SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X|   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934

      For the Fiscal Year Ended December 31, 2006

                                       OR

|_|   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

      For the transition period from __________ to  __________

                          Commission File No. 000-25101

                             ONEIDA FINANCIAL CORP.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                     Federal                                   16-1561678
         ------------------------------                  ----------------------
         (State or other jurisdiction of                    (I.R.S. Employer
         incorporation or organization)                  Identification Number)

     182 Main Street, Oneida, New York                         13421-1676
    ----------------------------------------                   ----------
    (Address of Principal Executive Offices)                    Zip Code

                                 (315) 363-2000
                                 --------------
                         (Registrant's telephone number)

<TABLE>
<S>                                                           <C>
Securities Registered Pursuant to Section 12(b) of the Act:   Common stock, par value $0.01 per share
                                                              ---------------------------------------
                                                                         (Title of Class)

Securities Registered Pursuant to Section 12(g) of the Act:   None
                                                              ----
</TABLE>

      Indicate by check mark if the  registrant  is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. YES |_|  NO |X|

      Indicate by check mark if the registrant is a well-known  seasoned issuer,
as defined in Rule 405 of the Securities Act. YES |_|  NO |X|

      Indicate by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  twelve  months (or for such shorter  period that the
Registrant  was required to file such  reports) and (2) has been subject to such
requirements for the past 90 days. YES |X|  NO |_|.

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|.

      Indicate  by check mark  whether  the  registrant  is a large  accelerated
filer,  an accelerated  filer,  or a  non-accelerated  filer.  See definition of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act. (Check one):

  |_| Large accelerated filer |_| Accelerated filer |X| Non-accelerated filer

      Indicate  by check mark  whether  the  Registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act). YES |_| NO |X|

      The  aggregate  market  value  of  the  3,323,560  shares  of  voting  and
non-voting common equity held by  non-affiliates of the Registrant,  computed by
reference to the last sale price  ($10.99) on June 30, 2006,  as reported by the
Nasdaq National Market,  was approximately  $36.5 million.  As of June 30, 2006,
there were issued and outstanding  7,633,310 shares of the  Registrant's  Common
Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1)   Proxy  Statement  for the  2007  Annual  Meeting  of  Stockholders  of the
      Registrant (Part III).

(2)   Annual Report to Stockholders (Part II).

<PAGE>

                                TABLE OF CONTENTS

ITEM 1.   BUSINESS.............................................................1
ITEM 1A.  RISK FACTORS........................................................35
ITEM 1.B  UNRESOLVED STAFF COMMENTS...........................................37
ITEM 2.   PROPERTIES..........................................................38
ITEM 3.   LEGAL PROCEEDINGS...................................................40
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................40
ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
          MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES...................41
ITEM 6.   SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA......................42
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS...............................................42
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...........42
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................43
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE................................................43
ITEM 9A.  CONTROLS AND PROCEDURES.............................................43
ITEM 9B.  OTHER INFORMATION...................................................44
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE..............44
ITEM 11.  EXECUTIVE COMPENSATION..............................................44
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          AND RELATED STOCKHOLDER MATTERS.....................................44
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
          INDEPENDENCE........................................................44
ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................44
ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES..........................45

<PAGE>

                                     PART I

ITEM 1. BUSINESS
----------------

Oneida Financial Corp.

      Oneida  Financial  Corp.  (the "Company") was organized in September 1998,
for the purpose of acquiring all of the capital stock of The Oneida Savings Bank
(the "Bank") upon completion of the Bank's reorganization into the two-tier form
of mutual holding company  ownership.  The Company is  majority-owned  by Oneida
Financial,  MHC, a  Federally-chartered  mutual  holding  company  (the  "Mutual
Holding  Company").  The Company and the mutual holding company are each subject
to regulation by the Office of Thrift Supervision  ("OTS"). The Company's assets
consist primarily of its ownership in the shares of the Bank's common stock.

      At December 31, 2006 the Company had consolidated  assets and consolidated
stockholders' equity of $442.9 million and $58.4 million, respectively.  Through
the Bank and its municipal bank  subsidiary,  the Company has deposits  totaling
$313.3 million. All financial information is presented on a consolidated basis.

      The Company's  executive office is located at the main office of the Bank,
at 182 Main Street, Oneida, New York 13421-1676.  The Company's telephone number
is (315) 363-2000.

Recent Developments

      On September 10, 2006,  The Bank  announced the signing of an agreement to
acquire  the Vernon  Bank  Corporation  and its  wholly  owned  subsidiary,  the
National  Bank of  Vernon.  The  acquisition  is  subject  to the  approvals  of
regulatory authorities. The stockholders of Vernon Bank Corporation have already
approved the merger. Under the terms of the agreement,  Oneida Savings Bank will
pay $54.00 in cash for each of the 210,477 shares of common stock in Vernon Bank
Corporation.  The Bank expects to complete  the merger in the second  quarter of
2007.

The Oneida Savings Bank

      The Bank was  organized  in 1866 as a New  York-chartered  mutual  savings
bank.  The Bank's  deposits  are  insured by the FDIC up to the  maximum  amount
permitted by law. The Bank is a community bank engaged primarily in the business
of  accepting  deposits  from  customers  through its main office and seven full
service branch offices and using those  deposits,  together with funds generated
from  operations  and  borrowings to make  one-to-four  family  residential  and
commercial real estate loans,  commercial business loans,  consumer loans and to
invest in  mortgage-backed  and other securities.  The Bank also sells insurance
and other commercial  services and products through Bailey & Haskell Associates,
Inc., its insurance agency subsidiary and provides  employee benefit  consulting
services through its wholly-owned subsidiary Benefit Consulting Group, Inc.

      At December 31, 2006,  $170.2 million,  or 68.2%, of the Bank's loans were
secured by real  estate,  $85.9  million,  or 34.4%,  of the  Bank's  loans were
secured by one-to-four family residential real estate,  $59.2 million, or 23.7%,
of the Bank's loans were secured by commercial  real estate,  and $25.1 million,
or 10.1%,  of the Bank's loans were home equity  loans.  Consumer  loans totaled
$44.0 million,  or 17.7% of the Bank's loans at December 31, 2006. The Bank also
originates  commercial  business loans which totaled $35.3 million, or 14.1%, of
loans at December 31, 2006. The Bank's investment securities and mortgage-backed
securities portfolios totaled $85.7 million and $29.1 million,  respectively, at
December 31, 2006.

<PAGE>

      In April 1999 the Bank established  Oneida Preferred  Funding Corp. as the
Bank's wholly owned real estate  investment  trust  subsidiary.  At December 31,
2006 Oneida Preferred  Funding Corp. held $41.2 million in mortgage and mortgage
related  assets.  All  disclosures in the Form 10-K relating to the Bank's loans
and investments  include loans and investments that are held by Oneida Preferred
Funding Corp.

      In October 2000,  the Bank  acquired  Bailey & Haskell  Associates,  Inc.,
which is a wholly owned insurance and financial services  subsidiary.  Since the
acquisition  of Bailey & Haskell  Associates,  Inc. the Bank has  acquired  four
insurance  agencies,  all of which  have  been  merged  into  Bailey  &  Haskell
Associates, Inc.

      On May 31, 2002,  the Bank  completed  its  acquisition  of SBC  Financial
Corporation   ("SBC"),   the  holding  company  of  State  Bank  of  Chittenango
("Chittenango");  a New York State  chartered  commercial  bank. The two banking
offices of Chittenango became banking offices of the Bank. The Bank has retained
Chittenango  as a  special  purpose  commercial  bank  subsidiary  of the  Bank.
Chittenango is permitted to accept  municipal  deposit accounts from the various
municipalities, school districts and other public sources, a source of funds not
available to the Bank under New York law. The acquisition resulted in additional
goodwill of $5.6 million and a core deposit  intangible  of  approximately  $1.2
million.  At  December  31,  2006,  no  impairment  adjustment  has been made to
goodwill or other intangibles that were created in the transaction.  At December
31, 2006 Chittenango had $17.1 million in municipal deposits. All disclosures in
the  Form  10-K  relating  to  the  Bank's   investments  and  deposits  include
investments and deposits that are held by Chittenango.

      In February  2006,  the Bank  completed its  acquisition  of the assets of
Parsons, Cote & Company,  Inc., an insurance agency for $206,655 cash and a note
payable for $419,750 to be paid over 36 months with interest at 5.00% per annum.

      In June 2006,  the Bank completed its  acquisition  of Benefit  Consulting
Group LLC., an employee benefits  consulting and retirement plan  administration
firm for $1.5 million cash and established a note payable for $2.2 million to be
paid over 24 months with interest at 5.00% per annum.  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.

      The Bank's main  office is located at 182 Main  Street,  Oneida,  New York
13421-1676. The Bank's telephone number is (315) 363-2000.

Market Area

      The Bank is a community-based savings institution that offers a variety of
financial  products and  services.  The Bank's  primary  lending area is Madison
County,  New York and  surrounding  counties,  and  most of the  Bank's  deposit
customers reside in Madison County and surrounding counties.  The City of Oneida
is located  approximately  30 miles from  Syracuse and 20 miles from Utica.  The
Bank's market area is characterized as rural, although the local economy is also
affected by economic  conditions  in Syracuse and Utica,  New York.  The average
household  income of persons  residing in Oneida and Madison  counties was below
that of New York State and the United States.

      The Bank competes with commercial  banks,  savings banks and credit unions
for deposits and loans. In addition to the financial  institutions  operating in
Madison and Oneida Counties, the Bank competes with a number of mortgage bankers
for the  origination of loans.  The largest  employers in the Bank's market area
are Oneida Healthcare Center and The Oneida Indian Nation of New York.

<PAGE>

Lending Activities

      General.  The  principal  lending  activity  of  the  Bank  has  been  the
origination for retention in its portfolio of adjustable  rate mortgage  ("ARM")
loans  collateralized  by  one-to-four  family  residential  real estate located
within its primary  market area. As a result of the  continuation  of relatively
low market interest rates throughout the year, borrowers have shown a preference
for fixed-rate  loans.  Consequently,  in recent periods the Bank has originated
more  fixed-rate  one-to-four  family loans for resale in the secondary  market,
without  recourse and on a servicing  retained basis. In order to complement the
Bank's  traditional  emphasis  of  one-to-four  family  residential  real estate
lending,  management  has  sought to  increase  the  number  of higher  yielding
commercial real estate loans, consumer loans and commercial business loans. To a
limited   extent,   the  Bank  will  originate  loans  secured  by  multi-family
properties.  The Bank does not view multi-family lending as a significant aspect
of its business.

<PAGE>

      Loan  Portfolio  Composition.  Set  forth  below is  selected  information
concerning the composition of the Bank's loan portfolio (included loans held for
sale) in dollar amounts and in percentages  (before deductions for allowance for
loan losses) as of the dates indicated.

<TABLE>
<CAPTION>
                                                                            At December 31,
                                     ----------------------------------------------------------------------------------------------
                                             2006              2005                2004              2003                2002
                                     ----------------   -----------------  -----------------  -----------------   -----------------
                                      Amount  Percent    Amount   Percent   Amount   Percent   Amount   Percent    Amount   Percent
                                     -------- -------   --------  -------  --------  -------  --------  -------   --------  -------
Real Estate Loans:                                                      (Dollars in thousands)
------------------
<S>                                  <C>       <C>      <C>       <C>      <C>       <C>      <C>        <C>      <C>       <C>
  One-to-four family .............   $ 85,864    34.4%  $ 83,001    34.9%  $ 81,621    38.2%  $ 79,910     39.4%  $ 85,581    42.8%
  Multi-family ...................      2,092     0.8      2,338     1.0      2,154     1.0      2,378      1.2      1,983     1.0
  Home equity ....................     25,088    10.1     22,189     9.3     20,309     9.5     17,001      8.4     15,149     7.6
  Commercial real estate .........     57,144    22.9     51,980    21.8     42,566    19.9     35,806     17.6     30,096    15.0
                                     --------  ------   --------  ------   --------  ------   --------   ------   --------  ------
    Total real estate loans ......    170,188    68.2    159,508    67.0    146,650    68.6    135,095     66.6    132,809    66.4
                                     --------  ------   --------  ------   --------  ------   --------   ------   --------  ------

Consumer Loans:
---------------
  Automobile loans ...............     39,885    16.0     41,123    17.3     32,059    15.0     30,042     14.8     28,857    14.4
  Mobile home ....................         91     0.0        117     0.0        177     0.1        205      0.1        280     0.1
  Personal loans .................      2,236     0.9      2,058     0.9      2,910     1.4      4,326      2.1      6,842     3.4
  Other consumer loans ...........      1,830     0.8      1,597     0.7      1,361     0.5      1,549      0.8      1,442     0.8
                                     --------  ------   --------  ------   --------  ------   --------   ------   --------  ------
    Total consumer loans .........     44,042    17.7     44,895    18.9     36,507    17.0     36,122     17.8     37,421    18.7

Commercial business loans ........     35,292    14.1     33,633    14.1     30,704    14.4     31,494     15.6     29,775    14.9
                                     --------  ------   --------  ------   --------  ------   --------   ------   --------  ------

  Total consumer and commercial
    business loans ...............     79,334    31.8     78,528    33.0     67,211    31.4     67,616     33.4     67,196    33.6
                                     --------  ------   --------  ------   --------  ------   --------   ------   --------  ------

    Total loans ..................   $249,522  100.00%  $238,036  100.00%  $213,861  100.00%  $202,711   100.00%  $200,005  100.00%
                                     --------  ======   ========  ======   ========  ======   ========   ======   ========  ======

Less:
-----
  Allowance for losses ...........      2,081              1,959              1,982              2,115               2,109
                                     --------           --------           --------           --------            --------
  Total loans receivable, net ....   $247,441           $236,077           $211,879           $200,596            $197,896
                                     ========           ========           ========           ========            ========
</TABLE>


                                        4
<PAGE>

      The  following  table  sets  forth  the  composition  of the  Bank's  loan
portfolio by fixed and adjustable rates at the dates indicated.

<TABLE>
<CAPTION>
                                                                            At December 31,
                                   -------------------------------------------------------------------------------------------------
                                         2006                 2005                2004               2003                2002
                                   ----------------     ----------------    ----------------    ----------------   -----------------
                                   Amount   Percent     Amount   Percent    Amount   Percent    Amount   Percent   Amount    Percent
                                   ------   -------     ------   -------    ------   -------    ------   -------   ------    -------
                                                                        (Dollars in thousands)
<S>                               <C>        <C>       <C>        <C>      <C>       <C>       <C>        <C>      <C>       <C>
FIXED-RATE LOANS:
Real Estate Loans:
------------------
 One-to-four family ............  $ 25,880     10.4%   $ 27,638     11.6%  $ 31,201    14.6%   $ 29,197     14.4%  $ 27,848    13.9%
 Multi-family ..................        --       --          --       --         --      --          --       --         --      --
 Home equity ...................    13,002      5.2      10,716      4.5      9,274     4.3      10,543      5.2     10,423     5.2
 Commercial real estate ........     9,261      3.7       6,220      2.6      6,299     2.9       4,174      2.0      1,799     0.9
                                  --------   ------    --------   ------   --------  ------    --------   ------   --------  ------
   Total real estate loans .....    48,143     19.3      44,574     18.7     46,774    21.8      43,914     21.6     40,070    20.0

Consumer Loans:
---------------
 Total consumer loans ..........    43,380     17.4      44,189     18.6     35,695    16.6      35,211     17.4     36,704    18.4

Commercial business loans:
--------------------------
 Total commercial loans ........    17,157      6.9      14,112      5.9     14,118     6.6      13,981      7.0     12,172     6.1
                                  --------   ------    --------   ------   --------  ------    --------   ------   --------  ------
 Total fixed-rate loans ........   108,680     43.6     102,875     43.2     96,587    45.0      93,106     46.0     88,946    44.5
                                  --------   ------    --------   ------   --------  ------    --------   ------   --------  ------

ADJUSTABLE RATE LOANS:
Real Estate Loans:
------------------
 One-to-four family ............  $ 59,984     24.0%   $ 55,363     23.3%  $ 50,420    23.6%   $ 50,713     25.0%  $ 57,733    28.9%
 Multi-family ..................     2,092      0.8       2,338      1.0      2,154     1.0       2,378      1.2      1,983     1.0
 Home equity ...................    12,086      4.9      11,473      4.8     11,035     5.2       6,458      3.2      4,726     2.4
 Commercial real estate ........    47,883     19.2      45,760     19.2     36,267    17.0      31,632     15.6     28,297    14.1
                                  --------   ------    --------   ------   --------  ------    --------   ------   --------  ------
   Total real estate loans .....   122,045     48.9     114,934     48.3     99,876    46.8      91,181     45.0     92,739    46.4

Consumer Loans:
---------------
 Total consumer loans ..........       662      0.3         706      0.3        812     0.4         911      0.4        717     0.3

Commercial business loans:
--------------------------
 Total commercial business loans    18,135      7.2      19,521      8.2     16,586     7.8      17,513      8.6     17,603     8.8
                                  --------   ------    --------   ------   --------  ------    --------   ------   --------  ------
 Total adjustable-rate loans ...   140,842     56.4     135,161     56.8    117,274    55.0     109,605     54.0    111,059    55.5
                                  --------   ------    --------   ------   --------  ------    --------   ------   --------  ------

 Total loans ...................   249,522   100.00%    238,036   100.00%   213,861  100.00%    202,711   100.00%  $200,005  100.00%
                                  ========   ======    ========   ======   ========  ======    ========   ======   ========  ======

Less:
-----
 Allowance for loan losses .....     2,081                1,959               1,982               2,115               2,109
                                  --------             --------            --------            --------            --------
Total loans receivable, net ....  $247,441             $236,077            $211,879            $200,596            $197,896
                                  ========             ========            ========            ========            ========
</TABLE>


                                       5
<PAGE>

      One-to-four  family Residential Loans. The Bank's primary lending activity
is the origination of one-to-four family  residential  mortgage loans secured by
property  located in the Bank's  primary  lending area.  Generally,  one-to-four
family residential mortgage loans are made in amounts up to 80% of the lesser of
the appraised  value or purchase price of the property.  However,  the Bank will
originate  one-to-  four family  loans with  loan-to-value  ratios of up to 97%,
provided the borrower obtains private mortgage insurance.  Generally, fixed-rate
loans are originated for terms of up to 30 years.  One-to-four family fixed-rate
loans are offered with a monthly payment feature.

      The Bank originates both adjustable rate and fixed-rate one-to-four family
loans.  The interest  rate on ARM loans is indexed to the one year Treasury bill
rate. The Bank's ARM loans currently provide for maximum rate adjustments of 200
basis points per year and 600 basis  points over the term of the loan.  The Bank
offers ARM loans with initial interest rates that are below market,  referred to
as "teaser  rates."  Residential ARM loans amortize over a maximum term of up to
30  years.  ARM loans  are  offered  with both  monthly  and  bi-weekly  payment
features. ARM loans are originated for retention in the Bank's portfolio.

      As a result of the continued low interest rate environment during the past
year, a greater  percentage of the Bank's  one-to-four  family loan originations
consisted of fixed-rate  one-to-four  family mortgage loans. The Bank originates
and  generally  sells its  fixed-rate  one-to-four  family  loans on a servicing
retained  basis  without  recourse to the Bank.  At  December  31,  2006,  loans
serviced by the Bank for others  totaled  $99.2  million.  During the year ended
December 31, 2006 and December 31, 2005,  the Bank sold $17.0  million and $14.8
million, respectively in fixed-rate one-to-four family loans. As of December 31,
2006 the Bank had $1.6 million of mortgage  loan forward sale  commitments.  The
fair value of these commitments is not material.

      ARM loans  decrease the risk  associated  with changes in market  interest
rates by  periodically  repricing,  but involve other risks.  As interest  rates
increase,  the underlying  required periodic payments by the borrower  increase,
thus increasing the potential for default by the borrower. At the same time, the
marketability of the underlying  collateral may be adversely  affected by higher
interest  rates.  Upward  adjustment  of the  contractual  interest rate is also
limited by the maximum periodic and lifetime interest rate adjustment  permitted
by the  terms  of the ARM  loans,  and  therefore,  is  potentially  limited  in
effectiveness  during periods of rapidly rising  interest rates. At December 31,
2006,  24.0% of the  Bank's  loan  portfolio  consisted  of  one-to-four  family
residential loans with adjustable interest rates.

      All one-to-four family  residential  mortgage loans originated by the Bank
include "due-on-sale"  clauses,  which give the Bank the right to declare a loan
immediately due and payable in the event that, among other things,  the borrower
sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid.

      At December 31, 2006,  approximately $85.9 million, or 34.4% of the Bank's
loan portfolio, consisted of one-to-four family residential loans. Approximately
$51,000 of such loans  (representing  two loans) were included in  nonperforming
loans as of that date.

      Home Equity  Loans.  The Bank offers home equity loans that are secured by
the borrower's primary  residence.  The Bank offers a home equity line of credit
under which the  borrower is permitted to draw on the home equity line of credit
during  the first ten years  after it is  originated  and repay the  outstanding
balance  over a term not to exceed 25 years  from the date the line of credit is
originated.  The interest rates on home equity lines of credit are fixed for the
first year and adjust  monthly  thereafter  at a margin over the prime  interest
rate. The Bank also offers a home equity  product  providing for a fixed-rate of
interest. Both adjustable rate and fixed-rate home equity loans are underwritten
under the same  criteria  that the Bank uses to  underwrite  one-to-four  family
fixed-rate  loans.  Fixed-rate home equity


                                       6
<PAGE>

loans are  originated  with  terms up to ten  years.  Home  equity  loans may be
underwritten  with a loan to value ratio of 85% when combined with the principal
balance of the existing  mortgage loan. The maximum amount of a home equity loan
may not exceed  $250,000  unless  approved by the Board of  Directors.  The Bank
appraises  the property  securing  the loan at the time of the loan  application
(but not  thereafter)  in order to determine the value of the property  securing
the home equity  loans.  At December  31, 2006 the  outstanding  balance of home
equity loans totaled $25.1 million,  or 10.1% of the Bank's loan  portfolio.  At
December 31, 2006,  there were no home equity  loans  included in  nonperforming
loans.

      Commercial  Real Estate Loans.  At December 31, 2006,  $59.2  million,  or
23.7% of the total loan  portfolio  consisted of  commercial  real estate loans.
Commercial  real  estate  loans  are  secured  by  office  buildings,  mixed-use
properties,  religious  facilities  and other  commercial  properties.  The Bank
originates  adjustable  rate  commercial  mortgage  loans with terms of up to 20
years. The maximum  loan-to-value  ratio of commercial real estate loans is 80%.
At December 31, 2006,  the largest  commercial  real estate loan had a principal
balance of $3.1 million and was secured by a car dealership building and assets.
This loan is performing in accordance  with its terms.  As of December 31, 2006,
there were no commercial real estate loans included in nonperforming loans.

      In  underwriting  commercial  real  estate  loans,  the Bank  reviews  the
expected net operating  income generated by the real estate to ensure that it is
at least 110% of the amount of the monthly debt  service;  the age and condition
of the collateral; the financial resources and income level of the borrower; and
the borrower's business  experience.  Personal guarantees are routinely obtained
from all commercial real estate borrowers.

      Loans  secured  by  commercial  real  estate  generally  are  larger  than
one-to-four  family  residential  loans and  involve  a greater  degree of risk.
Commercial  mortgage loans often involve large loan balances to single borrowers
or groups of related borrowers. Payments on these loans depend to a large degree
on the results of  operations  and  management  of the  properties or underlying
businesses, and may be affected to a greater extent by adverse conditions in the
real  estate  market or the  economy  in  general.  Accordingly,  the  nature of
commercial  real estate loans makes them more  difficult for Bank  management to
monitor and evaluate.

      Consumer  Lending.  At December 31, 2006,  consumer  loans  totaled  $44.0
million, or 17.7% of the total loan portfolio. The Bank's consumer loans consist
of automobile  loans,  mobile home loans,  secured  personal  loans  (secured by
bonds,  equity  securities or other readily  marketable  collateral),  and other
consumer loans  (consisting of passbook loans,  unsecured home improvement loans
and  recreational  vehicle  loans).  Consumer loans are originated with terms to
maturity of three to seven  years.  The Bank has sought to increase its level of
consumer  loans  primarily  through  increased   automobile  lending.  The  Bank
participates  in a number of indirect  automobile  lending  programs  with local
automobile  dealerships.  All indirect  automobile loans must satisfy the Bank's
underwriting  criteria for automobile loans  originated  directly by the Bank to
the  borrower  and must be approved by one of the Bank's  lending  officers.  At
December 31, 2006, loans secured by automobiles  totaled $39.9 million, of which
$34.7 million were  originated  through the Bank's indirect  automobile  lending
program.  The Bank has also sought to  increase  its level of  automobile  loans
directly  to  borrowers  by  increasing  its  marketing  efforts  with  existing
customers.  Automobile  loans  generally do not have terms exceeding five years.
The Bank does not provide financing for leased automobiles.

      Consumer loans generally have shorter terms and higher interest rates than
one-to-four  family  mortgage  loans.  In  addition,  consumer  loans expand the
products and services offered by the Bank to better meet the financial  services
needs of its customers.  Consumer loans  generally  involve  greater credit risk
than  residential  mortgage  loans because of the  difference in the  underlying
collateral. Repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the


                                       7
<PAGE>

outstanding  loan balance  because of the greater  likelihood of damage to, loss
of, or depreciation in the underlying collateral. The remaining deficiency often
does not warrant  further  substantial  collection  efforts against the borrower
beyond obtaining a deficiency judgment.  In addition,  consumer loan collections
depend  on  the  borrower's  personal  financial  stability.   Furthermore,  the
application  of various  federal  and state  laws,  including  federal and state
bankruptcy  and  insolvency  laws, may limit the amount that can be recovered on
such loans.

      The  Bank's   underwriting   procedures  for  consumer  loans  include  an
assessment of the  applicant's  credit  history and the ability to meet existing
and proposed debt obligations.  Although the applicant's creditworthiness is the
primary  consideration,  the underwriting  process also includes a comparison of
the value of the security to the proposed loan amount.  The Bank underwrites its
consumer loans internally, which the Bank believes limits its exposure to credit
risks  associated  with loans  underwritten  or purchased from brokers and other
external sources. As of December 31, 2006, there were no consumer loans included
in nonperforming loans.

      Commercial  Business Loans. The Bank also originates  commercial  business
loans. Commercial business loans are originated with terms of up to seven years,
at fixed rates of interest  except for lines of credit which have variable rates
of interest.  Commercial  business  loans are originated to persons with a prior
relationship  with the Bank or referrals from persons with a prior  relationship
with  the  Bank.  The  decision  to grant a  commercial  business  loan  depends
primarily  on the  creditworthiness  and  cash  flow of the  borrower  (and  any
guarantors)  and  secondarily  on the  value of and  ability  to  liquidate  the
collateral which generally consists of receivables, inventory and equipment. The
Bank generally  requires  annual  financial  statements and tax returns from its
commercial  business  borrowers  and  personal  guarantees  from the  commercial
business  borrowers.  The Bank also generally  requires an appraisal of any real
estate that secures the commercial business loan. At December 31, 2006, the Bank
had $35.3 million of commercial  business loans which  represented  14.1% of the
total loan  portfolio.  On such date, the largest  commercial  business  lending
relationship  totaled $2.7  million,  which was secured by business  assets of a
not-for-profit  corporation. At December 31, 2006, unsecured commercial business
loans totaled $1.6 million.

      Commercial   business  lending   generally   involves  greater  risk  than
residential  mortgage  lending and involves  risks that are different from those
associated with  residential  and commercial  real estate  lending.  Real estate
lending is generally  considered to be collateral based, with loan amounts based
on  predetermined  loan to collateral  values and  liquidation of the underlying
real estate collateral is viewed as the primary source of repayment in the event
of borrower default. Although commercial business loans may be collateralized by
equipment or other business  assets,  the liquidation of collateral in the event
of a  borrower  default is often an  insufficient  source of  repayment  because
equipment  and other  business  assets may be obsolete or of limited use,  among
other things.  Accordingly,  the repayment of a commercial business loan depends
primarily on the  creditworthiness  of the borrower (and any guarantors),  while
liquidation  of  collateral  is a  secondary  and often  insufficient  source of
repayment.  At  December  31,  2006,  there were no  commercial  business  loans
included in nonperforming loans as of that date.


                                       8
<PAGE>

      Loan Maturity Schedule. The following table sets forth certain information
as of December 31, 2006,  regarding  the amount of loans  maturing in the Bank's
portfolio.  Demand  loans having no stated  schedule of repayment  and no stated
maturity and  overdrafts  are reported as due in one year or less. All loans are
included in the period in which the final contractual repayment is due.

<TABLE>
<CAPTION>
                                                                                                  Ten
                                                            One         Three                    Through      Beyond
                                                          Through      Through       Five        Twenty-      Twenty-
                                             Within        Three        Five        Through       Five         Five
                                            One Year       Years        Years      Ten Years      Years        Years        Total
                                            --------      -------      -------     ---------     --------     --------    --------
                                                                                (In thousands)
<S>                                          <C>          <C>          <C>          <C>          <C>           <C>        <C>
Real estate loans:
   One-to-four family .................      $   507      $   709      $   954      $ 8,925      $ 55,052      $19,717    $ 85,864
   Multi-family .......................           --          104           32          398         1,558           --       2,092
   Home equity ........................          577        1,100        2,829       20,147           435           --      25,088
   Commercial real estate .............        6,116          764          644        7,621        41,999           --      57,144
                                             -------      -------      -------      -------      --------      -------    --------
     Total real estate loans ..........        7,200        2,677        4,459       37,091        99,044       19,717     170,188

Consumer and other loans ..............        1,994       11,005       26,081        4,680           222           60      44,042

Commercial business loans .............       14,853        5,973        8,257        5,399           810           --      35,292
                                             -------      -------      -------      -------      --------      -------    --------

     Total loans ......................      $24,047      $19,655      $38,797      $47,170      $100,076      $19,777    $249,522
                                             =======      =======      =======      =======      ========      =======    ========
</TABLE>

      Fixed- and Adjustable-Rate  Loan Schedule.  The following table sets forth
at December 31, 2006, the dollar amount of all  fixed-rate  and  adjustable-rate
loans due after  December  31, 2007.  Adjustable-  and  floating-rate  loans are
included based on contractual maturities.

<TABLE>
<CAPTION>
                                                        Due After December 31, 2007
                                                -------------------------------------------
                                                   Fixed         Adjustable         Total
                                                -----------     -----------     -----------
                                                              (In thousands)
<S>                                             <C>             <C>             <C>
Real estate loans
   One-to-four family .................         $    25,468     $    59,889     $    85,357
   Multi-family .......................                  --           2,092           2,092
   Home equity ........................              12,916          11,595          24,511
   Commercial real estate .............               3,234          47,794          51,028
                                                -----------     -----------     -----------
     Total real estate loans ..........              41,618         121,370         162,988

Consumer and other loans ..............              41,675             373          42,048
Commercial business loans .............              14,031           6,408          20,439
                                                -----------     -----------     -----------
     Total loans ......................         $    97,324     $   128,151     $   225,475
                                                ===========     ===========     ===========
</TABLE>


                                       9
<PAGE>

      Loan Origination, Sales and Repayments. The following table sets forth the
loan  origination,  sales and  repayment  activities of the Bank for the periods
indicated. The Bank did not purchase any loans during the periods presented.

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                    -------------------------------------
                                                                       2006          2005          2004
                                                                    ---------     ---------     ---------
                                                                             (Dollars in thousands)
<S>                                                                 <C>           <C>           <C>
Originations by Type:
Adjustable Rate:
    Real estate:
       One-to-four family .................................         $   8,591     $  10,821     $   7,585
       Multi-family .......................................                96           544           200
       Home equity ........................................             5,140         6,274         6,695
       Commercial and real estate .........................            11,876        21,385        10,381
                                                                    ---------     ---------     ---------
       Total real estate loans ............................            25,703        39,024        24,861
       Consumer loans .....................................             2,863         1,029           687
       Commercial business loans ..........................             8,136         8,581         9,304
                                                                    ---------     ---------     ---------
           Total adjustable rate loans ....................         $  36,702     $  48,634     $  34,852
                                                                    ---------     ---------     ---------
Fixed-Rate:
    Real estate:
       One-to-four family .................................         $  21,945     $  19,897     $  30,946
       Multi-family .......................................                --            --            --
       Home equity ........................................             5,727         3,315         2,381
       Commercial and real estate .........................               317           110         1,966
                                                                    ---------     ---------     ---------
       Total real estate loans ............................            27,989        23,322        35,293
       Consumer loans .....................................            19,888        28,887        20,833
       Commercial business loans ..........................            14,203        13,591        17,703
                                                                    ---------     ---------     ---------
           Total fixed rate loans .........................         $  62,080     $  65,800     $  73,829
                                                                    ---------     ---------     ---------
Total loans originated ....................................         $  98,782     $ 114,434     $ 108,681
                                                                    ---------     ---------     ---------

Sales:
    Real estate:
       One-to-four family .................................         $  17,015     $  14,845     $  18,596
                                                                    ---------     ---------     ---------
Total loans sold ..........................................         $  17,015     $  14,845     $  18,596

Repayments:
    Real estate:
       One-to-four family .................................         $  10,658     $  14,493     $  18,224
       Multi-family .......................................               342           360           424
       Home equity ........................................             7,968         7,709         5,768
       Commercial and real estate .........................             7,029        12,081         5,587
                                                                    ---------     ---------     ---------
           Total real estate loans ........................            25,997        34,643        30,003
    Consumer loans ........................................            23,604        21,528        21,135
    Commercial business loans .............................            20,680        19,243        27,797
                                                                    ---------     ---------     ---------
           Total repayments ...............................         $  70,281     $  75,414     $  78,935
                                                                    ---------     ---------     ---------
           Total reductions ...............................         $  87,296     $  90,259     $  97,531
                                                                    ---------     ---------     ---------

       Net increases ......................................         $  11,486     $  24,175     $  11,150
                                                                    =========     =========     =========
</TABLE>

      Loan Approval Procedures and Authority. The Board of Directors establishes
the  lending  policies  and loan  approval  limits  of the Bank.  Loan  officers
generally  have the authority to originate  mortgage  loans,  consumer loans and
commercial  business loans up to amounts  established for each lending  officer.
All residential  loans over $500,000 must be approved by the Bank Loan Committee
(consisting  of two person;  the President  and/or  Executive  Vice President in
charge of credit  administration  and either one of two senior lending  officers
appointed to this committee).  All loan  relationships in excess of $500,000 and
up to $750,000 (exclusive of residential mortgages and home equity loans secured
by a lien on the borrower's primary residence) must be approved by the Bank Loan
Committee.  All lending  relationships  in excess of $750,000 up to $1.5 million
(exclusive of  residential  mortgages and home equity loans secured by a lien on
the borrower's primary residence) must be approved by the Executive Committee of
the Board of Directors. All lending relationships in excess of $1.5 million must
be approved by the Board of Directors.


                                       10
<PAGE>

      The Board annually approves  independent  appraisers used by the Bank. The
Bank requires an environmental site assessment to be performed by an independent
professional for all non-residential  mortgage loans. It is the Bank's policy to
require hazard insurance on all mortgage loans and title insurance on fixed-rate
one-to-four family loans.

      Loan Origination Fees and Other Income.  In addition to interest earned on
loans,  the Bank receives loan  origination  fees. Such fees and costs vary with
the  volume  and type of loans and  commitments  made and  purchased,  principal
repayments and  competitive  conditions in the mortgage  markets,  which in turn
respond to the demand and availability of money.

      In addition to loan  origination  fees, the Bank also receives other fees,
service charges and other income that consist  primarily of deposit  transaction
account service charges and late charges.

      Loans-to-One Borrower.  Savings banks are subject to the same loans-to-one
borrower  limits as those  applicable  to national  banks,  which under  current
regulations  restrict  loans  to  one  borrower  to an  amount  equal  to 15% of
unimpaired net worth on an unsecured  basis,  and an additional  amount equal to
10% of  unimpaired  net  worth  if the loan is  secured  by  readily  marketable
collateral (generally,  financial instruments and bullion, but not real estate).
The Bank's  policy  provides  that loans to one borrower (or related  borrowers)
should not exceed 15% of the Bank's capital.

      At  December  31,  2006,  the  largest  amount  loaned  by the Bank to one
borrower  consisted of a commercial real estate loan to a car dealership with an
outstanding  balance  totaling  $3.1  million.  This  amount  consisted  of  one
commercial  real estate loan secured by the property and other business  assets.
At December 31, 2006 this lending relationship was performing in accordance with
its terms.

Delinquencies and Classified Assets

      Collection  Procedures.  A computer  generated  late notice is sent when a
loan's grace period  ends.  After the late notice has been mailed,  accounts are
assigned to collectors for follow-up to determine  reasons for  delinquency  and
explore  payment  options.  Generally,  loans that are 30 days  delinquent  will
receive a default notice from the Bank. With respect to consumer loans, the Bank
will commence efforts to repossess the collateral after the loan becomes 45 days
delinquent.  Loans secured by real estate that are  delinquent  over 60 days are
turned over to the Bank's  Managed Asset Manager.  Generally,  after 90 days the
Bank will commence legal action.

      Loans Past Due and Nonperforming  Assets.  Loans are reviewed on a regular
basis and are placed on  non-accrual  status when, in the opinion of management,
the  collection  of  additional  interest  is  doubtful.  Loans  are  placed  on
non-accrual  status  when either  principal  or interest is 90 days or more past
due.  Interest  accrued and unpaid at the time a loan is placed on a non-accrual
status is reversed  from  interest  income.  At December 31, 2006,  the Bank had
nonperforming  loans  of  $51,000  and a ratio of  nonperforming  loans to total
assets of 0.01%. At December 31, 2006, the Bank's ratio of nonperforming  assets
to total assets was 0.01%.

      Real  estate  acquired  as a result of  foreclosure  or by deed in lieu of
foreclosure  is classified  as foreclosed  assets until such time as it is sold.
When  real  estate  is  acquired  through  foreclosure  or by  deed  in  lieu of
foreclosure, it is recorded at its fair value, less estimated costs of disposal.
If the value of the  property is less than the loan,  less any related  specific
loan loss  provisions,  the difference is charged against the allowance for loan
losses.  Any  subsequent  write-down  of  foreclosed  assets is charged  against
earnings.


                                       11
<PAGE>

      The following table sets forth  delinquencies in the Bank's loan portfolio
as of December 31, 2006.  When a loan is  delinquent  90 days or more,  the Bank
fully reverses all interest accrued and ceases to accrue interest thereafter.

<TABLE>
<CAPTION>
                                                                    Loans Delinquent for:
                                              --------------------------------------------------------------------
                                                   60-89 Days           90 Days or More     Total Delinquent Loans
                                              ------------------      ------------------    ----------------------
                                              Number      Amount      Number      Amount    Number          Amount
                                              ------      ------      ------      ------    ------          ------
                                                                    (Dollars in thousands)
<S>                                               <C>     <C>            <C>      <C>          <C>          <C>
One-to-four family .....................          --      $   --           2      $   51         2          $   51
Multi-family ...........................          --          --          --          --        --              --
Home equity ............................           1           8          --          --         1               8
Commercial real estate .................          --          --                      --        --              --
Construction and land ..................          --          --          --          --        --              --
Consumer ...............................           2           7          --          --         2               7
Commercial business ....................          --          --          --          --        --              --
                                              ------      ------      ------      ------    ------          ------
  Total ................................           3      $   15           2      $   51         5          $   66
                                              ======      ======      ======      ======    ======          ======
</TABLE>


                                       12
<PAGE>

         Nonaccrual Loans and Nonperforming Assets. The following table sets
forth information regarding nonaccrual loans and other nonperforming assets.

<TABLE>
<CAPTION>
                                                                                                At December 31,
                                                                         ----------------------------------------------------------
                                                                          2006         2005         2004         2003         2002
                                                                         ------       ------       ------       ------       ------
                                                                                             (Dollars in thousands)
<S>                                                                      <C>          <C>          <C>          <C>          <C>
Non-accruing loans:
   One-to-four family .............................................      $   51       $  223       $  128       $  114       $   49
   Multi-family ...................................................          --           --           --           --           --
   Home equity ....................................................          --           --           --           --           --
   Commercial real estate .........................................          --           --          436           --           --
   Construction and land ..........................................          --           --           --           --           --
   Consumer .......................................................          --            2           31           11           --
   Commercial business ............................................          --           --           --           22           --
                                                                         ------       ------       ------       ------       ------
      Total .......................................................          51          225          595          147           49
                                                                         ------       ------       ------       ------       ------

Accruing loans delinquent more than 90 days:
   One-to-four family .............................................          --           --           --           --           --
   Multi-family ...................................................          --           --           --           --           --
   Home equity ....................................................          --           --           --           --           --
   Commercial real estate .........................................          --           --           --           --           --
   Construction and land ..........................................          --           --           --           --           --
   Consumer .......................................................          --           --           --           34           --
   Commercial business ............................................          --           --           --           --           --
                                                                         ------       ------       ------       ------       ------
      Total .......................................................          --           --           --           34           --
                                                                         ------       ------       ------       ------       ------

Total nonperforming loans .........................................      $   51       $  225       $  595       $  181       $   49
                                                                         ======       ======       ======       ======       ======

Foreclosed assets:
   One-to-four family .............................................      $   --       $   --       $   --       $   --       $   --
   Multi-family ...................................................          --           --           --           --           --
   Home equity ....................................................          --           --           --           --           --
   Commercial real estate .........................................          --           --           --          115           --
   Construction and land ..........................................          --           --           --           --           --
   Consumer .......................................................          --           --           --           --           --
   Commercial business ............................................          --           --           --           --           --
                                                                         ------       ------       ------       ------       ------
      Total .......................................................          --           --           --          115           --
                                                                         ======       ======       ======       ======       ======

Total nonperforming loans as a percentage of total assets .........        0.01%        0.05%        0.14%        0.04%        0.01%
                                                                         ======       ======       ======       ======       ======
Total nonperforming assets ........................................      $   51       $  225       $  595       $  296       $   49
                                                                         ======       ======       ======       ======       ======
Total nonperforming assets as a percentage of total assets ........        0.01%        0.05%        0.14%        0.07%        0.01%
                                                                         ======       ======       ======       ======       ======
</TABLE>

      During the years ended  December  31, 2006 and 2005,  respectively,  gross
interest  income of $1,800 and $5,800  would have been  recorded on  nonaccruing
loans under their original terms,  if the loans had been current  throughout the
period.  No interest  income was recorded on nonaccruing  loans during the years
ended December 31, 2006 and 2005.


                                       13
<PAGE>

      Classification  of  Assets.  On the  basis of  management's  review of its
assets, at December 31, 2006, the Bank had classified a total of $4.4 million of
loans as follows:

                                                                  Amount
                                                                  ------
                                                              (In thousands)

      Special mention ....................................       $    961
      Substandard ........................................          3,450
      Doubtful assets ....................................             22
      Loss assets ........................................             --
      Impaired assets ....................................             --
                                                                 --------
           Total .........................................       $  4,433
                                                                 ========

      General loss allowance .............................       $  1,505
                                                                 ========
      Specific loss allowance ............................            576
                                                                 ========
      Net charge-offs ....................................            158
                                                                 ========

      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 charged off. In addition,  various regulatory agencies, as an integral
part of their examination process,  periodically review the Bank's allowance for
loan losses and  valuation of real estate  owned.  Such agencies may require the
Bank to  recognize  additions to the  allowance  based on their  judgment  about
information available to them at the time of their examination.  At December 31,
2006,  the total  allowance was $2.1 million,  which amounted to 0.84% of loans,
net and 4,080.4% of nonperforming  loans.  Management  monitors and modifies the
level of the  allowance for loan losses in order to maintain it at a level which
it considers  adequate to provide for  probably  incurred  loan losses.  For the
years ended December 31, 2006 and 2005, the Bank had charge-offs of $427,000 and
$521,000, respectively, against this allowance.

      Quarterly,  the Bank  evaluates  the  adequacy of the  allowance  for loan
losses and  determines  the  appropriate  level of provisions 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 adjustment  related to impaired
loans, since the prior quarter. 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  securing  the  loan.  Management
believes the current  method of  determining  the  adequacy of the  allowance is
prudent in light of the Bank's  intention to continue to  diversify  its lending
operations  through the  increased  origination  of consumer  loans,  commercial
business loans and commercial real estate loans.


                                       14
<PAGE>

         Analysis of the Allowance For Loan Losses. The following table sets
forth the analysis of the allowance for loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                           -----------------------------------------------------------------
                                                              2006          2005           2004          2003         2002
                                                           ---------     ---------      ---------     ---------    ---------
                                                                                    (Dollars in thousands)
<S>                                                        <C>           <C>            <C>           <C>          <C>
Balance at beginning of period ......................      $   1,959     $   1,982      $   2,115     $   2,109    $   1,672

Charge-offs:
   One-to-four family ...............................             17             9             --            13           19
   Multi-family .....................................             --            --             --            --           --
   Home equity ......................................             10            10             --            --           --
   Commercial real estate ...........................             --            44             --            --           --
   Construction and land ............................             --            --             --            --           --
   Consumer .........................................            301           448            415           509          382
   Commercial business ..............................             99            10            283           203          406
                                                           ---------     ---------      ---------     ---------    ---------
   Total ............................................            427           521            698           725          807
                                                           ---------     ---------      ---------     ---------    ---------

Recoveries:
   One-to-four family ...............................              5            10              2            --           34
   Multi-family .....................................             --            --             --            --           --
   Home equity ......................................             19            --             --            --           --
   Commercial real estate ...........................             --            --             --            --           --
   Construction and land ............................             --            --             --            --           --
   Consumer .........................................            139           127            102            95           62
   Commercial business ..............................            106             1             11           106           23
                                                           ---------     ---------      ---------     ---------    ---------
   Total ............................................            269           138            115           201          119
                                                           ---------     ---------      ---------     ---------    ---------
Net charge-offs .....................................           (158)         (383)          (583)         (524)        (688)
Addition of allowance ...............................             --            --             --            --          961
Additions charged to operations .....................            280           360            450           530          164
                                                           ---------     ---------      ---------     ---------    ---------
Balance at end of period ............................      $   2,081     $   1,959      $   1,982     $   2,115    $   2,109
                                                           =========     =========      =========     =========    =========

Allowance for loan losses as a percentage of total
loans receivable, net ...............................           0.84%       0.83 %           0.94%         1.05%        1.07%
                                                           =========     =========      =========     =========    =========

Ratio of net charge-offs to average loans ...........           0.06%         0.17%          0.28%         0.26%        0.37%
                                                           =========     =========      =========     =========    =========

Ratio of net charge-offs to non-performing loans ....         309.80%       170.22%         97.98%       289.50%    1,404.08%
                                                           =========     =========      =========     =========    =========
</TABLE>


                                       15
<PAGE>

         Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the allowance for loan losses by loan category for the periods
indicated.

<TABLE>
<CAPTION>
                                                                      At December 31,
                        ------------------------------------------------------------------------------------------------------------
                                      2006                                 2005                                 2004
                        ----------------------------------   ----------------------------------   ----------------------------------
                                                Percentage                          Percentage                            Percentage
                                                    of                                  of                                    of
                                                 Loans in                            Loans in                              Loans in
                        Amount of     Loan         Each      Amount of     Loan        Each       Amount of     Loan         Each
                        Loan Loss  Amounts by  Category to   Loan Loss  Amounts by  Category to   Loan Loss  Amounts by  Category to
                        Allowance   Category   Total Loans   Allowance   Category   Total Loans   Allowance   Category   Total Loans
                        ---------   --------   -----------   ---------  ----------  -----------   ---------  ----------  -----------
                                                                   (Dollars in Thousands)
<S>                       <C>       <C>           <C>           <C>       <C>          <C>          <C>       <C>           <C>
One-to-four family .....  $  273    $ 85,864       34.42%       $  376    $ 83,001      34.87%      $  357    $ 81,621       38.17%
Multi-family ...........       7       2,092        0.84             9       2,338       0.98            8       2,154        1.00
Home equity ............     220      25,088       10.05           222      22,189       9.32          203      20,309        9.50
Commercial real estate .     539      57,144       22.90           287      51,980      21.84          296      42,566       19.90
Consumer ...............     424      44,042       17.65           451      44,895      18.86          474      36,507       17.07
Commercial business ....     618      35,292       14.14           614      33,633      14.13          644      30,704       14.36
                          ------    --------      ------        ------    --------     ------       ------    --------      ------
   Total ...............  $2,081    $249,522      100.00%       $1,959    $238,036     100.00%      $1,982    $213,861      100.00%
                          ======    ========      ======        ======    ========     ======       ======    ========      ======

<CAPTION>
                                                   At December 31,
                        -----------------------------------------------------------------------
                                      2003                                 2002
                        ----------------------------------   ----------------------------------
                                                Percentage                          Percentage
                                                    of                                  of
                                                 Loans in                            Loans in
                        Amount of     Loan         Each      Amount of     Loan        Each
                        Loan Loss  Amounts by  Category to   Loan Loss  Amounts by  Category to
                        Allowance   Category   Total Loans   Allowance   Category   Total Loans
                        ---------   --------   -----------   ---------  ----------  -----------
                                                 (Dollars in Thousands)
<S>                        <C>      <C>           <C>           <C>        <C>          <C>
One-to-four family .....   $  344   $ 79,910       39.42%       $  317     $ 85,581      42.78%
Multi-family ...........        9      2,378        1.17             7        1,983       0.99
Home equity ............      170     17,001        8.39           151       15,149       7.58
Commercial real estate .      344     35,806       17.66           409       30,096      15.05
Consumer ...............      505     36,122       17.82           538       37,421      18.71
Commercial business ....      743     31,494       15.54           687       29,775      14.89
                           ------   --------      ------        ------     --------     ------
   Total ...............   $2,115   $202,711      100.00%       $2,109     $200,005     100.00%
                           ======   ========      ======        ======     ========     ======
</TABLE>


                                       16
<PAGE>

Securities Investment Activities

      The securities  investment policy is established by the Board of Directors
of the Bank. This policy  dictates that investment  decisions will be made based
on the safety of the investment,  the Bank's liquidity needs, potential returns,
cash flow targets and desired risk  parameters.  In pursuing  these  objectives,
management considers the ability of an investment to provide earnings consistent
with factors of quality, maturity, marketability and risk diversification.

      The Bank's current policies  generally limit security  investments to U.S.
Government  and agency  securities,  tax-exempt  bonds,  public  utilities  debt
obligations,  corporate debt  obligations and corporate  equity  securities.  In
addition,  the Bank's policy permits investments in mortgage related securities,
including securities issued by government  sponsored  enterprises such as Fannie
Mae,  Freddie Mac and Ginnie Mae. In the past,  the Bank  invested in  privately
issued collateralized  mortgage obligations  ("CMOs"),  but has only invested in
agency  issued  CMOs in recent  years.  The  Bank's  investment  strategy  is to
increase overall investment securities yields while managing interest rate risk.
The Bank will only purchase securities rated as investment grade by a nationally
recognized  investment  rating  agency.  The Bank does not engage in any hedging
transactions, such as interest rate swaps or caps.

      Investment  Securities.  At December 31, 2006, the Bank had $85.7 million,
or 19.3% of total assets,  invested in investment  securities,  which  consisted
primarily  of U.S.  Government  obligations,  tax-exempt  securities,  corporate
obligations, a mutual fund and equity investments in corporate stock. There were
no trust  preferred  investments  included  in  corporate  debt  obligations  at
December 31, 2006. SFAS No. 115 requires the Bank to designate its securities as
held to maturity, available for sale or trading, depending on the Bank's ability
and  intent  regarding  its  investments.  The  Bank  does  not  have a  trading
portfolio.  Investment  securities  are  classified  as available  for sale.  At
December 31, 2006,  the Bank's  investment  securities  portfolio had a weighted
average life of 5.99 years.


                                       17
<PAGE>

         Investment Securities. The following table sets forth certain
information regarding the investment securities and other interest earning
assets as of the dates indicated.

<TABLE>
<CAPTION>
                                                                              At December 31,
                                               ------------------------------------------------------------------------------
                                                        2006                        2005                        2004
                                               ---------------------      ---------------------       -----------------------
                                               Amortized       Fair       Amortized        Fair       Amortized       Fair
                                                  Cost         Value         Cost         Value          Cost         Value
                                               ---------       -----      ---------       -----       ---------       -----
                                                                          (Dollars in thousands)
<S>                                              <C>          <C>          <C>           <C>           <C>           <C>
Investment securities available for sale:
   Federal agency securities ..............      $36,892      $36,245      $ 36,523      $ 35,436      $ 38,835      $ 38,213
   Corporate debt securities ..............       18,361       18,067        22,696        21,903        21,767        22,194
   Tax exempt bonds .......................       15,747       15,706        32,491        32,498        30,743        31,168
   Equity securities ......................       15,392       15,699        17,012        16,595        14,720        14,898
                                                 -------      -------      --------      --------      --------      --------
        Total .............................      $86,392      $85,717      $108,722      $106,432      $106,065      $106,473
                                                 =======      =======      ========      ========      ========      ========

Average remaining life of investment
 securities ...............................    5.99 years                 7.18  years                 8.92 years
Other interest earning assets:
   Interest-earning deposits with banks ...          854          854         1,437         1,437           986           986
   Federal funds sold .....................        6,196        6,196           730           730         3,180         3,180
   FHLB Stock .............................        3,228        3,228         3,858         3,858         3,257         3,257
                                                 -------      -------      --------      --------      --------      --------
        Total .............................      $10,278      $10,278      $  6,125      $  6,125      $  7,423      $  7,423
                                                 =======      =======      ========      ========      ========      ========

<CAPTION>
                                                               At December 31,
                                              --------------------------------------------------
                                                        2003                        2002
                                              ----------------------      ----------------------
                                              Amortized        Fair       Amortized        Fair
                                                 Cost          Value         Cost          Value
                                              ---------        -----      ---------        -----
                                                             (Dollars in thousands)
<S>                                            <C>           <C>           <C>           <C>
Investment securities available for sale:
   Federal agency securities ..............    $ 45,840      $ 45,500      $ 48,594      $ 49,507
   Corporate debt securities ..............      31,175        31,736        42,751        42,250
   Tax exempt bonds .......................      25,496        26,109        12,642        12,962
   Equity securities ......................      15,020        15,334        15,020        14,852
                                               --------      --------      --------      --------
        Total .............................    $117,531      $118,679      $119,007      $119,571
                                               ========      ========      ========      ========

Average remaining life of investment
 securities ...............................   7.51 years                  6.07 years
Other interest earning assets:
   Interest-earning deposits with banks ...       1,340         1,340         2,092         2,092
   Federal funds sold .....................          --            --         2,400         2,400
   FHLB Stock .............................       3,370         3,370         3,685         3,685
                                               --------      --------      --------      --------
        Total .............................    $  4,710      $  4,710      $  8,177      $  8,177
                                               ========      ========      ========      ========
</TABLE>


                                       18
<PAGE>

      Investment  Portfolio  Maturities.  The  following  table  sets  forth the
scheduled  maturities,  cost,  market value and weighted  average yields for the
Bank's investment portfolio at December 31, 2006.

<TABLE>
<CAPTION>
                                                                        December 31, 2006
                                                   -----------------------------------------------------------
                                                   Less Than     1 to 5       5 to 10       Over
                                                     1 Year       Years        Years      10 Years     Total
                                                   --------     --------     --------     --------    --------
                                                   Carrying     Carrying     Carrying     Carrying    Carrying
                                                     Value        Value        Value        Value       Value
                                                   --------     --------     --------     --------    --------
                                                                       (Dollars in Thousands)
<S>                                                 <C>          <C>          <C>          <C>         <C>
   Federal agency securities .............          $10,545      $17,741      $   247      $ 7,712     $36,245
   Corporate debt securities .............               --        4,850        2,427       10,790      18,067
   Tax exempt bonds ......................            1,194          494       11,153        2,865      15,706
                                                    -------      -------      -------      -------     -------
     Total securities ....................          $11,739      $23,085      $13,827      $21,367     $70,018
                                                    =======      =======      =======      =======     =======

Weighted average yield (1) ...............             4.44%        4.33%        3.60%        5.60%       4.46%
</TABLE>

----------
(1)   Weighted  average  yield has not been  adjusted to reflect tax  equivalent
      adjustments.

      Mortgage-Backed  Securities. The Bank purchases mortgage-backed securities
in  order  to:  (i)  generate   positive  interest  rate  spreads  with  minimal
administrative  expense;  (ii) lower the Bank's credit risk;  and (iii) increase
liquidity.   At  December  31,  2006,  the  amortized  cost  of  mortgage-backed
securities  totaled  $29.7  million or 6.7% of total  assets,  all of which were
classified as available for sale. The mortgage-backed  securities  portfolio had
coupon rates ranging from 3.66% to 8.50%, a weighted  average yield of 5.10% and
a weighted average life (including payment assumption) of 5.33 years at December
31, 2006. The estimated fair value of the Bank's  mortgage-backed  securities at
December 31, 2006 was $29.1 million, which was $627,000 lower than the amortized
cost of $29.7 million.

      Mortgage-backed securities are created by the pooling of mortgages and the
issuance of a security with an interest rate that is less than the interest rate
on the underlying  mortgages.  Mortgage-backed  securities typically represent a
participation  interest in a pool of  single-family  or multi-family  mortgages,
although the Bank focuses its investments on mortgage-related  securities backed
by  single-family  mortgages.  The issuers of such  securities  (generally  U.S.
Government agencies and government sponsored enterprises,  including Fannie Mae,
Freddie Mac and Ginnie Mae) pool and resell the  participation  interests in the
form of securities to investors,  such as the Bank, and guarantee the payment of
principal and interest to these investors.  Mortgage-backed securities generally
yield less than the loans that underlie such  securities  because of the cost of
payment  guarantees  and  credit  enhancements.  In  addition,  mortgage-related
securities  are usually more liquid than  individual  mortgage  loans and may be
used  to  collateralize   certain  liabilities  and  obligations  of  the  Bank.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated over the life of the security,  which may require
adjustments  to the  amortization  of any premium or  accretion  of any discount
relating to such instruments  thereby reducing the net yield on such securities.
There  is also  reinvestment  risk  associated  with the cash  flows  from  such
securities  or in the event such  securities  are  redeemed  by the  issuer.  In
addition,  the market  value of such  securities  may be  adversely  affected by
changes in interest rates.  Management reviews prepayment estimates periodically
to ensure that prepayment  assumptions are reasonable considering the underlying
collateral  for the  securities  at issue  and  current  interest  rates  and to
determine  the  yield  and  estimated  maturity  of the  Bank's  mortgage-backed
securities  portfolio.  Of the Bank's $29.7 million  mortgage-backed  securities
portfolio at December 31, 2006,  $148,000 with a weighted average yield of 6.42%
had contractual  maturities  within five years,  $86,000 with a weighted average
yield of 5.32% had contractual maturities of five to ten years and $29.5 million
with a weighted  average yield of 4.57% had  contractual  maturities of over ten
years.  However,  the actual maturity of a mortgage-backed  security may be less
than  its  stated  maturity  due to  prepayments  of the  underlying  mortgages.
Prepayments  that  are  faster  than  anticipated  may  shorten  the life of the
security  and may result in a loss of any premiums  paid and thereby  reduce the
net yield on such  securities.  Although  prepayments  of  underlying  mortgages
depend  on many  factors,  the  difference  between  the


                                       19
<PAGE>

interest rates on the underlying  mortgages and the prevailing mortgage interest
rates generally is the most significant  determinant of the rate of prepayments.
During  periods of declining  mortgage  interest  rates,  refinancing  generally
increases and  accelerates  the prepayment of the  underlying  mortgages and the
related  security.  Under  such  circumstances,  the  Bank  may  be  subject  to
reinvestment  risk  because,  to the  extent  that the Bank's  mortgage  related
securities prepay faster than anticipated,  the Bank may not be able to reinvest
the proceeds of such  repayments and prepayments at a comparable rate of return.
Conversely,  in a rising  interest  rate  environment  prepayments  may decline,
thereby  extending the estimated  life of the security and depriving the Bank of
the ability to reinvest cash flows at the increased rates of interest.


                                       20
<PAGE>

      Mortgage-Backed Securities. Set forth below is information relating to the
Bank's mortgage-backed securities for the periods indicated.

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                     -------------------------------------------------------------------------------
                                                               2006                       2005                        2004
                                                     ------------------------  -------------------------   -------------------------
                                                     Amortized        Fair      Amortized        Fair       Amortized         Fair
                                                        Cost          Value       Cost           Value        Cost            Value
                                                     ---------      ---------   ---------      ---------    ---------      ---------
                                                                                  (In thousands)
<S>                                                  <C>            <C>         <C>            <C>          <C>            <C>
Mortgage-backed securities available for sale:
  GinnieMae ......................................   $     994      $     989   $      --      $      --    $     416      $     444
  FannieMae ......................................      10,224         10,008       9,226          8,937       14,819         14,674
  FreddieMac .....................................      16,571         16,196      18,494         18,034       19,706         19,672
  CMOs ...........................................       1,903          1,871       2,161          2,103        9,151          9,182
  Small business administration ..................          17             17          23             23          405            405
                                                     ---------      ---------   ---------      ---------    ---------      ---------
        Total ....................................   $  29,709      $  29,081   $  29,904      $  29,097    $  44,497      $  44,378
                                                     =========      =========   =========      =========    =========      =========

<CAPTION>
                                                                          December 31,
                                                     -------------------------------------------------------
                                                                2003                          2002
                                                     -------------------------     -------------------------
                                                     Amortized         Fair         Amortized        Fair
                                                        Cost           Value           Cost          Value
                                                      ---------      ---------      ---------      ---------
<S>                                                   <C>            <C>            <C>            <C>
Mortgage-backed securities available for sale:
  GinnieMae ......................................    $   1,504      $   1,588      $   4,256      $   4,448
  FannieMae ......................................       21,863         21,979         12,628         13,074
  FreddieMac .....................................       22,795         22,934         18,914         19,369
  CMOs ...........................................        4,961          4,723          2,127          2,116
  Small business administration ..................          565            564            713            712
                                                      ---------      ---------      ---------      ---------
        Total ....................................    $  51,688      $  51,788      $  38,638      $  39,719
                                                      =========      =========      =========      =========
</TABLE>


                                       21
<PAGE>

Sources of Funds

      General.  The  primary  sources  of the Bank's  funds for use in  lending,
investing  and  for  other  general   purposes  are  deposits,   repayments  and
prepayments  of  loans  and  securities,   proceeds  from  sales  of  loans  and
securities, proceeds from maturing securities and cash flows from operations.

      Deposits.  The Bank offers a variety of deposit  accounts  with a range of
interest  rates and  terms.  The Bank's  deposit  accounts  consist of  savings,
interest-bearing demand accounts, non interest-bearing  checking accounts, money
market accounts and certificates of deposit. The Bank also offers IRAs and other
qualified plan accounts.  Through our special purpose subsidiary at December 31,
2006 the Bank held $17.1 million in municipal deposits.

      At December 31, 2006,  deposits  totaled $313.3  million.  At December 31,
2006,  the Bank had a total of $118.0  million in  certificates  of deposit,  of
which $80.3 million had maturities of one year or less.  Although the Bank has a
significant  portion of its  deposits in shorter term  certificates  of deposit,
management monitors activity on these accounts.  Based on historical  experience
and the Bank's current pricing  strategy,  management  believes it will retain a
large portion of such accounts upon maturity.  At December 31, 2006 certificates
of deposit with balances of $100,000 or more totaled $30.2 million.

      The flow of  deposits  is  influenced  significantly  by general  economic
conditions, changes in prevailing interest rates, internal pricing decisions and
competition.  Deposits  are obtained  predominantly  from the areas in which the
Bank's  branch  offices are located.  The Bank relies  primarily on  competitive
pricing  of  its  deposit  products  and  customer  service  and   long-standing
relationships  with  customers  to attract and retain these  deposits;  however,
market  interest  rates and rates  offered by competing  financial  institutions
significantly affect the Bank's ability to attract and retain deposits. The Bank
uses traditional means of advertising its deposit products,  including radio and
print media and it generally  does not solicit  deposits from outside its market
area.  While  certificates  of deposit in excess of $100,000 are accepted by the
Bank,  and may be  subject to  preferential  rates,  the Bank does not  actively
solicit such deposits as they are more  difficult to retain than core  deposits.
Historically, the Bank has not used brokers to obtain deposits.

      The following table sets forth the deposit  activities of the Bank for the
periods indicated.

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                       ---------------------------------------------
                                                           2006             2005             2004
                                                       -----------      -----------      -----------
                                                                   (Dollars in thousands)
<S>                                                    <C>              <C>              <C>
Opening balance ................................       $   301,186      $   301,647      $   305,515
Deposits .......................................         2,766,018        2,589,258        2,421,711
Withdrawals ....................................        (2,759,898)      (2,594,264)      (2,429,555)
Interest credited ..............................             5,964            4,545            3,976
                                                       -----------      -----------      -----------

Ending balance .................................       $   313,270      $   301,186      $   301,647
                                                       -----------      -----------      -----------

Net increase (decrease) ........................       $    12,084      $      (461)     $    (3,868)
                                                       ===========      ===========      ===========

Percent increase (decrease) ....................              4.01%           (0.15)%          (1.27)%
                                                       ===========      ===========      ===========
</TABLE>


                                       22
<PAGE>

      The following  table  indicates the amount of the Bank's  certificates  of
deposit by time remaining until maturity as of December 31, 2006.

<TABLE>
<CAPTION>
                                                                                     Maturity
                                                               -----------------------------------------------------
                                                                3 Months     Over 3 to 6   Over 6 to 12      Over 12
                                                                or Less         Months         Months         Months         Total
                                                               ---------     -----------   ------------     ---------      ---------
                                                                                          (In thousands)
<S>                                                            <C>            <C>            <C>            <C>            <C>
Certificates of deposit less than $100,000 ..............      $  16,774      $  14,597      $  27,103      $  29,372      $  87,846
Certificates of deposit of $100,000 or more .............          5,202          7,121          9,540          8,315         30,178
                                                               ---------      ---------      ---------      ---------      ---------
Total of certificates of deposit ........................      $  21,976      $  21,718      $  36,643      $  37,687      $ 118,024
                                                               =========      =========      =========      =========      =========
</TABLE>

      The following  tables set forth  information,  by various rate categories,
regarding  the dollar  balance of  deposits  by types of deposit for the periods
indicated.

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                   --------------------------------------------------------------------------------
                                                            2006                        2005                          2004
                                                   ----------------------       ----------------------       ----------------------
                                                    Amount        Percent        Amount       Percent          Amount       Percent
                                                   --------      --------       --------      --------       --------      --------
                                                                                (Dollars in thousands)
<S>                                                <C>             <C>          <C>             <C>          <C>             <C>
Transactions and savings deposits:
Noninterest-bearing .........................      $ 53,097         16.95%      $ 51,044         16.95%      $ 50,082         16.60%
Savings accounts ............................        64,377         20.55         68,036         22.59         70,252         23.29
Interest-bearing checking ...................        31,559         10.07         31,734         10.54         29,076          9.64
Money market accounts .......................        46,213         14.75         41,723         13.85         37,268         12.36
                                                   --------      --------       --------      --------       --------      --------
     Total ..................................       195,246         62.32        192,537         63.93        186,678         61.89
                                                   --------      --------       --------      --------       --------      --------

Certificates of deposit:
Less than 2.00% .............................         3,098          0.99          6,914          2.30         53,686         17.80
2.00-3.99% ..................................        29,731          9.49         80,739         26.81         38,562         12.78
4.00-5.99% ..................................        84,849         27.09         19,513          6.48         15,147          5.02
6.00-7.99% ..................................           346          0.11          1,483          0.68          7,574          2.51
                                                   --------      --------       --------      --------       --------      --------
     Total certificates of deposit ..........       118,024         37.68        108,649         36.07        114,969         38.11
                                                   --------      --------       --------      --------       --------      --------
        Total deposits ......................      $313,270        100.00%      $301,186        100.00%      $301,647        100.00%
                                                   ========      ========       ========      ========       ========      ========
</TABLE>

      The following table sets forth the amount and remaining  maturities of the
Bank's certificates of deposit accounts at December 31, 2006.

<TABLE>
<CAPTION>
                                                                                                                    Percent
                                                 <2.00%    2.00-3.99%     4.00-5.99%    6.00-7.99%      Total       of Total
                                                --------   ----------     ----------    ----------     --------     --------
                                                                             (Dollars in thousands)
<S>                                             <C>          <C>            <C>            <C>          <C>           <C>
Certificate accounts maturing
in quarter ending:

March 31, 2007 ...........................         2,005        7,801         12,071             99       21,976       18.62%
June 30, 2007 ............................           847        3,449         17,293            129       21,718       18.40
September 30, 2007 .......................            --        3,184         14,204              1       17,389       14.73
December 31, 2007 ........................           232        3,371         15,614             37       19,254       16.31
March 31, 2008 ...........................            --        2,766          6,570             80        9,416        7.98
June 30, 2008 ............................             4        1,749          1,556             --        3,309        2.80
September 30, 2008 .......................            10        1,205          2,201             --        3,416        2.90
December 31, 2008 ........................            --          926          4,935             --        5,861        4.97
Thereafter ...............................            --        5,280         10,405             --       15,685       13.29
                                                --------     --------       --------       --------     --------    --------
  Total ..................................      $  3,098     $ 29,731       $ 84,849       $    346     $118,024      100.00%
                                                ========     ========       ========       ========     ========    ========

  Percent of total .......................          2.63%       25.19%         71.89%          0.29%      100.00%
</TABLE>


                                       23
<PAGE>

      Borrowed  Funds.  Set  forth  below is a  schedule  detailing  the  Bank's
borrowings.

<TABLE>
<CAPTION>
                                                                                             At December 31,
                                                                                   ------------------------------------
                                                                                      2006         2005          2004
                                                                                   --------      --------      --------
                                                                                                  (Dollars in thousands)
<S>                                                                                <C>           <C>           <C>
Short-term borrowings:
  Overnight line of credit ...................................................     $     --      $ 10,870      $     --
  Repurchase agreements - FHLB ...............................................        1,000         8,000            --
  Term advances - FHLB .......................................................        6,500        15,000        13,500
Long-term borrowings:
  Repurchase agreements - FHLB ...............................................       18,000        24,000        27,000
  Term advances - FHLB .......................................................       35,900        19,400        23,900
                                                                                   --------      --------      --------
    Total borrowings .........................................................     $ 61,400      $ 77,270      $ 64,400
                                                                                   --------      --------      --------

Weighted Average interest cost of short-term borrowings during the year ......         4.23%         4.18%         1.34%
                                                                                   --------      --------      --------
Weighted Average interest cost of long-term borrowings during the year .......         4.99%         4.70%         4.64%
                                                                                   --------      --------      --------

Average Balance of borrowings outstanding during the year ....................     $ 67,749      $ 68,372      $ 65,795
                                                                                   --------      --------      --------
</TABLE>

      Trust Activities. The Bank provides trust and investment services, acts as
executor or  administrator  of estates and as trustee or  custodian  for various
types of trusts. Trust services are offered through the Bank's Trust Department.
Services include fiduciary services for trusts and estates, money management and
custodial   services.   At  December  31,   2006,   the  Bank   maintained   538
trust/fiduciary  accounts,  with total assets of $110.5 million under management
as compared to 489 trust/fiduciary  accounts, with total assets of $98.5 million
total assets at December 31, 2005. Management anticipates that in the future the
Trust  Department  will  become  a more  significant  component  of  the  Bank's
business.

Limited Purpose Commercial Bank

      In connection  with the acquisition of SBC on May 31, 2002, the Bank holds
The State Bank of Chittenango as a limited purpose  commercial bank. At December
31, 2006, The State Bank of Chittenango held $23.1 million in assets, consisting
primarily of U.S.  Government  obligations  and  mortgage-backed  securities and
$17.1 million in deposits.

Insurance Activities

      On October 2, 2000, the Bank completed the acquisition of Bailey & Haskell
Associates,  Inc.,  ("B&H"),  an  insurance  agency  located in Central New York
State.  B&H has  offices  in  Oneida,  Canastota,  Cazenovia,  Chittenango,  New
Hartford and Syracuse.  B&H is a full-service  insurance and financial  services
firm with over 90 employees providing services to over 19,000 customers.  Adding
B&H  insurance and  financial  services  business has enabled the Bank to evolve
from a traditional depository institution into a full-service financial services
organization.  B&H offers  personal  and  commercial  property  insurance,  life
insurance,  pension plan  services,  mutual funds and annuity  sales,  and other
products and  services.  B&H  represents  many  insurance  companies  including,
Travelers, CNA, Hartford,  Progressive, Utica National, Chubb and many more. The
Bank acquired a number of brokerage agencies,  notably Noyes and LaLonde,  Inc.,
The Dunn Agency,  Kennedy & Clarke,  Inc.,  MacDonald/Yando  Agency,  Inc.,  and
Parsons, Cote & Company which was added during 2006. These companies were merged
into B&H.

Employee Benefit Consulting Activities

      On June 28, 2006, the Bank completed its acquisition of Benefit Consulting
Group L.L.C., an employee benefits consulting and retirement plan administration
firm located in Syracuse,  New York. The new company,  Benefit  Consulting Group
Inc. will operate as a wholly owned  subsidiary of Oneida Savings Bank.  Benefit
Consulting  Group currently  serves more than 700 corporate and personal clients


                                       24
<PAGE>

and offers employee  benefit related  services that are  complementary  to those
provided by Oneida  Savings  Bank and B&H.  Benefit  Consulting  Group  provides
defined   contribution  and  benefit  plans,   actuarial  services,   investment
management, estate planning and human resource management services.

Competition

      Competition in the banking and financial services industry is intense. The
Bank competes with commercial  banks,  savings  institutions,  mortgage  banking
firms, credit unions, finance companies,  mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere.  Many of
these competitors have  substantially  greater resources and lending limits than
the Bank and may  offer  certain  services  that  the  Bank  does not or  cannot
provide.  Moreover, credit unions which offer substantially the same services as
the Bank, are not subject to federal or state income taxation. Trends toward the
consolidation  of  the  financial   services   industry,   and  the  removal  of
restrictions  on  interstate  branching  and  banking  powers  may  make it more
difficult for smaller  institutions such as the Bank to compete effectively with
large  national  and regional  banking  institutions.  The Bank's  profitability
depends upon its ability to successfully compete in its market area.

Personnel

      As of December  31,  2006,  the Bank had 267  full-time  employees  and 20
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining  unit. The Bank considers its  relationship  with its employees to be
good.

Regulation

      General.  The  Bank is a New  York-chartered  stock  savings  bank and its
deposit  accounts  are insured up to  applicable  limits by the FDIC through its
Deposit  Insurance Fund. The Bank is subject to extensive  regulation by the New
York State Banking Department (the  "Department"),  and by the FDIC. The Bank is
required to file reports with, and is periodically examined by, the FDIC and the
Department  concerning its  activities  and financial  condition and must obtain
regulatory approvals prior to entering into certain transactions, including, but
not limited to, mergers with or acquisitions of other banking institutions.  The
Bank is a member of the FHLB of New York and is subject  to certain  regulations
by the  Federal  Home Loan Bank  System.  On July 18,  2001 the  Company and the
Mutual  Holding  Company   completed  their  conversion  to  federal   charters.
Consequently,   they  are  subject  to  regulations  of  the  Office  of  Thrift
Supervision  ("OTS") as savings and loan holding  companies.  Any change in such
regulations,  whether  by the  Department,  the FDIC,  or the OTS  could  have a
material adverse impact on the Bank, the Company, or the Mutual Holding Company.

      Regulatory requirements applicable to the Bank, the Company and the Mutual
Holding Company are referred to below or elsewhere herein.

      New York Bank  Regulation.  The Bank derives its lending,  investment  and
other  authority  primarily  from the  applicable  provisions  of New York State
Banking Law and the  regulations of the  Department,  as limited by federal laws
and regulations. Under these laws and regulations,  savings banks, including the
Bank,  may invest in real  estate  mortgages,  consumer  and  commercial  loans,
certain types of debt securities,  including  certain  corporate debt securities
and obligations of federal,  state and local  governments and agencies,  certain
types of  corporate  equity  securities  and  certain  other  assets.  Under the
statutory  authority  for  investing  in equity  securities,  a savings bank may
invest up to 7.5% of its assets in corporate stock,  with an overall limit of 5%
of its assets  invested  in common  stock.  Investment  in the stock of a single
corporation  is  limited to the  lesser of 2% of the  outstanding  stock of such
corporation or


                                       25
<PAGE>

1% of the  savings  bank's  assets,  except  as set  forth  below.  Such  equity
securities  must meet  certain  earnings  ratios  and other  tests of  financial
performance.  A savings  bank's  lending powers are not subject to percentage of
assets limitations,  although there are limits applicable to single borrowers. A
savings bank may also,  pursuant to the "leeway"  power,  make  investments  not
otherwise  permitted  under the New York State  Banking Law.  This power permits
investments in otherwise impermissible  investments of up to 1% of assets in any
single investment, subject to certain restrictions and to an aggregate limit for
all such investments of up to 5% of assets.  Additionally,  in lieu of investing
in such securities in accordance with and reliance upon the specific  investment
authority  set  forth in the New York  State  Banking  Law,  savings  banks  are
authorized to elect to invest under a "prudent person" standard in a wider range
of  investment  securities as compared to the types of  investments  permissible
under such specific investment  authority.  However, in the event a savings bank
elects to utilize  the  "prudent  person"  standard,  it will be unable to avail
itself of the other provisions of the New York State Banking Law and regulations
which set forth  specific  investment  authority.  The Bank has not  elected  to
conduct its investment activities under the "prudent person" standard. A savings
bank may also exercise trust powers upon approval of the Department.

      New York State  chartered  savings  banks may also invest in  subsidiaries
under their service  corporation  investment  authority.  A savings bank may use
this  power  to  invest  in  corporations  that  engage  in  various  activities
authorized  for  savings  banks,  plus any  additional  activities  which may be
authorized  by the Banking  Board.  Investment  by a savings  bank in the stock,
capital notes and debentures of its service corporations is limited to 3% of the
bank's  assets,  and such  investments,  together  with the bank's  loans to its
service  corporations,  may  not  exceed  10%  of  the  savings  bank's  assets.
Furthermore,  New York banking  regulations impose requirements on loans which a
bank  may  make  to  its  executive   officers  and  directors  and  to  certain
corporations or partnerships in which such persons have equity interests.  These
requirements  include,  but are not  limited to,  requirements  that (i) certain
loans must be approved in advance by a majority of the entire board of directors
and the interested party must abstain from participating  directly or indirectly
in the  voting on such  loan,  (ii) the loan must be on terms  that are not more
favorable than those offered to unaffiliated  third parties,  and (iii) the loan
must  not  involve  more  than a  normal  risk of  repayment  or  present  other
unfavorable features.

      Under the New York State  Banking  Law,  the  Superintendent  may issue an
order to a New York State chartered banking institution to appear and explain an
apparent  violation of law, to discontinue  unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Department that any
director,  trustee or officer of any banking  organization has violated any law,
or has continued  unauthorized or unsafe practices in conducting the business of
the banking  organization  after having been notified by the  Superintendent  to
discontinue  such  practices,  such director,  trustee or officer may be removed
from office after notice and an opportunity to be heard.  The Bank does not know
of any past or current  practice,  condition or violation that might lead to any
proceeding by the  Superintendent  or the Department  against the Bank or any of
its directors, trustees or officers.

      Insurance of Accounts and Regulation by the FDIC.  Deposit accounts in the
Bank  are  insured  by the  FDIC  generally  up to a  maximum  of  $100,000  per
separately  insured  depositor and up to a maximum of $250,000 for self-directed
retirement  accounts.  The  Bank's  deposits,  therefore,  are  subject  to FDIC
insurance assessments.

      On February  15,  2006,  federal  legislation  to reform  federal  deposit
insurance was enacted. This new legislation  required,  among other things, that
the FDIC adopt  regulations  increasing  the maximum  amount of federal  deposit
insurance  coverage per separately  insured depositor  beginning in 2010 (with a
cost of living  adjustment  to become  effective  in five  years) and modify the
deposit  fund's  reserve  ratio for a range between 1.15% and 1.50% of estimated
insured deposits.


                                       26
<PAGE>

      On November 2, 2006,  the FDIC adopted final  regulations  establishing  a
risk-based  assessment system that will enable the FDIC to more closely tie each
financial  institution's  premiums to the risk it poses to the deposit insurance
fund. Under the new risk-based assessment system, which becomes effective in the
beginning of 2007, the FDIC will evaluate the risk of each financial institution
based on three primary sources of information:  (1) it supervisory  rating,  (2)
its  financial  ratios,  and  (3) its  long  term  debt  issuer  rating,  if the
institution  has one. The new rates for nearly all of the financial  institution
industry  will vary  between  five and seven  cents for every  $100 of  domestic
deposits. At the same time, the FDIC also adopted final regulations  designating
the  reserve  ratio  for the  deposit  insurance  fund  during  2007 at 1.25% of
estimated insured deposits.

      Effective  March 31, 2006, the FDIC merged the Bank Insurance Fund and the
Savings  Association  Insurance  Fund into a single  insurance  fund  called the
Deposit  Insurance Fund. The merger of the two separate  insurance funds did not
affect the authority of the Financing  Corporation,  a mix-ownership  government
corporation,  to impose and collect, with approval of the FDIC,  assessments for
anticipated payments,  insurance costs and custodial fees on bonds issued by the
Financing  Corporation in the 1980s to recapitalize the Federal Savings and Loan
Insurance Corporation.  The bonds issued by the Financing Corporation are due to
mature in 2017 through  2019.  For the quarter  ended  December  31,  2006,  the
Financing Corporation assessment was equal to 1.24 basis points for each $100 in
domestic deposits maintained at the institution.

      Regulatory 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.  Savings banks are required to maintain a total risk-based
capital ratio of at least 8%, of which at least 4% must be Tier I capital.

      In addition,  the FDIC has established  regulations  prescribing a minimum
Tier I leverage  ratio (Tier I capital to adjusted  total assets as specified in
the regulations).  These regulations provide for a minimum Tier I leverage ratio
of 3% for banks that meet certain specified  criteria,  including that they have
the  highest  examination  rating  and  are  not  experiencing  or  anticipating
significant  growth.  All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional  cushion of at least 100 to 200 basis points. The
FDIC may, however,  set higher leverage and risk-based  capital  requirements on
individual  institutions when particular  circumstances  warrant.  Savings banks
experiencing or anticipating significant growth are expected to maintain capital
ratios, including tangible capital positions, well above the minimum levels.

      Limitations on Dividends and Other Capital Distributions. The FDIC has the
authority to use its  enforcement  powers to prohibit a savings bank from paying
dividends  if, in its opinion,  the payment of


                                       27
<PAGE>

dividends  would  constitute  an unsafe or unsound  practice.  Federal  law also
prohibits  the  payment  of  dividends  by a bank that  will  result in the bank
failing to meet its applicable  capital  requirements on a pro forma basis.  New
York law also  restricts the Bank from  declaring a dividend  which would reduce
its capital below (i) the amount  required to be maintained  under state law and
regulation or (ii) the amount of the Bank's liquidation  account  established in
connection with the Reorganization.

      Prompt  Corrective  Action.  The federal banking agencies have promulgated
regulations  to implement  the system of prompt  corrective  action  required by
federal  law.  Under  the  regulations,  a bank  shall be deemed to be (i) "well
capitalized" if it has total  risk-based  capital of 10.0% or more, has a Tier I
risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of
5.0% or more and is not subject to any written capital order or directive;  (ii)
"adequately  capitalized" if it has a total risk-based  capital ratio of 8.0% or
more,  a Tier I risk-based  capital  ratio of 4.0% or more and a Tier I leverage
capital  ratio of 4.0% or more (3.0% under certain  circumstances)  and does not
meet the definition of "well capitalized";  (iii) "undercapitalized" if it has a
total  risk-based  capital  ratio  that is less than 8.0%,  a Tier I  risk-based
capital ratio that is less than 4.0% or a Tier I leverage  capital ratio that is
less  than  4.0%  (3.0%  under  certain   circumstances);   (iv)  "significantly
undercapitalized"  if it has a total risk-based  capital ratio that is less than
6.0%,  a Tier I  risk-based  capital  ratio  that is less  than 3.0% or a Tier I
leverage   capital   ratio  that  is  less  than  3.0%;   and  (v)   "critically
undercapitalized"  if it has a ratio of tangible  equity to total assets that is
equal  to  or  less  than  2.0%.   Federal  law  and  regulations  also  specify
circumstances  under  which a  federal  banking  agency  may  reclassify  a well
capitalized  institution as adequately capitalized and may require an adequately
capitalized  institution to comply with supervisory actions as if it were in the
next lower  category  (except that the FDIC may not  reclassify a  significantly
undercapitalized institution as critically undercapitalized).

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

      Activities  and  Investments  of Insured  State-Chartered  Banks Acting as
Principal. Federal law generally limits the activities and equity investments of
FDIC-insured  state-chartered  banks to those that are  permissible for national
banks, notwithstanding state laws. Under federal regulations dealing with equity
investments,  an insured state bank  generally may not,  directly or indirectly,
acquire or retain any equity investment of a type, or in an amount,  that is not
permissible  for a national bank. An insured state bank is not prohibited  from,
among  other  things,  (i)  acquiring  or  retaining  a majority  interest  in a
subsidiary,  the  activities  of which are  limited to those  permissible  for a
subsidiary  of a  national  bank;  (ii)  investing  as a  limited  partner  in a
partnership  the sole purpose of which is the direct or indirect  investment  in
the  acquisition,  rehabilitation,  or new  construction of a qualified  housing
project, provided that such limited partnership investments may not exceed 2% of
the bank's  total  assets;  (iii)  acquiring  up to 10% of the voting stock of a
company that solely provides or reinsures directors',  trustees',  and officers'
liability  insurance  coverage or bankers' blanket bond group insurance coverage
for insured depository institutions;  and (iv) acquiring or retaining the voting
shares of a depository institution if certain requirements are met.

      Federal  law  and  FDIC  regulations  permit  certain  exceptions  to  the
foregoing limitation.  For example,  certain  state-chartered banks, such as the
Bank,  may continue to invest in common or preferred  stock listed on a National
Securities  Exchange or the National Market System of Nasdaq,  and in the shares
of an investment company registered under the Investment Company Act of 1940, as
amended.  As of December  31,  2006,  the Bank had $15.7  million of  securities
pursuant to this  exception.  As a savings  bank,  the Bank may also continue to
sell savings bank life insurance.


                                       28
<PAGE>

      Transactions  With  Affiliates.  Under current  federal law,  transactions
between  depository  institutions  and their affiliates are governed by Sections
23A and 23B of the Federal  Reserve  Act and its  implementing  regulations.  An
affiliate  of a  savings  bank  is any  company  or  entity  that  controls,  is
controlled  by, or is under common  control with the savings bank,  other than a
subsidiary of the savings bank. In a holding company context, at a minimum,  the
parent holding  company of a savings bank and any companies which are controlled
by such parent holding  company are  affiliates of the savings bank.  Generally,
Section 23A limits the extent to which the savings bank or its  subsidiaries may
engage in "covered  transactions"  with any one  affiliate to an amount equal to
10% of such savings  bank's  capital stock and surplus and contains an aggregate
limit on all such  transactions with all affiliates to an amount equal to 20% of
such capital  stock and surplus.  The term  "covered  transaction"  includes the
making of loans or other  extensions of credit to an affiliate;  the purchase of
assets from an affiliate,  the purchase of, or an investment  in, the securities
of an affiliate;  the acceptance of securities of an affiliate as collateral for
a loan or  extension  of credit  to any  person;  or  issuance  of a  guarantee,
acceptance,  or letter of credit  on behalf of an  affiliate.  Section  23A also
establishes  specific collateral  requirements for loans or extensions of credit
to, or  guarantees,  acceptances  on  letters  of credit  issued on behalf of an
affiliate.  Section 23B requires that covered transactions,  and a broad list of
other specified  transactions,  be on terms  substantially  the same, or no less
favorable,  to the savings bank or its subsidiary as similar  transactions  with
nonaffiliates.

      Further,  Section  22(h) of the Federal  Reserve Act and its  implementing
regulation  restricts  a  savings  bank  with  respect  to loans  to  directors,
executive officers,  principal stockholders,  and their related interests. Under
Section  22(h),  loans to directors,  executive  officers and  stockholders  who
control,  directly or indirectly,  10% or more of voting securities of a savings
bank and certain  related  interests  of any of the  foregoing,  may not exceed,
together  with all  other  outstanding  loans  to such  persons  and  affiliated
entities,  the savings  bank's  total  capital and surplus.  Section  22(h) also
prohibits  loans above amounts  prescribed by the  appropriate  federal  banking
agency to directors,  executive  officers,  and  stockholders who control 10% or
more of voting securities of a stock savings bank, and their respective  related
interests,  unless  such  loan is  approved  in  advance  by a  majority  of the
disinterested  directors  on the board of  directors  of the savings  bank.  Any
"interested"  director may not participate in the voting. The loan amount (which
includes  all other  outstanding  loans to such  person)  as to which such prior
board of  director  approval  is  required,  is the  greater of $25,000 or 5% of
capital and  surplus or any loans over  $500,000.  Further,  pursuant to Section
22(h), loans to directors,  executive  officers and principal  stockholders must
generally  be made on terms  substantially  the same as  offered  in  comparable
transactions  to other persons.  Section 22(g) of the Federal Reserve Act places
additional limitations on loans to executive officers.

Federal Community Reinvestment Regulation. Under the Community Reinvestment Act,
as amended (the "CRA"), and its implementing  regulations,  a savings bank has a
continuing  and  affirmative  obligation,  consistent  with its  safe and  sound
operation, to help meet the credit needs of its entire community,  including low
and moderate income  neighborhoods.  The CRA does not establish specific lending
requirements  or  programs  for  financial  institutions  nor  does it  limit an
institution's  discretion  to develop the types of products and services that it
believes are best suited to its particular  community,  consistent with the CRA.
The CRA requires  the FDIC,  in  connection  with its  examination  of a savings
institution,  to assess the institution's  record of meeting the credit needs of
its community and to take such record into account in its  evaluation of certain
applications by such institution. The CRA requires the FDIC to provide a written
evaluation  of  an  institution's   CRA  performance   utilizing  a  four-tiered
descriptive rating system. The Bank's latest CRA rating was "outstanding."

New York State Community  Reinvestment  Regulation.  The Bank is also subject to
provisions  of the New York  State  Banking  Law which  imposes  continuing  and
affirmative obligations upon banking institutions organized in New York State to
serve the credit needs of its local community  ("NYCRA")


                                       29
<PAGE>

which are  substantially  similar to those  imposed by the CRA.  Pursuant to the
NYCRA,  a bank must file an annual  NYCRA  report and copies of all  federal CRA
reports  with the  Department.  The  NYCRA  requires  the  Department  to make a
biennial written  assessment of a bank's compliance with the NYCRA,  utilizing a
four-tiered rating system and make such assessment  available to the public. The
NYCRA also  requires the  Superintendent  to consider a bank's NYCRA rating when
reviewing  a bank's  application  to engage in certain  transactions,  including
mergers,  asset purchases and the  establishment  of branch offices or automated
teller machines,  and provides that such assessment may serve as a basis for the
denial  of any such  application.  The  Bank's  NYCRA  rating  as of its  latest
examination was "satisfactory."

      Federal  Home  Loan Bank  System.  The Bank is a member of the FHLB of New
York,  which is one of 12 regional  FHLBs,  that  administers the home financing
credit  function  of  savings  institutions.  Each FHLB  serves as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and procedures established by the board of directors of the FHLB. These policies
and  procedures  are  subject to the  regulation  and  oversight  of the Federal
Housing  Finance  Board.  All  advances  from the FHLB are  required to be fully
secured by sufficient  collateral  as  determined by the FHLB. In addition,  all
long-term advances are required to provide funds for residential home financing.

      As a member,  the Bank is required to purchase and  maintain  stock in the
FHLB of New York.  As of December  31,  2006,  the Bank had $3.2 million of FHLB
stock.  The dividend  yield from FHLB stock was 7.00% at December  31, 2006.  No
assurance can be given that the FHLB will pay any dividends in the future.

      Under  federal  law,  the  FHLBs are  required  to  provide  funds for the
resolution  of  troubled  savings  institutions  and to  contribute  to low  and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income  housing
projects.  These  contributions  have  affected  adversely  the  level  of  FHLB
dividends  paid and could continue to do so in the future.  These  contributions
could also have an adverse  effect on the value of FHLB stock in the  future.  A
reduction  in value of the  Bank's  FHLB  stock may  result  in a  corresponding
reduction in the Bank's capital.

Federal Holding Company Regulation.

      General.  The Company and the Mutual  Holding  Company are  nondiversified
savings and loan holding  companies  within the meaning of the Home Owners' Loan
Act. As such, the Company and the Mutual Holding Company are registered with the
OTS and are subject to OTS regulations,  examinations, supervision and reporting
requirements.  In addition,  the OTS has enforcement  authority over the Company
and the Mutual Holding Company, and their subsidiaries. Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the subsidiary savings institution.

      Permitted  Activities.  Under OTS regulation and policy,  a mutual holding
company and a federally  chartered  mid-tier holding company such as the Company
may engage in the following activities:  (i) investing in the stock of a savings
association;  (ii)  acquiring  a mutual  association  through the merger of such
association into a savings association  subsidiary of such holding company or an
interim savings  association  subsidiary of such holding company;  (iii) merging
with or  acquiring  another  holding  company,  one of whose  subsidiaries  is a
savings association; (iv) investing in a corporation, the capital stock of which
is available  for purchase by a savings  association  under federal law or under
the law of any state where the subsidiary  savings  association or  associations
share their home offices; (v) furnishing or performing management services for a
savings  association  subsidiary  of such  company;


                                       30
<PAGE>

(vi) holding,  managing or  liquidating  assets owned or acquired from a savings
subsidiary  of such  company;  (vii)  holding  or  managing  properties  used or
occupied by a savings association  subsidiary of such company;  (viii) acting as
trustee  under  deeds of trust;  (ix) any other  activity  (A) that the  Federal
Reserve Board, by regulation,  has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the
Director of the OTS, by  regulation,  prohibits or limits any such  activity for
savings and loan holding  companies;  or (B) in which multiple  savings and loan
holding companies were authorized (by regulation) to directly engage on March 5,
1987; (x) any activity permissible for financial holding companies under Section
4(k) of the  Bank  Holding  Company  Act,  including  securities  and  insurance
underwriting;  and (xi) purchasing,  holding,  or disposing of stock acquired in
connection with a qualified stock issuance if the purchase of such stock by such
savings and loan holding company is approved by the Director of OTS. If a mutual
holding  company  acquires or merges with another holding  company,  the holding
company  acquired  or  the  holding  company   resulting  from  such  merger  or
acquisition  may only  invest in assets and engage in  activities  listed in (i)
through  (xi)  above,  and has a period of two years to cease any  nonconforming
activities and divest of any nonconforming investments.

      The Home  Owners' Loan Act  prohibits a savings and loan holding  company,
directly or  indirectly,  or through one or more  subsidiaries,  from  acquiring
another savings  association or holding company  thereof,  without prior written
approval of the OTS. It also  prohibits  the  acquisition  or retention of, with
certain  exceptions,  more than 5% of a  nonsubsidiary  savings  association,  a
nonsubsidiary  holding company, or a nonsubsidiary company engaged in activities
other than  those  permitted  by the Home  Owners'  Loan Act;  or  acquiring  or
retaining control of an institution that is not federally insured. In evaluating
applications by holding companies to acquire savings  association,  the OTS must
consider the financial and managerial resources, future prospects of the company
and  association  involved,  the  effect of the  acquisition  on the risk to the
insurance  fund,  the  convenience  and needs of the community  and  competitive
factors.

      The  Office  of  Thrift  Supervision  is  prohibited  from  approving  any
acquisition  that would result in a multiple  savings and loan  holding  company
controlling  savings  association  in  more  than  one  state,  subject  to  two
exceptions:  (i) the approval of interstate supervisory  acquisitions by savings
and loan holding companies, and (ii) the acquisition of a savings institution in
another  state  if the  laws of the  state  of the  target  savings  institution
specifically  permit such  acquisitions.  The states vary in the extent to which
they permit interstate savings and loan holding company acquisitions.

      Waivers  of  Dividends  by  Mutual  Holding  Company.   Office  of  Thrift
Supervision  regulations require the Mutual Holding Company to notify the OTS of
any  proposed  waiver of its  receipt of  dividends  from the  Company.  The OTS
reviews dividend waiver notices on a case-by-case  basis, and, in general,  does
not object to any such  waiver if: (i) the  mutual  holding  company's  board of
directors  determines  that such  waiver  is  consistent  with  such  directors'
fiduciary duties to the mutual holding company's members; (ii) the amount of any
dividend  waived by the mutual holding company is available for declaration as a
dividend solely to the mutual holding  company,  and, in accordance with SFAS 5,
where the savings  association  determines  that the payment of such dividend to
the mutual holding company is probable, an appropriate dollar amount is recorded
as a liability;  and (iii) the amount of any waived  dividend is  considered  as
having been paid by the savings  association in evaluating any proposed dividend
under OTS capital distribution  regulations.  The Mutual Holding Company intends
to continue to waive dividends paid by the Company.  Under OTS regulations,  the
Company's  public  stockholders  would not be diluted  because of any  dividends
waived  by the  Mutual  Holding  Company  (and  waived  dividends  would  not be
considered in determining an appropriate exchange ratio) in the event the Mutual
Holding Company converts to stock form.


                                       31
<PAGE>

      Conversion of the Mutual Holding  Company to Stock Form.  OTS  regulations
permit  the  Mutual  Holding   Company  to  convert  from  the  mutual  form  of
organization   to  the  capital  stock  form  of   organization  (a  "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion Transaction
will  occur,  and the Board of  Directors  has no current  intention  or plan to
undertake a Conversion  Transaction.  In a Conversion  Transaction a new holding
company  would be formed  as the  successor  to the  Company  (the "New  Holding
Company"),  the Mutual  Holding  Company's  corporate  existence  would end, and
certain  depositors  of the  Bank  would  receive  the  right to  subscribe  for
additional shares of the New Holding Company. In a Conversion Transaction,  each
share of common stock held by stockholders other than the Mutual Holding Company
("Minority  Stockholders")  would be  automatically  converted  into a number of
shares of common  stock of the New  Holding  Company  determined  pursuant to an
exchange ratio that ensures that Minority  Stockholders  own the same percentage
of  common  stock  in the New  Holding  Company  as they  owned  in the  Company
immediately prior to the Conversion Transaction. Under OTS regulations, Minority
Stockholders  would not be diluted because of any dividends waived by the Mutual
Holding Company (and waived  dividends would not be considered in determining an
appropriate exchange ratio), in the event the Mutual Holding Company converts to
stock form.  The total  number of shares held by Minority  Stockholders  after a
Conversion  Transaction  also would be  increased  by any  purchases by Minority
Stockholders  in  the  stock  offering  conducted  as  part  of  the  Conversion
Transaction.

      New York State Bank Holding Company Regulation. In addition to the federal
regulation,  a  holding  company  controlling  a state  chartered  savings  bank
organized or doing  business in New York State also may be subject to regulation
under the New York State Banking Law. The term "bank  holding  company," for the
purposes of the New York State Banking Law, is defined  generally to include any
person,  company  or trust that  directly  or  indirectly  either  controls  the
election of a majority of the directors or owns, controls or holds with power to
vote more than 10% of the  voting  stock of a bank  holding  company  or, if the
Company is a banking institution, another banking institution, or 10% or more of
the voting stock of each of two or more banking institutions. In general, a bank
holding  company   controlling,   directly  or  indirectly,   only  one  banking
institution  will not be deemed to be a bank holding company for the purposes of
the New York State  Banking  Law.  Under New York State  Banking  Law, the prior
approval of the Banking Board is required  before:  (1) any action is taken that
causes any  company to become a bank  holding  company;  (2) any action is taken
that causes any banking  institution to become or be merged or consolidated with
a subsidiary of a bank holding  company;  (3) any bank holding company  acquires
direct or indirect ownership or control of more than 5% of the voting stock of a
banking institution; (4) any bank holding company or subsidiary thereof acquires
all or  substantially  all of the  assets of a banking  institution;  or (5) any
action is taken that  causes any bank  holding  company to merge or  consolidate
with another bank holding company.  Additionally,  certain restrictions apply to
New York State bank  holding  companies  regarding  the  acquisition  of banking
institutions,  which have been  chartered  five years or less and are located in
smaller  communities.  Officers,  directors and employees of New York State bank
holding  companies are subject to limitations  regarding their  affiliation with
securities  underwriting or brokerage firms and other bank holding companies and
limitations regarding loans obtained from its subsidiaries.

      Bank holding  companies that wish to engage in expanded  activities but do
not wish to become financial holding companies may elect to establish "financial
subsidiaries,"  which are  subsidiaries of national banks with expanded  powers.
The Act permits financial subsidiaries to engage in the same types of activities
permissible for nonbank  subsidiaries of financial holding  companies,  with the
exception of merchant banking, insurance underwriting and real estate investment
and  development.  Merchant  banking may be permitted after a five-year  waiting
period under certain regulatory circumstances.


                                       32
<PAGE>

The USA PATRIOT Act

      The USA  PATRIOT  Act  gives the  federal  government  powers  to  address
terrorist  threats  through  enhanced  domestic  security   measures,   expanded
surveillance  powers,  increased  information  sharing and broadened  anti-money
laundering  requirements.  Title III of the USA  PATRIOT  Act  amended  the Bank
Secrecy Act to encourage  information sharing among bank regulatory agencies and
law  enforcement  bodies.  Moreover,  certain  provisions  of Title  III  impose
affirmative  obligations on a broad range of financial  institutions,  including
banks, savings  associations,  brokers,  dealers,  credit unions, money transfer
agents and parties registered under the Commodity Exchange Act.

Sarbanes-Oxley Act of 2002

      On July 30, 2002, the President signed into law the  Sarbanes-Oxley Act of
2002  ("Sarbanes-Oxley"),  which  implemented  legislative  reforms  intended to
address  corporate and accounting  fraud. In addition to the  establishment of a
new accounting  oversight board that will enforce auditing,  quality control and
independence  standards  and will be  funded by fees  from all  publicly  traded
companies,  Sarbanes-Oxley  places certain restrictions on the scope of services
that may be provided by accounting  firms to their public company audit clients.
Any  non-audit  services  being  provided to a public  company audit client will
require   preapproval   by  the   company's   audit   committee.   In  addition,
Sarbanes-Oxley  makes  certain  changes to the  requirements  for audit  partner
rotation  after a  period  of  time.  Sarbanes-Oxley  requires  chief  executive
officers and chief financial  officers,  or their equivalent,  to certify to the
accuracy of periodic reports filed with the Securities and Exchange  Commission,
subject to civil and criminal  penalties if they knowingly or willingly  violate
this certification requirement.  The Company's Chief Executive Officer and Chief
Financial  Officer have signed  certifications  to this Form 10-K as required by
Sarbanes-Oxley.  In addition, under Sarbanes-Oxley,  counsel will be required to
report  evidence of a material  violation of the securities  laws or a breach of
fiduciary  duty by a company to its chief  executive  officer or its chief legal
officer,  and, if such officer does not  appropriately  respond,  to report such
evidence  to the audit  committee  or other  similar  committee  of the board of
directors or the board itself.

      Under  Sarbanes-Oxley,   longer  prison  terms  will  apply  to  corporate
executives who violate federal  securities laws; the period during which certain
types of suits can be brought against a company or its officers is extended; and
bonuses issued to top executives  prior to restatement of a company's  financial
statements  are now  subject  to  disgorgement  if such  restatement  was due to
corporate misconduct.  Executives are also prohibited from trading the company's
securities  during  retirement  plan  "blackout"  periods,  and loans to company
executives  (other than loans by  financial  institutions  permitted  by federal
rules and regulations)  are restricted.  In addition,  a provision  directs that
civil penalties levied by the Securities and Exchange  Commission as a result of
any judicial or  administrative  action under  Sarbanes-Oxley  be deposited to a
fund for the benefit of harmed  investors.  The Federal  Accounts  for  Investor
Restitution  provision also requires the  Securities and Exchange  Commission to
develop methods of improving  collection rates. The legislation  accelerates the
time  frame for  disclosures  by  public  companies,  as they  must  immediately
disclose  any  material  changes in their  financial  condition  or  operations.
Directors and executive officers must also provide  information for most changes
in ownership in a company's securities within two business days of the change.

      Sarbanes-Oxley  also  increases  the  oversight  of, and codifies  certain
requirements  relating  to audit  committees  of public  companies  and how they
interact with the company's "registered public accounting firm." Audit Committee
members must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose  whether at least one member of the  committee is a "financial  expert"
(as such term is defined by the Securities and Exchange  Commission) and if not,
why not. Under Sarbanes-Oxley,  a company's


                                       33
<PAGE>

registered  public  accounting firm is prohibited  from  performing  statutorily
mandated audit services for a company if such company's chief executive officer,
chief financial  officer,  comptroller,  chief accounting  officer or any person
serving in equivalent  positions had been employed by such firm and participated
in the audit of such company  during the  one-year  period  preceding  the audit
initiation  date.  Sarbanes-Oxley  also  prohibits  any officer or director of a
company or any other person acting under their  direction from taking any action
to  fraudulently  influence,  coerce,  manipulate  or  mislead  any  independent
accountant  engaged in the audit of the company's  financial  statements for the
purpose  of  rendering   the   financial   statements   materially   misleading.
Sarbanes-Oxley also requires the Securities and Exchange Commission to prescribe
rules  requiring  inclusion of any internal  control  report and  assessment  by
management in the annual  report to  shareholders.  Sarbanes-Oxley  requires the
company's  registered  public  accounting  firm that issues the audit  report to
attest to and  report  on  management's  assessment  of the  company's  internal
controls.

      Although the Company has incurred some additional  expense in preparing to
comply  with  the  provisions  of  the  Sarbanes-Oxley  Act  and  the  resulting
regulations,  management  does not  expect  that  such  compliance  will  have a
material impact on our results of operations or financial condition.

      Federal Securities Law. The Common Stock of the Company is registered with
the SEC under the Exchange Act. The Company is subject to the information, proxy
solicitation,  insider trading  restrictions  and other  requirements of the SEC
under the Exchange Act.

      The Company  Common  Stock held by persons who are  affiliates  (generally
officers, directors and principal stockholders) of the Company may not be resold
without   registration   or  unless  sold  in  accordance  with  certain  resale
restrictions.   If  the  Company  meets  specified  current  public  information
requirements,  each  affiliate  of the  Company  is able  to sell in the  public
market,  without  registration,  a limited  number of shares in any  three-month
period.

      Federal Reserve System.  The Federal Reserve Board requires all depository
institutions  to  maintain  noninterest-bearing  reserves  at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW and  Super NOW
checking accounts).  At December 31, 2006, the Bank was in compliance with these
reserve requirements.

Federal Taxation

      General.  The Mutual Holding Company, the Company and the Bank are subject
to federal  income  taxation in the same general  manner as other  corporations,
with some  exceptions  discussed  below.  The  following  discussion  of federal
taxation is intended  only to summarize  certain  pertinent  federal  income tax
matters and is not a  comprehensive  description of the tax rules  applicable to
the Bank.

      Method of Accounting.  For federal income tax purposes, the Bank currently
reports its income and expenses on the accrual  method of accounting  and uses a
tax year  ending  December  31 for filing its  consolidated  federal  income tax
returns.  The Small Business  Protection Act of 1996 (the "1996 Act") eliminated
the use of the reserve  method of  accounting  for bad debt  reserves by savings
institutions, effective for taxable years beginning after 1995.

      Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a  base  of  regular  taxable  income  plus  certain  tax  preferences
("alternative  minimum  taxable  income" or  "AMTI").  The AMT is payable to the
extent such AMTI is in excess of an exemption  amount.  Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax


                                       34
<PAGE>

may be used as credits against regular tax liabilities in future years. The Bank
has not been  subject to the  alternative  minimum  tax and has no such  amounts
available as credits for carryover.

      Corporate  Dividends-Received  Deduction. The Company may exclude from its
income  100% of  dividends  received  from  the  Bank as a  member  of the  same
affiliated group of  corporations.  Because the Mutual Holding Company owns less
than 80% of the  outstanding  common stock of the Company it is not permitted to
file a consolidated federal income tax return with the Company and the Bank. The
corporate  dividends-received deduction is 80% in the case of dividends received
from corporations with which a corporate  recipient does not file a consolidated
return.

State Taxation

      New York State  Taxation.  The  Company  and the Bank  report  income on a
combined  calendar year basis to New York State. New York State Franchise Tax on
corporations is imposed in an amount equal to the greater of (a) 7.5% of "entire
net  income"  allocable  to New York  State (b) 3% of  "alternative  entire  net
income"  allocable  to New York State (c) 0.01% of the  average  value of assets
allocable  to New York State or (d) nominal  minimum  tax.  Entire net income is
based on federal taxable income, subject to certain  modifications.  Alternative
entire net income is equal to entire net income without certain modifications.

      The Bank's most recent IRS audit was relative to the Bank's 1993, 1994 and
1995  federal  and state  income  tax  returns.  New York  State  Department  of
Taxation's most recent audits were of the Company's state income tax returns for
the years of 1999, 2000 and 2001.

Executive Officers of the Registrant

      Listed  below is  information,  as of December 31,  2006,  concerning  the
Company's  executive  officers.  There  are no  arrangements  or  understandings
between the  Registrant  and any of persons named below with respect to which he
or she was or is to be selected as an officer.

<TABLE>
<CAPTION>
       Name             Age       Position and Term
-----------------      -----      ---------------------------------------------------------------
<S>                     <C>       <C>
Michael R. Kallet       56        President and Chief Executive Officer since 1990

Eric E. Stickels        45        Executive Vice President and Chief Financial Officer since 1998

Thomas H. Dixon         52        Executive Vice President and Chief Credit Officer since 1996
</TABLE>

      A COPY OF THE  COMPANY'S  ANNUAL  REPORT ON FORM 10-K FOR THE FISCAL  YEAR
ENDED   DECEMBER   31,  2006  IS   AVAILABLE   FOR  REVIEW  ON  OUR  WEBSITE  AT
www.oneidabank.com  AND WILL BE FURNISHED  WITHOUT CHARGE TO  STOCKHOLDERS  UPON
WRITTEN OR TELEPHONIC REQUEST TO ERIC E. STICKELS,  SECRETARY,  ONEIDA FINANCIAL
CORP., 182 MAIN STREET, ONEIDA, NEW YORK 13421, OR CALL (315) 363-2000.

ITEM 1A. RISK FACTORS
---------------------

Changing Interest Rates May Cause Net Earnings to Decline.

      In the event that interest rates rise, the Bank's net interest  margin and
interest rate spread will be adversely affected by the high level of assets with
fixed rates of interest  which we retain in our  portfolio.  As market  interest
rates rise, the Bank will have competitive  pressures to increase the rates paid
on


                                       35
<PAGE>

deposits,  which will result in a decrease in net interest income.  Furthermore,
the value of the Bank's  loans will be less  should the Bank choose to sell such
loans in the secondary market.

If the Allowance for Loan Losses is Not  Sufficient to Cover Actual Loan Losses,
the Bank's Earnings Could Decrease.

      The Bank's loan  customers  may not repay their loans  according  to their
terms,  and  the  collateral   securing  the  payment  of  these  loans  may  be
insufficient  to pay  any  remaining  loan  balance.  The  Bank  may  experience
significant  loan  losses,  which  could have a material  adverse  effect on the
Bank's operating  results.  Management  makes various  assumptions and judgments
about the collectibility of our portfolio, including the creditworthiness of our
borrowers  and the  value  of the  real  estate  and  other  assets  serving  as
collateral for the repayment of many of the Bank's loans.

      In determining the amount of the allowance for loan losses,  the Bank will
review individual  delinquent loans for potential  impairments in their carrying
value.  Additionally,   management  applies  a  factor  to  the  loan  portfolio
principally  based on historical loss  experience  applied to the composition of
the loan portfolio and integrated  with  management's  perception of risk in the
economy.  Since the Bank must use assumptions regarding individual loans and the
economy,  the  allowance  for loan losses may not be  sufficient to cover actual
loan losses, and increases in the allowance may be necessary.  Consequently, the
Bank may need to  significantly  increase  the  provision  for  losses on loans,
particularly  if one or more of the Bank's larger loans or credit  relationships
becomes  delinquent.  In  addition,  federal and state  regulators  periodically
review  the  allowance  for loan  losses  and may  require  an  increase  in the
provision for loan losses or recognize loan charge-offs.

If Economic  Conditions  Deteriorate,  Earnings  Could be Adversely  Impacted as
Borrowers'  Ability  to Repay  Loans  Declines  and the Value of the  Collateral
Securing Loans Decreases.

      The Bank's  financial  results  may be  adversely  affected  by changes in
prevailing  economic  conditions,  including  decreases  in real estate  values,
changes in interest  rates which may cause a decrease in interest  rate spreads,
adverse employment  conditions,  the monetary and fiscal policies of the federal
government  and  other  significant  external  events.  Since  the  Bank  has  a
significant  amount of real estate loans,  decreases in real estate values could
adversely  affect the value of property used as collateral.  Advance  changes in
the economy may also have a negative  effect on the ability of borrowers to make
timely  repayments  of their  loans,  which  would  have an  adverse  impact  on
earnings.

Public Shareholders Do Not Exercise Voting Control Over Oneida Financial Corp.

      A majority of the voting stock of Oneida  Financial  Corp. is owned by its
mutual holding company parent, Oneida Financial,  MHC. Oneida Financial,  MHC is
controlled  by its board of directors  which  consists of those  persons who are
members of the board of directors of the Company and Oneida Savings Bank. Oneida
Financial, MHC elects all members of the board of directors of the Company, and,
as a general  matter,  controls  the  outcome of all  matters  presented  to the
stockholders  of the Company for  resolution  by vote,  except for matters  that
require a vote greater than a majority  vote.  Consequently,  Oneida  Financial,
MHC, acting through its board of directors,  is able to control the business and
operations  of the  Company  and may be able to  prevent  any  challenge  to the
ownership or control of the Company by stockholders other than Oneida Financial,
MHC. There is no assurance that Oneida Financial, MHC will not take actions that
the public stockholders believe are against their interests.


                                       36
<PAGE>

We Operate in a Highly  Regulated  Environment and May be Adversely  Affected by
Changes in Laws and Regulations.

      We are subject to extensive regulation, supervision and examination by the
Office of Thrift  Supervision,  our  chartering  authority,  and by the  Federal
Deposit  Insurance  Corporation,  as insurer of  deposits,  and the State of New
York.  As  federally  chartered  holding  companies,   the  Company  and  Oneida
Financial,  MHC also are subject to  regulation  and  oversight by the Office of
Thrift  Supervision.  Such regulation and  supervision  govern the activities in
which an  institution  and its  holding  companies  may engage and are  intended
primarily for the  protection of the insurance fund and  depositors.  Regulatory
authorities have extensive  discretion in connection with their  supervisory and
enforcement  activities,   including  the  imposition  of  restrictions  on  the
operation of an institution, the classification of assets by the institution and
the adequacy of an institution's  allowance for loan losses.  Any change in such
regulation and oversight, whether in the form of regulatory policy, regulations,
or legislation,  including  changes in the regulations  governing mutual holding
companies, could have a material impact on Oneida Savings Bank, the Company, and
our operations.

Our Information Systems May Experience an Interruption or Breach in Security

      We rely  heavily  on  communications  and  information  systems to conduct
business. Any failure, interruption or breach in security of these systems could
result in failures or disruptions in our general ledger, deposit, loan and other
systems, including risk to data integrity. While we have policies and procedures
designed to prevent or limit the effect of the failure, interruption or security
breach  of our  information  systems,  there can be no  assurance  that any such
failures,  interruptions  or  security  breaches  will not  occur or, if they do
occur, that they will be adequately  addressed.  The occurrence of any failures,
interruptions or security  breaches of our information  systems could damage our
reputation,  result in a loss of  customer  business,  subject us to  additional
regulatory  scrutiny,  or expose us to civil  litigation and possible  financial
liability,  any of which could have a material  adverse  effect on our financial
condition and results of operations.

ITEM 1.B UNRESOLVED STAFF COMMENTS
----------------------------------

      Not applicable.


                                       37
<PAGE>

ITEM 2.  PROPERTIES
-------------------

      The Bank conducts its business  through its main office located in Oneida,
New York, and seven additional full service branch offices.  The following table
sets forth  certain  information  concerning  Company  property and equipment at
December 31, 2006.  The aggregate  net book value of the Company's  premises and
equipment  was $17.4  million at December 31,  2006.  The  insurance  subsidiary
conducts its business  through one owned and five leased  facilities  with lease
expirations  not exceeding  five years.  Benefit  Consulting  Group conducts its
business through one leased facility.

<TABLE>
<CAPTION>
                                       Original              Date of         Net Book Value
                                          Year                Lease    of Property and Equipment
     Location                           Acquired           Expiration     at December 31, 2006
     --------                           --------           ----------     --------------------
                                                                             (In thousands)
<C>                                       <C>            <C>                      <C>
Main Office:
182 Main Street                           1889                 N/A                $2,168
Oneida, New York 13421

Branch Offices:
Camden Branch                             1997                 N/A                   684
41 Harden Boulevard
Camden, New York 13316

Canastota Branch                          1999                 N/A                   800
104 S. Peteboro St.
Canastota, New York 13032

Cazenovia Branch                          1971                 N/A                 1,936
48 Albany Street
Cazenovia, New York 13035

Hamilton Branch                           1976                 N/A                   214
35 Broad Street
Hamilton, New York 13346

Convenience Center                        1988                 N/A                 1,197
585 Main Street
Oneida, New York 13421

Chittenango Branch                        2002                 N/A                 1,963
519 Genesee Street
Chittenango, New York 13037

Bridgeport Branch                         2002           November  2008               52
8786 State Route 31
Bridgeport, New York 13030

Griffis Park Branch                       2005                 N/A                 3,650
160 Brooks Road
Rome, NY  13441

Mortgage Center
126 Lenox Avenue                          1989                 N/A                    98
Oneida, New York 13421

Operations Center
169 Main Street                           2001                 N/A                 1,505
Oneida, New York 13421

Bailey & Haskell Associates, Inc.
Various locations                         2000               Various                 965
(Headquarters)
169 Main Street
Oneida, New York 13421

Bailey & Haskell Associates, Inc.         2006                 N/A                 1,933
Benefit Consulting Group Inc.
5232 Witz Drive
North Syracuse, New York 13212
</TABLE>


                                       38
<PAGE>

<TABLE>
<S>                                       <C>                  <C>                   <C>
Other Bank Property
102 S. Peterboro St.                      2000                 N/A                   181
Canastota, New York 13032

6 Cambridge Avenue                        2006                 N/a                    82
Morrisville, New York 13408
</TABLE>


                                       39
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

      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 16 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 United States 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 United States Justice
Department filed motions to amend the long  outstanding  claim against the State
of New York.  The  motions  attempt 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.  The State of New
York,  Counties of Madison and Oneida and the City of Sherrill have appealed the
Courts  decision with a court date set for March 2002. 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.  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 January
2005 the United  States  Supreme Court heard the appeal  brought  forward by the
City of Sherrill  against  the  Oneidas  arguing  that the  acquisition  of real
property by the Oneidas  within the land claim area does not return the property
to sovereign status.  Therefore, the City of Sherrill contends that the property
is subject to the payment of real property  taxes or reverts to the ownership of
the taxing authority if assessed  property taxes are not paid. The United States
Supreme  Court ruled in favor of the City of  Sherrill in June 2005.  The Oneida
Indian  Nation is  attempting to put all land acquired to date in a federal land
trust. All parties involved continue to pursue all legal options available.

      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.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

      No matters  were  submitted  during  the fourth  quarter of the year ended
December 31, 2006 to a vote of securityholders.


                                       40
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
         ISSUER PURCHASES OF EQUITY SECURITIES
         ----------------------------------------------------------------------

      For information  concerning the market for the Company's common stock, the
section  captioned  "Stockholder  Information" in the Company's Annual Report to
Stockholders  for the Year  Ended  December  31,  2006  (the  "Annual  Report to
Stockholders") is incorporated herein by reference.

      During the fourth quarter of 2006, the Company  repurchased  shares of its
common stock as follows:

<TABLE>
<CAPTION>
                                                                                 Maximum Number of Shares that may
                               # of Shares      Average Price    Total Shares      still be purchased under the
      Period                    Purchased       Paid Per Share     Purchased             repurchase program
---------------------          -----------      --------------   ------------    ---------------------------------
<S>  <C>     <C>                    <C>              <C>              <C>                     <C>
Oct. 1 - Oct. 31                       --                --              --                        --
Nov. 1 - Nov. 30                       --                --              --                        --
Dec. 1 - Dec. 31                    3,190            $11.81           3,190                   250,000
</TABLE>

Equity Compensation Plans

      Set forth below is certain  information  as of December 31, 2006 regarding
equity  compensation  to directors  and executive  officers of Oneida  Financial
Corp.  approved by  stockholders.  Other than the employee stock ownership plan,
Oneida  Financial  Corp.  did not have any  equity  plans in place that were not
approved by stockholders.

<TABLE>
<CAPTION>
====================================================================================================================================
                                   Number of securities to
                                   be issued upon exercise
                                    of outstanding options   Weighted average    Number of securities remaining available for
                    Plan                  and rights          exercise price                  issuance under plan
------------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                    <C>            <C>
Equity compensation plans
approved by stockholders ............      186,492                $7.561         9,243 (options)/12,886 (shares of restricted stock)
------------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by stockholders ............           --                    --                              --
------------------------------------------------------------------------------------------------------------------------------------
       Total ........................      186,492                $7.561         9,243 (options)/12,886 (shares of restricted stock)
====================================================================================================================================
</TABLE>


                                       41
<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
-------------------------------------------------------

      The  "Selected  Consolidated  Financial  and Other  Data"  section  of the
Company's Annual Report to Stockholders is incorporated herein by reference.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
--------------------------------------------------------------------------------

      The  "Management's  Discussion  and  Analysis of Financial  Condition  and
Results of Operations" section of the Company's Annual Report to Stockholders is
incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
------------------------------------------------------------------

      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 monthly and bi-weekly  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; and (iii) managing the Bank'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 will 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, 2006 totaled $80.3 million,  or 25.0% of total
interest-bearing  liabilities.  The  wholesale  arbitrage  strategy of investing
allows  the Bank to  invest in  longer-term  assets by  hedging  the  additional
interest  rate  risk  with   liabilities   of  similar   maturity  or  repricing
characteristics. Borrowed funds that mature in one year or less, at December 31,
2006  totaled  $7.5  million,  or 2.3% of  total  interest-bearing  liabilities.
Management  believes  that this balanced  approach to investing  will reduce the
exposure to interest rate fluctuations will enhance long-term profitability.

      Net  Income  and  Portfolio  Value  Analysis.  The  Bank's  interest  rate
sensitivity is monitored by management through the use of a net income model and
a net portfolio value ("NPV") model which  generates  estimates of the change in
the Bank's net income and NPV over a range of interest  rate  scenarios.  NPV is
the present value of expected cash flows from assets and liabilities.  The model
assumes estimated loan prepayment rates;  reinvestment rates. The following sets
forth the Bank's net income and NPV as of December 31, 2006.

<TABLE>
<CAPTION>
   Change in                    Net Interest Income                  Net Portfolio Value
Interest Rates         ----------------------------------    -----------------------------------
In Basis Points          Dollars      Dollar      Percent     Dollars        Dollar      Percent
 (Rate Shock)            Amount       Change       Change      Amount        Change      Change
---------------        ----------    ---------    -------    ----------    ---------     -------
                                               (Dollars in Thousands)
<S>                    <C>           <C>            <C>      <C>           <C>           <C>
      +200             $   12,916    $      41       0.3%    $   54,886    $  (8,663)    (13.6)%
      +100             $   12,917    $      42       0.3%    $   59,656    $  (3,892)     (6.1)%
    Static             $   12,875    $      --        --%    $       --    $      --        --%
      -100             $   12,733    $    (142)     (1.1)%   $   65,267    $   1,719       2.7%
      -200             $   12,463    $    (412)     (3.2)%   $   65,534    $   1,985       3.1%
</TABLE>


                                       42
<PAGE>

The following sets forth the Bank's net income and NPV as of December 31, 2005.

<TABLE>
<CAPTION>
   Change in                      Net Interest Income                    Net Portfolio Value
Interest Rates        -------------------------------------    --------------------------------------
In Basis Points        Dollars       Dollar        Percent      Dollars        Dollar        Percent
 (Rate Shock)           Amount       Change         Change       Amount        Change        Change
----------------      ---------     -------        --------    ---------      ---------       -------
                                                (Dollars in Thousands)
<S>                   <C>           <C>             <C>        <C>            <C>             <C>
     +200             $  12,919     $  (266)        (2.0)%     $  76,419      $  (4,448)      (5.5%
     +100             $  13,129     $   (56)        (0.4)%     $  79,717      $  (1,150)      (1.4)%
   Static             $  13,185     $    --           -- %     $      --      $      --         --%
     -100             $  12,941     $  (244)        (1.9)%     $  79,448      $  (1,419)      (1.8)%
     -200             $  12,301     $  (884)        (7.2)%     $  76,733      $  (4,134)      (5.1)%
</TABLE>

      There are certain  shortcomings  inherent in the  methodology  used in the
above interest rate risk  measurements.  Modeling changes in net interest income
and NPV requires the making of certain assumptions, which may or may not reflect
the  manner in which  actual  yields  and costs  respond  to  changes  in market
interest rates.  In this regard,  the net interest income and table assumes that
the composition of the Bank's interest sensitive assets and liabilities existing
at the beginning of a period remains constant over the period being measured and
also assumes that a particular  change in interest rates is reflected  uniformly
across the yield curve  regardless  of the  duration to maturity or repricing of
specific  assets and  liabilities.  Accordingly,  although the table provides an
indication of the Bank's  interest  rate risk exposure at a particular  point in
time,  such  measurements  are not  intended  to and do not  provide  a  precise
forecast  of the effect of changes  in market  interest  rates on the Bank's net
interest income and will differ from actual results.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

      The  financial   statements   identified  in  Item  15(a)(1)   hereof  are
incorporated by reference hereunder.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
-----------------------------------------------------------------------

         None.

ITEM 9A. CONTROLS AND PROCEDURES
--------------------------------

      (a)   Evaluation of disclosure controls and procedures.

      Under  the  supervision  and with  the  participation  of our  management,
including our Chief Executive Officer and Chief Financial Officer,  we evaluated
the  effectiveness  of the design and operation of our  disclosure  controls and
procedures (as defined in Rule  13a-15(e)  under the Exchange Act) as of the end
of the fiscal year (the  "Evaluation  Date").  Based upon that  evaluation,  the
Chief Executive  Officer and Chief Financial  Officer  concluded that, as of the
Evaluation Date, our disclosure controls and procedures were effective in timely
alerting them to the material  information  relating to us (or our  consolidated
subsidiaries) required to be included in our periodic SEC filings.

      (b)   Changes in internal controls.


                                       43
<PAGE>

      There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge,  in other factors that could
significantly affect these controls subsequent to the date of their evaluation.

ITEM 9B. OTHER INFORMATION
--------------------------

         None.

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
---------------------------------------------------------------

         Information concerning Directors of the Company is incorporated by
reference from the Company's definitive Proxy Statement for the 2007 Annual
Meeting of Stockholders (the "Proxy Statement"), specifically the section
captioned "Proposal I--Election of Directors." In addition, see Item 1.
"Executive Officers of the Registrant" for information concerning the Company's
executive officers. Information concerning corporate governance matters is
incorporated by reference from the Company's Proxy Statement, specifically the
section captioned "Meetings and Committees of the Board of Directors."

         The Company has adopted a Code of Ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions. The Code of
Ethics may be accessed on the Company's website at www.oneidabank.com.

ITEM 11. EXECUTIVE COMPENSATION
-------------------------------

         Information concerning executive compensation is incorporated by
reference from the Registrant's Proxy Statement, specifically the sections
captioned "Proposal I--Election of Directors--Executive Compensation,"
"--Directors' Compensation," and "--Benefits."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

      Information  concerning  security  ownership  and equity  compensation  of
certain  owners and management is  incorporated  by reference from the Company's
Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
         INDEPENDENCE
--------------------------------------------------------------------------------

      Information  concerning  relationships  and  transactions,   and  director
independence, is incorporated by reference from the Company's Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
-----------------------------------------------

      Information   concerning   principal   accountant  fees  and  services  is
incorporated by reference from the Company's Proxy Statement.


                                       44
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
---------------------------------------------------

      The exhibits and  financial  statement  schedules  filed as a part of this
Form 10-K are as follows:

      (a)(1)  Financial Statements
              --------------------

              o   Report of Independent Registered Public Accounting Firm

              o   Consolidated Statements of Condition,
                     December 31, 2006, 2005 and 2004

              o   Consolidated Statements of Income,
                     Years Ended December 31, 2006, 2005 and 2004

              o   Consolidated Statements of Changes in Stockholders' Equity,
                     Years Ended December 31, 2006, 2005 and 2004

              o   Consolidated Statements of Cash Flows,
                     Years Ended December 31, 2006, 2005 and 2004

              o   Notes to Consolidated Financial Statements.

      (a)(2)  Financial Statement Schedules
              -----------------------------

              No financial  statement  schedules  are filed because the required
              information is not  applicable or is included in the  consolidated
              financial statements or related notes.

      (a)(3)  Exhibits
              --------

              3.1     Certificate of Incorporation of Oneida Financial Corp.*

              3.2     Bylaws of Oneida Financial Corp.*

              4       Form of Stock Certificate**

              10.1    Employee Stock Ownership Plan**

              10.2    Stock Option Plan *****

              10.3    Recognition and Retention Plan**

              13      Annual Report to Stockholders

              14      Code of Ethics****

              16      Letter regarding change in certifying accountant***

              21      Subsidiaries of the Company

              23      Consent of Independent  Registered  Public Accounting Firm
                      to incorporate financial statements into Form S-8


                                       45
<PAGE>

              31.1    Certification  of  Chief  Executive  Officer  pursuant  to
                      Section 302 of the Sarbanes-Oxley Act of 2002

              31.2    Certification  of  Chief  Financial  Officer  pursuant  to
                      Section 302 of the Sarbanes-Oxley Act of 2002

              32      Certification   of  Chief  Executive   Officer  and  Chief
                      Financial   Officer   pursuant   to  Section  906  of  the
                      Sarbanes-Oxley Act of 2002

* Incorporated by reference to the Company's Current Report on Form 8-K filed on
July 20, 2001. (File No. 000-25101).

** Incorporated by reference to the Company's Registration Statement on Form S-1
filed on September 17, 1998. (File No. 333-63603).

*** Incorporated by reference to the Company's  Current Report on Form 8-K, Item
4. Changes in Registrant's Certifying Accountant, filed on September 3, 2003.

****  Incorporated by reference to the Company's  Annual Report on Form 10-K for
the year ended December 31, 2003.

*****  Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2005.

      (b)   The exhibits listed under (a)(3) above are filed herewith.

      (c)   Not applicable.


                                       46
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                      ONEIDA FINANCIAL CORP.


Date: March 30, 2007                  By: /s/ Michael Kallet
                                          --------------------------------------
                                          Michael R. Kallet
                                          President and Chief Executive Officer

      Pursuant to the  requirements  of the  Securities  Exchange of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<S>                                                <C>
By: /s/ Michael Kallet                             By:  /s/ Eric Stickels
    -----------------------------------------           -----------------------------------------------
    Michael R. Kallet, President and Chief              Eric E. Stickels, Executive Vice President and
      Executive Officer                                  Chief Financial Officer
    (Principal Executive Officer)                       (Principal Financial and Accounting Officer)

Date: March 30, 2007                               Date: March 30, 2007

By: /s/ Thomas Dixon                               By:  /s/ Patricia Caprio
   ------------------------------------------           -----------------------------------------------
    Thomas H. Dixon, Executive Vice President           Patricia D. Caprio, Director

Date: March 30, 2007                               Date: March 30, 2007

By: /s/ Edward Clarke                              By:  /s/ Marlene Denney
    -----------------------------------------           -----------------------------------------------
    Edward J. Clarke, Director                          Marlene C. Denney, Director

Date: March 30, 2007                               Date: March 30, 2007

By: /s/ John Haskell                               By:  /s/ Rodney Kent
    -----------------------------------------           -----------------------------------------------
    John E. Haskell, Director                           Rodney D. Kent, Director

Date: March 30, 2007                               Date: March 30, 2007

By: /s/ William Matthews                           By:  /s/ Michael Miravalle
    -----------------------------------------           -----------------------------------------------
    William D. Matthews, Director                       Michael A. Miravalle, Director

Date: March 30, 2007                               Date: March 30, 2007

By: /s/ Richard Myers                              By:  /s/ Gerald Volk
    -----------------------------------------           -----------------------------------------------
    Richard B. Myers, Director                          Gerald N. Volk, Director

Date: March 30, 2007                               Date: March 30, 2007

By: /s/ Frank White, Jr.
    Frank O. White, Jr., Director

Date: March 30, 2007
</TABLE>


                                       47