of a derivative loan  commitment,  and SAB 109 retains this view.
SAB 109 is  effective  for  derivative  loan  commitments  issued or modified in
fiscal  quarters  beginning after December 15, 2007. The Company does not expect
the impact of this standard to be material.

<PAGE>

      Market for Common Stock. The Company's  common stock commenced  trading on
December  30, 1998.  The table below  provides  information  on the high and low
trading prices of the common stock for the periods indicated, as reported on the
Global Market System of the NASDAQ Stock Market,  as well as the dividends  paid
during such periods.  All information provided has been adjusted for the 3-for-2
stock split of April 23, 2002 and the 3-for-2  stock split of February 24, 2004.
Oneida  Financial  Corp.'s common stock is traded on the NASDAQ market under the
symbol "ONFC".

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
          Quarter                         Dividends              Quarter                          Dividends
Year      Ending        High      Low        Paid      Year      Ending        High       Low        Paid
-----------------------------------------------------------------------------------------------------------
<S>    <C>            <C>       <C>       <C>         <C>     <C>            <C>       <C>        <C>
2006   March 31       $ 12.10   $ 10.21   $    0.22   2007    March 31       $ 12.40   $  11.00   $    0.24

       June 30        $ 12.18   $  9.75   $    0.00           June 30        $ 12.50   $  11.18   $    0.00

       September 30   $ 12.86   $ 10.76   $    0.23           September 30   $ 13.00   $  11.43   $    0.24

       December 31    $ 12.10   $ 11.05   $    0.00           December 31    $ 11.85   $   9.61   $    0.00
-----------------------------------------------------------------------------------------------------------
</TABLE>

      As of December  31, 2007,  there were  8,322,452  shares of the  Company's
common  stock  issued  and  approximately   723  shareholders  of  record.   The
shareholders  of record  include banks and brokers who act as nominees,  each of
whom may represent more than one shareholder.

      The  Board of  Directors  of the  Company  declared  two  semiannual  cash
dividends  during the year ended December 31, 2007, as shown in the table above.
The Board will review the dividend  regularly  and expects to maintain a regular
semiannual dividend in the future, based upon the Company's earnings,  financial
condition and other factors.

<PAGE>

      Stock Performance  Graph. Set forth hereunder is a stock performance graph
comparing  (a) the  cumulative  total  return on the Common Stock for the period
beginning December 31, 2002, as reported by the Nasdaq Market,  through December
31, 2007,  (b) the  cumulative  total  return on stocks  included in the S&P 500
Index over such period,(c) the cumulative total return on stocks included in the
Nasdaq  Bank Index over such  period,  and (d) the  cumulative  total  return of
publicly  traded  thrifts or thrift  holding  companies  in the  mutual  holding
company  structure over such period.  Cumulative return assumes the reinvestment
of  dividends,  and is expressed in dollars  based on an assumed  investment  of
$100.

[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]

<TABLE>
<CAPTION>
                                                Period Ending
                         ------------------------------------------------------------------
Index                       12/31/02   12/31/03   12/31/04   12/31/05   12/31/06   12/31/07
-------------------------------------------------------------------------------------------
<S>                         <C>        <C>        <C>        <C>        <C>        <C>
Oneida Financial Corp.       100.00     126.09     121.39      91.06     111.84      94.86
S&P 500                      100.00     126.38     137.75     141.88     161.20     166.89
MHC Thrifts                  100.00     163.88     180.25     179.20     238.41     202.66
NASDAQ Bank Index            100.00     129.93     144.21     137.97     153.15     119.35
</TABLE>

      Assuming an initial  investment  in the Common  Stock of Oneida  Financial
Corp. of $100.00 at December 31, 2002, the cumulative total value with dividends
reinvested would be $94.86 at December 31, 2007.