##### Table of Contents





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, 2008

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 Number: 000-51726





Seneca-Cayuga Bancorp, Inc.

(Name of Small Business Issuer in its Charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Federal                                                        |  | 16-1601243                             
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|19 Cayuga Street, Seneca Falls, New York                       |  | 13148                                  
|(Address of Principal Executive Office)                        |  | (Zip Code)                             

(315) 568-5855

(Issuers Telephone Number including area code)





Securities Registered
Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01
per share

(Title of Class)





Check whether the issuer is not
required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.   ̈

Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past twelve months (or for such shorter period that the Registrant was required to file reports) and (2) has been
subject to such filing requirements for the past 90 days.

(1)    YES  x    NO   ̈.



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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 amendments to this Form 10-K.  x

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

The
Registrants revenues for the fiscal year ended December 31, 2008 were $9.6 million.

The aggregate value of the voting stock
held by non-affiliates of the Registrant, computed by reference to the closing price of the Common Stock as of March 26, 2009 was $3.6 million. As of March 27, 2009, there were 2,336,300 shares issued and outstanding of the
Registrants Common Stock, including 1,309,275 shares owned by Seneca Falls Savings Bank, MHC.

DOCUMENTS INCORPORATED BY REFERENCE



|1. | Proxy Statement for the 2009 Annual Meeting of Stockholders (Part III)
|-- | ----------------------------------------------------------------------

Transitional Small Business Disclosure Format (check one):     ̈  YES    x  NO









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##### Table of Contents

Seneca-Cayuga Bancorp, Inc.

Annual Report On Form 10-K

For The
Fiscal Year Ended

December 31, 2008

Table Of Contents



|           |  |                                                                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I    
|           |  |                                                                                                                                      
|ITEM 1.    |  | Description of Business                                                                                                               |  | 1 
|           |  |                                                                                                                                      
|ITEM 2.    |  | Description of Property                                                                                                               |  | 38
|           |  |                                                                                                                                      
|ITEM 3.    |  | Legal Proceedings                                                                                                                     |  | 39
|           |  |                                                                                                                                      
|ITEM 4.    |  | Submission of Matters to a Vote of Security Holders                                                                                   |  | 39
|          
|PART II   
|           |  |                                                                                                                                      
|ITEM 5.    |  | Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities                     |  | 39
|           |  |                                                                                                                                      
|ITEM 6.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                 |  | 41
|           |  |                                                                                                                                      
|ITEM 7.    |  | Financial Statements                                                                                                                  |  | 58
|           |  |                                                                                                                                      
|ITEM 8.    |  | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure                                                  |  | 93
|           |  |                                                                                                                                      
|ITEM 8A(T) |  | Controls and Procedures                                                                                                               |  | 93
|           |  |                                                                                                                                      
|ITEM 8B.   |  | Other Information                                                                                                                     |  | 94
|          
|PART III  
|           |  |                                                                                                                                      
|ITEM 9.    |  | Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act |  | 94
|           |  |                                                                                                                                      
|ITEM 10.   |  | Executive Compensation                                                                                                                |  | 94
|           |  |                                                                                                                                      
|ITEM 11.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                                        |  | 94
|           |  |                                                                                                                                      
|ITEM 12.   |  | Certain Relationships, Related Transactions and Director Independence                                                                 |  | 94
|           |  |                                                                                                                                      
|ITEM 13.   |  | Exhibits                                                                                                                              |  | 95
|           |  |                                                                                                                                      
|ITEM 14.   |  | Principal Accountant Fees and Services                                                                                                |  | 95
|           |  |                                                                                                                                      
|           |  | Signatures                                                                                                                            |  | 96



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##### Table of Contents

PART I



|ITEM 1. | Description of Business
|------- | -----------------------

Forward Looking Statements

This Annual Report (including information incorporated by reference) contains written statements of Seneca-Cayuga Bancorp, Inc. and its
management and may contain, forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plan, objectives, future performance and business
of Seneca-Cayuga Bancorp Inc. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of Seneca-Cayuga Bancorp, Inc.s management and on information currently available to management, are generally identifiable
by the use of words such as believe, expect, anticipate, plan, intend, estimate, may, will, would, could, should, or
other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and Seneca-Cayuga Bancorp, Inc. undertakes no obligation to update any statement in light of new
information or future events.

Seneca Cayuga Bancorp, Inc.s ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. There are many factors that may impact our operations and future prospects. These factors include, but are not limited to, the following:



| |  |  | the economic impact of past and any future terrorist attacks, acts of war or threats thereof and the response of the United States to any such threats and attacks;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the interest rate environment (including changes in the shape of the yield curve) that reduce interest margins or reduce the fair value of financial
instruments;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in prevailing real estate values both nationally and within our current and future market areas, including the current decline in real estate values.;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased competitive pressures among financial services companies;
| | - |  | -------------------------------------------------------------------



| |  |  | changes in consumer spending, borrowing and savings habits;
| | - |  | -----------------------------------------------------------



| |  |  | legislative or regulatory changes that adversely affect our business including the current US governments efforts to address todays economic and banking
industry crisis;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in local and economic conditions including but not limited to employment and income levels as well as the current recession;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to successfully manage our plan to increase our non-residential, manufactured home or automobile lending;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | adverse changes in the securities market;
| | - |  | -----------------------------------------



| |  |  | future tax rates applicable to our company;
| | - |  | -------------------------------------------



| |  |  | the amount of our deposit insurance fees;
| | - |  | -----------------------------------------



| |  |  | the effect of the current adverse securities markets on the value of our securities and mutual funds;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | the long and short term impact of the current US government efforts to reduce long term mortgage rates, stimulate the economy, reduce foreclosures and strengthen
the financial sectors;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | any future US government requirements that we assist in paying the cost of the financial rescue of some baking institution;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | the costs, effects and outcomes of existing or future litigation; and
| | - |  | ---------------------------------------------------------------------



| |  |  | changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the Financial Accounting Standards Board, the Securities
and Exchange Commission, and the Public Company Accounting Oversight Board.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Seneca Falls Savings Bank, MHC

Seneca Falls Savings Bank, MHC is a federally chartered mutual holding company and currently owns 55% of the outstanding shares of common
stock of Seneca-Cayuga Bancorp, Inc. Seneca Falls Savings Bank, MHC has not engaged in any significant business activity other than owning the common stock of Seneca-Cayuga Bancorp, Inc. So long as Seneca Falls Savings Bank, MHC exists, it will own
a majority of the voting stock of Seneca-Cayuga Bancorp, Inc. The executive office of Seneca Falls Savings Bank, MHC, is located at 19 Cayuga Street, Seneca Falls, New York 13148, and its telephone number is (315) 568-5855. Seneca Falls Savings
Bank, MHC is subject to comprehensive regulation and examination by the Office of Thrift Supervision.

Seneca-Cayuga Bancorp, Inc.

Seneca-Cayuga Bancorp, Inc. is the federally chartered mid-tier stock holding company of Seneca Falls Savings Bank. Seneca-Cayuga Bancorp, Inc. owns 100%
of the common stock of Seneca Falls Savings Bank and has a $1.0 million investment in a mutual fund and $539,000 in cash. Seneca-Cayuga Bancorp, Inc. has not engaged in any significant business activity other than owning the common stock of Seneca
Falls Savings Bank and investing in a mutual fund, and currently does not intend to expand materially its business activities (other than through Seneca Falls Savings Bank). Seneca-Cayuga Bancorp, Inc.s executive office is located at 19 Cayuga
Street, Seneca Falls, New York 13148, and its telephone number is (315) 568-5855. Seneca-Cayuga Bancorp, Inc. is subject to comprehensive regulation and examination by the Office of Thrift Supervision. At December 31, 2008, Seneca-Cayuga
Bancorp, Inc. had total consolidated assets of $177.0 million, total consolidated deposits of $128.9 million and total consolidated shareholders equity of $16.8 million. Its consolidated net loss for the year ended December 31, 2008 was
$488,000.

Seneca Falls Savings Bank

Seneca Falls Savings Bank was organized in 1870 and is headquartered in Seneca Falls, New York. Seneca Falls Savings Bank has operated as a conservative thrift institution soliciting deposits and making primarily residential mortgage loans
in the Northern Finger Lakes region of New York State. Seneca Falls Savings Banks main office is located at 19 Cayuga Street, Seneca Falls, New York 13148, and its five branch offices are located in Waterloo, Geneva and Auburn, New York. The
telephone number at its main office is (315) 568-5855.

General

We conduct our banking operations through our main office located at 19 Cayuga Street, Seneca Falls, New York and four full-service banking offices located in Waterloo, Auburn and Geneva, New York. In addition, we
conduct business through an in-store branch located in a Wal-Mart Super Center in Auburn, New York. Our principal business consists of attracting retail deposits from the general public and investing those deposits, together with funds generated
from operations, in one- to four-family residential mortgage loans and, to a lesser extent, manufactured home, non-residential real estate, automobile, home equity, commercial, construction and multi-family loans. We also may make significant
investments in mortgage-backed and other securities. Finally, through a subsidiary, we also provide insurance as well as certain other financial products.



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Our revenues are derived principally from interest on loans and securities. We also generate revenues
from fees and service charges and other income. Our primary sources of funds are deposits, borrowings and principal and interest payments on loans and securities.

Market Area

We primarily serve rural, small town and suburban communities located in the Northern Finger Lakes region
extending from Geneva, New York in the West to Auburn, New York in the East. The Northern Finger Lakes region is located in the western portion of New York State between the cities of Rochester and Syracuse, New York. Seneca Falls is located six
miles south of Interstate 90, the major east-west highway that runs through the state of New York.

Seneca Falls and the surrounding areas
include a diverse population of low- and moderate- income neighborhoods as well as middle class and more affluent neighborhoods. The housing consists mainly of single-family residences.

The economy in our market area has suffered from a decline in manufacturing jobs over the last three decades and is currently based on a mixture of
service, manufacturing, wholesale/retail trade, and state and local government. Major employers in our market area include several hospitals and healthcare providers, several correctional facilities as well as a number of large manufacturing
facilities including McQuay International, TRW Transportation Electronics Division, McKenzie-Childs Ltd., Nucor and ITT Industries. Geneva and Auburn also serve as bedroom communities for nearby Rochester and Syracuse, New York.

According to published statistics, median household income in our market area is somewhat below the national and New York State average. Also, while
household income in our market area is continuing to grow, it is growing at rates below the comparable state and national averages.

Competition

We face intense competition within our market area both in making loans and attracting deposits. Our market area has a high concentration
of financial institutions including large money center and regional banks and credit unions. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. In addition, under New York
State law, municipalities are not able to place deposits with us, a substantial source of funding for some commercial banks. As of June 30, 2008, our market share of deposits represented 51%, 3%, 6% and 8% of deposits in the cities of Seneca
Falls, Auburn, Waterloo and Geneva, respectively.

Our competition for loans and deposits comes principally from commercial banks, mortgage
banking firms and credit unions. We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies.

Lending Activities

Our principal lending activity has been the origination of permanent first
mortgage loans for the purchase or refinancing of one- to four-family residential real property. We may sell a portion of the fixed rate loans that we originate based on an evaluation of our asset/liability position. We also originate multi-family
and non-residential real estate, construction, commercial, home equity, manufactured home, automobile and other consumer loans. We believe that originating of loans other than one- to four-family residential allows us to provide more comprehensive
financial services to families and businesses within our community as well as increase the yield and interest rate sensitivity of our loan portfolio.



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Loan Portfolio Composition.The following table sets forth the composition of our loan
portfolio by type of loan at the dates indicated.



|                                     |  |                        |         |   |         |       |   |        |   |         |         |  |       |  
|------------------------------------ |  | ---------------------- | ------- | - | ------- | ----- | - | ------ | - | ------- | ------- |  | ----- | -
|                                     |  | At December 31,        |        
|                                     |  | 2008                   |         |   | 2007    |      
|                                     |  | Amount                 |         |   | Percent |       |   | Amount |   |         | Percent | 
|                                     |  | (Dollars in thousands) |        
|Real estate mortgages:               |  |                        |         |   |         |       |   |        |   |         |         |  |       |  
|One- to four-family                  |  | $                      | 97,362  |   |         | 71.3  | % |        | $ | 77,906  |         |  | 75.0  | %
|Multi-family                         |  |                        | 563     |   |         | 0.4   |   |        |   | 594     |         |  | 0.6   |  
|Non-residential                      |  |                        | 9,075   |   |         | 6.7   |   |        |   | 3,707   |         |  | 3.6   |  
|Construction                         |  |                        | 3,352   |   |         | 2.5   |   |        |   | 2,359   |         |  | 2.3   |  
|Commercial                           |  |                        | 3,020   |   |         | 2.2   |   |        |   | 1,795   |         |  | 1.7   |  
|Home equity                          |  |                        | 4,535   |   |         | 3.3   |   |        |   | 4,244   |         |  | 4.1   |  
|Manufactured home                    |  |                        | 9,945   |   |         | 7.3   |   |        |   | 6,326   |         |  | 6.1   |  
|Automobile                           |  |                        | 7,382   |   |         | 5.4   |   |        |   | 5,453   |         |  | 5.3   |  
|Other consumer                       |  |                        | 1,251   |   |         | 0.9   |   |        |   | 1,389   |         |  | 1.3   |  
|                                     |  |                        |         |   |         |       |   |        |   |         |         |  |       |  
|Total loans                          |  |                        | 136,485 |   |         | 100.0 | % |        |   | 103,773 |         |  | 100.0 | %
|                                     |  |                        |         |   |         |       |   |        |   |         |         |  |       |  
|                                     |  |                        |         |  
|Other items:                         |  |                        |         |   |         |       |   |        |   |         |         |  |       |  
|Deferred loan origination costs, net |  |                        | 2,075   |   |         |       |   |        |   | 1,172   |         |  |       |  
|Allowance for loan losses            |  |                        | (558    | ) |         |       |   |        |   | (458    | )       |  |       |  
|                                     |  |                        |         |   |         |       |   |        |   |         |         |  |       |  
|                                     |  |                        |         |  
|Total loans, net                     |  | $                      | 138,002 |   |         |       |   |        | $ | 104,487 |         |  |       |  
|                                     |  |                        |         |   |         |       |   |        |   |         |         |  |       |  



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Loan Portfolio Maturities.The following table summarizes the scheduled repayments of our
loan portfolio at December 31, 2008. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.



|                                         |  |                     |        |              |   |                 |  |              |       |            |   |            |  |                  |       |            |   |               |  |       |       |  |   |       |  |   |       |  |   |        
|---------------------------------------- |  | ------------------- | ------ | ------------ | - | --------------- |  | ------------ | ----- | ---------- | - | ---------- |  | ---------------- | ----- | ---------- | - | ------------- |  | ----- | ----- |  | - | ----- |  | - | ----- |  | - | -------
|                                         |  | One- to Four-Family |        | Multi-Family |   | Non-Residential |  | Construction |       | Commercial |   | HomeEquity |  | ManufacturedHome |       | Automobile |   | OtherConsumer |  | Total
|                                         |  | (In thousands)     
|Due During the Years Ending December 31, |  |                     |        |              |   |                 |  |              |       |            |   |            |  |                  |       |            |   |               |  |       |       |  |   |       |  |   |       |  |   |        
|2009                                     |  | $                   | 4,016  |              | $ | 64              |  | $            | 1,852 |            | $ | 3,352      |  | $                | 1,801 |            | $ | 672           |  | $     | 341   |  | $ | 2,233 |  | $ | 621   |  | $ | 14,952 
|2010                                     |  |                     | 4,106  |              |   | 69              |  |              | 510   |            |   |           |  |                  | 322   |            |   | 709           |  |       | 368   |  |   | 2,138 |  |   | 274   |  |   | 8,496  
|2011                                     |  |                     | 7,627  |              |   | 118             |  |              | 989   |            |   |           |  |                  | 505   |            |   | 1,139         |  |       | 737   |  |   | 2,592 |  |   | 293   |  |   | 14,000 
|2012 to 2013                             |  |                     | 10,850 |              |   | 115             |  |              | 1,328 |            |   |           |  |                  | 320   |            |   | 1,333         |  |       | 1,192 |  |   | 419   |  |   | 57    |  |   | 15,614 
|2014 to 2018                             |  |                     | 20,767 |              |   | 112             |  |              | 2,569 |            |   |           |  |                  | 72    |            |   | 682           |  |       | 3,131 |  |   |      |  |   | 6     |  |   | 27,339 
|2019 to 2023                             |  |                     | 20,803 |              |   | 69              |  |              | 1,704 |            |   |           |  |                  |      |            |   |              |  |       | 3,999 |  |   |      |  |   |      |  |   | 26,575 
|2024 and beyond                          |  |                     | 29,193 |              |   | 16              |  |              | 123   |            |   |           |  |                  |      |            |   |              |  |       | 177   |  |   |      |  |   |      |  |   | 29,509 
|                                         |  |                     |        |              |   |                 |  |              |       |            |   |            |  |                  |       |            |   |               |  |       |       |  |   |       |  |   |       |  |   |        
|Total loans                              |  | $                   | 97,362 |              | $ | 563             |  | $            | 9,075 |            | $ | 3,352      |  | $                | 3,020 |            | $ | 4,535         |  | $     | 9,945 |  | $ | 7,382 |  | $ | 1,251 |  | $ | 136,485
|                                         |  |                     |        |              |   |                 |  |              |       |            |   |            |  |                  |       |            |   |               |  |       |       |  |   |       |  |   |       |  |   |        



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The following table sets forth our fixed- and adjustable-rate loans at December 31, 2008 that are
contractually due after December 31, 2009.



|                       |  |                             |         |            |   |        |  |   |        
|---------------------- |  | --------------------------- | ------- | ---------- | - | ------ |  | - | -------
|                       |  | Due After December 31, 2009
|                       |  | Fixed                       |         | Adjustable |   | Total 
|                       |  | (In thousands)             
|Real estate mortgages: |  |                             |         |            |   |        |  |   |        
|One- to four-family    |  | $                           | 93,558  |            | $ | 3,737  |  | $ | 97,295 
|Multi-family           |  |                             | 225     |            |   | 338    |  |   | 563    
|Non-residential        |  |                             | 2,964   |            |   | 4,737  |  |   | 7,701  
|Construction           |  |                             |        |            |   |       |  |   |       
|Commercial             |  |                             | 932     |            |   | 594    |  |   | 1,526  
|Home equity            |  |                             | 2,628   |            |   | 1,868  |  |   | 4,496  
|Manufactured home      |  |                             | 9,945   |            |   |       |  |   | 9,945  
|Automobile             |  |                             | 7,315   |            |   |       |  |   | 7,315  
|Other consumer         |  |                             | 1,045   |            |   |       |  |   | 1,045  
|                       |  |                             |         |            |   |        |  |   |        
|                       |  |                             |        
|Total loans            |  | $                           | 118,612 |            | $ | 11,274 |  | $ | 129,886
|                       |  |                             |         |            |   |        |  |   |        

The predominance of fixed rate loans in our portfolio will expose us to interest rate risk if
general interest rates rise. This risk may be particularly pronounced at the current time as market rates for fixed rate loans are quite low from a historical point of view.

Loan Approval Procedures and Authority. Pursuant to Federal law, the aggregate amount of loans that Seneca Falls Savings Bank is
permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of Seneca Falls Savings Banks unimpaired capital and surplus (25% if the security for such loan has a readily ascertainable value or
30% for certain residential development loans). At December 31, 2008, based on the 15% limitation, Seneca Falls Savings Banks loans-to-one-borrower limit was approximately $2.6 million. On the same date, Seneca Falls Savings Bank had no
borrowers with outstanding balances in excess of this amount. As of December 31, 2008, the largest dollar amount outstanding to one borrower, or group of related borrowers, was $1.5 million secured by two commercial buildings located in Geneva
and Farmington, New York. These loans were performing in accordance with their terms at December 31, 2008. At December 31, 2008, Seneca Falls Savings Banks next largest loan relationship or group outstanding was $1.5 million secured
by several buildings, inventory, accounts receivable and equipment provided to a business in Waterloo, New York. This loan was performing in accordance with its terms at December 31, 2008.

Seneca Falls Savings Banks lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made
on the basis of detailed applications submitted by the prospective borrower and property valuations (consistent with Seneca Falls Savings Banks appraisal policy) prepared by licensed appraisers. The loan applications are designed primarily to
determine the borrowers ability to repay, and the more significant items on the application are verified through use of credit reports, financial statements, tax returns and/or confirmations.

Under Seneca Falls Savings Banks loan policy, the individual processing an application is responsible for ensuring that all documentation is
obtained prior to the submission of the application to an officer for approval. In addition, an officer verifies that the application meets Seneca Falls Savings Banks underwriting guidelines described below. Also, each application file is
reviewed to assure its accuracy and completeness. Seneca Falls Savings Bank has a quality control review process in place for residential and commercial loans which includes reviews of underwriting decisions, appraisals and documentation. Seneca
Falls Savings Bank is currently using the services of an independent company to perform the quality control reviews of residential mortgages.

Our senior officers and loan underwriter have approval authority for one- to four-family residential loans, up to $400,000. One- to four-family residential loans over $400,000 to $750,000 require the approval of Seneca Falls Savings
Banks President or its Executive Vice President. Seneca Falls Savings Banks Senior Lending Officer has approval authority for multi-family and non-residential real estate loans up to $200,000. Multi-family and non-residential loans over
$200,000 to $750,000 require the



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approval of Seneca Falls Savings Banks President or Executive Vice President. Loans to a single related borrower that aggregate over $750,000 require
approval by the Board of Directors. Various officers have approval authority ranging from $75,000 on secured consumer loans, up to $400,000 on home equity loans and lines up to $50,000 on commercial business loans. Officer approval authority on
unsecured consumer loans range from $1,000 to $75,000.

Generally, Seneca Falls Savings Bank requires title insurance or title
certifications and updated abstracts on its mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of
loan. Seneca Falls Savings Bank also requires flood insurance to protect the property securing its interest when the property is located in a flood plain.

One- to Four-Family Residential Real Estate Lending. The cornerstone of our lending program is the origination of long-term permanent loans secured by mortgages on owner-occupied one- to
four-family residences. At December 31, 2008, $97.4 million, or 71.3% of our loan portfolio consisted of permanent loans on one- to four-family residences. At that date, the average outstanding one- to four-family residential loan balance was
$79,600 and the largest outstanding residential loan had a principal balance of $553,000. Virtually all of the residential loans we originate are secured by properties located in our market area.

Due to consumer demand, most of our current originations are 10- to 30-year fixed-rate loans secured by one- to four-family residential real estate. We
generally originate our fixed rate one- to four-family loans in accordance with Fannie Mae standards to permit their sale in the secondary market. We monitor the volume and rate of our fixed rate loans to ensure compliance with our asset/liability
management policy. At December 31, 2008, we had $746,000 of fixed-rate residential loans with original contractual maturities of 10 years or less, $22.8 million of fixed-rate residential loans with original contractual maturities between 10 and
20 years and $70.1 million of fixed-rate residential loans with original contractual maturities in excess of 21 years in our portfolio.

In
addition, subject to consumer demand, we originate adjustable rate mortgage and balloon loans to reduce our exposure to changes in interest rates. We retain and service all adjustable rate mortgages and balloon loans we originate. We make such loans
at rates and terms in accordance with market and competitive factors.

Our current one- to four-family residential adjustable rate mortgage
loans are fully amortizing with contractual maturities of up to 30 years. The interest rates on the adjustable rate mortgage loans we currently originate are generally subject to adjustment at one-year, three-year and five-year intervals based on a
margin over the corresponding Treasury Index. Our adjustable rate mortgage loans generally provide for maximum rate adjustments of 2% per adjustment, with a lifetime maximum adjustments up to 6%, regardless of the initial rate. Our adjustable
rate mortgages are not convertible into fixed-rate loans, do not contain prepayment penalties and do not produce negative amortization.

Although adjustable rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase, and the required payments due from the borrower increase,
subject to rate caps, the potential for default by the borrower will also increase. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest
rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. As a result, the effectiveness of adjustable rate mortgage loans may be limited during periods of rapidly rising interest rates. At
December 31, 2008, $3.7 million, or 3.8% of our one- to four-family residential loans, had adjustable rates of interest.

We evaluate
both the borrowers ability to make principal, interest and escrow payments and the value of the property that will secure the loan. Seneca Falls Savings Bank currently originates residential mortgage loans with loan-to-value ratios of up to
102% for owner-occupied single family homes that qualify for the USDA Guaranteed Rural Housing Program; 100% for owner occupied one- to two-family homes with private mortgage insurance to reduce Seneca Falls Savings Banks exposure to 80% or
less; 80% for owner-occupied three- to four- family homes; and 75% for non-owner occupied homes.



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In 2008, we entered into an agreement with another financial institution to purchase one- to four-family
residential loans. The properties securing the loans are located in New York State, primarily in Tompkins and Cortland counties. Under the terms of the agreement, we have no obligation to purchase loans presented to us. All loans are underwritten
according to the Banks lending policy standards. If the Bank funds the loan, the third party is paid a lump sum servicing fee for each loan and agrees to provide collection services in the event the loan becomes delinquent equal to the gross
finance charge over the life of the loan at the customer rate minus the gross finance charge over the life of the loan at the customer rate less 0.25%. A portion of the servicing fee paid, which is deferred and amortized over the life of the loan,
is placed into an escrow account to be used to reimburse the Bank for any losses incurred under the program and for the refund of any unearned fees which result from loan prepayments or foreclosures. Losses incurred in excess of the escrow account
are to be absorbed by the Bank. During 2008, we purchased $6.6 million in one- to four-family loans, and the loss escrow account balance was $157,000.

As of December 31, 2008, we had three one- to four-family residential mortgage loans, with carrying values totalling $1.4 million which were in excess of the $417,000 2008 Freddie Mac maximum. These loans are
secured by single-family residences in Seneca Falls and Auburn, New York. As of December 31, 2008, these loans were performing in accordance with their terms. Our historical delinquency experience on our loans in excess of this maximum has been
similar to our experience on other residential loans.

Our residential mortgage loans customarily include due-on-sale clauses giving us the
right to declare the loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the property subject to the mortgage and the loan is not repaid.

At December 31, 2008 we had three one-to-four family mortgages totalling $149,000 which were 90 days or more delinquent.

Multi-Family and Non-Residential Real Estate Lending. We originate permanent multi-family and non-residential real estate loans. The
loans are made to fund the acquisition and in some cases the renovation of the property. At December 31, 2008, we had $563,000 in multi-family and $9.1 million in non-residential real estate loans, representing 0.4% and 6.7% of the gross loan
portfolio, respectively. During 2008, we substantially increased our non-residential lending portfolio as several larger relationships were gained from our marketing efforts.

Our multi-family loan portfolio includes loans secured by five or more unit residential buildings located primarily in our primary market area. In
addition, we may participate in loans originated by other financial institutions secured by properties outside our primary market area. Our non-residential real estate loan portfolio consists of loans on a variety of non-residential properties
including office buildings, manufacturing facilities, churches and retail facilities.

Seneca Falls Savings Banks multi-family and
non-residential real estate loans generally have a maximum term of 20 years and fixed or adjustable rates based on the relevant Constant Maturity Treasury Bill Index, plus a margin. The rate adjusts annually from the outset of the loan or after a
three- or five-year initial fixed rate period. These loans are generally made in amounts of up to 75% of the lesser of the appraised value or the purchase price of the property with a projected debt service coverage ratio of at least 120%.

Appraisals on properties securing multi-family and non-residential real estate loans are performed by an independent appraiser designated
by Seneca Falls Savings Bank at the time the loan is made. All appraisals on multi-family or non-residential real estate loans are reviewed by the Banks management. Our underwriting procedures include considering the borrowers expertise
and require verification of the borrowers credit history, income and financial statements, banking relationships, references and income projections for the property. Where feasible, the Bank seeks to obtain personal guarantees on these loans.

A commercial borrowers financial information is monitored on an ongoing basis by requiring periodic financial statement updates,
payment history reviews and periodic face-to-face meetings with the borrower. We require commercial borrowers to provide annually updated financial statements and federal tax returns. These requirements also apply to the individual principal of our
commercial borrowers. We also require borrowers with rental investment property to provide an annual report of income and expenses for the property, including a tenant list and copies of leases, as applicable.



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At December 31, 2008, Seneca Falls Savings Banks largest non-residential real estate
relationship had six loans outstanding with an aggregate balance of $1.5 million. These loans were originated in 2008 and are secured by non-residential property in Geneva and Farmington, New York. At December 31, 2008, our largest multi-family
loan had a balance of $108,000 and is secured by a multi-unit apartment building located in Seneca Falls, New York. At December 31, 2008, these loans were performing in accordance with their terms.

Multi-family and non-residential real estate loans generally present a higher level of risk than loans secured by one- to four-family residences. This
greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions (including the current dramatic decline in the economy and in real estate values)
on income producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family residential and non-residential real estate is typically dependent upon the
successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed), the borrowers ability to repay the loan may be impaired. At December 31, 2008 we
had one $36,000 non-residential loan which was 90 days or more delinquent. On the same date, there were no multi-family loans which were 90 days or more delinquent.

Construction Lending. We make construction loans to individuals for the construction of their primary or secondary residences and to builders and developers for the construction of single-family
and multi-family properties. At December 31, 2008, our construction loans totaled $3.4 million representing 2.5% of the gross loan portfolio.

Loans to individuals for the construction of their residences typically run for up to 12 months and then convert to permanent loans. These construction loans have rates and terms comparable to one- to four-family loans offered by Seneca
Falls Savings Bank. During the construction phase the borrower pays interest only. The maximum loan-to-value ratio of owner-occupied single-family construction loans is 100% provided primary mortgage insurance is obtained to reduce the Banks
exposure to 80% or less. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential loans. At December 31, 2008, our largest outstanding residential construction loan
commitment was for $730,000 of which $730,000 was outstanding. This loan was current at December 31, 2008.

The application process
includes a submission to Seneca Falls Savings Bank of accurate plans, specifications and costs of the project to be constructed or developed. These items are used as a basis to determine the appraised value of the subject property. Loans are based
on the lesser of current appraised value and/or the cost of construction (land plus building). The Banks construction loan agreements generally provide that loan proceeds are disbursed in increments as construction progresses. Licensed
appraisers inspect the progress of the construction of the dwelling before disbursements are made.

From time to time we also make
construction loans for small commercial development projects such as multi-family, apartment and small retail and office buildings. These loans generally have an interest-only phase during construction then convert to permanent financing.
Disbursements of construction loan funds are at our discretion based on the progress of construction. The maximum loan-to-value ratio limit applicable to these loans is generally 75%.

Construction lending generally affords us an opportunity to receive higher origination and other loan fees. In addition, such loans are generally made
for relatively short terms. Nevertheless, construction lending to persons other than owner-occupants is generally considered to involve a higher level of credit risk than one- to four-family residential lending due to the concentration of principal
in a limited number of loans and borrowers and the effects of general economic conditions on construction projects, real estate developers and managers. This risk is magnified by the current severe recession in the national and local economies and
weak real estate market. In addition, the nature of these loans is such that they are more difficult to evaluate and monitor. Our risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the
propertys value upon completion of the project and the estimated cost (including interest) of the project. If the estimate of value proves to be inaccurate, we may be



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confronted, at or prior to the maturity of the loan, with a project with a value which is insufficient to assure full repayment and/or the possibility of
having to make substantial investments to complete and sell the project. Because defaults in repayment may not occur during the construction period, it may be difficult to identify problem loans at an early stage. When loan payments become due, the
cash flow from the property may not be adequate to service the debt. In such cases, we may be required to modify the terms of the loan.

Commercial Loans. Seneca Falls Savings Bank makes secured or unsecured loans to professionals, sole proprietorships and small businesses for commercial, corporate and business purposes. Commercial lending products
include term loans and revolving lines of credit. Such loans are often used for working capital purposes or for purchasing equipment, inventory or furniture. Commercial loans are made with either adjustable or fixed rates of interest. Variable rates
are based on the prime rate, as published in The Wall Street Journal, plus a margin. Fixed rate commercial loans are set at a margin above prime rate. At December 31, 2008, the Bank had $3.0 million of commercial business loans outstanding,
representing 2.2% of the total loan portfolio.

When making commercial loans, we consider the financial statements of the borrower, the
lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. Commercial loans are
generally secured by accounts receivable, inventory and equipment. Depending on the amount of the loan and the collateral used to secure the loan, commercial loans are made in amounts of up to 90% of the value of the collateral securing the loan.

Commercial loans generally have a greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally
are made on the basis of the borrowers ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher
risk and typically are made on the basis of the borrowers ability to make repayment from the cash flow of the borrowers business. As a result, the availability of funds for the repayment of commercial business loans may be substantially
dependent on the success of the business itself and the economy in which it operates (including todays recessionary economy). Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate
in value based on the success of the business. We seek to minimize these risks through our underwriting standards.

At December 31,
2008, our largest commercial loan relationship included a $100,000 line of credit of which $54,000 was outstanding at year end and a $621,000 term loan secured by receivables, inventory and equipment. Both loans were performing according to the loan
terms at December 31, 2008.

Home Equity Lending.Seneca Falls Savings Bank originates fixed-rate home equity loans and
variable rate home equity lines of credit secured by a lien on the borrowers residence. Seneca Falls Savings Banks home equity products are limited to 80% of the property value less any other mortgages. Seneca Falls Savings Bank uses the
same underwriting standards for home equity lines and loans as it uses for one- to four-family residential mortgage loans. The fixed-rate for home equity loans is generally determined as a percentage over the prime rate. The variable interest rates
for home equity lines of credit float at a stated margin over the highest prime rate published in The Wall Street Journal and may not exceed 15.00% over the life of the loan. Seneca Falls Savings Bank currently offers home equity loans with terms of
up to 15 years with principal and interest paid monthly from the closing date. The home equity lines provide for an initial draw period of up to 10 years, and payments include principal and interest calculated based on a 15 year amortization. At the
end of the initial 10 years, the line is to be paid in full. At December 31, 2008, Seneca Falls Savings Bank had $4.5 million, or 3.3% of total loans, of home equity loans and outstanding advances under home equity lines and an additional $2.5
million of funds committed, but not advanced, under home equity lines of credit. At December 31, 2008, there was one home equity loan totalling $20,000 that was 90 days or more delinquent. Home equity lending is subject to many of the same
risks as one- to four-family residential loans except that home equity loans tend to have higher loan-to-value ratios and higher household debt and thus may be more vulnerable to adverse economic conditions.

Manufactured Home Lending. We accept manufactured home loan applications obtained by a third party. The loans are secured by the
manufactured homes that are not permanently affixed to real estate and are located generally in the New England states, primarily in relatively upscale retirement communities. The loans are underwritten according to the Banks lending policy,
which provides for a maximum loan-to-value of 90% and takes into consideration the applicants previous credit history and an assessment of the applicants ability to make the proposed payments. If insurance or origination fees are
financed, the loan-to-value may exceed 100%.



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If the Bank funds the loan, the third party is paid a lump sum servicing fee for each loan and agrees to
provide collection services in the event the loan becomes delinquent equal to the gross finance charge over the life of the loan at the customer rate minus the gross finance charge over the life of the loan at the customer rate less 1.25%. A portion
of the fee paid, which is deferred and amortized over the life of the loan, is placed into an escrow account to be used to reimburse the Bank for any losses incurred under the program and for the refund of any unearned fees which result from loan
prepayments or foreclosures.

Our manufactured home loans are typically originated at somewhat higher fixed rates than one- to four-family
residential loans and are fully amortizing with contractual maturities of up to 20 years. Our manufactured home loans are not secured by real estate. At December 31, 2008, the Bank had $9.9 million, or 7.3% of total loans, of manufactured home
loans outstanding, and the loss escrow was $549,000. We expect the 2009 volume to be consistent with 2008. There were no manufactured home loans that were 90 days or more delinquent at December 31, 2008.

Because the loan may be based on the cost of the manufactured housing as well as improvements and because manufactured homes may decline in value due to
wear and tear following their initial sale, the value of the collateral securing a manufactured home loan may be less than the loan balance. As a result, such loans may be deemed to carry a higher degree of credit risk and be more vulnerable to
todays adverse economic conditions than are one- to four-family residential loans.

Automobile
Lending. We originate automobile loans through our branch network and also accept automobile applications from automobile dealerships with approved indirect lending agreements with us. Under the agreements, loan applications
are obtained by the auto dealership and forwarded to the Bank for consideration. The Bank funds the loan if the proposed loan meets the Banks underwriting standards. When considering whether to approve the loan, we review the collateral, the
applicants credit history and the applicants income as compared to all debt payments, including the proposed loan.

These loans have fixed rates with contractual maturities of up to 72 months, depending upon the age of the vehicle. The maximum loan is limited to the lower of 130% of the NADA trade-in value or 130% of the dealer invoice. A fee is paid to
the dealership, which is deferred and amortized over the life of the loan, for each loan that is funded, but there are no dealer reserves. At December 31, 2008, the Bank had $7.4 million, or 5.4% of total loans, of automobile loans outstanding.
There were two automobile loans totalling $11,000 that were 90 days or more delinquent at December 31, 2008. We expect the 2009 volume to be consistent with 2008. Most of the automobile loans originated in 2008 were for new vehicles.

Automobile loans are subject to many of the same risks discussed with respect to consumer loans, including that the value of the
collateral, which tends to depreciate quickly, may become less than the loan amount. Also, such loans are more vulnerable to changes in the overall economy, such as todays deep recession.

Other Consumer Lending. We offer a variety of other secured consumer loans, including loans secured by recreational vehicles and
savings deposits. Although most of our consumer loans are secured, we also make a fairly limited amount of unsecured personal loans. We currently originate substantially all of our other consumer loans in our market area. At December 31, 2008,
our other consumer loans totalled $1.3 million representing 0.9 % of the gross loan portfolio.

The terms of other types of other
consumer loans vary according to the type of collateral, length of contract, and creditworthiness of the borrower. The underwriting standards employed for consumer loans include a determination of the applicants payment history on other debts
and an assessment of the borrowers ability to meet payments on the proposed loan along with his existing obligations. In addition to the creditworthiness of the applicant, the underwriting process also includes a comparison of the value of the
security, if any, in relation to the proposed loan amount. Unsecured personal loans are available to creditworthy borrowers for a variety of personal needs and have been extended on a very limited basis.



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Other consumer loans may entail greater risk than residential mortgage loans, as they are typically
unsecured or secured by rapidly depreciable assets. In such cases, any repossessed collateral for defaulted consumer loans may not provide adequate sources of repayment for the outstanding loan balances as a result of the greater likelihood of
damage, loss or depreciation. In addition, consumer loan collections are dependent on the borrowers continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Also, such loans are more vulnerable
to changes in the overall economy than are residential loans. 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. At
December 31, 2008, there were no other consumer loans 90 days or more delinquent. There can be no assurance that delinquencies will not increase in the future.

Originations, Purchases and Sales of Loans

We originate real estate and other loans through
marketing efforts, our customer base, walk-in customers and referrals from real estate brokers, builders, attorneys and, in the case of automobile loans, automobile dealers. We also participate in loans originated by third parties. We currently
offer incentives to employees for loan referrals. We also employ commissioned loan originators to assist in the process of obtaining loans.

Since 2003, we have sold a portion of our fixed rate one- to four-family mortgage loan originations to the Federal Home Loan Bank of Chicago with aggregate recourse generally limited to approximately 3.67% of the sold loan balance. We
generally make decisions regarding the amount of loans we wish to sell based on interest rate management considerations. At December 31, 2008, we serviced $28.4 million of mortgage loans for others.

We purchase loans from third parties to supplement loan production. In particular, we may purchase loans of a type which are not available or available
with as favorable terms in our own market area. We generally use the same underwriting standards in evaluating loan purchases as we do in originating loans. At December 31, 2008, approximately $6.7 million of our loan portfolio was serviced by
others.



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The following represents the activity in our loan portfolio, including loans held for sale, for the years
ended December 31, 2008 and 2007:



|                                        |  |                         |         |   |      |   |         |  
|--------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                        |  | Year Ended December 31, |        
|                                        |  | 2008                    |         |   | 2007 |  
|                                        |  | (In thousands)          |        
|Total loans at beginning of period      |  | $                       | 104,487 |   |      | $ | 87,687  |  
|Originations and purchases by type:     |  |                         |         |   |      |   |         |  
|Real estate:                            |  |                         |         |   |      |   |         |  
|One- to four-family originated in-house |  |                         | 17,970  |   |      |   | 12,062  |  
|One- to four-family purchased           |  |                         | 6,635   |   |      |   |        |  
|Multi-family                            |  |                         | 100     |   |      |   |        |  
|Non-residential                         |  |                         | 5,510   |   |      |   | 1,001   |  
|Loans originated for sale1              |  |                         |        |   |      |   | 117     |  
|Construction                            |  |                         | 5,303   |   |      |   | 3,609   |  
|Commercial                              |  |                         | 3,937   |   |      |   | 2,925   |  
|Home equity                             |  |                         | 2,041   |   |      |   | 1,689   |  
|Manufactured home                       |  |                         | 4,608   |   |      |   | 3,659   |  
|Automobile                              |  |                         | 4,540   |   |      |   | 3,654   |  
|Other consumer                          |  |                         | 1,635   |   |      |   | 1,638   |  
|                                        |  |                         |         |   |      |   |         |  
|Total loans originated and purchased    |  |                         | 52,279  |   |      |   | 30,354  |  
|                                        |  |                         |         |   |      |   |         |  
|                                        |  |                        
|Deduct:                                 |  |                         |         |   |      |   |         |  
|Principal repayment                     |  |                         | 19,361  |   |      |   | 13,635  |  
|Transfer to foreclosed assets           |  |                         | 205     |   |      |   | 136     |  
|Proceeds from loans sold1               |  |                         |        |   |      |   | 182     |  
|Other                                   |  |                         | (802    | ) |      |   | (399    | )
|                                        |  |                         |         |   |      |   |         |  
|Total deductions                        |  |                         | 18,764  |   |      |   | 13,554  |  
|                                        |  |                         |         |   |      |   |         |  
|Net loan activity                       |  |                         | 33,515  |   |      |   | 16,800  |  
|                                        |  |                         |         |   |      |   |         |  
|Total loans at end of period            |  | $                       | 138,002 |   |      | $ | 104,487 |  
|                                        |  |                         |         |   |      |   |         |  



|(1) | Consisted of fixed-rate loans secured by one- to four-family residential properties.
|--- | ------------------------------------------------------------------------------------

Delinquencies and Non-Performing Assets

Delinquency Procedures. When a borrower fails to make a required payment on a loan, we attempt to cause the delinquency to be cured by contacting the borrower. A late notice is generated and is sent to all
mortgage loans 15 days delinquent and to all consumer loans 10 days delinquent. The borrower is contacted by the collections officer 20 days after the due date of all loans. Another late notice along with any required demand letters as set forth in
the loan contract are sent 30 days after the due date. Additional written and verbal contacts may be made with the borrower between 30 and 60 days after the due date.

If the delinquency is not cured by the 60th day, the customer is normally provided 30 days written notice that the account will be referred to counsel for collection and foreclosure, if necessary. If it becomes
necessary to foreclose, the property is sold at public sale and we may bid on the property to protect our interest. The decision to foreclose is made by the collection officer in our organization.

All loan charge offs are recommend by the collections officer and approved by either the President or the Executive Vice President. Our procedure for
repossession and sale of collateral are subject to various requirements under New York State consumer protection laws.

When we acquire
real estate as a result of foreclosure or by deed in lieu of foreclosure it is classified as foreclosed real estate until it is sold. The real estate is recorded at estimated fair value less estimated selling costs at the date of acquisition, and
any resulting write-down is charged to the allowance for loan losses. Subsequent decreases in the value of the property are charged to operations through the creation of a valuation allowance. After acquisition, all costs incurred in maintaining the
property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent the estimated fair value, less estimated costs to sell, exceed its carrying amount.



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For manufactured home loans, when a borrower falls ten days delinquent, a late notice is generated and
sent. In addition, a copy of the delinquency notice is sent to the third party that originates manufactured home loans. The third party performs all other collection related activities to bring the loan current. The third party determines whether to
repossess the collateral. Any losses incurred by the Bank are reimbursed to the Bank from the loan escrow account held at the Bank.

Delinquent Loans. The following table sets forth our loan delinquencies by type and amount at the dates indicated.



|                       |  |                        |  |            |       |                  |    |        |   |        |  |        |  |        |     |        |    |  |   |      
|---------------------- |  | ---------------------- |  | ---------- | ----- | ---------------- | -- | ------ | - | ------ |  | ------ |  | ------ | --- | ------ | -- |  | - | -----
|                       |  | Loans Delinquent For  
|                       |  | 30-59 Days             |  | 60-89 Days |       | 90 Days and Over |    | Total 
|                       |  | Number                 |  | Amount     |       | Number           |    | Amount |   | Number |  | Amount |  | Number |     | Amount
|                       |  | (Dollars in thousands)
|At December 31, 2008   |  |                        |  |            |       |                  |    |        |   |        |  |        |  |        |     |        |    |  |   |      
|Real estate mortgages: |  |                        |  |            |       |                  |    |        |   |        |  |        |  |        |     |        |    |  |   |      
|One- to four-family    |  | 38                     |  | $          | 2,579 |                  | 8  |        | $ | 497    |  | 3      |  | $      | 149 |        | 49 |  | $ | 3,225
|Multi-family           |  |                       |  |            |      |                  | 1  |        |   | 13     |  |       |  |        |    |        | 1  |  |   | 13   
|Non-residential        |  | 2                      |  |            | 291   |                  | 1  |        |   | 82     |  | 1      |  |        | 36  |        | 4  |  |   | 409  
|Home equity            |  | 1                      |  |            | 23    |                  |   |        |   |       |  | 1      |  |        | 20  |        | 2  |  |   | 43   
|Manufactured home      |  | 2                      |  |            | 157   |                  |   |        |   |       |  |       |  |        |    |        | 2  |  |   | 157  
|Automobile             |  | 5                      |  |            | 49    |                  |   |        |   |       |  | 2      |  |        | 11  |        | 7  |  |   | 60   
|Other consumer         |  | 3                      |  |            | 7     |                  | 1  |        |   | 2      |  |       |  |        |    |        | 4  |  |   | 9    
|                       |  |                        |  |            |       |                  |    |        |   |        |  |        |  |        |     |        |    |  |   |      
|Total                  |  | 51                     |  | $          | 3,106 |                  | 11 |        | $ | 594    |  | 7      |  | $      | 216 |        | 69 |  | $ | 3,916
|                       |  |                        |  |            |       |                  |    |        |   |        |  |        |  |        |     |        |    |  |   |      
|At December 31, 2007   |  |                        |  |            |       |                  |    |        |   |        |  |        |  |        |     |        |    |  |   |      
|Real estate mortgages: |  |                        |  |            |       |                  |    |        |   |        |  |        |  |        |     |        |    |  |   |      
|One- to four-family    |  | 34                     |  | $          | 2,156 |                  | 7  |        | $ | 441    |  | 5      |  | $      | 246 |        | 46 |  | $ | 2,843
|Multi-family           |  | 1                      |  |            | 79    |                  |   |        |   |       |  |       |  |        |    |        | 1  |  |   | 79   
|Non-residential        |  |                       |  |            |      |                  | 1  |        |   | 75     |  | 1      |  |        | 32  |        | 2  |  |   | 107  
|Construction           |  | 1                      |  |            | 145   |                  |   |        |   |       |  |       |  |        |    |        | 1  |  |   | 145  
|Commercial             |  | 1                      |  |            | 4     |                  |   |        |   |       |  |       |  |        |    |        | 1  |  |   | 4    
|Home equity            |  | 1                      |  |            | 37    |                  | 1  |        |   | 22     |  | 1      |  |        | 26  |        | 3  |  |   | 85   
|Automobile             |  | 6                      |  |            | 66    |                  | 1  |        |   | 7      |  |       |  |        |    |        | 7  |  |   | 73   
|Other consumer         |  | 5                      |  |            | 13    |                  | 3  |        |   | 2      |  |       |  |        |    |        | 8  |  |   | 15   
|                       |  |                        |  |            |       |                  |    |        |   |        |  |        |  |        |     |        |    |  |   |      
|Total                  |  | 49                     |  | $          | 2,500 |                  | 13 |        | $ | 547    |  | 7      |  | $      | 304 |        | 69 |  | $ | 3,351
|                       |  |                        |  |            |       |                  |    |        |   |        |  |        |  |        |     |        |    |  |   |      



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##### Table of Contents

Classified Assets. Federal regulations provide for the classification of loans and
other assets, such as debt and equity securities considered by the Office of Thrift Supervision (the OTS) to be of lesser quality, as substandard, doubtful or loss. An asset is considered
substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct
possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard, with
the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as
loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured
institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are placed on a watch list by our management.

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent
by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies problem assets as loss, it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to
charge-off such amount. An institutions determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, who may order the establishment of additional general
or specific loss allowances.

In connection with the filing of our periodic reports with the OTS and in accordance with our classification
of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.

A Special Mention asset has potential weaknesses that deserve managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or
in the institutions credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

On the basis of this review of our assets, we had classified or held as special mention the following assets:



|                                            |  |                 |       |      |   |      
|------------------------------------------- |  | --------------- | ----- | ---- | - | -----
|                                            |  | At December 31,
|                                            |  | 2008            |       | 2007
|                                            |  | (In thousands) 
|Substandard                                 |  | $               | 648   |      | $ | 454  
|Doubtful                                    |  |                 | 19    |      |   | 2    
|Loss                                        |  |                 |      |      |   |     
|Special mention                             |  |                 | 606   |      |   | 895  
|                                            |  |                 |       |      |   |      
|Total classified and special mention assets |  | $               | 1,273 |      | $ | 1,351
|                                            |  |                 |       |      |   |      

Our classified assets consist of the (i) non-performing loans and (ii) loans and other
assets of concern discussed herein. As of the date hereof, these asset classifications are consistent with those of the OTS and the FDIC.

Substandard loans at December 31, 2008 include three non-residential loans, one one- to four-family real estate mortgage and one commercial loan that are accruing interest as they are on repayment plans, and management believes that
all interest will be paid in accordance with the loan terms.

Special mention assets at December 31, 2008 consisted of five
residential loans which were either current or less than 90 days delinquent where the collateral was considered adequate to cover the loan but management had concerns regarding the borrowers because of failure to pay real estate taxes, personal
bankruptcy, chronic late payments or other reasons, and one non-residential mortgage which was current where the underlying rental property was not providing sufficient cash flow to service the debt and one unsecured consumer loan that was over 60
days delinquent.



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##### Table of Contents

Assets classified or held as special mention decreased $78,000, or 5.8% to $1.3 million at
December 31, 2008 from $1.4 million at December 31, 2007. The decrease is primarily attributable to the foreclosure of two properties and three loans becoming current.

Non-Performing Assets.The table below sets forth the amounts and categories of our non-performing assets at the dates
indicated. At each date presented, we had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates). There are no loans
greater than 90 days delinquent and still accruing.



|                                      |  |                        |      |   |      |   |      |  
|------------------------------------- |  | ---------------------- | ---- | - | ---- | - | ---- | -
|                                      |  | At December 31,        |     
|                                      |  | 2008                   |      |   | 2007 |  
|                                      |  | (Dollars in thousands) |     
|Non-accrual loans:                    |  |                        |      |   |      |   |      |  
|Real estate mortgages:                |  |                        |      |   |      |   |      |  
|One- to four-family                   |  | $                      | 149  |   |      | $ | 246  |  
|Non-residential                       |  |                        | 36   |   |      |   | 32   |  
|Home equity                           |  |                        | 20   |   |      |   | 26   |  
|Automobile                            |  |                        | 11   |   |      |   |     |  
|                                      |  |                        |      |   |      |   |      |  
|Total non-accrual loans               |  |                        | 216  |   |      |   | 304  |  
|Foreclosed assets, net                |  |                        | 155  |   |      |   | 142  |  
|                                      |  |                        |      |   |      |   |      |  
|Total non-performing assets           |  | $                      | 371  |   |      | $ | 446  |  
|                                      |  |                        |      |   |      |   |      |  
|Ratios:                               |  |                        |      |   |      |   |      |  
|Non-performing loans to total loans   |  |                        | 0.16 | % |      |   | 0.29 | %
|Non-performing loans to total assets  |  |                        | 0.12 | % |      |   | 0.21 | %
|Non-performing assets to total assets |  |                        | 0.21 | % |      |   | 0.31 | %

The accrual of interest is discontinued when contractual payment of principal or interest has
become 90 days past due or management has serious doubts about further collectibility of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either
guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Interest received on nonaccrual loans generally is applied against principal. Generally, loans are restored to accrual status
when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

For the year ended December 31, 2008, gross interest income which would have been recorded had our non-accruing loans been current in accordance
with their original terms amounted to $18,000. Interest income recognized on such loans for the year ended December 31, 2008 was $12,000.

At December 31, 2008, there were no other loans or other assets that are not disclosed in the table above or disclosed as classified or special mention, where known information about the possible credit problems of borrowers caused us
to have serious doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in disclosure of such loans in the future.

Allowance for Loan Losses

Analysis and Determination of the Allowance for Loan
Losses. Our allowance for loan losses is a valuation allowance for probable losses inherent in our loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances
are necessary, a provision for loan losses is charged to earnings.



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##### Table of Contents

Our methodology for assessing the appropriateness of the allowance for loan losses consists of three key
elements: (1) specific allowances for identified problem loans; (2) a general valuation allowance on certain identified problem loans; and (3) a general valuation allowance on the remainder of the loan portfolio. Although we determine
the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.

Specific Allowances for Identified Problem Loans. We establish an allowance on identified problem loans based on such factors as: (1) the strength of the customers personal or business cash flows;
(2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; (6) the estimated cost to sell the collateral; and
(7) the borrowers efforts to cure the delinquency. In addition, for loans secured by real estate, we consider the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage.

General Valuation Allowance on Certain Identified Problem Loans. We also establish a general allowance for loans
classified as special mention that do not have an individual allowance. We segregate these loans by loan category and assign allowance percentages to each category based on inherent losses associated with each type of lending and consideration that
these loans, in the aggregate, represent an above-average credit risk and that more of these loans will prove to be uncollectible compared to loans in the general portfolio.

General Valuation Allowance on the Remainder of the Loan Portfolio. We establish another general allowance for loans that are not
classified to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This general valuation allowance is determined by segregating the loans by
loan category and assigning allowance percentages based on our historical loss experience, delinquency trends and managements evaluation of the collectibility of the loan portfolio. The allowance may be adjusted for significant factors that,
in managements judgment, affect the collectibility of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions
affecting our primary market area, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and
bank regulatory examination results. The applied loss factors are re-evaluated quarterly to ensure their relevance in the current environment.

In addition, as an integral part of their examination process, the Office of Thrift Supervision and Federal Deposit Insurance Corporation will periodically review our allowance for loan losses. Such agencies may require that we recognize
additions to the allowance based on their judgments of information available to them at the time of their examination.



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##### Table of Contents

Allowance for Loan Losses. The following table sets forth activity in our allowance
for loan losses for the fiscal years indicated.



|                                                           |  |                                       |        |   |      |   |        |  
|---------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                           |  | At or For the YearsEnded December 31, |       
|                                                           |  | 2008                                  |        |   | 2007 |  
|                                                           |  | (Dollars in thousands)                |       
|Balance at beginning of year                               |  | $                                     | 458    |   |      | $ | 391    |  
|                                                           |  |                                       |        |   |      |   |        |  
|                                                           |  |                                      
|Charge-offs:                                               |  |                                       |        |   |      |   |        |  
|One- to four-family real estate mortgages                  |  |                                       | (30    | ) |      |   | (14    | )
|Home equity                                                |  |                                       | (9     | ) |      |   |       |  
|Automobile                                                 |  |                                       | (8     | ) |      |   |       |  
|Other consumer                                             |  |                                       | (18    | ) |      |   | (25    | )
|                                                           |  |                                       |        |   |      |   |        |  
|Total charge-offs                                          |  |                                       | (65    | ) |      |   | (39    | )
|                                                           |  |                                       |        |   |      |   |        |  
|                                                           |  |                                      
|Recoveries:                                                |  |                                       |        |   |      |   |        |  
|One- to four-family real estate mortgages                  |  |                                       | 28     |   |      |   | 2      |  
|Automobile                                                 |  |                                       | 2      |   |      |   | 1      |  
|Other consumer                                             |  |                                       | 5      |   |      |   | 7      |  
|                                                           |  |                                       |        |   |      |   |        |  
|Total recoveries                                           |  |                                       | 35     |   |      |   | 10     |  
|                                                           |  |                                       |        |   |      |   |        |  
|                                                           |  |                                      
|Net (charge-offs)                                          |  |                                       | (30    | ) |      |   | (29    | )
|Provision for loan losses                                  |  |                                       | 130    |   |      |   | 96     |  
|                                                           |  |                                       |        |   |      |   |        |  
|                                                           |  |                                      
|Balance at end of year                                     |  | $                                     | 558    |   |      | $ | 458    |  
|                                                           |  |                                       |        |   |      |   |        |  
|                                                           |  |                                      
|Allowance to non-performing loans                          |  |                                       | 258.33 | % |      |   | 150.66 | %
|Allowance to total loans outstanding at end of period      |  |                                       | 0.41   | % |      |   | 0.44   | %
|Net charge-offs to average loans outstanding during period |  |                                       | 0.03   | % |      |   | 0.03   | %



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##### Table of Contents

Allocation of Allowance for Loan Losses.The following table sets
forth the allowance for loan losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not
necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.



|                       |  |                         |         |                         |      |                                   |  |       |                         |  |                         |         |                                   |   |     |  |       |  
|---------------------- |  | ----------------------- | ------- | ----------------------- | ---- | --------------------------------- |  | ----- | ----------------------- |  | ----------------------- | ------- | --------------------------------- | - | --- |  | ----- | -
|                       |  | At December 31,         |        
|                       |  | 2008                    |         |                         | 2007 |                                  
|                       |  | LoanBalances byCategory |         | Allowancefor LoanLosses |      | Percent ofAllowancefor LoanLosses |  |       | LoanBalances byCategory |  | Allowancefor LoanLosses |         | Percent ofAllowancefor LoanLosses |  
|                       |  | (Dollars in thousands)  |        
|Real estate mortgages: |  |                         |         |                         |      |                                   |  |       |                         |  |                         |         |                                   |   |     |  |       |  
|One- to four-family    |  | $                       | 97,362  |                         | $    | 260                               |  | 46.6  | %                       |  | $                       | 77,906  |                                   | $ | 284 |  | 62.0  | %
|Multi-family           |  |                         | 563     |                         |      | 2                                 |  | 0.4   |                         |  |                         | 594     |                                   |   | 2   |  | 0.4   |  
|Non-residential        |  |                         | 9,075   |                         |      | 75                                |  | 13.4  |                         |  |                         | 3,707   |                                   |   | 45  |  | 9.8   |  
|Construction           |  |                         | 3,352   |                         |      | 7                                 |  | 1.3   |                         |  |                         | 2,359   |                                   |   | 6   |  | 1.3   |  
|Commercial             |  |                         | 3,020   |                         |      | 54                                |  | 9.7   |                         |  |                         | 1,795   |                                   |   | 21  |  | 4.6   |  
|Home equity            |  |                         | 4,535   |                         |      | 24                                |  | 4.3   |                         |  |                         | 4,244   |                                   |   | 16  |  | 3.5   |  
|Manufactured home      |  |                         | 9,945   |                         |      |                                  |  |      |                         |  |                         | 6,326   |                                   |   |    |  |      |  
|Automobile             |  |                         | 7,382   |                         |      | 105                               |  | 18.8  |                         |  |                         | 5,453   |                                   |   | 66  |  | 14.4  |  
|Other consumer         |  |                         | 1,251   |                         |      | 13                                |  | 2.3   |                         |  |                         | 1,389   |                                   |   | 14  |  | 3.1   |  
|Unallocated            |  |                         |        |                         |      | 18                                |  | 3.2   |                         |  |                         |        |                                   |   | 4   |  | 0.9   |  
|                       |  |                         |         |                         |      |                                   |  |       |                         |  |                         |         |                                   |   |     |  |       |  
|Total                  |  | $                       | 136,485 |                         | $    | 558                               |  | 100.0 | %                       |  | $                       | 103,773 |                                   | $ | 458 |  | 100.0 | %
|                       |  |                         |         |                         |      |                                   |  |       |                         |  |                         |         |                                   |   |     |  |       |  

At December 31, 2008, our allowance for loan losses represented 0.41% of total gross loans
and 258.3% of nonperforming loans. The allowance for loan losses increased to $558,000 at December 31, 2008 from $458,000 at December 31, 2007, due to the provision for loan losses of $130,000, offset by net charge-offs of $30,000. The
provision for loan losses reflected increased loan diversification. During 2008, we modified our allowance calculation by including values assigned to various reserve factors such as volume, mix, local and national economics, delinquency and other
historical performance measures by loan category. The modification did not materially affect our calculation; however, as we continue to diversify our loan portfolio, additional reserves may be required to reflect increased risk associated with the
loan portfolio. No reserve is allocated to manufactured home loans as a portion of the fee paid to a third party is placed in a loss escrow account to be used to reimburse the Bank for any losses incurred on the portfolio, including unamortized
fees. The loss escrow account balance at December 31, 2008 was $549,000, which represents 5.0% of the manufactured home loan portfolio and unamortized fees which we believe is sufficient to absorb the inherent losses within the portfolio. In
addition, no additional reserve is allocated to one- to four-family residential mortgages purchased under our agreement with another financial institution as a portion of the fee paid to them is also placed in a loss escrow account to be used to
reimburse the Bank for any losses incurred on the portfolio, including unamortized fees. The loss escrow account balance at December 31, 2008 was $157,000, which represents 2.3% of the loans purchased and unamortized fees which we believe is
sufficient to absorb the inherent losses within the portfolio.

Although we believe that we use the best information available to establish
the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
Furthermore, while we believe we have established our allowance for loan losses in conformity with accounting principles generally accepted in the United States of America, there can be no assurance that regulators, in reviewing our loan portfolio,
will not request us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is
adequate or that increases will not be necessary should the quality of any loan deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results
of operations.



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##### Table of Contents

Investment Activities

General. The Bank utilizes mortgage-backed and other debt securities in virtually all aspects of its asset/liability management strategy. In making investment decisions, management considers,
among other things, the Banks yield and interest rate objectives, its interest rate risk and credit risk position, its loan volume, and its liquidity and cash flow.

The Bank maintains minimum levels of liquid assets to ensure it has adequate cash to fund anticipated needs. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Cash flow projections are reviewed and updated regularly to assure that adequate liquidity is maintained. The Banks level of liquidity is a result of managements asset/liability strategy.

Mortgage-Backed Securities. The Bank has invested in mortgage-backed pass-through securities in order to match their
estimated principal and interest repayment stream with that of the Banks long-term debt. The Bank may also purchase mortgage-backed pass-through securities to supplement loan production and achieve its asset/liability management goals. All of
these securities owned by the Bank are issued, insured or guaranteed either directly or indirectly by a Federal agency, a government sponsored enterprise or are rated AA or higher.

It should be noted that, while a Federal agency, government sponsored enterprise guarantee or a high credit rating may indicate a high degree of
protection against default, such guarantees and ratings do not protect the securities from declines in value based on changes in interest rates or prepayment speeds. The Banks mortgage-backed pass-through securities portfolio at
December 31, 2008 included (i) $10.0 million of fixed-rate securities with weighted average remaining contractual maturities of 15.2 years and (ii) $3.8 million of adjustable-rate mortgage-backed securities.



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##### Table of Contents

Mortgage-Backed Securities Portfolio Composition. The following table sets forth the
composition of the Banks mortgage-backed securities portfolio at the dates indicated.



|                                                    |  |                 |        |           |   |               |  |           |        |  |   |       
|--------------------------------------------------- |  | --------------- | ------ | --------- | - | ------------- |  | --------- | ------ |  | - | ------
|                                                    |  | At December 31,
|                                                    |  | 2008            |        | 2007     
|                                                    |  | AmortizedCost   |        | FairValue |   | AmortizedCost |  | FairValue
|                                                    |  | (In thousands) 
|Trading mortgage-backed securities:                 |  |                 |        |           |   |               |  |           |        |  |   |       
|Pass-through securities:                            |  |                 |        |           |   |               |  |           |        |  |   |       
|SBA                                                 |  | $               | 1,757  |           | $ | 1,757         |  | $         | 2,366  |  | $ | 2,366 
|Freddie Mac                                         |  |                 | 13     |           |   | 13            |  |           | 1,325  |  |   | 1,325 
|                                                    |  |                 |        |           |   |               |  |           |        |  |   |       
|Total trading mortgage-backed securities            |  |                 | 1,770  |           |   | 1,770         |  |           | 3,691  |  |   | 3,691 
|                                                    |  |                 |        |           |   |               |  |           |        |  |   |       
|Mortgage-backed securities available-for-sale:      |  |                 |        |           |   |               |  |           |        |  |   |       
|Pass-through securities:                            |  |                 |        |           |   |               |  |           |        |  |   |       
|Freddie Mac                                         |  |                 | 1,138  |           |   | 1,171         |  |           | 1,289  |  |   | 1,292 
|                                                    |  |                 |        |           |   |               |  |           |        |  |   |       
|Total mortgage-backed securities available-for-sale |  |                 | 1,138  |           |   | 1,171         |  |           | 1,289  |  |   | 1,292 
|                                                    |  |                 |        |           |   |               |  |           |        |  |   |       
|Mortgage-backed securities held-to-maturity:        |  |                 |        |           |   |               |  |           |        |  |   |       
|Pass-through securities:                            |  |                 |        |           |   |               |  |           |        |  |   |       
|Fannie Mae                                          |  |                 | 5,132  |           |   | 5,303         |  |           | 6,258  |  |   | 6,402 
|Freddie Mac                                         |  |                 | 4,555  |           |   | 4,641         |  |           | 5,758  |  |   | 5,791 
|Ginnie Mae                                          |  |                 | 39     |           |   | 44            |  |           | 49     |  |   | 55    
|Private issuer                                      |  |                 | 1,136  |           |   | 931           |  |           | 1,343  |  |   | 1,369 
|                                                    |  |                 |        |           |   |               |  |           |        |  |   |       
|Total mortgage-backed securities held-to-maturity   |  |                 | 10,862 |           |   | 10,919        |  |           | 13,408 |  |   | 13,617
|                                                    |  |                 |        |           |   |               |  |           |        |  |   |       
|                                                    |  |                 |        |          
|Total mortgage-backed securities                    |  | $               | 13,770 |           | $ | 13,860        |  | $         | 18,388 |  | $ | 18,600
|                                                    |  |                 |        |           |   |               |  |           |        |  |   |       



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##### Table of Contents

Mortgage-Backed Securities Portfolio Maturities and Yields. The following table sets
forth the contractual maturities and weighted average yields of Seneca Falls Savings Banks securities portfolio at December 31, 2008. Mortgage-backed securities are anticipated to be repaid in advance of their contractual maturities as a
result of projected underlying mortgage loan prepayments. In addition, under the structure of some of the Banks CMOs, the Banks short- and intermediate-tranche interests have repayment priority over the longer term tranches of the same
underlying mortgage pool.



|                                                    |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        |  |   |        |  |      |  
|--------------------------------------------------- |  | ---------------------- | - | -------------------- | ------------------------------------ | - | ------------- | ------------------------------------- | -------------------- |  | ------------------- | ------------- |  | -------------------- | ----- |  | ------------- | - | -------------------- | - | ----- | ------------- | ---- | --------- |  | -------------------- | ------ |  | - | ------ |  | ---- | -
|                                                    |  | One Year or Less       |   |                      | More than One Yearthrough Five Years |   |               | More than Five Yearsthrough Ten Years |                      |  | More than Ten Years |               |  | Total Securities     |      
|                                                    |  | AmortizedCost          |   | WeightedAverageYield |                                      |   | AmortizedCost |                                       | WeightedAverageYield |  |                     | AmortizedCost |  | WeightedAverageYield |       |  | AmortizedCost |   | WeightedAverageYield |   |       | AmortizedCost |      | FairValue |  | WeightedAverageYield |       
|                                                    |  | (Dollars in thousands) |  
|Trading mortgage-backed securities:                 |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        | 
|Pass-through securities:                            |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        |  |   |        |  |      |  
|Freddie Mac                                         |  | $                      |  |                      |                                     |   |               | $                                     |                     |  |                    |               |  | $                    |      |  |              |   |                      | $ | 13    |               | 5.00 | %         |  | $                    | 13     |  | $ | 13     |  | 5.00 | %
|SBA                                                 |  |                        |  |                      |                                     |   |               |                                       |                     |  |                    |               |  |                      |      |  |              |   |                      |   | 1,757 |               | 5.63 | %         |  |                      | 1,757  |  |   | 1,757  |  | 5.63 | %
|                                                    |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        |  |   |        |  |      |  
|Trading mortgage-backed securities                  |  | $                      |  |                      |                                     |   |               | $                                     |                     |  |                    |               |  | $                    |      |  |              |   |                      | $ | 1,770 |               | 5.63 | %         |  | $                    | 1,770  |  | $ | 1,770  |  | 5.63 | %
|                                                    |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        |  |   |        |  |      |  
|                                                    |  |                        |   |                      |                                      |   |               |                                       |                     
|Mortgage-backed securities available-for-sale:      |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        | 
|Pass-through securities:                            |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        |  |   |        |  |      |  
|Freddie Mac                                         |  | $                      |  |                      |                                     |   |               | $                                     |                     |  |                    |               |  | $                    |      |  |              |   |                      | $ | 1,138 |               | 5.50 | %         |  | $                    | 1,138  |  | $ | 1,171  |  | 5.50 | %
|                                                    |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        |  |   |        |  |      |  
|Total mortgage-backed securities available-for-sale |  | $                      |  |                      |                                     |   |               | $                                     |                     |  |                    |               |  | $                    |      |  |              |   |                      | $ | 1,138 |               | 5.50 | %         |  | $                    | 1,138  |  | $ | 1,171  |  | 5.50 | %
|                                                    |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        |  |   |        |  |      |  
|                                                    |  |                        |   |                      |                                      |   |               |                                       |                     
|Mortgage-backed securities held-to-maturity:        |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        | 
|Pass-through securities:                            |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        |  |   |        |  |      |  
|Fannie Mae                                          |  | $                      |  |                      |                                     |   |               | $                                     | 1,842                |  | 5.64                | %             |  | $                    | 275   |  | 4.05          | % |                      | $ | 3,015 |               | 4.91 | %         |  | $                    | 5,132  |  | $ | 5,303  |  | 5.13 | %
|Freddie Mac                                         |  |                        |  |                      |                                     |   |               |                                       | 15                   |  | 6.50                | %             |  |                      | 1,169 |  | 5.50          | % |                      |   | 3,371 |               | 5.35 | %         |  |                      | 4,555  |  |   | 4,641  |  | 5.39 | %
|Ginnie Mae                                          |  |                        | 2 |                      | 9.91                                 | % |               |                                       |                     |  |                    |               |  |                      |      |  |              |   |                      |   | 37    |               | 7.50 | %         |  |                      | 39     |  |   | 44     |  | 7.62 | %
|Private issue                                       |  |                        |  |                      |                                     |   |               |                                       |                     |  |                    |               |  |                      |      |  |              |   |                      |   | 1,136 |               | 4.50 | %         |  |                      | 1,136  |  |   | 931    |  | 4.50 | %
|                                                    |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        |  |   |        |  |      |  
|Total mortgage-backed securities held-to-maturity   |  | $                      | 2 |                      | 9.91                                 | % |               | $                                     | 1,857                |  | 5.65                | %             |  | $                    | 1,444 |  | 5.22          | % |                      | $ | 7,559 |               | 5.06 | %         |  | $                    | 10,862 |  | $ | 10,919 |  | 5.18 | %
|                                                    |  |                        |   |                      |                                      |   |               |                                       |                      |  |                     |               |  |                      |       |  |               |   |                      |   |       |               |      |           |  |                      |        |  |   |        |  |      |  



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Investment Securities. Our other investment securities currently consist of
high-quality assets (primarily Government and Agency obligations) with short and intermediate terms (ten years or less) to maturity and liquidity investments and certain equity securities. At December 31, 2008, the Bank did not own any debt
securities of a single issuer where the carrying value exceeded 10% of the Banks equity, other than Government or Federal Agency obligations.

Investment Securities Portfolio.The following table sets forth the composition of our investment securities portfolio at the dates indicated.



|                                 |  |                 |       |            |   |               |  |            |       |  |   |      
|-------------------------------- |  | --------------- | ----- | ---------- | - | ------------- |  | ---------- | ----- |  | - | -----
|                                 |  | At December 31,
|                                 |  | 2008            |       | 2007      
|                                 |  | AmortizedCost   |       | Fair Value |   | AmortizedCost |  | Fair Value
|                                 |  | (In thousands) 
|Trading securities:              |  |                 |       |            |   |               |  |            |       |  |   |      
|Equity securities                |  | $               | 703   |            | $ | 703           |  | $          | 1,766 |  | $ | 1,776
|                                 |  |                 |       |            |   |               |  |            |       |  |   |      
|                                 |  |                 |       |           
|Securities available-for-sale:   |  |                 |       |            |   |               |  |            |       |  |   |      
|Equity securities                |  | $               | 1,022 |            | $ | 1,022         |  | $          | 1,539 |  | $ | 1,481
|                                 |  |                 |       |            |   |               |  |            |       |  |   |      
|                                 |  |                 |       |           
|Securities held-to-maturity:     |  |                 |       |            |   |               |  |            |       |  |   |      
|State and political subdivisions |  | $               | 2,077 |            | $ | 2,081         |  | $          | 92    |  | $ | 96   
|                                 |  |                 |       |            |   |               |  |            |       |  |   |      



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Portfolio Maturities and Yields.The composition and maturities of the
investment securities portfolio at December 31, 2008 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.



|                                 |  |                        |       |                      |                                      |   |               |                                       |                      |  |                     |               |                  |                      |   |  |               |   |                      |   |               |  |           |  |                      |       |  |   |       |  |      |  
|-------------------------------- |  | ---------------------- | ----- | -------------------- | ------------------------------------ | - | ------------- | ------------------------------------- | -------------------- |  | ------------------- | ------------- | ---------------- | -------------------- | - |  | ------------- | - | -------------------- | - | ------------- |  | --------- |  | -------------------- | ----- |  | - | ----- |  | ---- | -
|                                 |  | One Year or Less       |       |                      | More than One Yearthrough Five Years |   |               | More than Five Yearsthrough Ten Years |                      |  | More than Ten Years |               | Total Securities |                     
|                                 |  | AmortizedCost          |       | WeightedAverageYield |                                      |   | AmortizedCost |                                       | WeightedAverageYield |  |                     | AmortizedCost |                  | WeightedAverageYield |   |  | AmortizedCost |   | WeightedAverageYield |   | AmortizedCost |  | FairValue |  | WeightedAverageYield |      
|                                 |  | (Dollars in thousands) |      
|Trading securities:              |  |                        |       |                      |                                      |   |               |                                       |                      |  |                     |               |                  |                      |   |  |               |   |                      |   |               |  |           |  |                      |       |  |   |       |  |      |  
|Equity securities                |  | $                      |      |                      |                                     |   |               | $                                     |                     |  |                    |               |                  | $                    |  |  |              |   |                      | $ |              |  |          |  | $                    | 703   |  | $ | 703   |  |     |  
|                                 |  |                        |       |                      |                                      |   |               |                                       |                      |  |                     |               |                  |                      |   |  |               |   |                      |   |               |  |           |  |                      |       |  |   |       |  |      |  
|                                 |  |                        |       |                      |                                      |   |               |                                       |                      |  |                    
|Securities available-for-sale:   |  |                        |       |                      |                                      |   |               |                                       |                      |  |                     |               |                  |                      |   |  |               |   |                      |   |               |  |           |  |                      |       |  |   |       |  |      |  
|Equity securities                |  | $                      |      |                      |                                     |   |               | $                                     |                     |  |                    |               |                  | $                    |  |  |              |   |                      | $ |              |  |          |  | $                    | 1,022 |  | $ | 1,022 |  |     |  
|                                 |  |                        |       |                      |                                      |   |               |                                       |                      |  |                     |               |                  |                      |   |  |               |   |                      |   |               |  |           |  |                      |       |  |   |       |  |      |  
|                                 |  |                        |       |                      |                                      |   |               |                                       |                      |  |                    
|Securities held-to-maturity:     |  |                        |       |                      |                                      |   |               |                                       |                      |  |                     |               |                  |                      |   |  |               |   |                      |   |               |  |           |  |                      |       |  |   |       |  |      |  
|State and political subdivisions |  | $                      | 2,000 |                      | 2.00                                 | % |               | $                                     | 70                   |  | 5.54                | %             |                  | $                    | 7 |  | 7.4           | % |                      | $ |              |  |          |  | $                    | 2,077 |  | $ | 2,081 |  | 2.14 | %
|                                 |  |                        |       |                      |                                      |   |               |                                       |                      |  |                     |               |                  |                      |   |  |               |   |                      |   |               |  |           |  |                      |       |  |   |       |  |      |  



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Equity Securities. At December 31, 2008, we owned 161,685 shares of the Large
Cap Equity Fund, Inc. (the Fund) with a fair value of $1.0 million. The Fund was designed as an investment vehicle for New York savings banks with the primary objective of achieving capital appreciation and a secondary objective of
providing income to its shareholders. The Fund invests primarily in dividend-paying common stocks of companies with market capitalizations in excess of $5 billion. The Fund provided total dividends of $37,000 during the year ended December 31,
2008 as compared to $159,000 for the prior year. Most of the Funds dividends are paid at year-end based on the value of capital gains realized during the course of the year.

During 2008, we recognized a $517,000 impairment loss on the Large Cap Equity Fund (LCEF). After considering the LCEFs composition,
which is primarily stock in companies with capitalization exceeding $5 billion, the stock performance of the companies owned by LCEF and current economic forecasts, we believe that the loss will not be recovered in the near term, and concluded that
the securitys impairment was other-than-temporary.

At December 31, 2008, we owned 96,270 shares of the AMF Ultra Short Mortgage
Fund (the AMF Fund) with a fair value of $703,000, which are in our trading portfolio. The AMF Fund invests primarily in mortgage-backed securities with an average duration similar to that of a one-year US Treasury note. The AMF Fund
provided total dividends of $62,000 during the year ended December 31, 2008 as compared to $89,000 for the prior year. The AMF Fund dividends are paid monthly based on the return provided by the underlying investments.

During 2008, we recognized market value losses of $303,000 on the AMF Fund. The AMF Fund has limited cash redemptions to $250,000 every ninety days since
March 2008; otherwise, any redemption requested will be paid through the transfer of a pro-rata share of the underlying securities held by the AMF Fund. We redeemed $750,000 during 2008, realizing an $11,000 loss on sale. We expect, subject to
market conditions, to request further cash redemptions during the remainder of 2009.

FHLB Stock.The Bank is required to
maintain an investment in the stock of the Federal Home Loan Bank of New York (FHLB) in an amount equal to at least 1% of the unpaid principal balances of the Banks residential mortgage loans or 1/20 of its outstanding advances
from the FHLB, whichever is greater. Purchases and sales of stock are made directly with the FHLB at par value.

During 2008, the FHLB paid
$50,000 in dividends as compared to $99,000 in the prior year. The dividend paid fluctuates significantly and may be reduced in the future, depending on the FHLBs performance.

Sources of Funds

General.Deposits have traditionally been the primary source of funds
for use in lending and investment activities. We also use borrowings, primarily Federal Home Loan Bank of New York advances, to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost
of funds. In addition, funds are derived from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources
of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

Deposits.Our deposits are generated primarily from residents within our primary market area. We offer a selection of deposit accounts, including demand accounts, NOW accounts, money market
accounts, savings accounts and certificates of deposit.Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. In recent years
we have emphasized, subject to market conditions, demand, interest bearing checking and savings accounts. We have not accepted brokered deposits in the recent past, although we have the authority to do so.

Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based
primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. Personalized customer service and long-standing relationships with customers are relied upon to attract and retain
deposits.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing
interest rates and competition. The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on our experience, we believe that passbook statement savings, demand and NOW
accounts



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can be relatively stable sources of deposits as compared to certificate deposits. However, our ability to attract and maintain all deposits, and the rates
paid on these deposits, has been and will continue to be significantly affected by market conditions.

The following table sets forth the
distribution of total deposits by account type, at the dates indicated.



|                                     |  |                        |         |         |       |   |                     |      |   |         |   |         |  |       |                     |  |      |  
|------------------------------------ |  | ---------------------- | ------- | ------- | ----- | - | ------------------- | ---- | - | ------- | - | ------- |  | ----- | ------------------- |  | ---- | -
|                                     |  | At December 31,        |        
|                                     |  | 2008                   |         |         | 2007  |  
|                                     |  | Balance                |         | Percent |       |   | WeightedAverageRate |      |   | Balance |   | Percent |  |       | WeightedAverageRate | 
|                                     |  | (Dollars in thousands) |        
|Demand and interest-bearing checking |  | $                      | 20,840  |         | 16.1  | % |                     | 0.33 | % |         | $ | 16,260  |  | 14.2  | %                   |  | 0.14 | %
|Money market deposits                |  |                        | 6,642   |         | 5.2   |   |                     | 1.95 |   |         |   | 5,281   |  | 4.6   |                     |  | 1.81 |  
|Savings accounts                     |  |                        | 44,324  |         | 34.4  |   |                     | 1.57 |   |         |   | 44,021  |  | 38.5  |                     |  | 2.06 |  
|                                     |  |                        |         |         |       |   |                     |      |   |         |   |         |  |       |                     |  |      |  
|Total transaction accounts           |  |                        | 71,806  |         | 55.7  |   |                     |      |   |         |   | 65,562  |  | 57.3  |                     |  |      |  
|                                     |  |                        |         |         |       |  
|Certificates of deposit              |  |                        | 57,130  |         | 44.3  |   |                     | 3.48 |   |         |   | 48,842  |  | 42.7  |                     |  | 4.52 |  
|                                     |  |                        |         |         |       |   |                     |      |   |         |   |         |  |       |                     |  |      |  
|                                     |  |                        |         |         |       |  
|Total deposits                       |  | $                      | 128,936 |         | 100.0 | % |                     | 2.21 | % |         | $ | 114,404 |  | 100.0 | %                   |  | 2.83 | %
|                                     |  |                        |         |         |       |   |                     |      |   |         |   |         |  |       |                     |  |      |  

The following table sets forth our deposit flows for the years indicated.



|                                                    |  |                          |         |      |   |         |  
|--------------------------------------------------- |  | ------------------------ | ------- | ---- | - | ------- | -
|                                                    |  | Years Ended December 31, |        
|                                                    |  | 2008                     |         | 2007 |  
|                                                    |  | (In thousands)           |        
|Beginning balance                                   |  | $                        | 114,404 |      | $ | 112,925 |  
|Net (withdrawals) deposits before interest credited |  |                          | 11,299  |      |   | (1,850  | )
|Interest credited                                   |  |                          | 3,233   |      |   | 3,329   |  
|                                                    |  |                          |         |      |   |         |  
|Ending balance                                      |  | $                        | 128,936 |      | $ | 114,404 |  
|                                                    |  |                          |         |      |   |         |  

As of December 31, 2008, the aggregate amount of outstanding certificates of deposit in
amounts greater than or equal to $100,000 was $20.4 million. The following table indicates the amount of those certificates of deposit by time remaining until maturity.



|                                     |  |                     |       
|------------------------------------ |  | ------------------- | ------
|                                     |  | AtDecember 31, 2008
|                                     |  | (In thousands)     
|Three months or less                 |  | $                   | 1,770 
|Over three months through six months |  |                     | 1,933 
|Over six months through one year     |  |                     | 11,529
|Over one year to two years           |  |                     | 3,395 
|Over two years                       |  |                     | 1,775 
|                                     |  |                     |       
|                                     | 
|Total                                |  | $                   | 20,402
|                                     |  |                     |       



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The following table presents, by rate category, our certificate of deposit accounts as of the dates
indicated:



|                |  |                 |        |      |   |       
|--------------- |  | --------------- | ------ | ---- | - | ------
|                |  | At December 31,
|                |  | 2008            |        | 2007
|                |  | (In thousands) 
|Interest Rate   |  |                 |        |      |   |       
|Less than 2.00% |  | $               | 2,819  |      | $ | 945   
|2.00% - 2.99%   |  |                 | 7,004  |      |   | 100   
|3.00% - 3.99%   |  |                 | 34,128 |      |   | 4,553 
|4.00% - 4.99%   |  |                 | 12,507 |      |   | 38,893
|5.00% - 5.99%   |  |                 | 672    |      |   | 4,351 
|                |  |                 |        |      |   |       
|                |  |                
|Total           |  | $               | 57,130 |      | $ | 48,842
|                |  |                 |        |      |   |       

The following table sets forth the amount and maturities of time deposits at December 31,
2008.



|                |  |                  |        |                  |   |                  |  |                  |       |                            |   |       |  |   |       |  |   |       
|--------------- |  | ---------------- | ------ | ---------------- | - | ---------------- |  | ---------------- | ----- | -------------------------- | - | ----- |  | - | ----- |  | - | ------
|                |  | December 31,2009 |        | December 31,2010 |   | December 31,2011 |  | December 31,2012 |       | December 31,2013 and after |   | Total
|                |  | (In thousands)  
|Interest Rate   |  |                  |        |                  |   |                  |  |                  |       |                            |   |       |  |   |       |  |   |       
|Less than 2.00% |  | $                | 2,819  |                  | $ |                 |  | $                |      |                            | $ |      |  | $ |      |  | $ | 2,819 
|2.00% - 2.99%   |  |                  | 5,622  |                  |   | 1,235            |  |                  | 52    |                            |   | 10    |  |   | 85    |  |   | 7,004 
|3.00% - 3.99%   |  |                  | 24,929 |                  |   | 6,615            |  |                  | 1,021 |                            |   | 246   |  |   | 1,317 |  |   | 34,128
|4.00% - 4.99%   |  |                  | 5,973  |                  |   | 2,399            |  |                  | 755   |                            |   | 2,345 |  |   | 1,035 |  |   | 12,507
|5.00% - 5.99%   |  |                  | 153    |                  |   | 343              |  |                  | 13    |                            |   | 112   |  |   | 51    |  |   | 672   
|                |  |                  |        |                  |   |                  |  |                  |       |                            |   |       |  |   |       |  |   |       
|                |  |                  |        |                  |   |                 
|Total           |  | $                | 39,496 |                  | $ | 10,592           |  | $                | 1,841 |                            | $ | 2,713 |  | $ | 2,488 |  | $ | 57,130
|                |  |                  |        |                  |   |                  |  |                  |       |                            |   |       |  |   |       |  |   |       

Borrowings. We may obtain advances from the Federal Home Loan Bank of New
York upon the security of our capital stock in the Federal Home Loan Bank of New York and certain of our mortgage loans and mortgage-backed securities. Such advances may be made pursuant to several different credit programs, each of which has its
own interest rate and range of maturities. To the extent such borrowings have different terms to repricing than our deposits, they can change our interest rate risk profile.

From time to time during recent years we have utilized short-term borrowings to fund loan demand. We have also used borrowings where market conditions
permit the purchase of securities of a similar duration in order to increase our net interest income by the amount of the spread between the asset yield and the borrowing cost. Finally, from time to time, we have used advances with terms of three
years or more to extend the term of our liabilities. At December 31, 2008, we had $28.9 million in Federal Home Loan Bank of New York advances outstanding.

Our ability to borrow from the FHLB of NY in the future and the terms of such borrowings are dependent in part on the future financial strength of such organization.



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The following table sets forth information concerning balances and interest rates on our Federal Home
Loan Bank advances with terms of one year or less at the dates indicated.



|                                                |  |                                        |        |   |      |   |      |  
|----------------------------------------------- |  | -------------------------------------- | ------ | - | ---- | - | ---- | -
|                                                |  | At and For the Years EndedDecember 31, |       
|                                                |  | 2008                                   |        |   | 2007 |  
|                                                |  | (Dollars in thousands)                 |       
|Balance at end of period                        |  | $                                      | 10,700 |   |      | $ |     |  
|Average balance during period                   |  | $                                      | 4,473  |   |      | $ | 427  |  
|Maximum outstanding at any month end            |  | $                                      | 16,095 |   |      | $ | 200  |  
|Weighted average interest rate at end of period |  |                                        | 1.36   | % |      |   |     |  
|Average interest rate during period             |  |                                        | 1.85   | % |      |   | 5.22 | %

For additional information, see Notes 11 and 12 of the Notes to our consolidated financial
statements.

Insurance Activities

On
October 1, 2001, we acquired Royce & Rosenkrans, Inc., an insurance agency with offices in Seneca Falls, Waterloo and Geneva. Although we continue to use the Royce & Rosenkrans, Inc. name for our insurance operations, we have
integrated such activities into Seneca Falls Savings Banks subsidiary, Seneca-Cayuga Personal Services, LLC.

Seneca-Cayuga Personal
Services, LLC is a full-service insurance and financial services firm with seven employees providing services to over 5,300 customers. Seneca-Cayuga Personal Services, LLC offers personal and commercial property insurance, life insurance, long term
care, annuities, and other products and services. Seneca-Cayuga Personal Services, LLC represents many insurance companies including GMAC, New York Central, Progressive, Utica National, Farmers and many more. Adding insurance and financial services
business has enabled us to offer a broader array of financial services to our customers, which increases customer traffic in our branch networks, allowing the opportunity to market our banking services.

During the year ended December 31, 2008, Seneca Cayuga Personal Services, LLC had revenues of $702,000. Most of these revenues consisted of
commission payments as well as contingent payments based on certain target loss ratios and premium levels. Contingent revenues are recorded as revenue when received, as we are unable to estimate them prior to receipt. Contingent revenues received
during the year ended December 31, 2008 and 2007 were $63,000 and $54,000 and represented payment relative to experience on policies sold in prior years. At December 31, 2008, Seneca Cayuga Personal Services, LLC had total assets of
$939,000.

On February 5, 2009, we accepted a letter of intent from a third party indicating their intention to acquire our
Agencys insurance business. We anticipate that the sale will generate a modest gain when finalized. We made the decision to sell this segment upon determining that, despite restructuring, we were unable to earn an acceptable return on our
investment. As part of the agreement, the third party will lease office space in our Waterloo, Geneva and Seneca Falls banking offices. Following the completion of the transaction, Seneca-Cayuga Personal Services, LLC will continue to generate a
small amount of revenue from rents earned under the agreement with the third party. While we will not own the insurance business, the products will continue to be offered through our branch networks.

Personnel

As of December 31, 2008, we had 60
full-time employees and eight part-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good relations with our employees.



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FEDERAL, STATE AND LOCAL TAXATION

Federal Taxation

General.Seneca-Cayuga Bancorp, Inc. and Seneca
Falls Savings Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. Neither Seneca-Cayuga Bancorp, Inc.s nor Seneca Falls Savings Banks federal tax returns are
currently under audit, nor has either entity been audited during the past five years. 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 Seneca-Cayuga Bancorp, Inc. or Seneca Falls Savings Bank.

Method of Accounting.For federal income tax purposes, Seneca-Cayuga Bancorp, Inc. currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.

Bad Debt Reserves.Historically, Seneca Falls Savings Bank has been subject to special provisions in
the tax law regarding allowable tax bad debt deductions and related reserves. Tax law changes were enacted in 1996, pursuant to the Small Business Protection Act of 1996 (the 1996 Act), that eliminated the use of the percentage of
taxable income method for tax years after 1995 and required recapture into taxable income over a six year period all bad debt reserves accumulated after 1987. Seneca Falls Savings Bank recaptured its reserve balance over the six-year period ended
December 31, 2001.

Currently, the Seneca-Cayuga Bancorp, Inc. consolidated group uses the specific charge off method to account for
bad debt deductions for income tax purposes.

Taxable Distributions and Recapture.Prior to the 1996
Act, bad debt reserves created prior to November 1, 1988 were subject to recapture into taxable income if Seneca Falls Savings Bank failed to meet certain thrift asset and definitional tests.

At December 31, 2008, our total federal pre-base year reserve was approximately $332,000. However, under current law, pre-base year reserves remain
subject to recapture should Seneca Falls Savings Bank make certain non-dividend distributions, repurchase any of its stock, pay dividends in excess of tax earnings and profits, or cease to maintain a bank charter.

Alternative Minimum Tax.The Internal Revenue Code of 1986, as amended (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 AMT is in excess of an
exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of AMT may be used as credits against regular tax liabilities in future years. Seneca-Cayuga Bancorp, Inc. and
Seneca Falls Savings Bank have not been subject to the AMT and have no such amounts available as credits for carryover.

Net
Operating Loss Carryovers.A financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. Seneca-Cayuga Bancorp, Inc. has
federal and state net operating loss carry forwards totalling $2.2 million and $2.8 million that expire through 2028.

Corporate Dividends-Received Deduction.Seneca-Cayuga Bancorp, Inc. may exclude from its federal taxable income 100% of dividends received from Seneca Falls Savings Bank as a wholly-owned subsidiary. The
corporate dividends-received deduction is 80% when the dividend is received from a corporation having at least 20% of its stock owned by the recipient corporation. A 70% dividends-received deduction is available for dividends received from
corporations owning less than 20% by the recipient corporation.



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State Taxation

The Company, the Bank and the Agency report income on a calendar year basis to New York State. New York State franchise tax on corporations is imposed in an amount equal to the greater of (1) 7.1% of entire
net income allocable to New York State, (b) 3% of alternative entire net income allocable to New York State, or (c) 0.01% of the average value of assets allocable to New York State plus nominal minimum tax of $250 per
company. 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.

SUPERVISION AND REGULATION

General

Seneca Falls Savings Bank is examined and supervised by the Office of Thrift Supervision (OTS). This regulation and supervision establishes a
comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporations deposit insurance fund and depositors. Under this system of federal regulation,
financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Seneca Falls Savings Bank
also is a member of and owns stock in the Federal Home Loan Bank of New York, which is one of the twelve regional banks in the Federal Home Loan Bank System. Seneca Falls Savings Bank also is regulated, to a lesser extent, by the Federal Deposit
Insurance Corporation (FDIC) with respect to insurance of deposit accounts and the Board of Governors of the Federal Reserve System, with respect to reserves to be maintained against deposits and other matters. Seneca Falls Savings
Banks relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of
Seneca Falls Savings Banks mortgage documents.

Any change in these laws or regulations, whether by the FDIC, the OTS or Congress,
could have a material adverse impact on Seneca-Cayuga Bancorp, Inc. and Seneca Falls Savings Bank and their operations.

Federal Banking Regulation

Business Activities.A federal savings bank derives its lending and investment powers from the Home
Owners Loan Act, as amended, and the regulations of the OTS. Under these laws and regulations, Seneca Falls Savings Bank may invest in mortgage loans secured by residential and non-residential real estate loans, commercial business loans,
consumer loans, certain types of debt securities and certain other assets. Seneca Falls Savings Bank also may establish subsidiaries that may engage in activities not otherwise permissible for Seneca Falls Savings Bank, including real estate
investment.

Capital Requirements. OTS regulations require savings banks to meet three minimum capital
standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for savings banks receiving the highest regulatory rating) and an 8% risk-based capital ratio. The prompt corrective action standards discussed below, in effect, establish a minimum
2% tangible capital standard.

The risk-based capital standard for savings banks requires the maintenance of Tier 1 (core) and total
capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight factor of 0% to 100%, assigned by the OTS, based on the risks believed inherent in the type of asset. Core capital is defined as common stockholders equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary
capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 46% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of



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core capital. Additionally, a savings bank that retains credit risk in connection with an asset sale may be required to maintain additional regulatory
capital because of the recourse back to the savings bank. At December 31, 2008, Seneca Falls Savings Bank maintained an additional $972,000 in regulatory capital due to the recourse provided for loans sold to the Federal Home Loan Bank of New
York.

At December 31, 2008, Seneca Falls Savings Banks capital exceeded all of these requirements.

Loans-to-One Borrower.Generally, a federal savings bank may not make a loan or extend credit to a single or related
group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real
estate. In the case of Seneca Falls Savings Bank and in connection with its charter conversion to a federally chartered savings bank, the OTS has permitted Seneca Falls Savings Bank to maintain a loans-to-one borrower limit of 20% of unimpaired
capital and surplus, subject to certain conditions. As of December 31, 2008, Seneca Falls Savings Bank was in compliance with the loans-to-one borrower limitations.

Qualified Thrift Lender Test.As a federal savings bank, Seneca Falls Savings Bank must satisfy the qualified thrift lender, or QTL, test. Under the QTL test,
Seneca Falls Savings Bank must maintain at least 65% of its portfolio assets in qualified thrift investments in at least nine months of the most recent 12-month period. Portfolio assets generally means total
assets of a savings institution, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings banks business.

Qualified thrift investments include various types of loans made for residential and housing purposes, investments related to such purposes,
including certain mortgage-backed and related securities, and loans for personal, family, household and certain other purposes up to a limit of 20% of portfolio assets. Qualified thrift investments also include 100% of an
institutions credit card loans, education loans and small business loans. Seneca Falls Savings Bank also may satisfy the QTL test by qualifying as a domestic building and loan association as defined in the Internal Revenue Code.

A savings bank that fails the qualified thrift lender test must either convert to a commercial bank charter or operate under specified
restrictions. At December 31, 2008, Seneca Falls Savings Bank satisfied this test.

Capital
Distributions.OTS regulations govern capital distributions by a federal savings bank, which include cash dividends, stock repurchases and other transactions charged to the capital account. A savings banks must
file an application for approval of a capital distribution if:



| |  |  | the total capital distributions for the applicable calendar year exceed the sum of the associations net income for that year to date plus the
associations retained net income for the preceding two years;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the association would not be at least adequately capitalized following the distribution;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the distribution would violate any applicable statute, regulation, agreement or OTS -imposed condition; or
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | the association is not eligible for expedited treatment of its filings.
| | - |  | -----------------------------------------------------------------------

Even if an application is not otherwise required, every savings bank that is a subsidiary of a holding company must still file a notice with the OTS at
least 30 days before the Board of Directors declares a dividend or approves a capital distribution.



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The OTS may disapprove a notice or application if:



| |  |  | the association would be undercapitalized following the distribution;
| | - |  | ---------------------------------------------------------------------



| |  |  | the proposed capital distribution raises safety and soundness concerns; or
| | - |  | --------------------------------------------------------------------------



| |  |  | the capital distribution would violate a prohibition contained in any statute, regulation or agreement.
| | - |  | -------------------------------------------------------------------------------------------------------

Liquidity. A federal savings bank is required to maintain a sufficient amount of liquid assets to ensure its safe and
sound operation.

Community Reinvestment Act and Fair Lending Laws. All savings banks have a
responsibility under the Community Reinvestment Act and related regulations of the OTS to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings
bank, the OTS is required to assess the associations record of compliance with the Community Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending
practices on the basis of characteristics specified in those statutes. An associations failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as
branches or mergers, or in restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OTS, as well as other federal regulatory agencies and the
Department of Justice. Seneca Falls Savings Bank received a outstanding Community Reinvestment Act rating in its most recent federal examination.

Transactions with Related Parties. A federal savings banks authority to engage in transactions with its affiliates is limited by OTS regulations and by Sections 23A and 23B of
the Federal Reserve Act and its implementing Regulation W. An affiliate is a company that controls, is controlled by, or is under common control with an insured depository institution such as Seneca Falls Savings Bank. Seneca-Cayuga Bancorp, Inc. is
an affiliate of Seneca Falls Savings Bank. In general, loan transactions between an insured depository institution and its affiliate are subject to certain quantitative and collateral requirements. In this regard, transactions between an insured
depository institution and its affiliate are limited to 10% of the institutions unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the
aggregate with all affiliates. Collateral in specified amounts ranging from 100% to 130% of the amount of the transaction must usually be provided by affiliates in order to receive loans from the savings bank. In addition, OTS regulations prohibit a
savings bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates
must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. The OTS requires savings banks to maintain detailed
records of all transactions with affiliates.

Seneca Falls Savings Banks authority to extend credit to its directors, executive
officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other
things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually
and in the aggregate, which limits are based, in part, on the amount of Seneca Falls Savings Banks capital. In addition, extensions of credit in excess of certain limits must be approved by Seneca Falls Savings Banks Board of Directors.
Seneca Falls Savings Bank is in compliance with Regulation O.

Enforcement. The OTS has primary
enforcement responsibility over federal savings institutions and has the authority to bring enforcement action against all institution-affiliated parties, including stockholders, attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action by the OTS may range from the issuance of a capital directive or cease and desist order, to removal of officers and/or
directors



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of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000
per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or to recommend to the Director of the OTS that enforcement action
be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to take action under specified circumstances.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things,
internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. The federal
banking agencies adopted Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan
documentation, interest rate risk exposure, asset growth, compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan.

Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the OTS is required and
authorized to take supervisory actions against undercapitalized savings banks. For this purpose, a savings bank is placed in one of the following five categories based on the associations capital:



| |  |  | well-capitalized (at least 5% leverage capital, 6% Tier 1 risk-based capital and 10% total risk-based capital);
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | adequately capitalized (at least 4% leverage capital, 4% Tier 1 risk-based capital and 8% total risk-based capital);
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | undercapitalized (less than 8% total risk-based capital, 4% Tier 1 risk-based capital or 3% leverage capital);
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | significantly undercapitalized (less than 6% total risk-based capital, 3% Tier 1 risk-based capital or 3% leverage capital); and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | critically undercapitalized (less than 2% tangible capital).
| | - |  | ------------------------------------------------------------

Generally, the banking regulator is required to appoint a receiver or conservator for an association that is critically undercapitalized within specific time frames. The regulations also provide that a
capital restoration plan must be filed with the OTS within 45 days of the date an association receives notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. The
criteria for an acceptable capital restoration plan include, among other things, the establishment of the methodology and assumptions for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with
restrictions imposed by applicable federal regulations, the identification of the types and levels of activities the savings bank will engage in while the capital restoration plan is in effect, and assurances that the capital restoration plan will
not appreciably increase the current risk profile of the savings bank. Any holding company for the savings bank that is required to submit a capital restoration plan must guarantee the lesser of: an amount equal to 5% of savings banks assets
at the time it was notified or deemed to be under-capitalized by the OTS, or the amount necessary to restore the savings bank to adequately capitalized status. This guarantee remains in place until the OTS notifies the savings bank that it has
maintained adequately capitalized status for each of four consecutive calendar quarters, and the OTS has the authority to requirement payment and collect payment under the guarantee. Failure by a holding company to provide the required guarantee
will result in certain operating restrictions on the savings bank, such as restrictions on the ability to declare and pay dividends, pay executive compensation and management fees, and increase assets or expand operations. The OTS may also take any
one of a number of discretionary supervisory actions against undercapitalized savings banks, including the issuance of a capital directive and the replacement of senior executive officers and directors.



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At December 31, 2008, Seneca Falls Savings Bank met the criteria for being considered
well-capitalized.

Insurance of Deposit Accounts.Historically, our deposit accounts have been 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. However, the FDIC recently increased the deposit insurance available on deposit accounts to $250,000
effective until December 31, 2009. Our deposits are subject to FDIC deposit insurance assessments. The FDIC has adopted a risk-based system for determining deposit insurance assessments.

The FDIC imposes an assessment against institutions for deposit insurance. This assessment is based on the risk category of the institution and ranges
from 5 to 43 basis points of the institutions deposits. On October 16, 2008, the FDIC published a proposed rule that would raise the current deposit insurance assessment rates uniformly for all institutions by 7 basis points (to a range
from 12 to 50 basis points) for the first quarter of 2009. The proposed rule would also alter the way the FDIC calculates federal deposit insurance assessment rates beginning in the second quarter of 2009 and thereafter.

Under the proposed rule, the FDIC would first establish an institutions initial base assessment rate. This initial base assessment rate would
range, depending on the risk category of the institution, from 10 to 45 basis points. The FDIC would then adjust the initial base assessment (higher or lower) to obtain the total base assessment rate. The adjustments to the initial base assessment
rate would be based upon an institutions levels of unsecured debt, secured liabilities, and brokered deposits. The total base assessment rate would range from 8 to 77.5 basis points of the institutions deposits.

Based upon our review of the FDICs proposed rule, if the rule was implemented as proposed, our FDIC assessment rate for the first quarter of 2009
would increase by approximately $21,500. Thereafter, because of adjustments to its initial base assessment rate, we believe the rule would not have a material negative effect on our earnings. There can be no assurance that the proposed rule will be
implemented by the FDIC or implemented in its proposed form. The FDIC also adopted an interim rule imposing a 20 basis point emergency special assessment. The assessment is to be collected on September 30, 2009. The interim rule would also
permit the FDIC to impose an emergency special assessment, of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance.

In addition to the FDIC assessments, the Financing Corporation (FICO) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial
fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended September 30, 2008, the
annualized FICO assessment was equal to 1.14 basis points for each $100 in domestic deposits maintained at an institution.

In October
2008, the FDIC announced the Temporary Liquidity Guarantee Program, under which any participating depository institution would be able to provide full deposit insurance coverage for non-interest bearing transaction accounts, regardless of the dollar
amount. Under the program, effective November 14, 2008, insured depository institutions that have not opted out of the FDIC Temporary Liquidity Guarantee Program will be subject to a 0.10% surcharge applied to non-interest bearing transaction
deposit account balances in excess of $250,000, which surcharge will be added to the institutions existing risk-based deposit insurance assessments. We have chosen not to participate in the FDIC Temporary Liquidity Guaranty Program.

Prohibitions Against Tying Arrangements. Federal savings banks are prohibited, subject to some exceptions, from extending
credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services
of a competitor of the institution. Seneca Falls Savings Bank is in compliance with this prohibition.



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Federal Home Loan Bank
System. Seneca Falls Savings Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member
institutions. As a member of the Federal Home Loan Bank of New York, Seneca Falls Savings Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank in an amount at least equal to 1% of the aggregate principal amount
of its unpaid residential mortgage loans and similar obligations at the beginning of each year, 1/20of its borrowings from the
Federal Home Loan Bank, or 0.3% of assets, whichever is greater. As of December 31, 2008, Seneca Falls Savings Bank was in compliance with this requirement.

Federal Reserve System

The Federal Reserve Board regulations require savings banks to maintain
noninterest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. At December 31, 2008, Seneca Falls Savings Bank was in compliance with these reserve requirements.

The USA PATRIOT Act

The USA PATRIOT
Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. Certain provisions of
the USA PATRIOT Act, as well as its implementing regulations, impose affirmative obligations on a broad range of financial institutions, including savings banks, like Seneca Falls Savings Bank. We have established policies and implemented procedures
and systems designed to comply with the USA PATRIOT Act and its regulations. Seneca Falls Savings Bank believes it is in compliance with the requirements of the USA PATRIOT Act.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate
governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act of 2002, our Chief Executive Officer and Chief Financial Officer each are required to
certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act of 2002 have several requirements, including having these
officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls; they have made certain disclosures to our auditors and the audit committee of the board of directors about
our internal controls; and they have included information in our quarterly and annual reports about their evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect
internal controls.

Holding Company Regulation

General. Seneca Falls Savings Bank, MHC and Seneca-Cayuga Bancorp, Inc. are non-diversified savings and loan holding companies within the meaning of the Home Owners Loan Act. As such, Seneca Falls Savings Bank,
MHC and Seneca-Cayuga Bancorp, Inc. are registered with the OTS and subject to OTS regulations, examinations, supervision and reporting requirements. In addition, the OTS has enforcement authority over Seneca-Cayuga Bancorp, Inc. and Seneca Falls
Savings Bank, MHC, 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. As federal corporations, Seneca-Cayuga
Bancorp, Inc. and Seneca Falls Savings Bank, MHC are generally not subject to state business organization laws.

Permitted
Activities. Pursuant to Section 10(o) of the Home Owners Loan Act and OTS regulations and policy, a mutual holding company and a federally chartered mid-tier holding company such as Seneca-Cayuga Bancorp, Inc. may engage in
the following activities: (i) investing in the stock of a savings bank; (ii) acquiring a mutual association through the merger of such association into a savings bank subsidiary of such holding company or an interim savings bank subsidiary
of such holding company; (iii) merging with or acquiring another holding company, one of whose subsidiaries is a savings bank; (iv) investing in a corporation, the capital stock of which is available for purchase by a savings bank under
federal law or under the law of any state where the subsidiary savings bank or banks share their home offices; (v) furnishing or performing management services for a savings bank



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subsidiary of such company; (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 bank 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, 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. 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 any nonconforming investments.

The Home Owners Loan Act prohibits a savings and loan holding company, including Seneca-Cayuga Bancorp, Inc. and Seneca Falls Savings Bank, MHC, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5%
of another savings institution 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 non-subsidiary 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 institutions, the OTS must consider the
financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.

The OTS is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings
institutions 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 Seneca Falls Savings Bank, MHC. OTS regulations require Seneca Falls Savings Bank, MHC to notify the OTS of
any proposed waiver of its receipt of dividends from Seneca-Cayuga Bancorp, Inc. 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 waiver would not be detrimental to
the safe and sound operation of the subsidiary savings association; and (ii) 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. We anticipate that Seneca Falls Savings Bank, MHC will waive any dividends paid by Seneca-Cayuga Bancorp, Inc. Under OTS regulations, our public stockholders would not be diluted because of any dividends waived by Seneca
Falls Savings Bank, MHC (and waived dividends would not be considered in determining an appropriate exchange ratio) in the event Seneca Falls Savings Bank, MHC converts to stock form.

Emergency Economic Stabilization Act of 2008

In response to recent unprecedented market turmoil, the
Emergency Economic Stabilization Act of Act (EESA) was enacted on October 3, 2008. EESA authorizes the Secretary of the Treasury to purchase up to $700 billion in troubled assets from financial institutions under the Troubled Asset
Relief Program (TARP). EESA increases the maximum deposit insurance amount up to $250,000 until December 31, 2009 and removes the statutory limits on the FDICs (the FDIC) ability to borrow from the Treasury during
this period. The FDIC may not take the temporary increase in deposit insurance coverage into account when setting assessments. EESA allows financial institutions to treat any loss on the preferred stock of Fannie Mae or Federal Home Loan Mortgage
Corporation (Freddie Mac) as an ordinary loss for tax purposes.



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Pursuant to his authority under EESA, the Secretary of the Treasury has created the TARP Capital Purchase
Program under which the Treasury Department will invest up to $250 billion in senior preferred stock of U.S. banks and savings associations or their holding companies. Qualifying financial institutions may issue senior preferred stock with a value
equal to not less than 1% of risk-weighted assets and not more than the lesser of $25 billion or 3% of risk-weighted assets. The Company did not participate in the Capital Purchase Program.

Conversion of Seneca Falls Savings Bank, MHC to Stock Form. OTS regulations permit Seneca Falls Savings Bank, MHC 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 stock holding company would be formed as the successor to Seneca-Cayuga Bancorp, Inc. (the New Holding Company), Seneca Falls Savings Bank, MHCs
corporate existence would end, and certain depositors of Seneca Falls Savings 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 Seneca Falls Savings Bank, MHC (Minority Stockholders) would be automatically converted into a number of shares of common stock of the New Holding Company determined pursuant an exchange ratio that ensures that Minority
Stockholders own the same percentage of common stock in the New Holding Company as they owned in Seneca-Cayuga Bancorp, Inc. immediately prior to the Conversion Transaction. Under OTS regulations, Minority Stockholders would not be diluted because
of any dividends waived by Seneca Falls Savings Bank, MHC (and waived dividends would not be considered in determining an appropriate exchange ratio), in the event Seneca Falls Savings Bank, MHC 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 offering conducted as part of the Conversion Transaction.

Any Conversion Transaction would require the approval of a majority of the outstanding shares of Seneca-Cayuga Bancorp, Inc. common stock held by
Minority Stockholders and approval of a majority of the votes held by depositors of Seneca Falls Savings Bank, with depositors entitled to cast one vote per $100 on deposit at Seneca Falls Savings Bank (up to a maximum of 1,000 votes).

Federal Securities Laws

Seneca-Cayuga Bancorp,
Inc. common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1933, as amended. Seneca-Cayuga Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other
requirements under the Securities Exchange Act of 1934.

The registration under the Securities Act of 1933 of shares of the common stock in
the stock offering does not cover the resale of the shares. Shares of the common stock purchased by persons who are not affiliates of Seneca-Cayuga Bancorp, Inc. may be resold without registration. Shares purchased by an affiliate of Seneca-Cayuga
Bancorp, Inc. will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If Seneca-Cayuga Bancorp, Inc. meets the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of
Seneca-Cayuga Bancorp, Inc. who complies with the other conditions of Rule 144, including those that require the affiliates sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three month period, the greater of 1% of the outstanding shares of Seneca-Cayuga Bancorp, Inc., or the average weekly volume of trading in the shares during the preceding four calendar weeks. Provision may be
made in the future by Seneca-Cayuga Bancorp, Inc. to permit affiliates to have their shares registered for sale under the Securities Act of 1933.



37



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|ITEM 2. | Description of Property
|------- | -----------------------

The following table
provides certain information with respect to our properties as of December 31, 2008:



|                                                |  |                |  |                        |     |  |                |  |                |      
|----------------------------------------------- |  | -------------- |  | ---------------------- | --- |  | -------------- |  | -------------- | -----
|Location                                        |  | Owned orLeased |  | Year Acquired orLeased |     |  | Square Footage |  | Net BookValue 
|                                                |  |                |  |                        |     |  |                |  | (in thousands)
|Main Office:                                    |  |               
|19 Cayuga Street Seneca Falls, New York 13148   |  | Owned          |  | 1977                   |     |  | 7,700          |  | $              | 560  
|                                                | 
|Branch Offices:                                 |  |               
|297 Grant Avenue Auburn, New York 13021         |  | Leased         |  | 2000                   | (1) |  | 2,000          |  |                | 7    
|                                                |  |                |  |                       
|59 Washington Street Waterloo, New York 13165   |  | Owned          |  | 2002                   |     |  | 1,000          |  |                | 312  
|                                                |  |                |  |                       
|342 Hamilton Street Geneva, New York 14456      |  | Owned          |  | 2004                   |     |  | 8,100          |  |                | 1,784
|                                                |  |                |  |                       
|10 Osborne Street Auburn, New York 13021        |  | Owned          |  | 2005                   | (2) |  | 1,680          |  |                | 1,318
|                                                |  |                |  |                       
|Other:                                          |  |                |  |                        |     |  |                |  |                |      
|Loan Operations and Insurance:                  |  |                |  |                        |     |  |                |  |                |      
|60 Fall Street Seneca Falls, New York 13148     |  | Owned          |  | 2001                   |     |  | 3,000          |  |                | 323  
|                                                |  |                |  |                       
|Building Owned:                                 |  |                |  |                        |     |  |                |  |                |      
|Genesee Street Auburn, New York 13021           |  | Owned          |  | 2008                   | (3) |  | 3,000          |  |                | 975  
|                                                |  |                |  |                       
|Land:                                           |  |                |  |                        |     |  |                |  |                |      
|North Road Waterloo, New York 13165             |  | Owned          |  | 2005                   |     |  | 9 Acres        |  |                | 543  
|                                                |  |                |  |                       
|152 Cayuga Street Union Springs, New York 13160 |  | Owned          |  | 2008                   | (4) |  | .47 acres      |  |                | 249  



|(1) | Current lease expires April 2010 with an option to extend for an additional five years at that time.
|--- | ----------------------------------------------------------------------------------------------------

|(2) | We opened this office January 2008.
|--- | -----------------------------------

|(3) | We purchased this property in 2008 and leased it back to the original owners for four years. We are considering taking possession of the property after the lease expiration and
converting the building to a full service banking office.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | We have begun construction of a full-service office at this location in 2009. We anticipate the office will be open in 2009. Our total land acquisition and construction costs are
estimated to approximate $1.2 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The net book value of our premises, land and equipment was approximately $6.3 million at
December 31, 2008.

We may begin construction on another full service office in Waterloo, New York on our North Road property during
2009. The Waterloo office is not likely to open until 2010.

We maintain an on-line in-house data system. The net book value of the data
processing and computer equipment utilized at December 31, 2008 was $213,000.



|ITEM 3. | Legal Proceedings
|------- | -----------------

From time to time, we are
involved as plaintiff or defendant in various legal proceedings arising in the ordinary course of business. At December 31, 2008, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition
or results of operations.



|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year under report.

PART II



|ITEM 5. | Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
|------- | -----------------------------------------------------------------------------------------------------------------

(a) The Common Stock of Seneca-Cayuga Bancorp, Inc. is traded on the OTC BB market under the symbol SCAY. At December 31, 2008, the common stock was
held by approximately 290 shareholders of record. The following table shows the range of high and low market prices for our stock for the quarters indicated. There were no dividends declared or paid in any quarter. The payment of any future cash
dividends is dependent on the results of operations and financial condition of the Company as well as tax considerations, economic and market conditions, regulatory restrictions, regulatory capital requirements and other factors.



|                             |  |      |      |     |   |                        |  |   |  
|---------------------------- |  | ---- | ---- | --- | - | ---------------------- |  | - | -
|Year ended December 31, 2008 |  | High |      | Low |   | Cash DividendsDeclared
|Fourth quarter               |  | $    | 6.75 |     | $ | 3.15                   |  | $ | 
|Third quarter                |  |      | 7.70 |     |   | 4.80                   |  |   | 
|Second quarter               |  |      | 9.00 |     |   | 6.95                   |  |   | 
|First quarter                |  |      | 7.30 |     |   | 6.30                   |  |   | 
|                             |  |      |     
|Year ended December 31, 2007 |  | High |      | Low |   | Cash DividendsDeclared
|Fourth quarter               |  | $    | 9.00 |     | $ | 6.70                   |  | $ | 
|Third quarter                |  |      | 9.15 |     |   | 8.00                   |  |   | 
|Second quarter               |  |      | 9.60 |     |   | 9.15                   |  |   | 
|First quarter                |  |      | 9.92 |     |   | 9.11                   |  |   | 

(b) Not applicable.



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(c) On May 20, 2008, the Board of Directors of the Company authorized a stock repurchase program
pursuant to which the Company intends to purchase up to 5% of its outstanding shares or up to 119,025 shares. Stock repurchases will be made from time to time and may be effected through open market purchases, a block trade and privately negotiated
transactions.

The table below sets forth the information with respect to purchases made by or on behalf of Seneca-Cayuga Bancorp, Inc. or any
affiliated purchaser (as defined in Rule 240.10b-18(a)(3)), of common stock during the quarter ended December 31, 2008.



|                               |  |                                |  |                             |      |                                                                            |       |                                                                          |        
|------------------------------ |  | ------------------------------ |  | --------------------------- | ---- | -------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------ | -------
|                               |  | Total Numberof SharesPurchased |  | Average PricePaid Per Share |      | Total Number ofSharesPurchased asPart of PubliclyAnnouncedPlans orPrograms |       | MaximumNumber ofShares ThatMay Yet BePurchasedUnder the Plansor
Programs
|October 1 through October 31   |  | 6,800                          |  | $                           | 6.75 |                                                                            | 6,800 |                                                                          | 110,325
|November 1 through November 30 |  |                               |  |                             |     |                                                                            |      |                                                                          | 110,325
|December 1 through December 31 |  | 500                            |  |                             | 5.99 |                                                                            | 500   |                                                                          | 109,825



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|ITEM 6. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Seneca-Cayuga Bancorp, Inc. is a federal corporation, which was organized in 2000 as part of the mutual holding company reorganization of Seneca Falls
Savings Bank. Our principal asset is our investment in Seneca Falls Savings Bank. We are a majority owned subsidiary of Seneca Falls Savings Bank, MHC, a federally chartered mutual holding company. In July 2006, the Company completed its minority
stock offering of 45% of the aggregate total voting stock of the Company. In connection with the minority offering, 2,380,500 shares of common stock were issued, of which 1,071,225 shares were sold to the public (including 93,315 shares issued to
our Employee Stock Ownership Plan) at $10 per share raising net proceeds of $9.9 million. After the offering, 55% of the Companys outstanding common stock, or 1,309,275 shares, was owned by Seneca Falls Savings Bank, MHC.

General

Our results of operations depend primarily
on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities (including mortgage-backed and other securities) and other
interest-earning assets, which are primarily cash and interest bearing deposits, and the interest paid on our interest-bearing liabilities, consisting primarily of certificates of deposit, savings accounts, money market accounts, transaction
accounts, long- and short-term borrowings, including Federal Home Loan Bank advances. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income currently consists
primarily of deposit account fees, dividends on mutual funds, increases in cash value-insurance, gains and losses on trading securities and on the sale of securities, losses from other-than-temporary impairments of securities, and miscellaneous
other income. Noninterest expense currently consists primarily of compensation and employee benefits, occupancy and equipment expenses, advertising and marketing, service charges, professional fees, directors fees, deposit insurance premiums,
supplies, and other operating expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory
authorities.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. We have identified the accounting for
our allowance for loan losses, evaluation of securities for other-than-temporary impairment and deferred income tax accounting as our critical accounting policies.

Allowance for loan losses:

Our allowance for loan losses is the amount estimated by management as necessary to cover credit
losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes significant estimates
and has identified this policy as one of our most critical. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the
assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in
determining the amount of the allowance required for specific loans. Assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to
assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management to determine
that the resulting values reasonably reflect amounts realizable on the related loans.



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Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. We consider
a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the
borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real
estate market conditions.

The evaluation has a specific and general component. The specific component relates to loans that are delinquent
or otherwise identified as a problem loan through the application of our loan review process and our loan grading system. All such loans are evaluated individually, with principal consideration given to the value of the collateral securing the loan.
Specific allowances are established as required by this analysis. The general component is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience,
delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general component of the allowance for loan losses.

Actual loan losses may be significantly more than the allowance we have established which could have a material negative effect on our
financial results.

Securities:

Securities available-for-sale are reported at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss) and securities held-to-maturity for which the Company has the positive ability and intent to
hold to maturity are reported at cost adjusted for premiums and discounts that are recognized in interest income using the level yield method. Unrealized losses are charged to earnings as an impairment loss when the decline in fair value of a
security is judged to be other-than-temporary. Management evaluates securities for other-than-temporary impairment on a quarterly basis, and considers (1) the length of time and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer to the earlier of recovery of its fair value or maturity. For the year ended
December 31, 2008 and 2007, the Company recognized other-than-temporary impairment losses of $517,000 and $0, respectively. Future losses could be recognized if it is determined that securities are other-than-temporarily impaired.

Income Taxes:

Deferred income tax assets and
liabilities are determined using the liability method. Under this method, the net deferred tax asset or liability is recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases as well as net operating losses, capital losses and contribution carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. To the extent
that current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized, a valuation allowance is established. The judgment about the level of future taxable income, including that which is
considered capital, is inherently subjective and is reviewed on a continual basis as regulatory and business factors change. A valuation allowance of $331,000 was established at December 31, 2008 as management believes it may not generate
sufficient capital gains to offset its capital loss carry forward. The Companys effective tax rate differs from the statutory rate primarily due to non-taxable bank owned life insurance income and the valuation allowance established on the
capital loss carry forwards.

Business Strategy

Our mission is to operate as a well-capitalized and profitable community financial institution dedicated to providing exceptional personal service to our customers. Although we have long offered services to businesses within our market area
and will continue to do so, we will continue to focus our efforts to be the primary provider of financial services to families and individuals in our market area.



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During recent years, we experienced increased operating expense due to competitive pressures to increase
our product offerings, and increasing regulatory compliance costs. In order to address these costs, we have determined to increase the size of our earnings base, expand our market area to include contiguous communities to the west, east and south of
Seneca Falls and expand the type and variety of financial services we offer our customers. We believed that, although such expansion would result in an increase in overhead expenses, it would, after an adjustment period, enable us to generate
sufficient revenue to more than cover such additional overhead costs as well as the increased overhead costs caused by current competitive and regulatory conditions.

Since 2000, we have opened two full service offices in Auburn, New York, which is approximately 15 miles to the east of Seneca Falls, a full service office in Waterloo, New York which is approximately five miles west
of Seneca Falls and a full service office in Geneva, New York, which is approximately ten miles to the west of Seneca Falls. Over the same period, we acquired an insurance agency. We have also purchased two properties for a possible branch offices.
We are in the process of building a full-service branch at one location and are evaluating the feasibility as to whether or when to commence construction of and open an office on the other property. In part, due to the costs of this expansion during
the last several years, we have experienced a decline in profitability. However, we believe that our expansion has positioned us for future success.

We have determined to sell the Agencys insurance business. We have found that, despite restructuring, we are unable to generate sufficient returns on the money invested. Under the preliminary purchase agreement,
the company purchasing the insurance business will continue to occupy the space currently used by our Agency and will offer insurance products to our customers. We believe that by selling the insurance business, we will reduce operating expenses,
maintain the customer traffic throughout our branch network and enable management to focus on offering core banking products.

In the
future, we intend to continue our growth but only to the extent such growth is consistent with our long term profitability objectives.

Highlights of our business strategy are as follows:



| |  |  | Remaining a Community-Oriented Financial Institution. We were established in 1870 and have been operating continuously since that time,
focusing on providing retail financial services to customers within our communities. We believe that, as a locally controlled, community institution, we can have a competitive edge over our large competitors by providing personalized service to our
local customers. Accordingly, we seek to achieve success by providing high touch service to members of our local community.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Maintaining High Asset Quality. We have long emphasized maintaining strong asset quality by following conservative underwriting
criteria and focusing our lending efforts on residential loans. Our non-performing assets at December 31, 2008 were $371,000, or 0.21% of total assets, and our net charge-offs were 0.03% of our average loans outstanding for the year ended
December 31, 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increasing Our Share of Lower-Cost Checking Deposits. A focus of our deposit gathering efforts over the past few years is
increasing our checking account deposits. We have used a targeted marketing program as the primary means by which to obtain new checking accounts, and we intend on continuing these efforts. At December 31, 2008, checking accounts comprised
16.2% of our total deposits with an average weighted rate of 0.33%, compared to 14.2% of our total deposits at December 31, 2007 at a weighted average rate of 0.14%.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expand our Nonresidential, Manufactured Home and Automobile Loan Portfolios. We experienced strong growth in our nonresidential loan portfolio during
2008 and have hired an experienced credit analyst as a result. We began originating manufactured home loans in 2006, utilizing a third party originator. These loans are secured by manufactured homes located primarily in upscale retirement
communities in the New England States and recently expanded into California. We also began to expand our automobile loan portfolio in 2006 by hiring an experienced consumer loan officer and forming a relationship with a local automobile dealership.
Our nonresidential, manufactured home and automobile loans generally offer higher or comparable
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | yields as residential mortgages in the present rate environment and are generally outstanding for a substantially shorter time or have rates that reset more
often than real estate mortgages. However, such loans carry a higher degree of risk than residential loans, particularly in todays adverse economic environment. At December 31, 2008, nonresidential, manufactured home and automobile loans
represented 6.7%, 7.3% and 5.4%, respectively, of our total loan portfolio. At December 31, 2007, nonresidential, manufactured home and automobile loans represented 3.6%, 6.1% and 5.3% of our total loan portfolio.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Using Discipline In Seeking Long-Term Growth. We currently operate from four full-service banking offices and an in-store branch,
three of which have opened since 2002. We also maintain a financial services facility near our main office that offers insurance, investment products and financial planning services through third parties. Finally, we are currently building another
full-service branch, which should be open in the spring of 2009.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe that, subject to market conditions, it is
important for us to continue to pursue long-term growth of our earnings base in order to offset increasing operating costs. We intend to evaluate new branch expansion opportunities within the northern Finger Lakes region, to the extent we believe
that they support our goal of long-term growth.



| |  |  | Noninterest income. We continue to stimulate utilization of debit and ATM card transactions by providing customers with information regarding the
benefits associated with these types of transactions and by providing a rewards program through which points are earned for each transaction completed. The points are redeemable toward the purchase of various promotional items. In addition, we
continue to provide temporary funding to customers that inadvertently overdraw their checking and savings accounts, which accounts for a considerable portion of our service charge income.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The summary information presented below at or for each of the years presented is derived in part from the audited consolidated financial statements of
Seneca-Cayuga Bancorp, Inc. The following information is only a summary, and should be read in conjunction with our consolidated financial statements and notes as furnished in Item 7.



|                                                             |  |                         |         |   |      |   |        
|------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | -------
|                                                             |  | At December 31,        
|                                                             |  | 2008                    |         |   | 2007
|                                                             |  | (In thousands)         
|Selected Financial Condition Data:                           |  |                         |         |   |      |   |        
|                                                             |  |                        
|Total assets                                                 |  | $                       | 177,040 |   |      | $ | 145,160
|Loans receivable, net                                        |  |                         | 138,002 |   |      |   | 104,487
|Trading securities                                           |  |                         | 2,473   |   |      |   | 5,457  
|Securities available-for-sale                                |  |                         | 2,193   |   |      |   | 2,773  
|Securities held-to-maturity                                  |  |                         | 12,939  |   |      |   | 13,500 
|Deposits                                                     |  |                         | 128,936 |   |      |   | 114,404
|Borrowings                                                   |  |                         | 29,016  |   |      |   | 9,927  
|Total shareholders equity                                   |  |                         | 16,843  |   |      |   | 18,565 
|                                                             | 
|                                                             |  | Years EndedDecember 31,
|                                                             |  | 2008                    |         |   | 2007
|                                                             |  | (In thousands)         
|Selected Operating Data:                                     |  |                         |         |   |      |   |        
|                                                             |  |                        
|Interest and dividend income                                 |  | $                       | 8,374   |   |      | $ | 7,872  
|Interest expense                                             |  |                         | 3,701   |   |      |   | 3,867  
|                                                             |  |                         |         |   |      |   |        
|Net interest income                                          |  |                         | 4,673   |   |      |   | 4,005  
|Provision for loan losses                                    |  |                         | 130     |   |      |   | 96     
|                                                             |  |                         |         |   |      |   |        
|Net interest income after provision for loan losses          |  |                         | 4,543   |   |      |   | 3,909  
|Non-interest income                                          |  |                         | 502     |   |      |   | 1,374  
|Non-interest expense                                         |  |                         | 5,484   |   |      |   | 5,170  
|                                                             |  |                         |         |   |      |   |        
|(Loss) income from continuing operations before income taxes |  |                         | (439    | ) |      |   | 113    
|Provision for income taxes                                   |  |                         | 127     |   |      |   | 16     
|                                                             |  |                         |         |   |      |   |        
|Net (loss) income from continuing operations                 |  |                         | (566    | ) |      |   | 97     
|                                                             |  |                         |         |   |      |   |        
|                                                             |  |                        
|Income from discontinued operations before income taxes      |  |                         | 135     |   |      |   | 135    
|Income taxes on discontinued operations                      |  |                         | 57      |   |      |   | 62     
|                                                             |  |                         |         |   |      |   |        
|Net income from discontinued operations                      |  |                         | 78      |   |      |   | 73     
|                                                             |  |                         |         |   |      |   |        
|                                                             |  |                        
|Net (loss) income                                            |  | $                       | (488    | ) |      | $ | 170    
|                                                             |  |                         |         |   |      |   |        



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|                                                                              |  |                                      |    |  |        |  
|----------------------------------------------------------------------------- |  | ------------------------------------ | -- |  | ------ | -
|                                                                              |  | At or For theYearsEnded December 31, |   
|                                                                              |  | 2008                                 |    |  | 2007   |  
|Selected Financial Ratios and Other Data:                                     |  |                                      |    |  |        |  
|                                                                              |  |                                     
|Performance Ratios:                                                           |  |                                      |    |  |        |  
|Return on average assets (ratio of net (loss) income to average total assets) |  | (0.31                                | )% |  | 0.11   | %
|Return on average equity (ratio of net (loss) income to average equity)       |  | (2.64                                | )% |  | 0.92   | %
|Interest rate spread(1)                                                       |  | 2.95                                 | %  |  | 2.58   | %
|Net interest margin(2)                                                        |  | 3.26                                 | %  |  | 2.96   | %
|Efficiency ratio(3)                                                           |  | 90.48                                | %  |  | 94.76  | %
|Operating expense to average total assets                                     |  | 3.46                                 | %  |  | 3.87   | %
|Average interest-earning assets to average interest-bearing liabilities       |  | 112.18                               | %  |  | 113.16 | %
|                                                                              |  |                                     
|Asset Quality Ratios:                                                         |  |                                      |    |  |        |  
|Non-performing assets to total assets                                         |  | 0.21                                 | %  |  | 0.31   | %
|Non-performing loans to total loans                                           |  | 0.16                                 | %  |  | 0.29   | %
|Allowance for loan losses to non-performing loans                             |  | 258.33                               | %  |  | 150.66 | %
|Allowance for loan losses to total loans                                      |  | 0.41                                 | %  |  | 0.44   | %
|                                                                              |  |                                     
|Capital ratios:                                                               |  |                                      |    |  |        |  
|Average equity to average assets                                              |  | 11.67                                | %  |  | 12.45  | %
|Equity to total assets at the end of period                                   |  | 9.51                                 | %  |  | 12.79  | %
|Total bank capital to risk-weighted assets                                    |  | 9.31                                 | %  |  | 19.69  | %
|Tier 1 bank capital to risk-weighted assets                                   |  | 14.26                                | %  |  | 19.13  | %
|Tier 1 bank capital to adjusted assets                                        |  | 14.77                                | %  |  | 11.37  | %
|                                                                              |  |                                     
|Other Data:                                                                   |  |                                      |    |  |        |  
|Number of full service offices                                                |  | 5                                    |    |  | 4      |  



|(1) | Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents net interest income as a percent of average interest-earning assets for the period.
|--- | ----------------------------------------------------------------------------------------------

|(3) | The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income, excluding gains or losses on sales of securities, security
impairment losses, net losses on trading securities and discontinued operations.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Comparison of Financial Condition at December 31,
2008 and December 31, 2007

Assets.Assets at December 31, 2008 totaled $177.0 million, an increase of $31.9
million or 22.0% from $145.2 million at December 31, 2007. The increase was largely the result of an increase in interest-bearing term deposits, loans receivable and other assets, offset mostly by a decrease in cash and cash equivalents and our
security portfolio.

Cash and cash equivalents.Cash and cash equivalents decreased $3.4 million or 45.8% to $4.0 million at
December 31, 2008 from $7.4 million at December 31, 2007. Interest-bearing deposits in banks were utilized during 2008 to purchase approximately $4.0 million in term certificates of deposit at various institutions.



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Interest-bearing term deposits.At December 31, 2007, we had no interest-bearing term
deposits. We purchased $4.0 million in interest-bearing certificates of deposit during 2008, of which $1.5 million matured. For the remaining balance of $2.5 million at December 31, 2008, the weighted average rate is 3.37% and the weighted
average remaining maturity is 3.7 months.

Trading securities.Trading securities decreased by $3.0 million, or 54.7%, to
$2.5 million at December 31, 2008 from $5.5 million at December 31, 2007. The decrease is attributable to the sale of securities, principal payments on mortgage-backed securities and fair value changes.

Available-for-sale securities.Available-for-sale securities decreased by $580,000, or 21.0%, to $2.2 million at December 31,
2008 from $2.8 million at December 31, 2007. The decrease is due to principal repayments received and to a $517,000 impairment loss recognized on a security.

Held-to-maturity securities.Held-to-maturity securities decreased by $561,000, or 4.2%, to $12.9 million at December 31, 2008 from $13.5 million at December 31, 2007. The decrease is
due to principal repayments received, offset partially by the purchase of one $2.0 million local school bond.

Loans receivable.Loans receivable increased by $33.5 million, or 32.1%, to $138.0 million at December 31, 2008 from $104.5 million at December 31, 2007. We did not sell any loans during 2008. We retained the newly originated mortgages and purchased
one- to four-family residential mortgages as a strategy to increase the percentage of loans in the Companys interest-earning asset portfolio. Real estate mortgages, primarily those secured by one-to-four family homes, continued to show growth
in the low-interest rate environment increasing $24.8 million, or 30.2%, to $107.0 million at December 31, 2008 from $82.2 million at December 31, 2007. We supplemented our one- to four-family mortgage production by the purchase of $6.6
million of one- to four-family mortgages from another financial institution. The purchased loans are serviced by the other financial institution. New construction starts in our markets resulted in our construction loans increasing $993,000, or
42.1%, to $3.4 million at December 31, 2008 from $2.4 million at December 31, 2007. Our commercial loans increased by $1.2 million to $3.0 million at December 31, 2008 from $1.8 million at December 31, 2007, which is primarily
the result of branch referrals as we did not market the commercial loan product actively. We continued our indirect lending relationship with a local car dealership and our emphasis on originating more automobile loans at our offices resulting in
automobile loans increasing $1.9 million, or 35.4%, to $7.4 million at December 31, 2008 from $5.5 million at December 31, 2007. Our loan referral program for manufactured homes with a third party resulted in manufactured homes increasing
$3.6 million, or 57.2%, to $9.9 million at December 31, 2008 from $6.3 million at December 31, 2007.

FHLB stock.FHLB stock increased $770,000, or 77.9%, to $1.8 million at December 31, 2008 from $989,000 at December 31, 2007. Because we have increased our borrowings by $19.1 million, we are required to purchase additional FHLB stock.

Deposits.Total deposits increased $14.5 million, or 12.7%, to $128.9 million at December 31, 2008 from $114.4 million
at December 31, 2007. Our checking accounts increased $4.6 million, or 28.2%, savings accounts increased $303,000, or 0.7%, money market accounts increased $1.4 million, or 25.8%, and our time deposits increased $8.3 million, or 17.0%. The
increases were primarily attributable to the opening of our Auburn Auto Bank on January 31, 2008. In addition, we introduced a new E-Platinum checking account that pays a competitive rate and is accessed through our internet banking
module.



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Borrowings.Borrowings, primarily Federal Home Loan Bank of New York advances, increased
$19.1 million, or 192.3%, to $29.0 million at December 31, 2008 from $9.9 million at December 31, 2007 as our asset growth exceeded our deposit growth. Short-term borrowings were $10.7 million at December 31, 2008 and are expected to
be extended to longer term borrowings in 2009. Long-term borrowings increased $8.4 million, or 84.5%, to $18.3 million at December 31, 2008 from $9.9 million at December 31, 2007. The following is an overview of the long-term borrowing
activity during 2008 (in thousands):



|                                        |  |   |        |  
|--------------------------------------- |  | - | ------ | -
|Balance at December 31, 2007            |  | $ | 9,927  |  
|Principal paid on amortizing borrowings |  |   | (3,028 | )
|Principal paid on municipal borrowings  |  |   | (15    | )
|Term borrowings matured:                |  |   |        |  
|December 2008                           |  |   | (459   | )
|December 2008                           |  |   | (459   | )
|December 2008                           |  |   | (750   | )
|Proceeds from new amortizing debt:      |  |   |        |  
|July 2008                               |  |   | 500    |  
|August 2008                             |  |   | 1,000  |  
|November 2008                           |  |   | 1,000  |  
|December 2008                           |  |   | 10,600 |  
|                                        |  |   |        |  
|Balance at December 31, 2008            |  | $ | 18,316 |  
|                                        |  |   |        |  

See Notes 11 and 12 of the consolidated financial statements.

Shareholders equity.Shareholders equity decreased $1.7 million, or 9.3%, to $16.8 million at December 31, 2008 from $18.6
million at December 31, 2007.The net decrease was the result of the following:



| |  |  | Net loss of $488,000 for the year;
| | - |  | ----------------------------------



| |  |  | Additional shareholders equity resulting from $43,000 in ESOP shares committed to be released;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Other comprehensive loss of $1.2 million, consisting of losses incurred by the Banks pension plan, net of taxes, offset partially by unrealized gains on
securities available for sale, net of taxes, of $53,000;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A $63,000 reduction from the repurchase of 9,200 shares of our stock;
| | - |  | ---------------------------------------------------------------------



| |  |  | A $19,000 cumulative effect reduction in retained earnings and a $4,000 reduction in accumulated other comprehensive loss, net of taxes, from a change in accounting
principle upon the change in pension plan measurement date under SFAS 158.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Banks pension plan has cumulative
losses not recognized in pension expense of $2.9 million at December 31, 2008, which are included in accumulated other comprehensive loss, offset partially by a $147,000 prior service credit and net of $1.1 million in taxes. The pension plan
losses are primarily from market value losses in the plan assets. See Notes 14 and 17 of the consolidated financial statements.

Comparison of Operating
Results for the Years Ended December 31, 2008 and December 31, 2007

General.Net income from continuing
operations decreased $663,000 to a net loss of $566,000 in 2008 from net income of $97,000 in 2007 primarily due to an $872,000 decrease in non-interest income, a $314,000 increase in non-interest expense and a $111,000 increase in income tax
expense, offset partially by a $634,000 increase in net interest income. Net income from discontinued operations increased $5,000 due to a decrease of the same amount in income tax expense.

Interest Income.Interest income increased $502,000, or 6.4%, to $8.4 million for the year ended December 31, 2008 from $7.9 million
for the year ended December 31, 2007, which is the result of loan growth, offset by a net decrease in the interest earned on our securities and other interest-earning assets.

Average loans increased $21.8 million, or 22.9%, to $116.9 million for the year ended December 31, 2008 from $95.1 million for the year ended
December 31, 2007, and interest and fee income from loans increased $1.3 million, or 22.5%, to $7.2 million from $5.9 million during the same respective periods. The increase in the average balance of loans receivable reflected continued demand



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for fixed rate one- to four-family mortgage loans as rates continued to decrease proportionally to the rate decreases made by the Federal Reserve during
2008. Management also made the decision not to sell our mortgages this year and keep the assets on our books to improve yield in comparison to alternative investments. In addition, we were able to increase our nonresidential mortgage portfolio by
$5.4 million, which is primarily attributable to five new loans totaling $3.0 million. We also supplemented our one- to four-family production by purchasing $6.6 million in loans from another financial institution. We anticipate purchasing
additional loans provided the rate is sufficient to meet our income objectives. The yield earned on loans decreased three basis points as decreasing yields on one- to four-family mortgages were offset by yields on other loan types, which remained
fairly consistent.

The yield on mortgage-backed securities decreased 5 basis points to 5.33% for the year ended December 31, 2008
from 5.38% for the year ended December 31, 2007 primarily because of prepayments on the securities. The 2007 average balance of mortgage-backed securities was less than the balance at December 31, 2007 as most of the securities were
purchased in April 2007. As a result, the comparison between the mortgage-backed securities average balances for 2008 and 2007 does not reflect the continual decline in mortgage-backed securities since April 2007. We have not purchased any
additional mortgage-backed securities during 2008 and given the current market, we do not anticipate purchasing additional mortgage-backed securities in 2009.

Average trading securities decreased $10.8 million, or 72.9%, to $4.0 million for the year ended December 31, 2008 from $14.8 million for the year ended December 31, 2007. In April 2007, we sold $36.0
million of our trading securities and reinvested $4.8 million in new trading securities. Since then, we have not purchased any additional trading securities. During 2008, we have recorded net realized and unrealized losses of $369,000 primarily due
to losses from our investment in the AMF Ultra Short Mortgage Fund (the Fund), whose price per share has declined from $9.85 at December 31, 2007 to $7.30 at December 31, 2008. The Companys ability to reduce its
investment in the Fund is limited by the Funds redemption policy. In particular, the Fund limits cash redemptions to $250,000 every 90 days with any excess redemptions paid by transferring underlying assets held by the Fund. The Company has
redeemed $750,000 worth of its shares during 2008 and currently expects, subject to market conditions, to request further cash redemptions through 2009. At December 31, 2008, we held 96,270 shares with a market value of $703,000. The yield on
trading securities decreased 12 basis points to 4.48% for the year ended December 31, 2008 from 4.60% for the year ended December 31, 2007, which is primarily attributable to downward rate adjustments on most of the trading portfolio as
the respective indexes decreased in a manner consistent with the general rate environment.

Average other interest-earning assets decreased
$6.3 million, or 40.9%, to $9.0 million for the year ended December 31, 2008 from $15.3 million for the year ended December 31, 2007. During 2007, we did not fully re-invest the proceeds from the sale of our trading portfolio completed in
April 2007 immediately. Most of the proceeds from the sale of our trading portfolio in April 2007 have since been invested in loans. The yield on other interest-earning assets decreased 208 basis points to 2.87% for the year ended December 31,
2008 from 4.95 % for the year ended December 31, 2007 in response to the Federal Reserve Board reducing the discount rate during 2007 and 2008.

Interest Expense.Interest expense decreased $166,000, or 4.3%, to $3.7 million for the year ended December 31, 2008 from $3.9 million for the year ended December 31, 2007. The decrease in
interest expense resulted primarily from a decrease in the cost of deposit accounts and borrowings and an increase in the percentage of our deposits consisting of checking, money market and savings accounts, offset in part by higher average
certificate of deposit balances and corresponding costs.

Average interest-bearing demand deposits and escrow accounts increased $3.6
million, or 49.3%, to $10.9 million for the year ended December 31, 2008 from $7.3 million for the year ended December 31, 2007. Interest expense on these accounts also increased $104,000 to $127,000 for the year ended December 31,
2008 from $23,000 from the prior year, which is the result of offering higher demand deposit rates in 2008 for a new e-statement account that was used to promote our new Auburn Auto Bank.

Average money market accounts increased $315,000, or 6.1%, to $5.5 million for the year ended December 31, 2008 from $5.2 million for the year ended
December 31, 2007. The cost increased 22 basis points to 2.01% from 1.79% for the same comparable period. The increased balance and cost is primarily attributable to a single $900,000 account deposited in 2008, which skews the comparison. We
have not actively marketed money market accounts during 2008 as we were not able to compete effectively against the market. We may re-enter this market in 2009, depending on market conditions.



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Average savings accounts decreased $504,000, or 1.1%, to $45.0 million for the year ended
December 31, 2008 from $45.5 million for the year ended December 31, 2007, and the cost of savings decreased 45 basis points to 1.75% from 2.20% during the same comparable period. We chose not to increase our savings account rates as the
additional cost outweighed the benefits of retaining the balances, which resulted in a portion of higher yielding accounts to be withdrawn.

Average certificates of deposit increased $4.8 million, or 9.9%, to $53.2 million for the year ended December 31, 2008 from $48.4 million for the year ended December 31, 2007. During the same comparative periods, the cost of
certificates of deposit decreased 43 basis points to 4.15% from 4.58%. A portion of the increase in average balances is attributable to our Auburn Auto Bank opening in January 2008. Customers are also depositing more in certificates of deposit to
reduce their exposure to losses in other markets. Average certificate of deposit maturities are shortening, which reduces the average cost, as consumers are not willing to accept longer terms given the markets uncertainty as to when interest
rates may increase.

Average borrowings remained at $13.1 million for the years ended December 31, 2008 and 2007. The average cost of
borrowings decreased 54 basis points to 3.57% from 4.11% during the same comparable period. The decrease is primarily the result of our increasing short-term borrowings during the year to take advantage of low rates offered and to a decrease in
long-term borrowing rates offered through the FHLB, reflecting the rate changes in the market in response to the Federal Reserves rate reductions in 2008.

Net Interest Income.Net interest income increased $668,000, or 16.7%, to $4.7 million for the year ended December 31, 2008 from $4.0 million for the year ended December 31, 2007, primarily due
to higher loan volume and lower cost of funds for our interest-bearing liabilities. During 2008, rates declined much faster for our deposits and borrowings than for our loans. As a result, our net interest spread increased to 2.95% during the year
ended December 31, 2008 from 2.58% during the year ended December 31, 2007, and our net interest margin increased to 3.26% from 2.96% during the same period.

Provision for Loan Losses.We establish provisions for loan losses, which are charged to operations at a level necessary to absorb known and inherent losses that are both probable and
reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse
situations that may affect the borrowers ability to repay, the estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available or as future events occur. After an evaluation of these factors, management made a provision of $130,000 for the year ended December 31, 2008, as compared to a $96,000 provision for the
year ended December 31, 2007. During 2008, we modified our allowance calculation by including values assigned to various reserve factors such as volume, mix, local and national economics, delinquency and other historical performance measures by
loan category. The modification did not materially affect our calculation; however, as we continue to diversify our loan portfolio, additional reserves may be required to reflect increased risk associated with the loan portfolio. The allowance for
loan losses was $585,000, or 0.41% of loans outstanding at December 31, 2008 compared to $458,000, or 0.44% of loans outstanding, at December 31, 2007. The level of the allowance is based on managements estimates and judgment, and
the ultimate losses may vary from anticipated levels.

Historically, our loan portfolio has primarily consisted of one- to
four-family residential mortgage loans. During 2008, we increased our nonresidential loans $5.4 million or 144.8%, commercial loans increased $1.2 million or 68.2% and automobile loans increased $2.0 million or 35.5%. As management evaluates the
allowance for loan losses, the composition of the loan portfolio and increased risk associated with the nonresidential, commercial and consumer loans, as well as the declining state of the economy, may result in larger additions to the allowance for
loan losses in future periods.

Although we believe that we use the best information available to establish the allowance for loan losses,
future additions to the allowance may be necessary, based on estimates that are susceptible to change as a result of changes in economic conditions and other



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factors. In addition, our regulators, as an integral part of their examination process, will periodically review our allowance for loan losses. Such an
agency may require us to recognize adjustments to the allowance, based on its judgment about information available to it at the time of its examination.

Non-Interest Income.Non-interest income decreased $872,000, or 63.5%, to $502,000 for the year ended December 31, 2008, compared to $1.4 million for the year ended December 31, 2007. The
decrease is primarily due to an increased loss recognized on trading securities, a reduction in capital gain dividends earned and an impairment loss recognized on a security during 2008.

Banking fees and services charges increased by $85,000, or 8.0%, due primarily to our continued emphasis in assessing and collecting insufficient account
balance fees and to greater interchange fees earned as ATM and debit card usage increases. Mortgage banking income decreased $11,000, or 9.7%, as we did not sell any loans during 2008.

Net losses on trading securities in 2008 are primarily from $337,000 in losses recognized on our investment in the AMF Ultra Short Mortgage Fund (the
Fund). The Fund has limited cash redemptions to $250,000 every ninety days, and we redeemed $750,000 during 2008 and had $703,000 left in the fund at December 31, 2008. Dependent upon market conditions, we anticipate redeeming the
remaining shares during 2009. We have incurred $11,000 in losses realized on the redemption of shares in the Fund during 2008. The loss in 2007 was the result of the sale of our trading portfolio which was not repeated in 2008.

The $517,000 impairment loss is on our investment in AMF Large Cap Equity Fund (LCEF). The per share value of the LCEF declined to $6.32 at
December 31, 2008 from $9.16 at December 31, 2007. After considering the LCEFs composition, which is primarily stock in companies with capitalization exceeding $5 billion, the stock performance of the companies owned by LCEF and
current economic forecasts, we believe that the loss will not be recovered in the near term, and concluded that the securitys impairment was other-than-temporary. The capital gain dividend received from the LCEF decreased $137,000, which is a
reflection of lower gains realized by the LCEF.

Non-Interest Expense.Non-interest expense increased $314,000, or 6.1%, to
$5.5 million for the year ended December 31, 2008 from $5.2 million for the year ended December 31, 2007. The following table shows the components of non-interest expense and the percentage changes from 2008 to 2007:



|                                 |  |                          |       |      |   |                   |  |      |   
|-------------------------------- |  | ------------------------ | ----- | ---- | - | ----------------- |  | ---- | --
|                                 |  | Years Ended December 31, |      
|                                 |  | 2008                     |       | 2007 |   | Increase/Decrease | 
|                                 |  | (Dollars In thousands)   |      
|Compensation and benefits        |  | $                        | 2,563 |      | $ | 2,568             |  | (.2  | )%
|Occupancy and equipment expenses |  |                          | 955   |      |   | 913               |  | 4.6  |   
|Service charges                  |  |                          | 544   |      |   | 419               |  | 29.8 |   
|Professional fees                |  |                          | 402   |      |   | 303               |  | 32.7 |   
|Advertising                      |  |                          | 339   |      |   | 337               |  | 0.6  |   
|Directors fees                  |  |                          | 156   |      |   | 139               |  | 12.2 |   
|Telephone and postage            |  |                          | 199   |      |   | 174               |  | 14.4 |   
|Supplies                         |  |                          | 81    |      |   | 69                |  | 17.4 |   
|Other                            |  |                          | 245   |      |   | 248               |  | (1.2 | ) 
|                                 |  |                          |       |      |   |                   |  |      |   
|Total                            |  | $                        | 5,484 |      | $ | 5,170             |  | 6.1  |   
|                                 |  |                          |       |      |   |                   |  |      |   

Our occupancy and equipment expenses increased as we opened our new Auburn branch in January 2008.
Service charges increased primarily due to additional costs for the processing of more ATM and debit card transactions. Professional fees increased due to additional costs incurred for independent review of our electronic data processing system,
addition of an internal auditor, higher regulatory fees and escalating costs associated with our public company status. Telephone and postage increased primarily due to greater mail volume associated with our direct mail program for our new Auburn
office and checking accounts. We anticipate that compensation and benefits, occupancy, service charges, advertising, telephone and postage and supplies are likely to increase in 2009



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as a result of our opening of a new full-service facility in early 2009. In addition, we expect significantly higher FDIC premiums in 2009 as the FDIC
approved an increase in regular premium rates for the second quarter of 2009 and also adopted an interim rule imposing a 20 basis point emergency special assessment. The assessment is to be collected on September 30, 2009. The interim rule
would also permit the FDIC to impose an emergency special assessment, of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance.

Income Taxes.Income tax expense increased $111,000 to $127,000 for the year ended December 31, 2008 from $16,000 for the year ended December 31, 2007. During 2008, we did not record an income
tax benefit for the losses incurred for the AMF Ultra Short Mortgage Fund and for the impairment loss on the AMF Large Cap Equity Fund. For tax purposes, these losses are considered capital, and given the Companys lack of income characterized
as capital, we concluded it is unlikely we will be able to utilize the benefit.

Net income from discontinued operations.In
December 2008, we committed to a plan to sell our insurance segment. We made the decision to sell this segment upon determining that, despite restructuring, we were unable to earn an acceptable return on our investment. We are actively negotiating
terms with a buyer and expect to complete the sale of this business by the end of the first quarter of 2009. Net income from discontinued operations was $78,000 for the year ended December 31, 2008 and $73,000 for the year ended
December 31, 2007.

Analysis of Net Interest Income

Net interest income represents the difference between the income we earn on interest-earning assets and the interest expense we pay on interest-bearing liabilities. Net interest income also depends upon the relative
amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.

The following tables
set forth average balance sheets, average yields and costs, and certain other information at the date and for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average
balances. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income. Interest on tax-exempt loans and securities has not been tax effected.



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|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|----------------------------------------------------------------------- |  | ---------------------- | ------- | ---------- | ---- | - | ------------------------ | ---- | ------- | -------- |  | ---------- | ----- |  | -------------- | - |  | -------- | ------- | ---------- |  | - | ----- |  | ---- | -
|                                                                        |  |                        |         |            |      |   | Years Ended December 31, |     
|                                                                        |  | At December 31, 2008   |         |            | 2008 |   |                          | 2007 |        
|                                                                        |  | OutstandingBalance     |         | Yield/Rate |      |   | AverageBalance           |      |         | Interest |  | Yield/Cost |       |  | AverageBalance |   |  | Interest |         | Yield/Cost | 
|                                                                        |  | (Dollars in thousands) |        
|Assets:                                                                 |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Interest-earning assets:                                                |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Loans                                                                   |  | $                      | 138,002 |            | 6.33 | % |                          | $    | 116,907 |          |  | $          | 7,227 |  | 6.18           | % |  | $        | 95,140  |            |  | $ | 5,901 |  | 6.20 | %
|Mortgage-backed securities                                              |  |                        | 12,033  |            | 5.21 |   |                          |      | 13,274  |          |  |            | 708   |  | 5.33           |   |  |          | 9,920   |            |  |   | 534   |  | 5.38 |  
|Trading securities                                                      |  |                        | 2,473   |            | 5.37 |   |                          |      | 4,014   |          |  |            | 180   |  | 4.48           |   |  |          | 14,810  |            |  |   | 681   |  | 4.60 |  
|Other interest-earning assets                                           |  |                        | 7,512   |            | 1.79 |   |                          |      | 9,031   |          |  |            | 259   |  | 2.87           |   |  |          | 15,285  |            |  |   | 756   |  | 4.95 |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Total interest-earning assets                                           |  |                        | 160,020 |            | 6.02 |   |                          |      | 143,226 |          |  |            | 8,374 |  | 5.85           |   |  |          | 135,155 |            |  |   | 7,872 |  | 5.82 |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Noninterest-earning assets                                              |  |                        | 17,020  |            |      |   |                          |      | 15,272  |          |  |            |       |  |                |   |  |          | 12,886  |            |  |   |       |  |      |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Total assets                                                            |  | $                      | 177,040 |            |      |   |                          | $    | 158,498 |          |  |            |       |  |                |   |  | $        | 148,041 |            |  |   |       |  |      |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|                                                                        |  |                        |         |            |      |   |                          |     
|Liabilities and equity:                                                 |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Interest bearing liabilities:                                           |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Interest-bearing demand deposits and escrow                             |  | $                      | 10,392  |            | 0.33 | % |                          | $    | 10,944  |          |  |            | 127   |  | 1.16           | % |  | $        | 7,328   |            |  |   | 23    |  | 0.31 | %
|Money market accounts                                                   |  |                        | 6,642   |            | 1.95 |   |                          |      | 5,512   |          |  |            | 111   |  | 2.01           |   |  |          | 5,197   |            |  |   | 93    |  | 1.79 |  
|Savings accounts                                                        |  |                        | 44,324  |            | 1.57 |   |                          |      | 44,955  |          |  |            | 788   |  | 1.75           |   |  |          | 45,459  |            |  |   | 998   |  | 2.20 |  
|Certificates of deposit                                                 |  |                        | 57,130  |            | 3.48 |   |                          |      | 53,169  |          |  |            | 2,207 |  | 4.15           |   |  |          | 48,394  |            |  |   | 2,216 |  | 4.58 |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Total interest-bearing deposits                                         |  |                        | 118,488 |            | 2.40 |   |                          |      | 114,580 |          |  |            | 3,233 |  | 2.82           |   |  |          | 106,378 |            |  |   | 3,330 |  | 3.13 |  
|Borrowings                                                              |  |                        | 29,016  |            | 2.87 |   |                          |      | 13,092  |          |  |            | 468   |  | 3.57           |   |  |          | 13,061  |            |  |   | 537   |  | 4.11 |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Total interest-bearing liabilities                                      |  |                        | 147,504 |            | 2.49 |   |                          |      | 127,672 |          |  |            | 3,701 |  | 2.90           |   |  |          | 119,439 |            |  |   | 3,867 |  | 3.24 |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Other noninterest-bearing liabilities                                   |  |                        | 12,693  |            |      |   |                          |      | 12,336  |          |  |            |       |  |                |   |  |          | 10,166  |            |  |   |       |  |      |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Total liabilities                                                       |  |                        | 160,197 |            |      |   |                          |      | 140,008 |          |  |            |       |  |                |   |  |          | 129,605 |            |  |   |       |  |      |  
|Shareholders equity                                                    |  |                        | 16,843  |            |      |   |                          |      | 18,490  |          |  |            |       |  |                |   |  |          | 18,436  |            |  |   |       |  |      |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Total liabilities and equity                                            |  | $                      | 177,040 |            |      |   |                          | $    | 158,498 |          |  |            |       |  |                |   |  | $        | 148,041 |            |  |   |       |  |      |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Net interest income                                                     |  |                        |         |            |      |   |                          |      |         |          |  | $          | 4,673 |  |                |   |  |          |         |            |  | $ | 4,005 |  |      |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Interest rate spread                                                    |  |                        |         |            | 3.53 | % |                          |      |         |          |  |            |       |  | 2.95           | % |  |          |         |            |  |   |       |  | 2.58 | %
|Net interest-earning assets                                             |  | $                      | 12,516  |            |      |   |                          | $    | 15,554  |          |  |            |       |  |                |   |  | $        | 15,716  |            |  |   |       |  |      |  
|                                                                        |  |                        |         |            |      |   |                          |      |         |          |  |            |       |  |                |   |  |          |         |            |  |   |       |  |      |  
|Net interest margin                                                     |  |                        |         |            | 2.92 | % |                          |      |         |          |  |            |       |  | 3.26           | % |  |          |         |            |  |   |       |  | 2.96 | %
|Average interest-earning assets to average interest-bearing liabilities |  |                        |         |            |      |   |                          |      | 112.18  | %        |  |            |       |  |                |   |  |          | 113.16  | %          |  |   |       |  |      |  



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Rate/Volume Analysis.The following table presents the dollar amount of changes in
interest income and interest expense for the major categories of the Companys interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with
respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period
average balances). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.



|                                            |  |                                       |      |   |        |   |       |     |  |   |       |  
|------------------------------------------- |  | ------------------------------------- | ---- | - | ------ | - | ----- | --- |  | - | ----- | -
|                                            |  | Years Ended December 31,2008 vs. 2007 |     
|                                            |  | Increase (Decrease)Due to             |      |   |        |  
|                                            |  | Rate                                  |      |   | Volume |   |       | Net | 
|                                            |  | (In thousands)                        |     
|Interest-earning assets:                    |  |                                       |      |   |        |   |       |     |  |   |       |  
|Loans receivable                            |  | $                                     | (19  | ) |        | $ | 1,345 |     |  | $ | 1,326 |  
|Mortgage-backed securities                  |  |                                       | (5   | ) |        |   | 179   |     |  |   | 174   |  
|Trading securities                          |  |                                       | (17  | ) |        |   | (484  | )   |  |   | (968  | )
|Other interest-earning assets               |  |                                       | (252 | ) |        |   | (245  | )   |  |   | (497  | )
|                                            |  |                                       |      |   |        |   |       |     |  |   |       |  
|Total interest-earning assets               |  |                                       | (293 | ) |        |   | 795   |     |  |   | 502   |  
|                                            |  |                                       |      |   |        |   |       |     |  |   |       |  
|                                            |  |                                       |     
|Interest-bearing liabilities:               |  |                                       |      |   |        |   |       |     |  |   |       |  
|Interest-bearing demand deposits and escrow |  |                                       | 88   |   |        |   | 16    |     |  |   | 104   |  
|Money market accounts                       |  |                                       | 12   |   |        |   | 6     |     |  |   | 18    |  
|Savings accounts                            |  |                                       | (199 | ) |        |   | (11   | )   |  |   | (210  | )
|Certificates of deposit                     |  |                                       | (218 | ) |        |   | 209   |     |  |   | (9    | )
|                                            |  |                                       |      |   |        |   |       |     |  |   |       |  
|Total interest-bearing deposits             |  |                                       | (317 | ) |        |   | 220   |     |  |   | (97   | )
|Borrowings                                  |  |                                       | (70  | ) |        |   | 1     |     |  |   | (69   | )
|                                            |  |                                       |      |   |        |   |       |     |  |   |       |  
|Total interest-bearing liabilities          |  |                                       | (387 | ) |        |   | 221   |     |  |   | (166  | )
|                                            |  |                                       |      |   |        |   |       |     |  |   |       |  
|Change in net interest income               |  | $                                     | 94   |   |        | $ | 574   |     |  | $ | 668   |  
|                                            |  |                                       |      |   |        |   |       |     |  |   |       |  

Management of Market Risk.

General.The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, which consist primarily
of mortgage loans, have longer maturities than our liabilities, which consist primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and limit the exposure of our net interest income to changes
in market interest rates where practical. In order to mitigate the potential effects of dramatic increases in market rates of interest, we have, among other things, implemented or will implement a number of strategies, including the following:



| |  |  | Emphasize growth of less interest rate sensitive and lower cost core deposits in the form primarily of checking accounts;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | Pursue modest diversification into non-residential lending, particularly automobile, manufactured home and consumer loans, which typically have shorter terms than
one- to four-family residential mortgage loans;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sell a portion of our newly originated fixed-rate residential mortgage loans;
| | - |  | -----------------------------------------------------------------------------



| |  |  | Place a greater emphasis on building sources of non-interest income by expanding offerings of fee generating financial products and services;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Reduce the interest rate sensitivity of interest-bearing liabilities through utilization of fixed-rate borrowings with terms of more than one year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

Depending on market conditions, we often place more emphasis on enhancing net interest margin rather than matching the
interest rate sensitivity of our assets and liabilities. In particular, we believe that the increased net interest income resulting from a mismatch in the maturity of our asset and liabilities portfolios can, during periods of stable or declining
interest rates, provide high enough returns to justify increased exposure to sudden and unexpected increasing in interest rates. For instance, during 2008, we retained most of our long-term fixed rate loan originations. As a result of this
philosophy, our results of operations and the economic value of our equity will remain vulnerable to increases in interest rates and to declines in the difference between long- and short-term interest rates.

Our Board of Directors serves as our Asset/Liability Committee to communicate, coordinate and control all aspects involving asset/liability management.
The committee monitors the volume and mix of assets and funding sources with the objective of managing assets and funding sources.

We do
not invest in instruments which constitute derivative securities nor have we engaged in hedging activities using interest rate swaps, options, futures or similar instruments.

Net Portfolio Value Simulation Analysis.An important measure of interest risk is the amount by which the net present value of an
institutions cash flow from assets, liabilities and off balance sheet items (the institutions net portfolio value or NPV) changes in the event of a range of assumed changes in market interest rates. Seneca Falls Savings Bank
has utilized the Office of Thrift Supervision to provide an analysis of estimated changes in the Banks NPV under the assumed instantaneous changes in the United States Treasury yield curve set forth below. The Office of Thrift Supervision
model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of the NPV.

The table sets forth, as of December 31, 2008, the estimated changes in our NPV that would result from the designated instantaneous changes in the United States Treasury yield curve.



|                                        |  |                             |        |                                     |   |        |                                               |  |     |           |  |       |                       |  |      |  
|--------------------------------------- |  | --------------------------- | ------ | ----------------------------------- | - | ------ | --------------------------------------------- |  | --- | --------- |  | ----- | --------------------- |  | ---- | -
|                                        |  | Net Portfolio Value (NPV) |        |                                     |   |       
|                                        |  |                             |        | Estimated Increase (Decrease) inNPV |   |        | NPV as a Percentage of PresentValue of Assets | 
|Change in Interest Rates (Basis Points) |  | Estimated NPV               |        | Amount ofChange                     |   |        | PercentageChange                              |  |     | NPV Ratio |  |       | Change in BasisPoints | 
|                                        |  | (Dollars in thousands)      |        |                                     |   |        |                                               |  |    
|+300                                    |  | $                           | 15,195 |                                     | $ | (3,565 | )                                             |  | (19 | )%        |  | 8.64  | %                     |  | (160 | )
|+200                                    |  |                             | 17,368 |                                     |   | (1,391 | )                                             |  | (7  | )         |  | 9.69  |                       |  | (55  | )
|+100                                    |  |                             | 18,682 |                                     |   | (77    | )                                             |  | 0   |           |  | 10.28 |                       |  | 4    |  
|+50                                     |  |                             | 18,807 |                                     |   | 47     |                                               |  | 0   |           |  | 10.30 |                       |  | 6    |  
|0                                       |  |                             | 18,759 |                                     |   |       |                                               |  |    |           |  | 10.24 |                       |  |     |  
|-50                                     |  |                             | 18,349 |                                     |   | (411   | )                                             |  | (2  | )         |  | 10.00 |                       |  | (24  | )
|-100                                    |  |                             | 17,713 |                                     |   | (1,047 | )                                             |  | (6  | )         |  | 9.66  |                       |  | (58  | )

Certain shortcomings are inherent in the methodology used in the above interest rate risk
measurement. Modeling changes in NPV requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV table presented assumes that the
composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve
regardless of the duration or repricing of specific assets and liabilities. Also, such analysis does not measure the impact of interest rate movements on the credit worthiness of our assets or on our net interest income.



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Liquidity Management.Liquidity is the ability to meet current and future financial
obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, short and long term borrowings, loan repayments, loan sales and maturities of investment securities. While maturities and scheduled amortization of loans
and securities are predictable sources of funds, deposit flows and mortgage and mortgage-backed security prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows,
(3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and federal funds sold.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets are dependent on our operating,
financing, lending and investing activities during any given period. At December 31, 2008, cash and cash equivalents totaled $4.0 million, including interest-earning deposits of $165,000. Trading securities and securities classified as
available-for-sale, which provide additional sources of liquidity, totaled $2.5 million and $2.2 million, respectively, at December 31, 2008. In addition, at December 31, 2008, we had the ability to borrow up to approximately $57.2 million
from the Federal Home Loan Bank of New York. On that date, we had $28.9 million outstanding. At December 31, 2008, we also had a repurchase facility with a major commercial bank under which we can borrow up to $10 million with our
mortgage-backed securities portfolio serving as collateral. On that date, we did not have any advances outstanding under the repurchase agreement.

At December 31, 2008, we had $4.5 million in loan commitments outstanding. In addition to commitments to originate loans, we had $5.2 million in unused lines of credit. Certificates of deposit due within one year of December 31,
2008 totaled $39.5 million, or 30.6% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and lines of credit. We believe, however, based on past
experience, that a significant portion of our certificates of deposit will remain with us. Based on the foregoing, in addition to our level of core deposits and capital, we consider our liquidity and capital resources sufficient to meet our
outstanding short-term and long-term needs.

Our primary investing activities are the origination of loans and the purchase of securities.
Our primary financing activities consist of activity in deposit accounts. However, we may from time to time utilize borrowings to fund a portion of our operations where the cost of such borrowings is more favorable than that of deposits of a similar
duration. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase
core deposits. Occasionally, we offer promotional rates to attract certain deposit products.

The following table presents our primary
investing and financing activities during the periods indicated.



|                                                             |  |                          |         |   |      |   |         |  
|------------------------------------------------------------ |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                             |  | Years Ended December 31, |        
|                                                             |  | 2008                     |         |   | 2007 |  
|                                                             |  | (In thousands)           |        
|Cash flows from investing activities:                        |  |                          |         |   |      |   |         |  
|Loan originations, net of amortization and repayments        |  | $                        | (33,811 | ) |      | $ | (17,097 | )
|Principal repayments and maturities from securities          |  |                          | 2,720   |   |      |   | 2,163   |  
|Purchases of interest-bearing term deposits and securities   |  |                          | (6,388  | ) |      |   | (13,128 | )
|Proceeds from the maturity of interest-bearing term deposits |  |                          | 1,899   |   |      |   | 4,000   |  
|                                                             |  |                         
|Cash flows from financing activities:                        |  |                          |         |   |      |   |         |  
|Increase in deposits                                         |  |                          | 14,532  |   |      |   | 1,479   |  
|Net increase (decrease) in borrowings                        |  |                          | 19,089  |   |      |   | (9,079  | )

We are not aware of any known trends, events or uncertainties that will have or are reasonably
likely to have a material effect on our liquidity, capital or operations, nor are we aware of any current recommendations by regulatory authorities, which if implemented, would have a material effect on liquidity, capital or operations.



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Capital Management.Seneca Falls Savings Bank is subject to various regulatory capital
requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad
risk categories. At December 31, 2008, the Bank exceeded all of its regulatory capital requirements and is considered well-capitalized under regulatory guidelines. See Supervision and Regulation  Federal Banking
Regulation  Capital Requirements, Regulatory Capital Compliance and note 15 of the notes to the consolidated financial statements.

Off-Balance Sheet Arrangements.In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are
not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers requests for funding and take the form of
loan commitments and unused lines of credit. For information about our loan commitments and unused lines of credit, see note 19 of the notes to the consolidated financial statements. We have a best efforts commitment to sell an
additional $5.1 million in qualifying residential mortgages to the Federal Home Loan Bank of Chicago by October 18, 2009. It is not likely that we will be able to fulfill the best efforts commitment by the deadline. There are no penalties
incurred by Seneca Falls Savings Bank if the best efforts commitment is not met. It is likely that Seneca Falls Savings Bank will extend the best efforts commitment an additional year.

Impact of Recent Accounting Pronouncements.See the Notes to the Consolidated Financial Statements, Footnote 2(s) for a
review of recent accounting pronouncements.

Impact of Inflation and Changing Prices. Our financial
statements and the related data presented in this annual report on Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America, which requires the measurement of financial position and
operating results primarily in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike
industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.



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|ITEM 7. | Financial Statements
|------- | --------------------

The following
consolidated financial statements and independent auditors report of Seneca-Cayuga Bancorp, Inc. are contained on pages 59 through 92 of this item:



| |  |  | Report of Independent Registered Public Accounting Firm
| | - |  | -------------------------------------------------------



| |  |  | Consolidated Statements of Financial Condition  December 31, 2008 and 2007
| | - |  | ---------------------------------------------------------------------------



| |  |  | Consolidated Statements of Income  Years Ended December 31, 2008 and 2007
| | - |  | --------------------------------------------------------------------------



| |  |  | Consolidated Statements of Shareholders Equity  Years Ended December 31, 2008 and 2007
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Cash Flows  Years Ended December 31, 2008 and 2007
| | - |  | ------------------------------------------------------------------------------



| |  |  | Notes to Consolidated Financial Statements  December 31, 2008 and 2007
| | - |  | -----------------------------------------------------------------------



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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Seneca-Cayuga Bancorp, Inc.

Seneca Falls, New York

We have audited the accompanying
consolidated statements of financial condition of Seneca-Cayuga Bancorp, Inc. and its subsidiary as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders equity and cash flows for the years then
ended. Seneca-Cayuga Bancorp, Inc.s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seneca-Cayuga
Bancorp, Inc. and its subsidiary as of December 31, 2008 and 2007, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 14 to the consolidated financial statements, the Company changed its method of accounting for its defined benefit
pension plan in 2008.

/s/ Beard Miller Company LLP

Beard Miller Company LLP

Syracuse, New York

March 16, 2009



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Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Financial Condition



|                                                                                                                                                     |  |                                         |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                     |  | December 31,                            |        
|                                                                                                                                                     |  | 2008                                    |         |   | 2007 |  
|                                                                                                                                                     |  | (Dollars in thousands exceptshare data) |        
|Assets                                                                                                                                               |  |                                         |         |   |      |   |         |  
|Cash and due from banks                                                                                                                              |  | $                                       | 3,854   |   |      | $ | 3,677   |  
|Interest-bearing deposits in banks                                                                                                                   |  |                                         | 165     |   |      |   | 3,744   |  
|                                                                                                                                                     |  |                                         |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                            |  |                                         | 4,019   |   |      |   | 7,421   |  
|Interest-bearing term deposits                                                                                                                       |  |                                         | 2,489   |   |      |   |        |  
|Trading securities                                                                                                                                   |  |                                         | 2,473   |   |      |   | 5,457   |  
|Securities available-for-sale                                                                                                                        |  |                                         | 2,193   |   |      |   | 2,773   |  
|Securities held-to-maturity (fair value 2008 - $13,000 and 2007 - $13,713)                                                                           |  |                                         | 12,939  |   |      |   | 13,500  |  
|Loans receivable, net of allowance for loan losses (2008 - $558 and 2007 - $458)                                                                     |  |                                         | 138,002 |   |      |   | 104,487 |  
|Federal Home Loan Bank of New York stock, at cost                                                                                                    |  |                                         | 1,759   |   |      |   | 989     |  
|Premises and equipment, net                                                                                                                          |  |                                         | 6,254   |   |      |   | 4,584   |  
|Bank-owned life insurance                                                                                                                            |  |                                         | 3,574   |   |      |   | 2,900   |  
|Pension plan asset                                                                                                                                   |  |                                         | 86      |   |      |   | 651     |  
|Foreclosed assets                                                                                                                                    |  |                                         | 155     |   |      |   | 142     |  
|Intangible assets, net and goodwill                                                                                                                  |  |                                         | 362     |   |      |   | 389     |  
|Accrued interest receivable                                                                                                                          |  |                                         | 684     |   |      |   | 555     |  
|Other assets                                                                                                                                         |  |                                         | 2,051   |   |      |   | 1,312   |  
|                                                                                                                                                     |  |                                         |         |   |      |   |         |  
|                                                                                                                                                     |  |                                        
|Total assets                                                                                                                                         |  | $                                       | 177,040 |   |      | $ | 145,160 |  
|                                                                                                                                                     |  |                                         |         |   |      |   |         |  
|                                                                                                                                                    
|Liabilities and Shareholders Equity                                                                                                                 | 
|                                                                                                                                                     |  |                                        
|Liabilities                                                                                                                                          |  |                                         |         |   |      |   |         |  
|                                                                                                                                                     |  |                                        
|Non-interest bearing deposits                                                                                                                        |  | $                                       | 11,308  |   |      | $ | 9,079   |  
|Interest-bearing deposits                                                                                                                            |  |                                         | 117,628 |   |      |   | 105,325 |  
|                                                                                                                                                     |  |                                         |         |   |      |   |         |  
|Total deposits                                                                                                                                       |  |                                         | 128,936 |   |      |   | 114,404 |  
|Short-term borrowings                                                                                                                                |  |                                         | 10,700  |   |      |   |        |  
|Long-term debt                                                                                                                                       |  |                                         | 18,316  |   |      |   | 9,927   |  
|Advances from borrowers for taxes and insurance                                                                                                      |  |                                         | 860     |   |      |   | 707     |  
|Official checks                                                                                                                                      |  |                                         | 644     |   |      |   | 760     |  
|Other liabilities                                                                                                                                    |  |                                         | 741     |   |      |   | 797     |  
|                                                                                                                                                     |  |                                         |         |   |      |   |         |  
|Total liabilities                                                                                                                                    |  |                                         | 160,197 |   |      |   | 126,595 |  
|                                                                                                                                                     |  |                                         |         |   |      |   |         |  
|                                                                                                                                                     |  |                                        
|Commitments and contingencies                                                                                                                        |  |                                         |        |   |      |   |        |  
|                                                                                                                                                     |  |                                        
|Shareholders Equity                                                                                                                                 |  |                                         |         |   |      |   |         |  
|Preferred stock, $0.01 par value, 1,000,000 shares authorized none issued and outstanding                                                            |  |                                         |        |   |      |   |        |  
|Common stock, $0.01 par value, 9,000,000 shares authorized, shares issued - 2,380,500 and shares outstanding - 2008 - 2,371,300 and 2007 -
2,380,500 |  |                                         | 24      |   |      |   | 24      |  
|Additional paid-in-capital                                                                                                                           |  |                                         | 9,913   |   |      |   | 9,934   |  
|Retained earnings                                                                                                                                    |  |                                         | 9,409   |   |      |   | 9,916   |  
|Treasury stock, at cost, 2008 - 9,200 shares and 2007 - none                                                                                         |  |                                         | (63     | ) |      |   |        |  
|Accumulated other comprehensive loss                                                                                                                 |  |                                         | (1,664  | ) |      |   | (469    | )
|Unearned ESOP shares, at cost                                                                                                                        |  |                                         | (776    | ) |      |   | (840    | )
|                                                                                                                                                     |  |                                         |         |   |      |   |         |  
|Total shareholders equity                                                                                                                           |  |                                         | 16,843  |   |      |   | 18,565  |  
|                                                                                                                                                     |  |                                         |         |   |      |   |         |  
|                                                                                                                                                     |  |                                        
|Total liabilities and shareholders equity                                                                                                           |  | $                                       | 177,040 |   |      | $ | 145,160 |  
|                                                                                                                                                     |  |                                         |         |   |      |   |         |  

See accompanying notes to consolidated financial statements.



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Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Income



|                                                                      |  |                                       |       |   |      |   |       |  
|--------------------------------------------------------------------- |  | ------------------------------------- | ----- | - | ---- | - | ----- | -
|                                                                      |  | Years Ended December 31,              |      
|                                                                      |  | 2008                                  |       |   | 2007 |  
|                                                                      |  | (in thousands, except per share data) |      
|Interest and dividend income:                                         |  |                                       |       |   |      |   |       |  
|Loans, including fees                                                 |  | $                                     | 7,227 |   |      | $ | 5,901 |  
|Debt securities:                                                      |  |                                       |       |   |      |   |       |  
|Mortgage-backed                                                       |  |                                       | 708   |   |      |   | 534   |  
|Tax-exempt                                                            |  |                                       | 26    |   |      |   | 6     |  
|Trading securities                                                    |  |                                       | 180   |   |      |   | 681   |  
|Interest-bearing term deposits                                        |  |                                       | 83    |   |      |   | 25    |  
|Interest-bearing deposits                                             |  |                                       | 86    |   |      |   | 613   |  
|Other                                                                 |  |                                       | 64    |   |      |   | 112   |  
|                                                                      |  |                                       |       |   |      |   |       |  
|Total interest and dividend income                                    |  |                                       | 8,374 |   |      |   | 7,872 |  
|                                                                      |  |                                       |       |   |      |   |       |  
|                                                                      |  |                                      
|Interest expense:                                                     |  |                                       |       |   |      |   |       |  
|Deposits                                                              |  |                                       | 3,233 |   |      |   | 3,330 |  
|Short-term borrowings                                                 |  |                                       | 80    |   |      |   | 11    |  
|Long-term debt                                                        |  |                                       | 388   |   |      |   | 526   |  
|                                                                      |  |                                       |       |   |      |   |       |  
|Total interest expense                                                |  |                                       | 3,701 |   |      |   | 3,867 |  
|                                                                      |  |                                       |       |   |      |   |       |  
|                                                                      |  |                                      
|Net interest income                                                   |  |                                       | 4,673 |   |      |   | 4,005 |  
|Provision for loan losses                                             |  |                                       | 130   |   |      |   | 96    |  
|                                                                      |  |                                       |       |   |      |   |       |  
|Net interest income after provision for loan losses                   |  |                                       | 4,543 |   |      |   | 3,909 |  
|                                                                      |  |                                       |       |   |      |   |       |  
|                                                                      |  |                                      
|Non-interest income:                                                  |  |                                       |       |   |      |   |       |  
|Banking fees and service charges                                      |  |                                       | 1,148 |   |      |   | 1,063 |  
|Mortgage banking income, net                                          |  |                                       | 103   |   |      |   | 114   |  
|Capital gain distribution on securities available-for-sale            |  |                                       | 22    |   |      |   | 159   |  
|Net loss on trading securities                                        |  |                                       | (369  | ) |      |   | (77   | )
|Other-than-temporary security impairment                              |  |                                       | (517  | ) |      |   |      |  
|Other                                                                 |  |                                       | 115   |   |      |   | 115   |  
|                                                                      |  |                                       |       |   |      |   |       |  
|Total non-interest income                                             |  |                                       | 502   |   |      |   | 1,374 |  
|                                                                      |  |                                       |       |   |      |   |       |  
|                                                                      |  |                                      
|Non-interest expense:                                                 |  |                                       |       |   |      |   |       |  
|Compensation and benefits                                             |  |                                       | 2,563 |   |      |   | 2,568 |  
|Occupancy and equipment expenses                                      |  |                                       | 955   |   |      |   | 913   |  
|Service charges                                                       |  |                                       | 544   |   |      |   | 419   |  
|Professional fees                                                     |  |                                       | 402   |   |      |   | 303   |  
|Advertising                                                           |  |                                       | 339   |   |      |   | 337   |  
|Directors fees                                                        |  |                                       | 156   |   |      |   | 139   |  
|Supplies                                                              |  |                                       | 81    |   |      |   | 69    |  
|Telephone and postage                                                 |  |                                       | 199   |   |      |   | 174   |  
|Other                                                                 |  |                                       | 245   |   |      |   | 248   |  
|                                                                      |  |                                       |       |   |      |   |       |  
|Total non-interest expense                                            |  |                                       | 5,484 |   |      |   | 5,170 |  
|                                                                      |  |                                       |       |   |      |   |       |  
|(Loss) income from continuing operations before income taxes          |  |                                       | (439  | ) |      |   | 113   |  
|Income tax expense                                                    |  |                                       | 127   |   |      |   | 16    |  
|                                                                      |  |                                       |       |   |      |   |       |  
|Net (loss) income from continuing operations                          |  |                                       | (566  | ) |      |   | 97    |  
|                                                                      |  |                                       |       |   |      |   |       |  
|                                                                      |  |                                      
|Discontinued operations:                                              |  |                                       |       |   |      |   |       |  
|Income from operations of discontinued insurance agency               |  |                                       | 135   |   |      |   | 135   |  
|Income tax expense                                                    |  |                                       | 57    |   |      |   | 62    |  
|                                                                      |  |                                       |       |   |      |   |       |  
|Net income from discontinued operations                               |  |                                       | 78    |   |      |   | 73    |  
|                                                                      |  |                                       |       |   |      |   |       |  
|                                                                      |  |                                      
|Net (loss) income                                                     |  | $                                     | (488  | ) |      | $ | 170   |  
|                                                                      |  |                                       |       |   |      |   |       |  
|                                                                      |  |                                      
|Net (loss) income from continuing operations per common share  basic |  | $                                     | (0.25 | ) |      | $ | 0.04  |  
|                                                                      |  |                                       |       |   |      |   |       |  
|Net (loss) income per common share  basic                            |  | $                                     | (0.21 | ) |      | $ | 0.07  |  
|                                                                      |  |                                       |       |   |      |   |       |  
|                                                                      |  |                                      
|Weighted average number of common shares outstanding  basic          |  |                                       | 2,298 |   |      |   | 2,293 |  

See accompanying notes to consolidated financial statements.



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Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Shareholders Equity



|                                                                                                                                                               |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | -- | ------------------------ | - | ----- | ---------------- |  | - | ------------- | - |  | --------------------------------- | --- | - | ------------------- | - | ------ | ------------------------ |  | - | ---- | - |  | - | ------ | -
|                                                                                                                                                               |  | Years Ended December 31, 2008 and 2007 |   
|                                                                                                                                                               |  | (In thousands, except share data)      |   
|                                                                                                                                                               |  | CommonStock                            |    | AdditionalPaid-InCapital |   |       | RetainedEarnings |  |   | TreasuryStock |   |  | AccumulatedOtherComprehensiveLoss |     |   | UnearnedESOP Shares |   |        | TotalShareholdersEquity | 
|Balance, January 1, 2007                                                                                                                                       |  | $                                      | 24 |                          | $ | 9,942 |                  |  | $ | 10,604        |   |  | $                                 |    |   |                     | $ | (944   | )                        |  | $ | (902 | ) |  | $ | 18,724 |  
|Cumulative effect of a change in accounting principle upon the adoption of SFAS 159 (net of $545 tax benefit and reversal of unrecognized tax
benefit of $292) |  |                                        |   |                          |   |      |                  |  |   | (858          | ) |  |                                   |    |   |                     |   | 464    |                          |  |   |     |   |  |   | (394   | )
|                                                                                                                                                               |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|Comprehensive income:                                                                                                                                          |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|                                                                                                                                                               |  |                                        |    |                          |   |       |                 
|Net income                                                                                                                                                     |  |                                        |   |                          |   |      |                  |  |   | 170           |   |  |                                   |    |   |                     |   |       |                          |  |   |     |   |  |   | 170    |  
|Unrealized holding losses on securities available for sale (net of $55 tax benefit)                                                                            |  |                                        |   |                          |   |      |                  |  |   |              |   |  |                                   |    |   |                     |   | (80    | )                        |  |   |     |   |  |   | (80    | )
|Pension plan gains and losses and past service liability not recognized in pension expense (net of $61 tax expense)                                            |  |                                        |   |                          |   |      |                  |  |   |              |   |  |                                   |    |   |                     |   | 91     |                          |  |   |     |   |  |   | 91     |  
|                                                                                                                                                               |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|Total comprehensive income                                                                                                                                     |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   | 181    |  
|                                                                                                                                                               |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|ESOP shares committed to be released (6,221 shares)                                                                                                            |  |                                        |   |                          |   | (8    | )                |  |   |              |   |  |                                   |    |   |                     |   |       |                          |  |   | 62   |   |  |   | 54     |  
|                                                                                                                                                               |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|Balance, December 31, 2007                                                                                                                                     |  |                                        | 24 |                          |   | 9,934 |                  |  |   | 9,916         |   |  |                                   |    |   |                     |   | (469   | )                        |  |   | (840 | ) |  |   | 18,565 |  
|Cumulative effect of a change in accounting principle upon the change in pension plan measurement date under SFAS 158 (net of $3 tax expense)                  |  |                                        |   |                          |   |      |                  |  |   | (19           | ) |  |                                   |    |   |                     |   | 4      |                          |  |   |     |   |  |   | (15    | )
|                                                                                                                                                               |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|Comprehensive loss:                                                                                                                                            |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|                                                                                                                                                               |  |                                        |    |                          |   |       |                 
|Net loss                                                                                                                                                       |  |                                        |   |                          |   |      |                  |  |   | (488          | ) |  |                                   |    |   |                     |   |       |                          |  |   |     |   |  |   | (488   | )
|Pension plan gains and losses and past service liability not recognized in pension expense (net of $799 tax benefit)                                           |  |                                        |   |                          |   |      |                  |  |   |              |   |  |                                   |    |   |                     |   | (1,252 | )                        |  |   |     |   |  |   | (1,252 | )
|Unrealized holding gains on securities available for sale (net of $34 tax expense)                                                                             |  |                                        |   |                          |   |      |                  |  |   |              |   |  |                                   |    |   |                     |   | 53     |                          |  |   |     |   |  |   | 53     |  
|                                                                                                                                                               |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|Total comprehensive loss                                                                                                                                       |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   | (1,687 | )
|                                                                                                                                                               |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|Treasury stock purchase (9,200 shares)                                                                                                                         |  |                                        |   |                          |   |      |                  |  |   |              |   |  |                                   | (63 | ) |                     |   |       |                          |  |   |     |   |  |   | (63    | )
|ESOP shares committed to be released (6,221 shares)                                                                                                            |  |                                        |   |                          |   | (21   | )                |  |   |              |   |  |                                   |    |   |                     |   |       |                          |  |   | 64   |   |  |   | 43     |  
|                                                                                                                                                               |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  
|Balance, December 31, 2008                                                                                                                                     |  | $                                      | 24 |                          | $ | 9,913 |                  |  | $ | 9,409         |   |  | $                                 | (63 | ) |                     | $ | (1,664 | )                        |  | $ | (776 | ) |  | $ | 16,843 |  
|                                                                                                                                                               |  |                                        |    |                          |   |       |                  |  |   |               |   |  |                                   |     |   |                     |   |        |                          |  |   |      |   |  |   |        |  

See accompanying notes to consolidated financial statements.



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Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Cash Flows



|                                                                                         |  |                          |         |   |      |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                         |  | Years Ended December 31, |        
|                                                                                         |  | 2008                     |         |   | 2007 |  
|                                                                                         |  | (in thousands)           |        
|Cash flows from operating activities:                                                    |  |                          |         |   |      |   |         |  
|Net (loss) income                                                                        |  | $                        | (488    | ) |      | $ | 170     |  
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |                          |         |   |      |   |         |  
|Net accretion of discounts and premiums                                                  |  |                          | (8      | ) |      |   | (6      | )
|Change in trading securities                                                             |  |                          | 2,984   |   |      |   | 34,849  |  
|Other-than-temporary security impairment                                                 |  |                          | 517     |   |      |   |        |  
|Loans originated for sale                                                                |  |                          |        |   |      |   | (117    | )
|Proceeds from sale of loans                                                              |  |                          |        |   |      |   | 182     |  
|Provision for loan losses                                                                |  |                          | 130     |   |      |   | 96      |  
|Depreciation and amortization                                                            |  |                          | 401     |   |      |   | 364     |  
|Deferred tax expense                                                                     |  |                          | 166     |   |      |   | 63      |  
|Net loss on sale of foreclosed assets                                                    |  |                          | 1       |   |      |   | 1       |  
|Non-cash ESOP expense                                                                    |  |                          | 43      |   |      |   | 54      |  
|Income from bank-owned life insurance                                                    |  |                          | (74     | ) |      |   | (91     | )
|(Increase) decrease in pension plan asset                                                |  |                          | (1,498  | ) |      |   | 1       |  
|Amortization of intangible assets                                                        |  |                          | 27      |   |      |   | 21      |  
|(Increase) decrease in accrued interest receivable                                       |  |                          | (129    | ) |      |   | 218     |  
|(Increase) decrease in other assets                                                      |  |                          | (144    | ) |      |   | 41      |  
|(Decrease) increase in official checks and other liabilities                             |  |                          | (172    | ) |      |   | 49      |  
|                                                                                         |  |                          |         |   |      |   |         |  
|Net cash provided by operating activities                                                |  |                          | 1,756   |   |      |   | 35,895  |  
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|Cash flows from investing activities:                                                    |  |                          |         |   |      |   |         |  
|Purchase of interest-bearing term deposits                                               |  |                          | (4,388  | ) |      |   |        |  
|Maturity of interest-bearing term deposits                                               |  |                          | 1,899   |   |      |   | 4,000   |  
|Principal repayments on mortgage-backed securities held-to-maturity                      |  |                          | 2,553   |   |      |   | 2,082   |  
|Maturities and calls of securities held-to-maturity                                      |  |                          | 15      |   |      |   | 57      |  
|Principal repayments on mortgage-backed securities available-for-sale                    |  |                          | 152     |   |      |   | 24      |  
|Purchases of securities held-to-maturity                                                 |  |                          | (2,000  | ) |      |   | (11,815 | )
|Purchases of securities available-for-sale                                               |  |                          |        |   |      |   | (1,313  | )
|Purchases of loans                                                                       |  |                          | (6,635  | ) |      |   |        |  
|Net loans originations and repayments                                                    |  |                          | (27,176 | ) |      |   | (17,097 | )
|Purchases of Federal Home Loan Bank stock                                                |  |                          | (2,078  | ) |      |   | (1,000  | )
|Proceeds from sale of Federal Home Loan Bank stock                                       |  |                          | 1,308   |   |      |   | 1,428   |  
|Purchase of bank-owned life insurance                                                    |  |                          | (600    | ) |      |   |        |  
|Purchases of premises and equipment                                                      |  |                          | (2,085  | ) |      |   | (570    | )
|Proceeds from sale of foreclosed assets                                                  |  |                          | 166     |   |      |   | 139     |  
|                                                                                         |  |                          |         |   |      |   |         |  
|Net cash used by investing activities                                                    |  |                          | (38,869 | ) |      |   | (24,065 | )
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|Cash flows from financing activities:                                                    |  |                          |         |   |      |   |         |  
|Increase in deposits                                                                     |  |                          | 14,532  |   |      |   | 1,479   |  
|Net increase (decrease) in short-term borrowings                                         |  |                          | 10,700  |   |      |   | (575    | )
|Proceeds from long-term debt                                                             |  |                          | 13,100  |   |      |   |        |  
|Repayment of long-term debt                                                              |  |                          | (4,711  | ) |      |   | (8,504  | )
|Increase in advance payments by borrowers for taxes and insurance                        |  |                          | 153     |   |      |   | 104     |  
|Treasury stock purchased                                                                 |  |                          | (63     | ) |      |   |        |  
|                                                                                         |  |                          |         |   |      |   |         |  
|Net cash provided (used) by financing activities                                         |  |                          | 33,711  |   |      |   | (7,496  | )
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|Net change in cash and cash equivalents                                                  |  |                          | (3,402  | ) |      |   | 4,334   |  
|Cash and cash equivalents at beginning of year                                           |  |                          | 7,421   |   |      |   | 3,087   |  
|                                                                                         |  |                          |         |   |      |   |         |  
|Cash and cash equivalents at end of year                                                 |  | $                        | 4,019   |   |      | $ | 7,421   |  
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|Supplementary information:                                                               |  |                          |         |   |      |   |         |  
|Interest paid                                                                            |  | $                        | 3,668   |   |      | $ | 3,887   |  
|Net loans transferred to foreclosed real estate                                          |  |                          | 205     |   |      |   | 136     |  
|Income taxes paid                                                                        |  |                          | 3       |   |      |   | 4       |  

See accompanying notes to consolidated financial statements.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



|1. | Organization and Nature of Operations
|-- | -------------------------------------

Seneca-Cayuga Bancorp, Inc. (the Holding Company) is a federally-chartered stock holding company and a subsidiary of The Seneca Falls Savings Bank, MHC (the Mutual Holding Company), a federally-chartered mutual
holding company. The Mutual Holding Company owns 1,309,275 shares, or 55%, of the Holding Companys issued stock, and the remaining Holding Company stock is held by the public or has been repurchased by the Holding Company. The Mutual Holding
Company activity is not included in the accompanying consolidated financial statements.

Seneca Falls Savings Bank (the Bank) is
a wholly owned subsidiary of the Holding Company. The same directors and officers, who manage the Bank, also manage the Holding Company and the Mutual Holding Company.

The Bank maintains its executive offices and main branch in Seneca Falls, New York, with branches in Waterloo, Geneva, and Auburn, New York. The Bank is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers within its market area and investing those funds principally in mortgage loans secured by one- to four-family residences, multi-family and commercial properties, consumer loans and
mortgage-backed securities.

In addition, Seneca-Cayuga Personal Services, LLC (the Agency), doing business as Royce &
Rosenkrans, Inc., offers insurance and fixed annuity products through licensed employees in the same market area. The Agency is the Banks wholly-owned subsidiary. See Note 18 Discontinued Operations.



|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------



| | a. | Principles of Consolidation
| | -- | ---------------------------

The consolidated
financial statements include the accounts of the Holding Company, the Bank, and the Agency. The consolidated entity is referred to as the Company. All significant intercompany balances and transactions have been eliminated in
consolidation.



| | b. | Use of Estimates
| | -- | ----------------

In preparing consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of
the statement of financial condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, the evaluation of other than temporary impairment of securities and the evaluation of deferred income taxes.



| | c. | Cash and Cash Equivalents
| | -- | -------------------------

Cash and cash
equivalents include cash, amounts due from banks, including interest bearing demand deposits and items in the process of collection.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



| | d. | Trading Securities
| | -- | ------------------

The Company engages in trading
activities for its own account. Securities that are held principally for resale in the near term are recorded in the trading securities account at fair value with changes in fair value recorded in earnings. Interest and dividends are included in
interest income.



| | e. | Securities
| | -- | ----------

The Company reports debt and equity
securities, other than trading securities, in one of the following categories: (i) held-to-maturity which management has the positive intent and ability to hold debt securities to maturity and are reported at amortized cost adjusted
for the amortization of premiums and accretion of discounts; and (ii) available-for-sale which includes all other debt and equity securities and are reported at fair value, with unrealized gains and losses excluded from earnings and
reported in other comprehensive income. The Company classifies its securities in one of these categories based upon determinations made at the time of purchase, and re-evaluates their classification each quarter end.

Premiums and discounts on debt securities are amortized and accreted to interest income using a method that approximates the level-yield method over the
term of the security, adjusted for the effect of actual prepayments in the case of mortgage-backed securities. Gains and losses on the sales of securities are recognized in income when sold, using the specific identification method, on a trade date
basis. Unrealized losses are charged to earnings as an impairment loss when the decline in fair value of a security is judged to be other than temporary. Management evaluates securities for other-than-temporary impairment on a quarterly basis, and
considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment
in the issuer to the earlier of recovery of its fair value or maturity.



| | f. | Federal Home Loan Bank of New York Stock
| | -- | ----------------------------------------

Federal
Home Loan Bank Stock, which represents required investments in the common stock and preferred stock of a correspondent bank is carried at cost and as of December 31, 2008 and 2007 consists of the common stock and preferred stock of the FHLB of
New York.

Management evaluates the restricted stock for impairment in accordance with Statement of Position (SOP) 01-6, Accounting by
Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others. Managements determination of whether these investments are impaired is based on their assessment of the ultimate recoverability
of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets
of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to
performance of the FHLB, and (3) the impact of legislative and regulatory changes on financial institutions and, which are the customer base of the FHLB.

Management believes no impairment charge is necessary related to the FHLB Stock as of December 31, 2008.



| | g. | Loans Held for Sale and Related Commitments
| | -- | -------------------------------------------

Loans
held-for-sale represent residential mortgage loans originated for sale on a whole-loan basis. These loans are carried at the lower of cost or estimated fair value, as determined on an aggregate basis. Net unrealized losses are recognized in a
valuation allowance by charges to operations. Premiums and discounts and origination fees and costs on loans held-for-sale are deferred and recognized as a component of the gain or loss on sale. Commitments to originate loans that will be
held-for-sale and forward commitments to sell such loans are derivative instruments which are required to be recognized as assets or liabilities at fair value. Fair value is determined based solely on the effect of changes in secondary market
interest rates and yield requirements from the commitment date to the date of the financial statements. The fair values of these commitments have had an immaterial effect on the Companys financial position and results of operations.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



The Bank sells residential mortgage loans to third parties generally on a servicing-retained basis.
These transactions are accounted for as sales based on application of the criteria set forth in Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. These criteria provide that the Bank, as transferor, must surrender control over the transferred assets (i.e., the loans sold) in order to record a sale. The criteria specify that (i) the transferred assets
have been isolated from the transferor (put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership); (ii) each transferee has the right to pledge or exchange the assets it received; and
(iii) the transferor does not maintain effective control over the transferred assets through an agreement to repurchase the assets or an ability to unilaterally cause the holder to return specific assets.

Gains and losses on sales of whole loans and loan participation interests are recognized when the sales proceeds are received, and are measured in
accordance with SFAS No. 140 (including consideration of assets obtained and liabilities incurred in the transfer, if any, such as servicing rights and recourse obligations). All but a minor portion of the Banks loan sales have been made
on a recourse basis. Recourse obligations, if any, are determined based on an estimate of probable credit losses over the term of the loan. Servicing assets and recourse liabilities on loan sales through December 31, 2008 are not material to
the Companys financial position and results of operations. Loan servicing income is reported in non-interest income.



| | h. | Loans
| | -- | -----

The loan portfolio consists of mortgage,
commercial and consumer loans to the Banks customers, principally in the Finger Lakes region of New York State. The ability of the Banks debtors to honor their contracts is dependent upon the real estate and general conditions in this
area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are
reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination costs, net of
origination fees, are deferred and recognized as an adjustment of the related loan yield using a method that approximates the level yield method. When loans are prepaid prior to contractual maturity, any remaining deferred amounts are recognized in
interest income.

Interest is accrued monthly on the outstanding balance of mortgages and other loans unless management considers collection
to be doubtful. The accrual of interest is discontinued when contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectibility of principal or interest, even though the loan is
currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Interest received
on nonaccrual loans generally is applied against principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the
ultimate collectability of the total contractual principal and interest is no longer in doubt.



| | i. | Allowance for Loan Losses
| | -- | -------------------------

An allowance for loan
losses is provided through charges to income in an amount that management believes necessary for known and inherent losses in the loan portfolio that are both probable and estimable, based on evaluations of the collectability of loans and prior loan
loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect the
borrowers ability to pay. Determining the amount of the allowance for loan losses requires the use of estimates and assumptions, which is permitted under accounting principles generally accepted in the United States of America. Actual results
could differ significantly from those estimates. While management uses available information to estimate losses on loans, future additions to the allowance may be necessary based on changes in economic conditions, particularly in the State of New
York. In



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



addition, regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for losses on loans. Such
agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. SFAS No. 114, as amended by SFAS No. 118 addresses the accounting by
creditors for impairment of certain loans. It is generally applicable for all loans except large groups of smaller balance homogeneous loans that are evaluated collectively for impairment, including residential mortgage loans and consumer
installment loans. It also applies to all loans that are restructured in a troubled debt restructuring involving a modification of terms. SFAS No. 114 requires that the impaired loans be measured based on the present value of expected future
cash flows discounted at the loans effective interest rate, or at the loans observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is considered impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans are reviewed for impairment on a monthly basis.

The Banks methodology for assessing the adequacy of the allowance for loan losses consists of three key elements: (i) specific allowances for
identified problem loans, including certain impaired or collateral-dependent loans; (ii) a general valuation allowance on certain identified problem loans; and (iii) a general valuation allowance on the remainder of the loan portfolio.

Specific Allowance for Identified Problem Loans.The loan portfolio is segregated first among loans that are on the classified
list, delinquent loans, special mention loans and all other loans. Each loan on the classified list is reviewed and an individual reserve allocation is established on certain loans based on such factors as: (i) the strength of
the customers personal or business cash flow; (ii) the availability of other sources of repayment; (iii) the amount due or past due; (iv) the type and value of collateral; (v) the strength of the collateral position;
(vi) the estimated cost to sell the collateral; and (vii) the borrowers effort to cure the delinquency. If necessary, an allowance for certain impaired loans is established for the amounts by which the discounted cash flows (or
collateral value or observable market price) are lower than the carrying amount of the loan.

General Valuation on Identified Problem
Loans. A general allowance is established for delinquent and special mention loans that do not have an individual allowance. These loans are segregated by loan category and allowance percentages are assigned to each category based on inherent
losses associated with each type of lending and consideration that these loans, in the aggregate, represent an above-average credit risk and that more of these loans will prove to be uncollectible compared to loans in the general portfolio.

General Valuation Allowance on the Remainder of the Loan Portfolio. A general allowance is established for loans that are not on the
classified list, delinquent or identified as special mention to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This general valuation
allowance is determined by segregating the loans by loan category and assigning allowance percentages based on the historical loss experience and delinquency trends. The allowance may be adjusted for significant factors that, in managements
judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting primary lending
areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, specific industry conditions within portfolio segments, recent loss experience in a particular segment of the portfolio, duration of
the current business cycle and bank regulatory examination results. The applied loss factors are re-evaluated as deemed appropriate but no less than annually to ensure their relevance in the current environment.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual
consumer loans for impairment disclosures, unless they are subject to a restructuring agreement.



| | j. | Premises and equipment
| | -- | ----------------------

Land is carried at cost.
Buildings, improvements and equipment are carried at cost less accumulated depreciation and amortization. Depreciation expense is provided on a straight-line basis over the estimated useful lives of the related assets, which is generally 15 to 40
years for buildings and 3 to 5 years for furniture, equipment, computers and software. Leasehold improvements are amortized over the related terms of the leases.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



| | k. | Bank-owned life insurance
| | -- | -------------------------

The Bank invests in
bank-owned life insurance (BOLI) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a chosen group of employees. The Bank is the owner and beneficiary of the life insurance policies,
and as such, the investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies is included in non-interest income on the statements of income.



| | l. | Intangible assets and goodwill
| | -- | ------------------------------

Intangible assets
represent acquired assets that lack physical substance, but can be distinguished from goodwill because of contractual or other legal rights. The Companys intangible assets consist of customer lists and covenants not to compete that were
acquired in connection with business acquisitions. Customer lists are being amortized on an accelerated basis over their useful life, which is 10 years. Covenants not to compete are being amortized on a straight-line basis over the period of time
covered by the covenant, which have a weighted average life of 10 years. Additionally, the Company reviews its identifiable assets for impairment whenever events or circumstances indicate that the carrying value many not be recoverable.

Goodwill represents the excess of the cost of an acquisition over the fair value of tangible and identifiable intangible assets acquired in a business
combination utilizing purchase accounting. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, business acquisition goodwill is no longer ratably amortized, but rather it is tested at least annually for impairment.



| | m. | Employee benefit plans
| | -- | ----------------------

The Bank participates in a
noncontributory defined benefit pension plan, which covers substantially all eligible Company employees at least 21 years of age and with at least one year of service. Benefits under this plan generally are based on employees years of service
and compensation. The Bank makes annual contributions to the Plan equal to the maximum amount that can be deducted for income tax purposes.

The Bank sponsors an Employee Stock Ownership Plan (ESOP) covering substantially all full time employees. Acquisitions of the Holding Companys common stock for the Plan by the Bank were funded internally through a
borrowing from the Holding Company, which is repayable semi-annually with interest over fifteen years. The cost of shares issued to the ESOP but not yet allocated to participants is presented in the consolidated statement of financial condition as a
reduction of shareholders equity. ESOP shares are released to participants proportionately as the loan is repaid. Allocations to individual accounts are based on participant compensation. As shares are committed to be released to participants,
the Company reports compensation expense equal to the current market price of the shares and the shares become outstanding for earnings per share computations. The difference between the market price and the cost of shares committed to be released
is recorded as an adjustment to additional paid-in-capital. Dividends on allocated shares reduce retained earnings; dividends on unallocated ESOP shares reduce debt and accrued interest.

The Company has a defined contribution plan under section 401(k) of the Internal Revenue Code. This plan covers all Company employees with at least twelve
months of service. The Companys contributions to this plan are discretionary and determined annually by the Board of Directors. Employee contributions are voluntary. Employees vest immediately in their own contributions, and vest in the
Companys contributions based on years of service.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



| | n. | Foreclosed assets
| | -- | -----------------

Real estate and other assets
acquired in settlement of loans are carried at the fair value of the property at the date of acquisition. Write-downs from cost to fair value less estimated selling costs which are required at the time of foreclosure or repossession are charged to
the allowance for loan losses. Subsequent write-downs to fair value, net of estimated selling costs, and net operating expenses of foreclosed assets are charged to other non-interest expenses.



| | o. | Advertising
| | -- | -----------

The Company follows the policy of
charging the costs of advertising to expense as incurred.



| | p. | Income taxes
| | -- | ------------

Deferred income tax assets and
liabilities are determined using the liability method. Under this method, the net deferred tax asset or liability is recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases as well as net operating losses, capital losses and contribution carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. To the extent
that current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized, a valuation allowance is established. The judgment about the level of future taxable income, including that which is
considered capital, is inherently subjective and is reviewed on a continual basis as regulatory and business factors change.



| | q. | Comprehensive (loss) income
| | -- | ---------------------------

Comprehensive (loss)
income, for the years ended December 31, 2008 and 2007, consists of net (loss) income, the change in net unrealized gains and losses in the fair value of securities available-for-sale, net of taxes and the current year gains and losses and past
service liability of the Companys defined benefit pension plan that have not been recognized in pension expense, net of taxes.



| | r. | Net Earnings (Loss) Per Common Share
| | -- | ------------------------------------

Basic
earnings per common share is calculated by dividing net income or loss by the weighted-average number of common shares outstanding during the period. The Company has not granted any restricted stock awards or stock options and had no potentially
dilutive common stock equivalents. Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating basic earnings (loss) per common share until they are committed to
be released.



| | s. | Recent accounting pronouncements
| | -- | --------------------------------

FASB statement
No. 141(R), Business Combinations(SFAS 141(R)), was issued in December 2007. This Statement established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This new pronouncement will impact the Companys accounting for business combinations completed
beginning January 1, 2009.

FASB statement No. 160, Noncontrolling Interest in Consolidated Financial Statements - An Amendment
of ARB No. 51(SFAS 160) was issued in December 2007. This Statement established accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will
become effective for the Company January 1, 2009. The Company does not expect the adoption of SFAS 160 to have a material effect on its consolidated financial position or results of operations.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No. 109(FIN 48),which clarifies the accounting for uncertainty in tax positions. FIN 48 requires that companies recognize in their financial statements the impact of a
tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. In May 2007, the FASB issued FIN 48-1, Definition of Settlement in FASB Interpretation No. 48(FIN
48-1), which provides guidance on how to determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The Company adopted FIN 48 and FIN 48-1 on January 1, 2008, which did
not have a material effect on the Companys consolidated financial position or results of operations.

In September 2006, the FASB
ratified Emerging Issues Task Force Issue No 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements(EITF 06-04). EITF 06-04 requires the recognition
of a liability related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement. The consensus highlights that the employer (who is also the policyholder) has a liability for the benefit it is providing to its
employee. As such, if the policyholder has agreed to maintain the insurance policy in force for the employees benefit during his or her retirement, then the liability recognized during the employees active service period should be based
on the future cost of insurance to be incurred during the employees retirement. Alternatively, if the policyholder has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by
following the guidance in SFAS 106 or APB Opinion 12, as appropriate. EITF 06-04 was effective for the Company on January 1, 2008. The adoption of EITF 06-04 had no effect on the Companys consolidated financial position or results of
operation.

In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10, Accounting for Collateral Assignment
Split-Dollar Life Insurance Agreements (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligations as well as recognition and measurement of the associated asset on the basis of
the terms of the collateral assignment agreement. EITF 06-10 was effective for the Company on January 1, 2008. The adoption of EITF 06-04 had no effect on the Companys consolidated financial position or results of operation.

Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings(SAB 109), expresses
the views of the staff regarding written loan commitments that are accounted for at fair value through earnings under generally accepted accounting principles. To make the staffs views consistent with current authoritative accounting guidance,
SAB 109 revises and rescinds portions of SAB No. 105, Application of Accounting Principles to Loan Commitments. Specifically, SAB 109 revises the SEC staffs views on incorporating expected net future cash flows related to loan
servicing activities in the fair value measurement of a written loan commitment. SAB 109 retains the staffs views on incorporating expected net future cash flows related to internally-developed intangible assets in the fair value measurement
of a written loan commitment. The staff expects registrants to apply the views in Question 1 of SAB 109 on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The
application of SAB 109 did not have any impact on the Companys financial statements.

In May 2008, the FASB issued FASB Statement
No. 162, The Hierarchy of Generally Accepted Accounting Principles. The new standard identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The standard is effective sixty days following the SECs approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect the adoption of the new pronouncement to have a significant impact on its consolidated
financial statements.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of
financial statements in accordance with International Financial Reports Standards (IFRS). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board. Under the proposed roadmap, the Company may
be required to prepare financial statements in accordance with IFRS as early as 2014. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing the impact that this potential change would
have on its consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.

In
November 2008, the FASB ratified Emerging Issues Task Force Issue no. 08-7, Accounting for Defensive Intangible Assets (EITF 08-7). EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an
acquirer does not intend to actively use but intends to hold to prevent is competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of
accounting which should be amortized to expense over the period the asset diminishes in value. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. This new pronouncement will impact the
Companys accounting for any defensive intangible asses acquired in a business combination completed beginning January 1, 2009.

In December 2008, the FASB issued FSP FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets. This FSP amends FASB Statement 132(R), Employers Disclosures about Pension and Other Postretirement
Benefits, to provide guidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosures about plan assets required by this FSP shall be provided for fiscal years ending after
December 15, 2009. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment of Guidance of EITF Issue No. 99-20. This FSP amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether an other-than-temporary impairment has occurred.
FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirement in SFAS No. 115, Accounting for Certain investment in Debt and Equity Securities, and
other related guidance. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and is applied prospectively. Retrospective application to a prior interim or annual reporting period is not
permitted. The application of FSP EITF 99-20-1 did not have any impact on the Companys financial statements.



|3. | Balances at Other Banks
|-- | -----------------------

The Bank is required to
maintain cash balances on hand or with the Federal Reserve Bank. At December 31, 2008 and 2007, these reserve balances amounted to $993,000 and $418,000.



|4. | Trading Securities
|-- | ------------------

Trading securities, at fair
value, consist of the following at December 31:



|                                      |  |                |       |      |   |      
|------------------------------------- |  | -------------- | ----- | ---- | - | -----
|                                      |  | 2008           |       | 2007
|                                      |  | (in thousands)
|U.S. government and agency securities |  | $              | 1,757 |      | $ | 2,366
|Mortgage-backed securities            |  |                | 13    |      |   | 1,325
|Equity securities                     |  |                | 703   |      |   | 1,766
|                                      |  |                |       |      |   |      
|Total trading securities              |  | $              | 2,473 |      | $ | 5,457
|                                      |  |                |       |      |   |      

We opted to adopt the provisions of FASB Statement No. 157 (SFAS 157) and FASB
Statement No. 159 (SFAS 159) as of January 1, 2007. The primary effect of SFAS 157 on the Company was to expand the required disclosures pertaining to the methods used to determine the fair values. Under SFAS 159,
available-for-sale and held-to-maturity securities held at the date



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



of adoption were eligible for the fair value option on that date. By adopting the new standards early, we were able to modify our balance sheet management
strategies in the context of a broader use of fair value accounting. The factors influencing our decision to adopt the new standards early included:



| |  |  | the inversion of the Treasury yield curve had compressed interest rate spreads on earning assets;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | competition for low-cost deposits had increased significantly in our market place which has caused an increased dependence upon higher cost time deposits;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | during 2006, in response to our current and projected economy, we reduced our balance sheet leverage and began to implement strategies for improving net income;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | accounting for certain financial assets, primarily securities, at fair value enables us to more closely align their financial performance with the economic value of
those assets; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 2007 balance sheet management strategies shifted to altering the construct and usage of investment securities, increase our consumer loan portfolio, more closely
align anticipated cash flows from borrowings with selected securities, and increase use of short-term securities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under
the new standards, the use of fair value is specifically prohibited for our deposits. As our deposits represent a very significant portion of our liabilities, we determined that to use fair value for most of our assets was not appropriate, as we
would be measuring assets and liabilities differently and the overall presentation would not fairly present our financial position. As our investment portfolio is utilized to address interest rate management objectives, we elected fair value for
most of our securities portfolio. Upon adoption of the new standards, the remaining securities for which the use of fair value reporting was not elected included our investment in a large cap equity fund carried in our available-for-sale portfolio,
several mortgage-backed securities held-to-maturity and our municipal bonds held-to-maturity. The large cap equity fund is held by the Holding Company and is maintained to provide sufficient income to cover the Holding Companys expenses rather
than to address specific interest rate management objectives. The mortgage-backed securities held-to-maturity either had very small balances, were pledged as collateral against a specific borrowing, or had projected cash flows that were closely
aligned with anticipated cash flows from borrowings. The municipal bonds were pledged as collateral against a specific borrowing.

Our
objective was to more actively trade securities and remove longer term and lower yielding securities and replace them with new securities of different types with shorter terms. However, the market has not provided opportunity to add securities to
our portfolio that are consistent with our income and asset/liability management objectives. As new securities are purchased, they will be included in our trading portfolio to the extent they are not aligned with anticipated cash flows from
borrowings. We have also used a substantial portion of the trading portfolio to fund loan originations or to purchase loans since the beginning of 2007.

The following table is a summary of the securities transferred to trading upon the early adoption of the new standards at January 1, 2007:



|                                                   |  |                |        |                                                 |   |        |            |  |   |       
|-------------------------------------------------- |  | -------------- | ------ | ----------------------------------------------- | - | ------ | ---------- |  | - | ------
|                                                   |  | AmortizedCost  |        | Pre-tax LossUpon theAdoption ofthe NewStandards |   |        | Fair Value
|                                                   |  | (in thousands)
|Securities transferred to trading securities from: |  |                |        |                                                 |   |        |            |  |   |       
|Securities available-for-sale:                     |  |                |        |                                                 |   |        |            |  |   |       
|Mortgage-backed securities                         |  | $              | 20,077 |                                                 | $ | (713   | )          |  | $ | 19,364
|Equity securities                                  |  |                | 1,732  |                                                 |   | (48    | )          |  |   | 1,684 
|                                                   |  |                |        |                                                 |   |        |            |  |   |       
|Subtotal                                           |  |                | 21,809 |                                                 |   | (761   | )          |  |   | 21,048
|                                                   |  |                |        |                                                 |   |        |            |  |   |       
|                                                   |  |                |       
|Securities held-to-maturity:                       |  |                |        |                                                 |   |        |            |  |   |       
|U.S. Government and federal agency obligations     |  |                | 2,500  |                                                 |   | (52    | )          |  |   | 2,448 
|Mortgage-backed securities                         |  |                | 17,401 |                                                 |   | (590   | )          |  |   | 16,811
|                                                   |  |                |        |                                                 |   |        |            |  |   |       
|Subtotal                                           |  |                | 19,901 |                                                 |   | (642   | )          |  |   | 19,259
|                                                   |  |                |        |                                                 |   |        |            |  |   |       
|                                                   |  |                |       
|Total securities transferred to trading            |  | $              | 41,710 |                                                 | $ | (1,403 | )          |  | $ | 40,307
|                                                   |  |                |        |                                                 |   |        |            |  |   |       



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



The cumulative effect adjustment recorded in retained earnings at January 1, 2007 is as follows:



|                                                                 |  |   |        |  
|---------------------------------------------------------------- |  | - | ------ | -
|Pre-tax loss upon the adoption of the new standards              |  | $ | (1,403 | )
|Tax effect                                                       |  |   | 545    |  
|                                                                 |  |   |        |  
|Net of tax amount recorded as an adjustment to retained earnings |  | $ | (858   | )
|                                                                 |  |   |        |  

Upon the adoption of the new standards at January 1, 2007, an additional $249,000 was recorded
as a deferred tax asset related to the unrealized net loss on held to maturity securities transferred to trading securities.



|5. | Securities
|-- | ----------

Investments in securities
available-for-sale and held-to-maturity at December 31, 2008 and 2007 are summarized as follows:



|                                    |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|----------------------------------- |  | -------------- | ------ | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | ------
|                                    |  | AmortizedCost  |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|                                    |  | (in thousands)
|December 31, 2008:                  |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|Securities available-for-sale:      |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|Mortgage-backed securities          |  | $              | 1,138  |                      | $ | 33                    |  | $ |           |   |  | $ | 1,171 
|Equity securities                   |  |                | 1,022  |                      |   |                      |  |   |           |   |  |   | 1,022 
|                                    |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|Total securities available-for-sale |  | $              | 2,160  |                      | $ | 33                    |  | $ |           |   |  | $ | 2,193 
|                                    |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|                                    |  |                |        |                     
|Securities held-to-maturity:        |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|State and political subdivisions    |  | $              | 2,077  |                      | $ | 4                     |  | $ |           |   |  | $ | 2,081 
|Mortgage-backed securities          |  |                | 10,862 |                      |   | 263                   |  |   | (206       | ) |  |   | 10,919
|                                    |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|Total securities held-to-maturity   |  | $              | 12,939 |                      | $ | 267                   |  | $ | (206       | ) |  | $ | 13,000
|                                    |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|                                    |  |                |        |                     
|December 31, 2007:                  |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|Securities available-for-sale:      |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|Mortgage-backed securities          |  | $              | 1,289  |                      | $ | 3                     |  | $ |           |   |  | $ | 1,292 
|Equity securities                   |  |                | 1,539  |                      |   |                      |  |   | (58        | ) |  |   | 1,481 
|                                    |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|Total securities available-for-sale |  | $              | 2,828  |                      | $ | 3                     |  | $ | (58        | ) |  | $ | 2,773 
|                                    |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|                                    |  |                |        |                     
|Securities held-to-maturity:        |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|State and political subdivisions    |  | $              | 92     |                      | $ | 4                     |  | $ |           |   |  | $ | 96    
|Mortgage-backed securities          |  |                | 13,408 |                      |   | 210                   |  |   | (1         | ) |  |   | 13,617
|                                    |  |                |        |                      |   |                       |  |   |            |   |  |   |       
|Total securities held-to-maturity   |  | $              | 13,500 |                      | $ | 214                   |  | $ | (1         | ) |  | $ | 13,713
|                                    |  |                |        |                      |   |                       |  |   |            |   |  |   |       

All of the Companys mortgage-backed securities were acquired by purchase (with no securities
resulting from retained interests in loans sold or securitized by the Bank). Mortgage-backed securities issued by government-sponsored enterprises at December 31, 2008 consist of (i) Freddie Mac securities with an amortized cost of
$5,693,000 and an estimated fair value of $5,812,000, (ii) Fannie Mae securities with an amortized cost of $5,132,000 and an estimated fair value of $5,303,000, (iii) Ginnie Mae securities with an amortized cost of $39,000 and an estimated
fair value of $44,000 and (iv) privately issued securities with an amortized cost of $1,136,000 and an estimated fair value of $931,000. Mortgage backed securities are the only securities of individual issuers held by the Company with an
aggregate book value which exceeds 10% of the Companys equity at December 31, 2008.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



Gross unrealized losses on investment securities and the fair value of the related securities,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2008 and 2007, are as follows:



|                                    |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  
|----------------------------------- |  | ------------------- | ----- | --------------------- | ------------------- | ---- | ------------------- | ----- | --------------------- | --- |  | ------------------- | -- | --------------------- |  | - | ----- |  | - | ---- | -
|                                    |  | 12 Months or Less   |       |                       | More Than 12 Months |      |                     | Total |                      
|                                    |  | EstimatedFair Value |       | GrossUnrealizedLosses |                     |      | EstimatedFair Value |       | GrossUnrealizedLosses |     |  | Estimated FairValue |    | GrossUnrealizedLosses | 
|                                    |  | (in thousands)      |      
|December 31, 2008:                  |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  
|Securities held-to-maturity:        |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  
|Mortgage-backed securities          |  | $                   | 969   |                       | $                   | (206 | )                   |       | $                     |    |  | $                   |   |                       |  | $ | 969   |  | $ | (206 | )
|                                    |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  
|Total securities held-to-maturity   |  | $                   | 969   |                       | $                   | (206 | )                   |       | $                     |    |  | $                   |   |                       |  | $ | 969   |  | $ | (206 | )
|                                    |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  
|                                    | 
|December 31, 2007:                  |  |                     |       |                      
|Securities available-for-sale:      |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  
|Equity securities                   |  | $                   | 1,481 |                       | $                   | (58  | )                   |       | $                     |    |  | $                   |   |                       |  | $ | 1,481 |  | $ | (58  | )
|                                    |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  
|Total securities available-for-sale |  | $                   | 1,481 |                       | $                   | (58  | )                   |       | $                     |    |  | $                   |   |                       |  | $ | 1,481 |  | $ | (58  | )
|                                    |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  
|                                    |  |                     |       |                       |                     |     
|Securities held-to-maturity:        |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  
|Mortgage-backed securities          |  | $                   |      |                       | $                   |     |                     |       | $                     | 487 |  | $                   | (1 | )                     |  | $ | 487   |  | $ | (1   | )
|                                    |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  
|Total securities held-to-maturity   |  | $                   |      |                       | $                   |     |                     |       | $                     | 487 |  | $                   | (1 | )                     |  | $ | 487   |  | $ | (1   | )
|                                    |  |                     |       |                       |                     |      |                     |       |                       |     |  |                     |    |                       |  |   |       |  |   |      |  

At December 31, 2008, there were two securities in a continuous unrealized loss position for
12 months or less. One of the securities accounts for $204,000 of the unrealized losses and is a privately issued mortgage-backed security. The underlying mortgages are generally performing according to their respective terms with minimal
delinquency. Accordingly, it is not expected to be settled at a price less than the par value of the security because the decline in fair value is not credit quality; and because the Company has the intent and ability to hold this investment until
recovery, which may be at maturity. The remaining unrealized losses are on a security with a balance less than $40,000. The Company does not consider these investments to be other than temporarily impaired at December 31, 2008.

During 2008, the Company evaluated its held-to-maturity and available-for-sale portfolios for other-than-temporary impairment on a quarterly basis. In
completing its analysis, management considered (1) the length of time and extent to which the fair value had been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the
Company to retain its investment in the issuer to the earlier of recovery of its fair value or maturity.

Based on facts and circumstances
the Company determined that an investment in a large cap mutual fund, with a carrying value of $1,539,000 at December 31, 2007, was other-than-temporarily impaired, and accordingly recorded a cumulative impairment loss of $517,000 during the
year. The Company was not certain when the fair value would equal its carrying value, and accordingly, concluded the charge against earnings was required.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



The following is a summary of the amortized cost and estimated fair values of debt securities at
December 31, 2008, by remaining term to contractual maturity other than mortgage-backed securities. Actual maturities may differ from these amounts because certain issuers have the right to call or redeem their obligations prior to contractual
maturity. The contractual maturities of mortgage-backed securities generally exceed 20 years; however, the effective average life is expected to be substantially shorter due to anticipated repayments and prepayments.



|                                     |  |                               |       |                             |   |               |  |                     |        |  |   |       
|------------------------------------ |  | ----------------------------- | ----- | --------------------------- | - | ------------- |  | ------------------- | ------ |  | - | ------
|                                     |  | Securities Available-for-Sale |       | Securities Held-to-Maturity
|                                     |  | AmortizedCost                 |       | EstimatedFair Value         |   | AmortizedCost |  | EstimatedFair Value
|                                     |  | (in thousands)               
|Due in one year                      |  | $                             |      |                             | $ |              |  | $                   | 2,000  |  | $ | 2,000 
|Due over one year through five years |  |                               |      |                             |   |              |  |                     | 70     |  |   | 74    
|Due over five through ten years      |  |                               |      |                             |   |              |  |                     | 7      |  |   | 7     
|                                     |  |                               |       |                             |   |               |  |                     |        |  |   |       
|                                     |  |                               |      |                             |   |              |  |                     | 2,077  |  |   | 2,081 
|Mortgage-backed securities           |  |                               | 1,138 |                             |   | 1,171         |  |                     | 10,862 |  |   | 10,919
|                                     |  |                               |       |                             |   |               |  |                     |        |  |   |       
|Total                                |  | $                             | 1,138 |                             | $ | 1,171         |  | $                   | 12,939 |  | $ | 13,000
|                                     |  |                               |       |                             |   |               |  |                     |        |  |   |       

There were no sales of available for sale securities in 2008 and 2007.



|6. | Loans Receivable, net
|-- | ---------------------

Loans receivable, net are
summarized as follows:



|                                     |  |                |         |   |      |   |         |  
|------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                     |  | December 31,   |        
|                                     |  | 2008           |         |   | 2007 |  
|                                     |  | (in thousands) |        
|Real estate mortgages:               |  |                |         |   |      |   |         |  
|One- to four-family                  |  | $              | 97,362  |   |      | $ | 77,906  |  
|Multi-family                         |  |                | 563     |   |      |   | 594     |  
|Nonresidential                       |  |                | 9,075   |   |      |   | 3,707   |  
|                                     |  |                |         |   |      |   |         |  
|Total real estate mortgages          |  |                | 107,000 |   |      |   | 82,207  |  
|Construction                         |  |                | 3,352   |   |      |   | 2,359   |  
|Commercial                           |  |                | 3,020   |   |      |   | 1,795   |  
|Home equity lines and loans          |  |                | 4,535   |   |      |   | 4,244   |  
|Manufactured home loans              |  |                | 9,945   |   |      |   | 6,326   |  
|Automobile loans                     |  |                | 7,382   |   |      |   | 5,453   |  
|Other consumer loans                 |  |                | 1,251   |   |      |   | 1,389   |  
|                                     |  |                |         |   |      |   |         |  
|Total loans receivable               |  |                | 136,485 |   |      |   | 103,773 |  
|Deferred loan origination costs, net |  |                | 2,075   |   |      |   | 1,172   |  
|Allowance for loan losses            |  |                | (558    | ) |      |   | (458    | )
|                                     |  |                |         |   |      |   |         |  
|Total loans receivable, net          |  | $              | 138,002 |   |      | $ | 104,487 |  
|                                     |  |                |         |   |      |   |         |  

At December 31, 2008 and 2007, loans receivable in non-accrual status were $216,000 and
$304,000. Interest which would have been recorded on these loans had they been accruing was $18,000 and $25,000 in the years ended December 31, 2008 and 2007. The Company was not committed to fund additional amounts on these loans at
December 31, 2008 and 2007. The Company had no loans considered impaired and no loans 90 days or more delinquent and still accruing interest at December 31, 2008 and 2007.

At December 31, 2008 and 2007, one- to four-family mortgage loans serviced for others amounted to approximately $28.4 and $31.2 million, respectively
and are not included in the accompanying consolidated statements of financial condition, of which $26.5 and $30.1 million at December 31, 2008 and 2007 have recourse provisions. No mortgage servicing rights assets or liabilities were recorded
as future servicing revenues approximate future servicing costs.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



Activity in the allowance for loan losses is summarized below:



|                               |  |                          |     |   |      |   |     |  
|------------------------------ |  | ------------------------ | --- | - | ---- | - | --- | -
|                               |  | Years Ended December 31, |    
|                               |  | 2008                     |     |   | 2007 |  
|                               |  | (in thousands)           |    
|Allowance at beginning of year |  | $                        | 458 |   |      | $ | 391 |  
|Provision for loan losses      |  |                          | 130 |   |      |   | 96  |  
|Charge-offs                    |  |                          | (65 | ) |      |   | (39 | )
|Recoveries                     |  |                          | 35  |   |      |   | 10  |  
|                               |  |                          |     |   |      |   |     |  
|Allowance at end of year       |  | $                        | 558 |   |      | $ | 458 |  
|                               |  |                          |     |   |      |   |     |  



|7. | Federal Home Loan Bank of New York Stock
|-- | ----------------------------------------

The Bank is required to maintain an investment in the stock of the Federal Home Loan Bank of New
York (FHLB) in an amount equal to at least 1% of the unpaid principal balances of the Banks residential mortgage loans or 1/20of its outstanding advances from the FHLB, whichever is greater. Purchases and sales of stock are made directly with the FHLB at par value.



|8. | Premises and Equipment
|-- | ----------------------

A summary of the cost and
accumulated depreciation and amortization of premises and equipment follows:



|                                               |  |                 |       |      |   |      
|---------------------------------------------- |  | --------------- | ----- | ---- | - | -----
|                                               |  | At December 31,
|                                               |  | 2008            |       | 2007
|                                               |  | (in thousands) 
|Premises:                                      |  |                 |       |      |   |      
|Land                                           |  | $               | 2,178 |      | $ | 1,984
|Buildings and improvements                     |  |                 | 4,715 |      |   | 3,934
|Equipment                                      |  |                 | 2,292 |      |   | 1,200
|                                               |  |                 |       |      |   |      
|                                               |  |                 | 9,185 |      |   | 7,118
|Less accumulated depreciation and amortization |  |                 | 2,930 |      |   | 2,534
|                                               |  |                 |       |      |   |      
|                                               |  | $               | 6,254 |      | $ | 4,584
|                                               |  |                 |       |      |   |      

At December 31, 2008, the Bank was obligated under non-cancelable operating leases on property
and equipment used for banking purposes. One lease contains an escalation clause which provides for increased rental expense based upon the consumer price index. Lease expense was $60,000 and $59,000 for the years ended December 31, 2008 and
2007. Future minimum lease commitments under the non-cancelable operating leases are as follows (in thousands):



|                          |  |   |    
|------------------------- |  | - | ---
|Years Ending December 31, |  |  
|2009                      |  | $ | 62 
|2010                      |  |   | 62 
|2011                      |  |   | 30 
|2012                      |  |   | 1  
|                          |  |   |    
|                          |  | $ | 155
|                          |  |   |    

The leases contain options to extend for additional periods, which are not included in the table
above.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



|9. | Intangible Assets and Goodwill
|-- | ------------------------------

Intangible assets
and goodwill, assigned to the insurance agency segment, are summarized as follows:



|                             |  |                     |     |                         |   |      |           |  |   |    
|---------------------------- |  | ------------------- | --- | ----------------------- | - | ---- | --------- |  | - | ---
|                             |  | GrossCarryingAmount |     | AccumulatedAmortization |   |      | Net Value
|                             |  | (in thousands)     
|December 31, 2008:           |  |                     |     |                         |   |      |           |  |   |    
|Amortized intangible assets: |  |                     |     |                         |   |      |           |  |   |    
|Customer lists               |  | $                   | 461 |                         | $ | (449 | )         |  | $ | 12 
|Non-compete agreements       |  |                     | 65  |                         |   | (42  | )         |  |   | 23 
|Goodwill                     |  |                     | 327 |                         |   |     |           |  |   | 327
|                             |  |                     |     |                         |   |      |           |  |   |    
|                             |  | $                   | 853 |                         | $ | (491 | )         |  | $ | 362
|                             |  |                     |     |                         |   |      |           |  |   |    
|December 31, 2007:           |  |                     |     |                         |   |      |           |  |   |    
|Amortized intangible assets: |  |                     |     |                         |   |      |           |  |   |    
|Customer lists               |  | $                   | 461 |                         | $ | (427 | )         |  | $ | 34 
|Non-compete agreements       |  |                     | 65  |                         |   | (37  | )         |  |   | 28 
|Goodwill                     |  |                     | 327 |                         |   |     |           |  |   | 327
|                             |  |                     |     |                         |   |      |           |  |   |    
|                             |  | $                   | 853 |                         | $ | (464 | )         |  | $ | 389
|                             |  |                     |     |                         |   |      |           |  |   |    

Goodwill is being amortized for federal and state income tax purposes.

The estimated amortization expense in subsequent years is as follows (in thousands):



|                          |  |   |   
|------------------------- |  | - | --
|Years Ending December 31, |  |  
|2009                      |  | $ | 16
|2010                      |  |   | 4 
|2011                      |  |   | 4 
|2012                      |  |   | 4 
|2013                      |  |   | 4 
|Thereafter                |  |   | 3 
|                          |  |   |   
|                          |  | $ | 35
|                          |  |   |   

The intangible assets are expected to be included in our sale of the insurance segment as discussed
in Note 18.

There were no impairment losses on intangible assets or goodwill for the years ended December 31, 2008 and 2007.



|10. | Deposits
|--- | --------

Deposits, by deposit type, are summarized
as follows:



|                                        |  |                |         |      |   |        
|--------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                        |  | December 31,  
|                                        |  | 2008           |         | 2007
|                                        |  | (in thousands)
|Checking accounts, non-interest bearing |  | $              | 11,308  |      | $ | 9,079  
|Checking accounts, interest-bearing     |  |                | 9,532   |      |   | 7,181  
|Money market accounts                   |  |                | 6,642   |      |   | 5,281  
|Savings accounts                        |  |                | 44,324  |      |   | 44,021 
|Certificates of deposit                 |  |                | 57,130  |      |   | 48,842 
|                                        |  |                |         |      |   |        
|                                        |  | $              | 128,936 |      | $ | 114,404
|                                        |  |                |         |      |   |        



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



Scheduled maturities of certificates of deposit at December 31, 2008 are summarized as follows
(in thousands):



|                          |  |   |       
|------------------------- |  | - | ------
|Years Ending December 31, |  |  
|2009                      |  | $ | 39,496
|2010                      |  |   | 10,592
|2011                      |  |   | 1,841 
|2012                      |  |   | 2,713 
|2013                      |  |   | 2,305 
|thereafter                |  |   | 183   
|                          |  |   |       
|                          |  | $ | 57,130
|                          |  |   |       

Interest expense on deposits, classified by type, follows:



|              |  |                          |       |      |   |      
|------------- |  | ------------------------ | ----- | ---- | - | -----
|              |  | Years Ended December 31,
|              |  | 2008                     |       | 2007
|              |  | (in thousands)          
|Savings       |  | $                        | 788   |      | $ | 998  
|Checking      |  |                          | 127   |      |   | 23   
|Money market  |  |                          | 111   |      |   | 93   
|Time deposits |  |                          | 2,207 |      |   | 2,216
|              |  |                          |       |      |   |      
|              |  | $                        | 3,233 |      | $ | 3,330
|              |  |                          |       |      |   |      

The aggregate amount of deposits with balances equal to or greater than $100,000 was $37,644,000
and $27,634,000 at December 31, 2008 and 2007. Deposits at FDIC-insured institutions are insured up to at least $250,000 per depositor until December 31, 2009. On January 1, 2010, FDIC deposit insurance for all deposit
accountsexcept for certain retirement accountswill return to at least $100,000 per depositor.



|11. | Short-term Borrowings
|--- | ---------------------

The Bank maintains a $15.1
million overnight line of credit and a $15.1 million one-month repricing line of credit with the Federal Home Loan Bank of New York (FHLB). In addition, the Bank may borrow an additional $28.2 million in term borrowings from the FHLB
with terms of one month to ten years. The Banks aggregate unused FHLB borrowing capacity was approximately $57.2 million at December 31, 2008.

Outstanding FHLB advances with original maturities of twelve months or less were $10.7 million at December 31, 2008, and there were no outstanding advances at December 31, 2007. The FHLB advances at
December 31, 2008 consisted of $1.2 million against the overnight line of credit with an interest rate of 0.45% and $9.5 million in short term borrowings with maturities of one to three months and interest rates of 0.60% to 2.71%.

The Bank also has a repurchase agreement with a correspondent bank providing an additional $10 million in liquidity. Funds obtained under the
repurchase agreement are secured by the Banks mortgage-backed securities. There were no advances outstanding under the repurchase agreement at December 31, 2008 and 2007.

FHLB borrowings are secured by the Banks investment in FHLB stock and by a blanket security agreement. This agreement requires the Bank to maintain
as collateral certain qualifying assets (principally securities and residential mortgage loans) not otherwise pledged, with a fair value (as defined) at least equal to 120% of outstanding advances, or $34.7 million at December 31, 2008. The
Bank satisfied its collateral requirement at December 31, 2008 and 2007.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



|12. | Long-term Borrowings
|--- | --------------------

At December 31, 2008 and
2007, long-term outstanding FHLB advances having original maturities exceeding twelve months were $18,239,000 and $9,835,000. Long-term borrowings at December 31, 2008 consisted of fixed-rate term advances with rates ranging from 3.05% to 4.15%
(weighted average rate of 3.30% at December 31, 2008) and fixed-rate amortizing advances with rates ranging from 2.76% to 5.50% (weighted average rate of 3.83% at December 31, 2008).

The Bank transferred state and municipal bonds to a unit trust fund (the Trust) sponsored by an investment banking firm in return for cash
equal to the par value of the bonds plus accrued interest at the date of transfer. The Trust has put options which would require the Bank to repurchase the bonds at specified prices on annual repurchase dates if any debt obligation is deemed to be
taxable or in default. The repurchase agreements with respect to each bond terminate at various dates through 2016 with interest rates ranging from 5.40% to 7.40% (weighted average rate of 5.72% at December 31, 2008). This transaction has been
recorded as a borrowing. This borrowing amounted to $77,000 and $92,000 at December 31, 2008 and 2007. The Bank secured its obligation to repurchase the bonds by pledging securities with an approximate fair value of $533,000 and $605,000 at
December 31, 2008 and 2007, respectively.

The maturities of long-term borrowings are as follows (in thousands):



|                          |  |   |       
|------------------------- |  | - | ------
|Years Ending December 31, |  |  
|2009                      |  | $ | 4,831 
|2010                      |  |   | 3,068 
|2011                      |  |   | 4,865 
|2012                      |  |   | 2,188 
|2013                      |  |   | 2,191 
|Thereafter                |  |   | 1,173 
|                          |  |   |       
|                          |  | $ | 18,316
|                          |  |   |       



|13. | Income Taxes
|--- | ------------

The Companys provision for
income taxes included in the consolidated statements of income is as follows:



|                               |  |                          |     |      |   |     |  
|------------------------------ |  | ------------------------ | --- | ---- | - | --- | -
|                               |  | Years Ended December 31, |    
|                               |  | 2008                     |     | 2007 |  
|                               |  | (in thousands)           |    
|Current tax expense:           |  |                          |     |      |   |     |  
|Federal                        |  | $                        |    |      | $ |    |  
|State                          |  |                          | 18  |      |   | 15  |  
|                               |  |                          |     |      |   |     |  
|Total current tax expense      |  |                          | 18  |      |   | 15  |  
|                               |  |                          |     |      |   |     |  
|Deferred tax expense(benefit): |  |                          |     |      |   |     |  
|Federal                        |  |                          | 123 |      |   | 106 |  
|State                          |  |                          | 43  |      |   | (43 | )
|                               |  |                          |     |      |   |     |  
|Total deferred tax expense     |  |                          | 166 |      |   | 63  |  
|                               |  |                          |     |      |   |     |  
|Income tax expense             |  | $                        | 184 |      | $ | 78  |  
|                               |  |                          |     |      |   |     |  

The current and deferred tax (benefit) expense from continuing operations was ($14,000) and
$141,000 for the year ended December 31, 2008, respectively. The current and deferred tax (benefit) expense from continuing operations was ($19,000) and $35,000 for the year ended December 31, 2007, respectively.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



The reconciliation of the Companys U.S. statutory rate to the Companys effective tax rate
is as follows (dollars in thousands):



|                                               |  |                          |      |   |                  |     |    |        |   |     |                  |  |     |  
|---------------------------------------------- |  | ------------------------ | ---- | - | ---------------- | --- | -- | ------ | - | --- | ---------------- |  | --- | -
|                                               |  | Years Ended December 31, |     
|                                               |  | 2008                     |      |   | 2007             |    
|                                               |  | Amount                   |      |   | % ofPretaxIncome |     |    | Amount |   |     | % ofPretaxIncome | 
|Tax (benefit) expense at statutory rate        |  | $                        | (103 | ) |                  | (34 | )% |        | $ | 84  |                  |  | 34  | %
|Increase in cash value of life insurance       |  |                          | (25  | ) |                  | (8  | )  |        |   | (31 | )                |  | (13 | )
|State tax expense(benefit), net of federal tax |  |                          | 40   |   |                  | 13  |    |        |   | (18 | )                |  | (8  | )
|Valuation allowance                            |  |                          | 292  |   |                  | 96  |    |        |   |    |                  |  |    |  
|Other                                          |  |                          | (20  | ) |                  | (6  | )  |        |   | 43  |                  |  | 18  |  
|                                               |  |                          |      |   |                  |     |    |        |   |     |                  |  |     |  
|Income tax expense                             |  | $                        | 184  |   |                  | 61  | %  |        | $ | 78  |                  |  | 31  | %
|                                               |  |                          |      |   |                  |     |    |        |   |     |                  |  |     |  

The Company files consolidated Federal income and New York State franchise tax returns on a
calendar-year basis. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:



|                                                |  |                |       |   |      |   |       |  
|----------------------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | -
|                                                |  | December 31,   |      
|                                                |  | 2008           |       |   | 2007 |  
|                                                |  | (in thousands) |      
|Deferred tax assets:                            |  |                |       |   |      |   |       |  
|Allowance for loan losses                       |  | $              | 216   |   |      | $ | 177   |  
|Net unrealized losses on securities             |  |                |      |   |      |   | 21    |  
|Trading securities fair value changes           |  |                | 117   |   |      |   | 59    |  
|Impairment writedown on securities              |  |                | 312   |   |      |   | 112   |  
|Intangible assets and goodwill                  |  |                | 150   |   |      |   | 173   |  
|Net operating loss carryforwards                |  |                | 888   |   |      |   | 501   |  
|Depreciation                                    |  |                | 14    |   |      |   |      |  
|Other                                           |  |                | 37    |   |      |   | 36    |  
|                                                |  |                |       |   |      |   |       |  
|Total deferred tax assets                       |  |                | 1,734 |   |      |   | 1,079 |  
|Valuation allowance                             |  |                | (331  | ) |      |   |      |  
|                                                |  |                |       |   |      |   |       |  
|Net deferred tax assets                         |  |                | 1,403 |   |      |   | 1,079 |  
|                                                |  |                |       |   |      |   |       |  
|                                                |  |               
|Deferred tax liabilities:                       |  |                |       |   |      |   |       |  
|Depreciation                                    |  |                |      |   |      |   | (22   | )
|Net unrealized gains on securities              |  |                | (13   | ) |      |   |      |  
|Pension                                         |  |                | (33   | ) |      |   | (213  | )
|                                                |  |                |       |   |      |   |       |  
|Total deferred tax liabilities                  |  |                | (46   | ) |      |   | (235  | )
|                                                |  |                |       |   |      |   |       |  
|                                                |  |               
|Net deferred tax asset included in other assets |  | $              | 1,357 |   |      | $ | 844   |  
|                                                |  |                |       |   |      |   |       |  

At December 31, 2008, the Company has federal and state net operating loss carryforwards
totaling $2.2 million and $2.8 million that expire through 2028.

A valuation allowance of $331,000 was established for the year ended
December 31, 2008, as management believes it may not generate sufficient capital gains to offset its capital losses recognized for the cumulative losses from its investment in the AMF Ultra Short Mortgage Fund and for the current years
impairment recorded for its investment in the AMF Large Cap Equity Fund.

As a thrift institution, the Bank is subject to special provisions
in the tax laws regarding its allowable tax bad debt deductions and related tax bad debt reserves. These deductions are determined using methods based on loss experience or a percentage of taxable income. Tax bad debt reserves represent the excess
of allowable deductions over actual bad debt losses, and include a



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



defined base-year amount. Deferred tax liabilities are recognized with respect to reserves in excess of the base-year amount, as well as any portion of the
base-year amount that is expected to become taxable (or recaptured) in the foreseeable future.

The Banks base-year tax
bad debt reserves totaled $332,000 for Federal tax purposes at December 31, 2008 and 2007 and $2.3 million and $2.0 million for State tax purposes at December 31, 2008 and 2007.



|14. | Employee Benefit Plans
|--- | ----------------------

401(k) Plan

The Company provides for a savings and retirement plan for employees which qualifies under section 401(k) of the Internal Revenue Code.
The plan provides for voluntary contributions by participating employees ranging from one percent to fifteen percent of their compensation, subject to certain limitations. In addition, the Company will make a matching contribution, equal to 25% of
the employees contribution. Matching contributions vest to the employee ratably over a five-year period. For the years ended December 31, 2008 and 2007, expense attributable to contributions made by the Company amounted to $32,000 and
$38,000.

Defined Benefit Plan

The Company provides pension benefits for eligible employees through a defined benefit pension plan (the Plan). Substantially all employees participate in the retirement plan on a non-contributing basis, and are fully vested
after five years of service. Benefit payments to retired employees are based upon the length of service and percentages of average compensation over the employees service period. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in the future. The plans funded status as of a December 31 and October 1 measurement date for 2008 and 2007, respectively, activity in the plan and the amounts
recognized in the accompanying consolidated financial statements follows.



|                                                  |  |                          |        |   |      |   |       |  
|------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ----- | -
|                                                  |  | Years Ended December 31, |       
|                                                  |  | 2008                     |        |   | 2007 |  
|                                                  |  | (in thousands)           |       
|Accumulated benefit obligation                    |  | $                        | 3,894  |   |      | $ | 3,352 |  
|                                                  |  |                          |        |   |      |   |       |  
|                                                  |  |                         
|Change in projected benefit obligation:           |  |                          |        |   |      |   |       |  
|Projected benefit obligation at beginning of year |  | $                        | 3,633  |   |      | $ | 3,278 |  
|Adjustment for measurement date change            |  |                          | 108    |   |      |   |      |  
|Service cost                                      |  |                          | 195    |   |      |   | 198   |  
|Interest cost                                     |  |                          | 237    |   |      |   | 201   |  
|Actuarial loss                                    |  |                          | 361    |   |      |   | 248   |  
|Annuity payments                                  |  |                          | (190   | ) |      |   | (115  | )
|Plan amendments                                   |  |                          |       |   |      |   | (177  | )
|                                                  |  |                          |        |   |      |   |       |  
|Projected benefit obligation at end of year       |  |                          | 4,344  |   |      |   | 3,633 |  
|                                                  |  |                          |        |   |      |   |       |  
|                                                  |  |                         
|Change in plan assets:                            |  |                          |        |   |      |   |       |  
|Fair value of plan assets at beginning of year    |  |                          | 4,284  |   |      |   | 3,777 |  
|Actual return on plan assets                      |  |                          | (1,239 | ) |      |   | 511   |  
|Employer contributions                            |  |                          | 1,575  |   |      |   | 111   |  
|Annuity payments                                  |  |                          | (190   | ) |      |   | (115  | )
|                                                  |  |                          |        |   |      |   |       |  
|Fair value of plan assets at end of year          |  |                          | 4,430  |   |      |   | 4,284 |  
|                                                  |  |                          |        |   |      |   |       |  
|                                                  |  |                         
|Funded status                                     |  | $                        | 86     |   |      | $ | 651   |  
|                                                  |  |                          |        |   |      |   |       |  



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



Amounts recognized in accumulated other comprehensive loss were:



|                     |  |                |       |   |      |   |      |  
|-------------------- |  | -------------- | ----- | - | ---- | - | ---- | -
|                     |  | December 31,   |      
|                     |  | 2008           |       |   | 2007 |  
|                     |  | (in thousands) |      
|Net losses           |  | $              | 2,902 |   |      | $ | 878  |  
|Prior service credit |  |                | (147  | ) |      |   | (167 | )
|                     |  |                |       |   |      |   |      |  
|                     |  |                | 2,755 |   |      |   | 711  |  
|Income tax effect    |  |                | 1,071 |   |      |   | 275  |  
|                     |  |                |       |   |      |   |      |  
|                     |  | $              | 1,684 |   |      | $ | 436  |  
|                     |  |                |       |   |      |   |      |  

The assumptions used to determine the benefit obligation are as follows:



|                              |  |              |   |  |       |  
|----------------------------- |  | ------------ | - |  | ----- | -
|                              |  | December 31, |  
|                              |  | 2008         |   |  | 2007  |  
|Discount rate                 |  | 6.125        | % |  | 6.625 | %
|Rate of compensation increase |  | 4.000        | % |  | 4.000 | %

Using an actuarial measurement date of December 31 for 2008 and October 1 for 2007, the
components of net periodic pension expense follow:



|                                            |  |                          |      |   |      |   |      |  
|------------------------------------------- |  | ------------------------ | ---- | - | ---- | - | ---- | -
|                                            |  | Years Ended December 31, |     
|                                            |  | 2008                     |      |   | 2007 |  
|                                            |  | (in thousands)           |     
|Service cost                                |  | $                        | 195  |   |      | $ | 198  |  
|Interest cost                               |  |                          | 237  |   |      |   | 201  |  
|Expected return on plan assets              |  |                          | (382 | ) |      |   | (339 | )
|Amortization of net loss                    |  |                          | 42   |   |      |   | 41   |  
|Amortization of prior service (credit) cost |  |                          | (15  | ) |      |   | 10   |  
|                                            |  |                          |      |   |      |   |      |  
|Net periodic pension expense                |  | $                        | 77   |   |      | $ | 111  |  
|                                            |  |                          |      |   |      |   |      |  

The following assumptions were used to determine net periodic pension expense:



|                                        |  |                          |   |  |       |  
|--------------------------------------- |  | ------------------------ | - |  | ----- | -
|                                        |  | Years Ended December 31, |  
|                                        |  | 2008                     |   |  | 2007  |  
|Amortization period (in years)          |  | 10.64                    |   |  | 10.68 |  
|Discount rate                           |  | 6.625                    | % |  | 6.250 | %
|Long term rate of return on plan assets |  | 9.000                    | % |  | 9.000 | %
|Salary rate increase                    |  | 4.000                    | % |  | 4.000 | %

The Bank expects to contribute $1.5 million to the plan in 2009.

The following table shows the expected benefit payments to be paid to participants for the years indicated (in thousands):



|                          |  |   |      
|------------------------- |  | - | -----
|Years Ending December 31, |  |  
|2009                      |  | $ | 206  
|2010                      |  |   | 239  
|2011                      |  |   | 251  
|2012                      |  |   | 277  
|2013                      |  |   | 278  
|2014-2018                 |  |   | 1,498



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



The estimated amounts that will be amortized from accumulated other comprehensive loss into net
periodic pension expense for the year ending December 31, 2009 are $231,000 of net loss and $16,000 of prior service credit.

Plan
assets are invested in six diversified investment funds of the RSI Retirement Trust (the Trust), a no load series open-ended mutual fund. The investment funds include four equity mutual funds and two bond mutual funds, each with its own
investment objectives, investment strategies and risks, as detailed in the Trusts prospectus. The Trust has been given discretion by the Plan Sponsor to determine the appropriate strategic asset allocation versus plan liabilities, as governed
by the Trusts Statement of Investment Objectives and Guidelines (the Guidelines).

The long-term investment objective is
to be invested 65% in equity securities (equity mutual funds) and 35% in debt securities (bond mutual funds). If the Plan is underfunded under the Guidelines, the bond fund portion will be temporarily increased to 50% in order to lessen asset value
volatility. When the Plan is no longer underfunded, the bond fund portion will be decreased back to 35%. Asset rebalancing is performed at least annually, with interim adjustments made when the investment mix varies more than 10% from the target
(i.e., a 20% target range).

The investment goal is to achieve investment results that will contribute to the proper funding of the Plan by
exceeding the rate of inflation over the long-term. In addition, investment managers for the Trust are expected to provide above average performance when compared to their peer managers. Performance volatility is also monitored. Risk/volatility is
further managed by the distinct investment objectives of each of the Trust funds and the diversification with each fund.

The Banks
pension plan weighted-average asset allocations by asset category are as follows:



|                                    |  |               |   |  |              |  
|----------------------------------- |  | ------------- | - |  | ------------ | -
|                                    |  | At 12/31/2008 |   |  | At 10/1/2007 |  
|Equity securities                   |  | 58            | % |  | 70           | %
|Debt securities (bond mutual funds) |  | 42            |   |  | 30           |  
|                                    |  |               |   |  |              |  
|Total                               |  | 100           | % |  | 100          | %
|                                    |  |               |   |  |              |  

The long-term rate of return on assets assumption was set based on historical returns earned by
equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the Plans target allocation of asset classes. Equity and fixed income securities were assumed to earn real rates of return in the ranges of
5 - 9% and 2 - 6%, respectively. The long-term inflation rate was estimated to be 3%. When these overall return expectations are applied to the Plans target allocation, the expected rate of return is determined to be 7% - 11%. The long-term
rate of return on assets assumption of 9% is roughly the midpoint of the range of expected return.

On September 29, 2006, the FASB
issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158), which amends SFAS 87 and SFAS 106 to require recognition of the overfunded or underfunded status of pension
and other postretirement benefit plans on the statement of financial condition. Under SFAS 158, gains and losses, prior service costs and credits, and any remaining transition amounts under SFAS 87 and SFAS 106 that have not yet been
recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic cost. The measurement date - the date at which the benefit
obligation and plan assets are measured - is required to be the Companys fiscal year end. SFAS 158 was effective for an employer with publicly traded equity securities for a fiscal year ending after December 15, 2006, except for the
measurement date provisions, which were effective for fiscal years ending after December 15, 2008. The Company initially adopted SFAS 158 on December 31, 2006 and adopted the measurement date provisions at the beginning of 2008. The
effect of the change in measurement date was to decrease retained earnings by $19,000 and decrease accumulated other comprehensive loss by $4,000 (net of related deferred tax effect of $3,000).



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



Employee Stock Ownership Plan (ESOP)

On July 10, 2006, the ESOP acquired 93,315 shares of the Companys common stock with funds provided by a loan from the Company. The ESOP loan is
repaid principally from the Banks contributions to the ESOP. The loan is being repaid in annual installments through 2021 and bears interest at the Wall Street Journal prime lending rate (3.25% at December 31, 2008). Shares are released
to participants proportionately as the loan is repaid and totaled 6,221 shares for the years ended December 31, 2008 and 2007. ESOP expense was $43,000 and $54,000 for the years ended December 31, 2008 and 2007. At December 31, 2008,
there were 77,763 shares unearned having an aggregate market value of $451,000.



|15. | Regulatory Capital
|--- | ------------------

The Bank is subject to various
regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a
direct material effect on the Companys financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the
Banks assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classifications are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined by regulations) to risk-weighted assets (as defined) and of leverage and tangible capital (as defined in the regulations to adjusted total
assets (as defined). Management believes, as of December 31, 2008 and 2007, that the Bank met all capital adequacy requirements to which it was subject.

As of December 31, 2008, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the
Banks category.

The Banks actual capital amounts and ratios as of December 31, 2008 and 2007 are also presented in the
table.



|                                          |  |                        |        |       |                                      |   |        |                                                                        |       |  |      |        |  |       |        |  |       |  
|----------------------------------------- |  | ---------------------- | ------ | ----- | ------------------------------------ | - | ------ | ---------------------------------------------------------------------- | ----- |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                          |  | Actual                 |        |       | Minimum For CapitalAdequacy Purposes |   |        | Minimum To be Well-Capitalized UnderPrompt
CorrectiveAction Provisions |      
|                                          |  | Amount                 |        | Ratio |                                      |   | Amount |                                                                        | Ratio |  |      | Amount |  | Ratio |       
|                                          |  | (Dollars in thousands) |       
|At December 31, 2008:                     |  |                        |        |      
|Tangible (to adjusted total assets)       |  | $                      | 16,594 |       | 9.31                                 | % |        | $                                                                      | 2,673 |  | 1.50 | %      |  |       | N/A    |  | N/A   |  
|Tier 1 capital (to risk-weighted assets)* |  |                        | 15,622 |       | 14.13                                |   |        |                                                                        | N/A   |  | N/A  |        |  | $     | 6,632  |  | 6.00  | %
|Core (to adjusted total assets)           |  |                        | 16,594 |       | 9.31                                 |   |        |                                                                        | 7,127 |  | 4.00 |        |  |       | 8,909  |  | 5.00  |  
|Total (to risk-weighted assets)           |  |                        | 16,180 |       | 14.64                                |   |        |                                                                        | 8,842 |  | 8.00 |        |  |       | 11,053 |  | 10.00 |  
|                                          |  |                        |        |       |                                      |  
|At December 31, 2007:                     |  |                        |        |       |                                      |   |        |                                                                        |       |  |      |        |  |       |        |  |       |  
|Tangible (to adjusted total assets)       |  | $                      | 16,440 |       | 11.37                                | % |        | $                                                                      | 2,168 |  | 1.50 | %      |  |       | N/A    |  | N/A   |  
|Tier 1 capital (to risk-weighted assets)* |  |                        | 15,468 |       | 19.13                                |   |        |                                                                        | N/A   |  | N/A  |        |  | $     | 4,853  |  | 6.00  | %
|Core (to adjusted total assets)           |  |                        | 16,440 |       | 11.37                                |   |        |                                                                        | 5,782 |  | 4.00 |        |  |       | 7,228  |  | 5.00  |  
|Total (to risk-weighted assets)           |  |                        | 15,926 |       | 19.69                                |   |        |                                                                        | 6,470 |  | 8.00 |        |  |       | 8,088  |  | 10.00 |  



|* | Tier 1 Capital is reduced by low-level recourse for mortgages sold to the FHLB.
|- | -------------------------------------------------------------------------------



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



|16. | Dividends and Restrictions
|--- | --------------------------

The board of directors
of The Seneca Falls Savings Bank, MHC, determines whether the Mutual Holding Company will waive or receive dividends declared by the Holding Company each time the Holding Company declares a dividend. The Mutual Holding Company may elect to receive
dividends and utilize such funds to pay expenses or for other purposes. The Mutual Holding Company may not waive the receipt of dividends unless it provides the Office of Thrift Supervision (OTS) with prior written notice of its intent
to waive its right to receive dividends and the OTS does not object. Under applicable regulations, the OTS should not object to a notice of intent to waive dividends if the waiver would not be detrimental to the safe and sound operations of the
institution and the Mutual Holding Companys board of directors determines that the waiver of dividends is consistent with the directors fiduciary duties.

The Holding Companys ability to pay dividends to its shareholders is largely dependent on the Banks ability to pay dividends to the Company. In addition to the capital requirements discussed in Note 15,
the circumstances under which the Bank may pay dividends are limited by federal statutes, regulations and policies. The amount of dividends the Bank may pay is equal to its net income for the year plus its net income for the prior two years that are
still available for dividends. Dividends paid by the Bank to the Holding Company would be prohibited if the effect thereof would cause the Banks capital to be reduced below applicable minimum capital requirements.



|17. | Comprehensive Income
|--- | --------------------

Accounting principles
generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate
component of the equity section of the statement of condition, such items, along with net income, are components of comprehensive income.

The components of other comprehensive (loss) income and related tax effects are presented in the following table:



|                                                                                                                                          |  |                          |        |   |      |   |      |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ---- | -
|                                                                                                                                          |  | Years Ended December 31, |       
|                                                                                                                                          |  | 2008                     |        |   | 2007 |  
|                                                                                                                                          |  | (in thousands)           |       
|Unrealized holding gains (losses) on securities available for sale:                                                                       |  |                          |        |   |      |   |      |  
|Unrealized holding losses arising during the year                                                                                         |  | $                        | (430   | ) |      | $ | (135 | )
|Reclassification adjustment for impairment losses included in net loss                                                                    |  |                          | 517    |   |      |   |     |  
|                                                                                                                                          |  |                          |        |   |      |   |      |  
|Net unrealized gains (losses) on securities available for sale                                                                            |  |                          | 87     |   |      |   | (135 | )
|                                                                                                                                          |  |                          |        |   |      |   |      |  
|Defined benefit pension plan:                                                                                                             |  |                          |        |   |      |   |      |  
|Additional prior service pension credit                                                                                                   |  |                          |       |   |      |   | 177  |  
|Additional pension plan losses                                                                                                            |  |                          | (2,077 | ) |      |   | (76  | )
|Reclassification adjustment for amortization of pension plan net losses and prior service cost recognized in net periodic pension
expense |  |                          | 26     |   |      |   | 51   |  
|                                                                                                                                          |  |                          |        |   |      |   |      |  
|Net change in defined benefit pension plan asset                                                                                          |  |                          | (2,051 | ) |      |   | 152  |  
|                                                                                                                                          |  |                          |        |   |      |   |      |  
|Other comprehensive (loss) income before tax                                                                                              |  |                          | (1,964 | ) |      |   | 17   |  
|Tax effect                                                                                                                                |  |                          | 765    |   |      |   | (6   | )
|                                                                                                                                          |  |                          |        |   |      |   |      |  
|Other comprehensive (loss) income                                                                                                         |  | $                        | (1,199 | ) |      | $ | 11   |  
|                                                                                                                                          |  |                          |        |   |      |   |      |  



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



The components of accumulated other comprehensive loss, net of related tax effects, are as follows:



|                                                                                                                   |  |                |        |   |      |   |      |  
|------------------------------------------------------------------------------------------------------------------ |  | -------------- | ------ | - | ---- | - | ---- | -
|                                                                                                                   |  | December 31,   |       
|                                                                                                                   |  | 2008           |        |   | 2007 |  
|                                                                                                                   |  | (in thousands) |       
|Unrealized gains (losses) on securities available-for-sale (net of tax (expense) benefit 2008  ($13); 2007  $21) |  | $              | 20     |   |      | $ | (33  | )
|Net pension losses and prior service cost (net of tax benefit 2008  $1,071; 2007  $275)                          |  |                | (1,684 | ) |      |   | (436 | )
|                                                                                                                   |  |                |        |   |      |   |      |  
|                                                                                                                   |  | $              | (1,664 | ) |      | $ | (469 | )
|                                                                                                                   |  |                |        |   |      |   |      |  



|18. | Discontinued Operations
|--- | -----------------------

In December 2008, we
committed to a plan to sell our insurance segment, and on February 5, 2009, we accepted a letter of intent from a third party indicating their intention to acquire our Agencys insurance business. We made the decision to sell this segment
upon determining that, despite restructuring, we were unable to earn an acceptable return on our investment. We are actively negotiating terms with a buyer and expect to complete the sale of this business by the end of the second quarter of 2009.
Goodwill and intangible assets with a book value of $362,000 at December 31, 2008 are included in the sale. In addition, we expect to sell some computer equipment with a book value of less than $7,500 at December 31, 2008.



|19. | Commitments and Contingencies
|--- | -----------------------------

Various legal claims
arise from time to time in the normal course of business, which, in the opinion of management, will have no material effect on the Companys consolidated financial position or results of operations.

Credit commitments

The Bank is a
party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the financing needs of its customers. These financial instruments include commitments to extend credit which involve, to varying degrees,
elements of credit, interest rate or liquidity risk in excess of the amount recognized in the consolidated statements of financial condition. The Banks exposure to credit loss in the event of non-performance by the other party to the financial
instrument for commitments to extend credit is represented by the contractual amounts of those instruments. The Bank has experienced minimal credit losses to date on its financial instruments with off-balance sheet risk and management does not
anticipate any significant losses on its commitments to extend credit outstanding at December 31, 2008.

The Bank uses the same credit
policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Bank controls the credit risk of off-balance sheet instruments through credit approval limits and monitoring procedures, and management
evaluates each customers credit worthiness on a case-by-case basis. The amount of collateral obtained is based on managements credit evaluation of the customer. At December 31, 2008 and 2007, financial instruments whose contract
amounts represent credit risk consist of the following:



|                            |  |                |       |          |   |       |  |   |      
|--------------------------- |  | -------------- | ----- | -------- | - | ----- |  | - | -----
|                            |  | Fixed          |       | Variable |   | Total
|                            |  | (in thousands)
|December 31, 2008:          |  |                |      
|Commercial lines of credit  |  | $              | 43    |          | $ | 590   |  | $ | 633  
|Home equity lines of credit |  |                | 1,748 |          |   | 2,408 |  |   | 4,156
|Construction loans          |  |                | 641   |          |   |      |  |   | 641  
|Personal lines of credit    |  |                | 401   |          |   |      |  |   | 401  
|Nonresidential mortgage     |  |                | 2,303 |          |   | 50    |  |   | 2,353
|Residential mortgage loans  |  |                | 1,535 |          |   |      |  |   | 1,535
|                            |  |                |       |          |   |       |  |   |      
|Total                       |  | $              | 6,671 |          | $ | 3,048 |  | $ | 9,719
|                            |  |                |       |          |   |       |  |   |      



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Notes to Consolidated Financial Statements

December 31, 2008 and 2007



|                            |  |       |       |          |   |       |  |   |      
|--------------------------- |  | ----- | ----- | -------- | - | ----- |  | - | -----
|                            |  | Fixed |       | Variable |   | Total
|December 31, 2007:          |  |       |       |          |   |       |  |   |      
|Commercial lines of credit  |  | $     | 63    |          | $ | 647   |  | $ | 710  
|Home equity lines of credit |  |       | 1,473 |          |   | 2,572 |  |   | 4,045
|Construction loans          |  |       | 583   |          |   |      |  |   | 583  
|Personal lines of credit    |  |       | 352   |          |   |      |  |   | 352  
|Nonresidential mortgage     |  |       |      |          |   | 1,500 |  |   | 1,500
|Residential mortgage loans  |  |       | 35    |          |   |      |  |   | 35   
|                            |  |       |       |          |   |       |  |   |      
|Total                       |  | $     | 2,506 |          | $ | 4,719 |  | $ | 7,225
|                            |  |       |       |          |   |       |  |   |      

The range of interest rates on the fixed rate commitments was 5.00% to 17.00% at December 31,
2008. Commitments to extend credit, which generally have fixed expiration dates or other termination clauses, are legally binding agreements to lend to a customer (as long as there is no violation of any condition established in the contract). Since
a portion of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements.

The Company has identified certain credit risk concentrations in relation to its on- and off-balance sheet financial instruments. Credit risk is defined as the possibility that a loss may occur from the failure of
another party to perform according to the terms of the contract. A credit risk concentration results when the Company has a significant credit exposure to an individual or a group engaged in similar activities or affected by similar economic
conditions. The Banks customers are located primarily in the Finger Lakes Region of New York State. The majority of the Banks loan portfolio relates to loans secured by first mortgages on real estate.

Commitments to Originate and Sell One- to Four-family Residential Mortgages

The Bank has entered into an agreement with the Federal Home Loan Bank of Chicago as part of its Mortgage Partnership Finance Program (MPF
Program) to originate and sell one- to four-family residential mortgages. The contract calls for the Bank to provide best efforts to meet the commitment, with no penalties to be paid in the event the Bank is not able to fulfill the
commitment. At December 31, 2008, the open delivery commitment was $5.1 million with an expiration date of October 18, 2009.

The
Bank generally makes a determination whether to sell a loan between the time the loan is committed to be closed and the day after closing. If a loan is selected to be sold, a commitment to deliver the loan by a certain date is made under the MPF
Program. At December 31, 2008, the Bank had no open commitments to deliver loans.

In the event that the Bank is not able to deliver a
specific loan committed, substitutions can generally be made. Otherwise, the Bank may extend the commitment for a fee, or the Bank is required to pay a pair-off fee. During the years ended December 31, 2008 and 2007, there were no extension or
pair-off fees paid. The Bank has sold and funded $39.9 million under the MPF Program. The principal outstanding on loans sold under the MPF Program is $26.5 million. The Bank continues to service loans sold under the MPF Program.

Under the terms of the MPF Program, there is limited recourse back to the Bank for loans that do not perform in accordance with the terms of the loan
agreement. Each loan that is sold under the program is credit enhanced such that the individual loans rating is raised to AA, as determined by the Federal Home Loan Bank of Chicago. The sum of each individual
loans credit enhancement represents the total recourse back to the Bank. The total recourse back to the Bank for loans sold was $972,000 at December 31, 2008. A portion of the recourse is offset by a first loss account to
which funds are allocated by the Federal Home Loan Bank of Chicago annually in January. The balance of the first loss account allocated to the Bank is $57,000 at December 31, 2008. In addition, many of the loans sold under the MPF
Program have primary mortgage insurance, which reduces the Banks overall exposure. The potential liability for the recourse is considered when the Bank determines its allowance for loan losses. At December 31, 2008, there were ten loans
with an outstanding principal balance of $767,000 that had been sold under the MPF Program past due 30 days.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



|20. | Concentrations of Credit Risk
|--- | -----------------------------

The majority of the
Companys activities are with customers located in the Finger Lakes Region of New York. See notes 4, 5, 6 and 19 to the financial statements which discuss the types of securities that the Company invests in, the types of lending the Company
engages in and commitments outstanding. The Company does not have any significant concentrations to any one industry or customer. From time to time, the Bank will maintain balances with its correspondent banks that exceed the $100,000 ($250,000
through December 31, 2009) federally insured deposit limits. Management routinely evaluates the credit worthiness of these correspondent banks, and does not feel they pose a significant risk to the Company.



|21. | Related Party Transactions
|--- | --------------------------

Certain officers,
directors and their affiliates are engaged in transactions with the Bank in the ordinary course of business. It is the Banks policy that all related party transactions are conducted at arms length and all loans and commitments
included in such transactions are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers.

The following is a summary of the loans made to officers, directors and their affiliates for the year ended December 31, 2008 (in thousands):



|                              |  |   |       |  
|----------------------------- |  | - | ----- | -
|Beginning balance             |  | $ | 1,059 |  
|Originations                  |  |   | 271   |  
|Payments and change in status |  |   | (129  | )
|                              |  |   |       |  
|Ending balance                |  | $ | 1,201 |  
|                              |  |   |       |  

Appraisal fees of $12,250 and $11,000 were paid to a director emeritus during the years ended
December 31, 2008 and 2007.



|22. | Fair Value Disclosures
|--- | ----------------------

SFAS No. 107,
Disclosure about Fair Value of Financial Instruments (SFAS 107), requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated statements of financial condition, for which it is
practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that regard, the defined fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following methods and assumptions were used by the Company in estimating fair values for financial instruments.

Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values.

Interest-bearing deposits held in banks: The carrying amounts of interest-bearing deposits held in banks approximate fair values.

Trading Securities: Fair values for trading securities were based on quoted market prices for the identical security.

Available-for-sale and held-to-maturity securities: Fair values for available-for-sale and held-to-maturity securities were based upon a market
approach. Prices for securities that are fixed income instruments that are not quoted on an exchange, but are traded in active markets, are obtained through third party data service providers or dealer market participants which the Company has
historically transacted both purchases and sales of investment securities. Prices obtained from these sources include market quotations and are considered level 1 measurements.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



Federal Home Loan Bank (FHLB) of New York Stock: The carrying value of FHLB stock approximates
fair value based on the redemption provisions of the FHLB.

Loans: The fair values for loans are estimated by discounted cash flow
analysis using interest rates currently being offered in the market for loans with similar terms to borrowers of similar credit quality.

Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, regular savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting
date (i.e., their carrying amounts). Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of
aggregated expected monthly maturities on time deposits.

Accrued interest: The carrying amounts of accrued interest receivable and
payable approximate fair values.

Borrowings: Fair values are estimated using a discounted cash flow analysis that applies interest
rates currently being offered by the FHLB for similar borrowings to a schedule of monthly maturities.

Off-balance sheet financial
instruments: Fair values of off-balance sheet financial instruments are based on the fees that would be charged for similar agreements, considering the remaining term of the agreement, the rate offered and the credit worthiness of the parties.

The following table presents a comparison of the carrying amount and estimated fair value of the Companys financial instruments:



|                                         |  |                |         |           |   |                |  |           |         |  |   |        
|---------------------------------------- |  | -------------- | ------- | --------- | - | -------------- |  | --------- | ------- |  | - | -------
|                                         |  | 2008           |         | 2007     
|                                         |  | CarryingAmount |         | FairValue |   | CarryingAmount |  | FairValue
|                                         |  | (in thousands)
|Financial assets:                        |  |                |         |           |   |                |  |           |         |  |   |        
|Cash and cash equivalents                |  | $              | 4,019   |           | $ | 4,019          |  | $         | 7,421   |  | $ | 7,421  
|Interest-bearing term deposits in banks  |  |                | 2,489   |           |   | 2,489          |  |           |        |  |   |       
|Trading securities                       |  |                | 2,473   |           |   | 2,473          |  |           | 5,457   |  |   | 5,457  
|Securities available-for-sale            |  |                | 2,193   |           |   | 2,193          |  |           | 2,773   |  |   | 2,773  
|Securities held-to-maturity              |  |                | 12,939  |           |   | 13,000         |  |           | 13,500  |  |   | 13,713 
|Loans receivable                         |  |                | 138,002 |           |   | 142,424        |  |           | 104,487 |  |   | 106,765
|Federal Home Loan Bank of New York stock |  |                | 1,759   |           |   | 1,759          |  |           | 989     |  |   | 989    
|Accrued interest receivable              |  |                | 684     |           |   | 684            |  |           | 555     |  |   | 555    
|Financial liabilities:                   |  |                |         |           |   |                |  |           |         |  |   |        
|Deposits                                 |  |                | 128,936 |           |   | 131,015        |  |           | 114,404 |  |   | 116,542
|Short-term borrowings                    |  |                | 10,700  |           |   | 10,711         |  |           |        |  |   |       
|Long-term debt                           |  |                | 18,316  |           |   | 18,854         |  |           | 9,927   |  |   | 9,963  
|Accrued interest payable                 |  |                | 74      |           |   | 74             |  |           | 41      |  |   | 41     
|Off-balance sheet instruments:           |  |                |         |           |   |                |  |           |         |  |   |        
|Commitments to extend credit             |  |                |        |           |   |               |  |           |        |  |   |       

SFAS 157 established a fair value hierarchy that prioritized the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The
three levels of the fair value hierarchy under SFAS 157 are as follows:

Level 1: Unadjusted quoted prices in active markets that are
accessible at the measurement date of identical, unrestricted assets or liabilities.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly
or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that
are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An asset or
liabilitys level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:



|                              |  |                  |       |                                                             |   |                                             |  |                                         |   |  |   |  
|----------------------------- |  | ---------------- | ----- | ----------------------------------------------------------- | - | ------------------------------------------- |  | --------------------------------------- | - |  | - | -
|                              |  |                  |       | Fair Value Measurements at December 31, 2008               
|Description                   |  | December 31,2008 |       | Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | SignificantUnobservableInputs (Level 3)
|                              |  | (in thousands)  
|Trading securities            |  | $                | 2,473 |                                                             | $ | 2,473                                       |  | $                                       |  |  | $ | 
|Securities available-for-sale |  |                  | 2,193 |                                                             |   | 2,193                                       |  |                                         |  |  |   | 
|                              |  |                  |       |                                                             |   |                                             |  |                                         |   |  |   |  
|Total                         |  | $                | 4,666 |                                                             | $ | 4,666                                       |  | $                                       |  |  | $ | 
|                              |  |                  |       |                                                             |   |                                             |  |                                         |   |  |   |  
|                              |  |                 
|                              |  |                  |       | Fair Value Measurements at December 31, 2007               
|Description                   |  | December 31,2007 |       | Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | SignificantUnobservableInputs (Level 3)
|                              |  | (in thousands)  
|Trading securities            |  | $                | 5,457 |                                                             | $ | 5,457                                       |  | $                                       |  |  | $ | 
|Securities available-for-sale |  |                  | 2,773 |                                                             |   | 2,773                                       |  |                                         |  |  |   | 
|                              |  |                  |       |                                                             |   |                                             |  |                                         |   |  |   |  
|Total                         |  | $                | 8,230 |                                                             | $ | 8,230                                       |  | $                                       |  |  | $ | 
|                              |  |                  |       |                                                             |   |                                             |  |                                         |   |  |   |  

In addition to disclosures of the fair value of assets on a recurring basis, SFAS 157 requires
disclosures for asset and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed. As of December 31, 2008, there were no assets or liabilities
whose carrying values were re-measured at fair value.

As of December 31, 2008, total unrealized losses on trading securities on those
securities held at December 31, 2008 totaled $442,000 and are included in trading security losses on the statement of income.



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



|23. | Parent Company Only Financial Information
|--- | -----------------------------------------

The
following presents the financial information pertaining only to Seneca-Cayuga Bancorp, Inc. (in thousands):

Condensed Statements of
Financial Condition



|                                                                                            |  |                          |        |   |      |   |        |  
|------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                            |  | December 31,             |       
|                                                                                            |  | 2008                     |        |   | 2007 |  
|Assets                                                                                      |  |                          |        |   |      |   |        |  
|Cash and cash equivalents                                                                   |  | $                        | 539    |   |      | $ | 629    |  
|Securities available-for-sale, at fair value                                                |  |                          | 1,022  |   |      |   | 1,481  |  
|Investment in bank subsidiary                                                               |  |                          | 15,292 |   |      |   | 16,395 |  
|Note receivable - ESOP                                                                      |  |                          | 835    |   |      |   | 881    |  
|Other assets                                                                                |  |                          | 66     |   |      |   | 93     |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Total assets                                                                                |  | $                        | 17,754 |   |      | $ | 19,479 |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Liabilities and shareholders equity                                                        |  |                          |        |   |      |   |        |  
|Note payable to Bank                                                                        |  | $                        | 901    |   |      | $ | 901    |  
|Other liabilities                                                                           |  |                          | 10     |   |      |   | 13     |  
|Shareholders equity                                                                        |  |                          | 16,843 |   |      |   | 18,565 |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Total liabilities and shareholders equity                                                  |  | $                        | 17,754 |   |      | $ | 19,479 |  
|                                                                                            |  |                          |        |   |      |   |        |  
|                                                                                           
|Condensed Statements of Income                                                              | 
|                                                                                            | 
|                                                                                            |  | Years Ended December 31, |       
|                                                                                            |  | 2008                     |        |   | 2007 |  
|Income:                                                                                     |  |                          |        |   |      |   |        |  
|Dividends from securities available-for-sale                                                |  | $                        | 15     |   |      | $ | 20     |  
|Interest income on ESOP note                                                                |  |                          | 46     |   |      |   | 75     |  
|Other income                                                                                |  |                          | 22     |   |      |   | 159    |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Total income                                                                                |  |                          | 83     |   |      |   | 254    |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Expenses:                                                                                   |  |                          |        |   |      |   |        |  
|Interest expense on note payable to Bank                                                    |  |                          | 47     |   |      |   | 72     |  
|Other-than-temporary security impairment                                                    |  |                          | 517    |   |      |   |       |  
|Other expenses                                                                              |  |                          | 105    |   |      |   | 93     |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Total expenses                                                                              |  |                          | 669    |   |      |   | 165    |  
|                                                                                            |  |                          |        |   |      |   |        |  
|(Loss) income before income taxes and equity in undistributed net income of bank subsidiary |  |                          | (586   | ) |      |   | 89     |  
|Income tax expense                                                                          |  |                          | 5      |   |      |   | 29     |  
|                                                                                            |  |                          |        |   |      |   |        |  
|(Loss) income before equity in undistributed net income of subsidiary                       |  |                          | (591   | ) |      |   | 60     |  
|Equity in undistributed net income of bank subsidiary                                       |  |                          | 103    |   |      |   | 110    |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Net (loss) income                                                                           |  | $                        | (488   | ) |      | $ | 170    |  
|                                                                                            |  |                          |        |   |      |   |        |  
|                                                                                           
|Condensed Statements of Cash Flows                                                          | 
|                                                                                            | 
|                                                                                            |  | Years Ended December 31, |       
|                                                                                            |  | 2008                     |        |   | 2007 |  
|Cash flows from operating activities:                                                       |  |                          |        |   |      |   |        |  
|Net (loss) income                                                                           |  | $                        | (488   | ) |      | $ | 170    |  
|Decrease in other assets                                                                    |  |                          | 4      |   |      |   | 27     |  
|(Decrease) Increase in other liabilities                                                    |  |                          | (3     | ) |      |   | 7      |  
|Other-than-temporary security impairment                                                    |  |                          | 517    |   |      |   |       |  
|Equity in undistributed net income of bank subsidiary                                       |  |                          | (103   | ) |      |   | (110   | )
|                                                                                            |  |                          |        |   |      |   |        |  
|Net cash (used) provided by operating activities                                            |  |                          | (73    | ) |      |   | 94     |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Cash flows from investing activities:                                                       |  |                          |        |   |      |   |        |  
|Repayments received on ESOP note                                                            |  |                          | 46     |   |      |   | 34     |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Net cash provided by investing activities                                                   |  |                          | 46     |   |      |   | 34     |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Cash flows from financing activities:                                                       |  |                          |        |   |      |   |        |  
|Increase in note payable to Bank                                                            |  |                          |       |   |      |   | 1      |  
|Treasury stock purchase                                                                     |  |                          | (63    | ) |      |   |       |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Net cash (used) provided by financing activities                                            |  |                          | (63    | ) |      |   | 1      |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Net (decrease) increase in cash                                                             |  |                          | (90    | ) |      |   | 129    |  
|Cash at beginning of period                                                                 |  |                          | 629    |   |      |   | 500    |  
|                                                                                            |  |                          |        |   |      |   |        |  
|Cash end of period                                                                          |  | $                        | 539    |   |      | $ | 629    |  
|                                                                                            |  |                          |        |   |      |   |        |  



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Seneca-Cayuga Bancorp, Inc.

Notes to Consolidated Financial Statements

December 31, 2008 and 2007



|24. | Segment Information
|--- | -------------------

The Company has determined
that it has two primary business segments, its community banking franchise and its insurance agency.

The community banking segment provides
financial services to consumers and businesses principally in the Finger Lakes region of New York State. These services include providing various types of loans to customers, accepting deposits, mortgage banking and other traditional banking
services. Parent company and treasury function income is included in the community-banking segment, as the majority of effort of these functions is related to this segment. Major revenue sources include net interest income and service fees on
deposit accounts. Expenses include personnel and branch network support charges.

The insurance agency segment offers insurance coverage to
businesses and individuals in the Finger Lakes region. The insurance activities consisted of those conducted through the Banks wholly owned subsidiary, Seneca-Cayuga Personal Services, LLC d/b/a Royce & Rosenkrans, Inc. Major revenue
sources include commission income. Expenses include personnel and office support charges. As noted in Note 18, we have committed to sell our insurance segment.

Information about the segments is presented in the following table for the periods indicated (in thousands):



|                                                    |  |                                      |         |   |                                      |   |      |       |  |   |                   |   |  |                     |         |   |       |   |      |   |  |   |         |  
|--------------------------------------------------- |  | ------------------------------------ | ------- | - | ------------------------------------ | - | ---- | ----- |  | - | ----------------- | - |  | ------------------- | ------- | - | ----- | - | ---- | - |  | - | ------- | -
|                                                    |  | For the Year Ended December 31, 2008 |         |   | For the Year Ended December 31, 2007 |  
|                                                    |  | BankingActivities                    |         |   | InsuranceActivities                  |   |      | Total |  |   | BankingActivities |   |  | InsuranceActivities |         |   | Total |  
|Net interest income                                 |  | $                                    | 4,673   |   |                                      | $ |     |       |  | $ | 4,673             |   |  | $                   | 4,005   |   |       | $ |     |   |  | $ | 4,005   |  
|Provision for loan losses                           |  |                                      | 130     |   |                                      |   |     |       |  |   | 130               |   |  |                     | 96      |   |       |   |     |   |  |   | 96      |  
|                                                    |  |                                      |         |   |                                      |   |      |       |  |   |                   |   |  |                     |         |   |       |   |      |   |  |   |         |  
|Net interest income after provision for loan losses |  |                                      | 4,543   |   |                                      |   |     |       |  |   | 4,543             |   |  |                     | 3,909   |   |       |   |     |   |  |   | 3,909   |  
|Other income                                        |  |                                      | 502     |   |                                      |   | 685  |       |  |   | 1,187             |   |  |                     | 1,374   |   |       |   | 691  |   |  |   | 2,065   |  
|Compensation and benefits                           |  |                                      | (2,563  | ) |                                      |   | (455 | )     |  |   | (3,018            | ) |  |                     | (2,568  | ) |       |   | (475 | ) |  |   | (3,043  | )
|Amortization of intangible assets                   |  |                                      |        |   |                                      |   | (27  | )     |  |   | (27               | ) |  |                     |        |   |       |   | (20  | ) |  |   | (20     | )
|Other non-interest expense                          |  |                                      | (2,921  | ) |                                      |   | (68  | )     |  |   | (2,989            | ) |  |                     | (2,602  | ) |       |   | (61  | ) |  |   | (2,663  | )
|                                                    |  |                                      |         |   |                                      |   |      |       |  |   |                   |   |  |                     |         |   |       |   |      |   |  |   |         |  
|(Loss) income before income taxes                   |  |                                      | (439    | ) |                                      |   | 135  |       |  |   | (304              | ) |  |                     | 113     |   |       |   | 135  |   |  |   | 248     |  
|Income tax expense                                  |  |                                      | (127    | ) |                                      |   | (57  | )     |  |   | (184              | ) |  |                     | (16     | ) |       |   | (62  | ) |  |   | (78     | )
|                                                    |  |                                      |         |   |                                      |   |      |       |  |   |                   |   |  |                     |         |   |       |   |      |   |  |   |         |  
|Net (loss) income                                   |  | $                                    | (566    | ) |                                      | $ | 78   |       |  | $ | (488              | ) |  | $                   | 97      |   |       | $ | 73   |   |  | $ | 170     |  
|                                                    |  |                                      |         |   |                                      |   |      |       |  |   |                   |   |  |                     |         |   |       |   |      |   |  |   |         |  
|Total assets                                        |  | $                                    | 177,177 |   |                                      | $ | 939  |       |  | $ | 178,116           |   |  | $                   | 145,224 |   |       | $ | 914  |   |  | $ | 146,138 |  
|                                                    |  |                                      |         |   |                                      |   |      |       |  |   |                   |   |  |                     |         |   |       |   |      |   |  |   |         |  

The following represents a reconciliation of the Companys reported segment assets:



|                                     |  |                |         |   |      |   |         |  
|------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                     |  | December 31,   |        
|                                     |  | 2008           |         |   | 2007 |  
|                                     |  | (in thousands) |        
|Total assets for reportable segments |  | $              | 178,116 |   |      | $ | 146,138 |  
|Elimination of intercompany balances |  |                | (1,076  | ) |      |   | (978    | )
|                                     |  |                |         |   |      |   |         |  
|Consolidated total                   |  | $              | 177,040 |   |      | $ | 145,160 |  
|                                     |  |                |         |   |      |   |         |  

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



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|ITEM 8. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

None.



|ITEM 8A(T) | Controls and Procedures
|---------- | -----------------------



| | (a) | Evaluation of Disclosure Controls and Procedures.
| | --- | -------------------------------------------------

The
Company has adopted disclosure controls and procedures designed to facilitate the Companys financial reporting. The disclosure controls currently consist of communications between the Chief Executive Officer, Chief Financial Officer and
each department head to identify any new transactions, events, trends or contingencies which may be material to the Companys operations. In addition, the Companys Chief Executive Officer, Chief Financial Officer, Audit Committee and
independent accountants meet on a quarterly basis and discuss the Companys material accounting policies. The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of these disclosure controls
as of the end of the period covered by this report and found them to be adequate.



| | (b) | Managements Report on Internal Control over Financial Reporting.
| | --- | -----------------------------------------------------------------

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the
supervision of, our Chief Executive Officer and Chief Accounting Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:



| | (1) | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect
on the Companys financial statements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Management has used the framework set forth in the report entitled Internal Control 
Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Companys internal control over financial reporting. Management has concluded that the
Companys internal control over financial reporting was effective as of the end of the most recent fiscal year. Internal control over financial reporting was not subject to attestation by the Companys independent registered public
accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only managements report in this annual report.



| | (c) | Changes in Internal Control over Financial Reporting.
| | --- | -----------------------------------------------------

We
maintain internal control over financial reporting. There have not been any significant changes in such internal control over financial reporting in the last quarter that has materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting.



93



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##### Table of Contents

|ITEM 8B. | Other Information
|-------- | -----------------

None.

PART III



|ITEM 9. | Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act
|------- | -------------------------------------------------------------------------------------------------------------------------------------

Seneca-Cayuga Bancorp, Inc. has adopted a Code of Ethics that applies to Seneca-Cayuga Bancorp, Inc.s principal executive officer, principal
financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics is posted on the Companys website at www.senecafallssavings.com. A copy of the Code will be furnished without charge upon
written request to the Secretary, Seneca-Cayuga Bancorp, Inc., 19 Cayuga Street, Seneca Falls, New York 13148.

Information concerning
Directors and executive officers of Seneca-Cayuga Bancorp, Inc. is incorporated herein by reference from our definitive Proxy Statement (the Proxy Statement), specifically the section captioned Proposal IElection of
Directors.



|ITEM 10. | Executive Compensation
|-------- | ----------------------

Information
concerning executive compensation is incorporated herein by reference from our Proxy Statement, specifically the section captioned Proposal I  Election of Directors.



|ITEM 11. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

Information concerning security ownership of certain owners and management is incorporated herein by reference from our Proxy Statement, specifically the
sections captioned Voting Securities and Principal Holders Thereof and Proposal I  Election of Directors.



|ITEM 12. | Certain Relationships, Related Transactions and Director Independence
|-------- | ---------------------------------------------------------------------

Information concerning relationships and transactions is incorporated herein by reference from our Proxy Statement, specifically the section captioned Transactions with Certain Related Persons.



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##### Table of Contents

|ITEM 13. | Exhibits
|-------- | --------



|     |  |                                                                                                                                                                                             
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation of Seneca-Cayuga Bancorp, Inc.*                                                                                                                                
|     | 
|3.2  |  | Bylaws of Seneca-Cayuga Bancorp, Inc.*                                                                                                                                                      
|     | 
|4    |  | Form of Common Stock Certificate of Seneca-Cayuga Bancorp, Inc.*                                                                                                                            
|     | 
|10.1 |  | Form of Employee Stock Ownership Plan*                                                                                                                                                      
|     | 
|10.2 |  | Form of Employment Agreement for Menzo Case.**                                                                                                                                              
|     | 
|10.3 |  | Form of Employment Agreement for Robert F. Eberle, Jr.**                                                                                                                                    
|     | 
|10.4 |  | Form of Employment Agreement for Bonnie Morlang**                                                                                                                                           
|     | 
|21   |  | Subsidiaries of Registrant*                                                                                                                                                                 
|     | 
|23.1 |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                    
|     | 
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|32.1 |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002               



|* | Incorporated by reference to the Registration Statement on Form SB-2 of Seneca-Cayuga Bancorp, Inc. (file no. 333-132759), originally filed with the Securities and Exchange
Commission on March 27, 2006, as amended.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Incorporated by reference to current report on Form 8-K filed on October 1, 2008.
|-- | ---------------------------------------------------------------------------------



|ITEM 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

Information concerning principal accountant fees and services is incorporated herein by reference from our Proxy Statement, specifically the section captioned Proposal II-Ratification of Appointment of Independent Registered Public
Accounting Firm.



95



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SIGNATURES

In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|                     |  |  |  |                             |  |                                      
|-------------------- |  |  |  | --------------------------- |  | -------------------------------------
|                     |  |  |  | SENECA-CAYUGA BANCORP, INC.
|                     |  |  | 
|Date: March 27, 2009 |  |  |  | By:                         |  | /s/ Menzo D. Case                    
|                     |  |  |  |                             |  | Menzo D. Case                        
|                     |  |  |  |                             |  | President and Chief Executive Officer
|                     |  |  |  |                             |  | (Duly Authorized Representative)     

In accordance with Exchange Act, this report has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.



|                            |  |                                                    |  |               
|--------------------------- |  | -------------------------------------------------- |  | --------------
|Signatures                  |  | Title                                              |  | Date          
|                            |  |                                                   
|/s/ Menzo D. Case           |  | Director, President and Chief Executive Officer    |  | March 27, 2009
|Menzo D. Case               |  |                                                    | 
|                            |  |                                                   
|/s/ Bonnie Morlang          |  | Senior Vice President and Chief Accounting Officer |  | March 27, 2009
|Bonnie Morlang              |  |                                                    | 
|                            |  |                                                   
|/s/ Robert E. Kernan, Jr.   |  | Chairman of the Board                              |  | March 27, 2009
|Robert E. Kernan, Jr.       |  |                                                    |  |               
|                            |  |                                                   
|/s/ Bradford M. Jones       |  | Vice Chairman of the Board                         |  | March 27, 2009
|Bradford M. Jones           |  |                                                    |  |               
|                            |  |                                                   
|/s/ Marilyn Bero            |  | Director                                           |  | March 27, 2009
|Marilyn Bero                |  |                                                    |  |               
|                            |  |                                                   
|/s/ Dr. Herbert R. Holden   |  | Director                                           |  | March 27, 2009
|Dr. Herbert R. Holden       |  |                                                    |  |               
|                            |  |                                                   
|/s/ Dr. Frank Nicchi        |  | Director                                           |  | March 27, 2009
|Dr. Frank Nicchi            |  |                                                    |  |               
|                            |  |                                                   
|/s/ Gerald Macaluso         |  | Director                                           |  | March 27, 2009
|Gerald Macaluso             |  |                                                    |  |               
|                            |  |                                                   
|/s/ Dr. August P. Sinicropi |  | Director                                           |  | March 27, 2009
|Dr. August P. Sinicropi     |  |                                                    |  |               
|                            |  |                                                   
|/s/ Vincent P. Sinicropi    |  | Director                                           |  | March 27, 2009
|Vincent P. Sinicropi        |  |                                                    |  |