<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>form10k-66781_oneida.txt
<TEXT>
                       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, 2004

                                       OR

[ ]   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934
      For the transaction period from ___________________ to ___________________

                        Commission File Number: 000-25101

                             ONEIDA FINANCIAL CORP.
                         -------------------------------
             (Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S>                                                              <C>
                           Federal                                             16-1561678
--------------------------------------------------------------   ---------------------------------------
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification Number)

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

                                 (315) 363-2000
                    ----------------------------------------
               (Registrant'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)

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

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

      Indicate by check mark whether the Registrant is an accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YES    NO X
   ---   ---

      As of June 30, 2004, there were issued and outstanding 7,488,007 shares of
the  Registrant's  Common  Stock.  The  aggregate  market value of the 3,178,257
shares of voting stock held by non-affiliates of the Registrant, was $32,767,830
as computed by reference to the last sales price on June 30, 2004  ($10.31),  as
reported by the NASDAQ National Market.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Sections  of Annual  Report to  Stockholders  for the  fiscal  year  ended
      December 31, 2004 (Parts II and IV).

2.    Proxy Statement for the 2005 Annual Meeting of  Stockholders  (Parts I and
      III).

<PAGE>

                                TABLE OF CONTENTS

ITEM 1.   BUSINESS.............................................................1
ITEM 2.   PROPERTIES..........................................................36
ITEM 3.   LEGAL PROCEEDINGS...................................................37
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................37
ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
          MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES...................38
ITEM 6.   SELECTED CONSOLIDATED FINANCIAL  DATA...............................38
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS...........................................38
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...........38
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................39
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE............................................39
ITEM 9A.  CONTROLS AND PROCEDURES.............................................40
ITEM 9B.  OTHER INFORMATION...................................................41
ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT............................41
ITEM 11.  EXECUTIVE COMPENSATION..............................................41
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          AND RELATED STOCKHOLDER MATTERS.....................................41
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................41
ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................41
ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES..........................41


<PAGE>

                                     PART I

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

Oneida Financial Corp.

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

      At December 31, 2004 the Company had consolidated  assets and consolidated
stockholders' equity of $422.6 million and $52.6 million, respectively.  Through
the Bank, the Company has deposits totaling $301.6 million.  All disclosures and
financial information is presented on a consolidated basis.

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

The Oneida Savings Bank

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

      At December 31, 2004,  $146.7 million,  or 68.6%, of the Bank's loans were
secured by real estate,  of which $81.6 million,  or 38.2%,  of the Bank's loans
were secured by one-to four-family  residential real estate,  $44.7 million,  or
20.9%,  of the Bank's loans were secured by  commercial  real estate,  and $20.3
million,  or 9.5%,  of the Bank's loans were home equity loans.  Consumer  loans
totaled $36.5 million,  or 17.0% of the Bank's loans,  at December 31, 2004. The
Bank also originates  commercial  business loans which totaled $30.7 million, or
14.4%,  of loans at December  31, 2004.  The Bank's  investment  securities  and
mortgage-backed  securities portfolios totaled $109.7 million and $44.4 million,
respectively, at December 31, 2004.

      In April 1999, the Bank established  Oneida Preferred Funding Corp. as the
Bank's wholly owned real estate  investment  trust  subsidiary.  At December 31,
2004 Oneida Preferred  Funding Corp. held $41.2 million in mortgage and mortgage
related  assets.  All  disclosures in the Form 10-K relating to the Bank's loans
and investments  include loans and investments that are held by Oneida Preferred
Funding Corp.

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


                                       1
<PAGE>

      On May 31, 2002,  the Bank  completed  its  acquisition  of SBC  Financial
Corporation   ("SBC"),   the  holding  company  of  State  Bank  of  Chittenango
("Chittenango");  a New York State  chartered  commercial  bank. The two banking
offices of Chittenango became banking offices of the Bank. The Bank has retained
Chittenango  as a  special  purpose  commercial  bank  subsidiary  of the  Bank.
Chittenango is permitted to accept  municipal  deposit accounts from the various
municipalities, school districts and other public sources, a source of funds not
available to the Bank under New York law. The Bank paid $11.9 million or $102.60
in cash for each of the 116,079 shares of SBC common stock. Assets acquired as a
result of the  acquisition  totaled  $66.5  million and  resulted in  additional
goodwill of $5.6 million and a core deposit  intangible  of  approximately  $1.2
million.  At  December  31,  2004,  no  impairment  adjustment  has been made to
goodwill or other intangibles that were created in the transaction.

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

Market Area

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

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

Lending Activities

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

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        At December 31,
                                   ----------------------------------------------------------------------------------------
                                          2004                   2003                   2002                   2001
                                   -------------------    -------------------    -------------------    -------------------
                                    Amount    Percent      Amount    Percent      Amount    Percent      Amount    Percent
                                   --------   --------    --------   --------    --------   --------    --------   --------
                                                                    (Dollars in thousands)
<S>                                <C>          <C>       <C>          <C>       <C>          <C>       <C>          <C>
Real Estate Loans:
------------------
   One- to four-family .........   $ 81,621       38.2%   $ 79,910       39.4%   $ 85,581       42.8%   $ 76,477       44.3%
   Multi-family ................      2,154        1.0       2,378        1.2       1,983        1.0       1,003        0.6
   Home equity .................     20,309        9.5      17,001        8.4      15,149        7.6      11,077        6.4
   Commercial real estate ......     42,566       19.9      35,806       17.6      30,096       15.0      23,517       13.6
                                   --------   --------    --------   --------    --------   --------    --------   --------
     Total real estate loans ...    146,650       68.6     135,095       66.6     132,809       66.4     112,074       64.9
                                   --------   --------    --------   --------    --------   --------    --------   --------

Consumer Loans:
---------------
    Automobile loans ...........     32,059       15.0      30,042       14.8      28,857       14.4      29,569       17.1
    Mobile home ................        177        0.1         205        0.1         280        0.1         381        0.2
    Personal loans .............      2,910        1.4       4,326        2.1       6,842        3.4       2,691        1.6
    Other consumer loans .......      1,361        0.5       1,549        0.8       1,442        0.8       1,465        0.9
                                   --------   --------    --------   --------    --------   --------    --------   --------
     Total consumer loans ......     36,507       17.0      36,122       17.8      37,421       18.7      34,106       19.8

Commercial business loans ......     30,704       14.4      31,494       15.6      29,775       14.9      26,385       15.3
                                   --------   --------    --------   --------    --------   --------    --------   --------

   Total consumer and commercial
     business loans ............     67,211       31.4      67,616       33.4      67,196       33.6      60,491       35.1
                                   --------   --------    --------   --------    --------   --------    --------   --------

     Total loans ...............   $213,861     100.00%   $202,711     100.00%   $200,005     100.00%   $172,565     100.00%
                                   ========   ========    ========   ========    ========   ========    ========   ========

Less:
-----
   Allowance for losses ........      1,982                  2,115                  2,109                  1,672
                                   --------               --------               --------               --------
   Total loans receivable, net .   $211,879               $200,596               $197,896               $170,893
                                   ========               ========               ========               ========

<CAPTION>

                                      At December 31,
                                  ----------------------
                                           2000
                                  ----------------------
                                    Amount     Percent
                                  ---------   ----------
                                  (Dollars in thousands)
<S>                                <C>           <C>
Real Estate Loans:
-----------------
   One- to four-family .........   $ 84,386       50.7%
   Multi-family ................      1,134        0.7
   Home equity .................     10,940        6.6
   Commercial real estate ......     18,742       11.3
                                   --------   --------
     Total real estate loans ...    115,202       69.3
                                   --------   --------

Consumer Loans:
--------------
    Automobile loans ...........     25,818       15.5
    Mobile home ................        526        0.4
    Personal loans .............      3,450        2.1
    Other consumer loans .......      1,432        0.8
                                   --------   --------
     Total consumer loans ......     31,226       18.8

Commercial business loans ......     19,865       11.9
                                   --------   --------

   Total consumer and commercial
     business loans ............     51,091       30.7
                                   --------   --------

     Total loans ...............   $166,293     100.00%
                                   ========   ========

Less:
-----
   Allowance for losses ........      1,632
                                   --------
   Total loans receivable, net .   $164,661
                                   ========
</TABLE>


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                         At December 31,
                                     ----------------------------------------------------------------------------------------
                                            2004                   2003                   2002                   2001
                                     -------------------    -------------------    -------------------    -------------------
                                      Amount    Percent      Amount    Percent      Amount    Percent      Amount    Percent
                                     --------   --------    --------   --------    --------   --------    --------   --------
                                                                     (Dollars in thousands)
<S>                                  <C>          <C>       <C>          <C>       <C>          <C>       <C>          <C>
FIXED-RATE LOANS:
Real Estate Loans:
------------------
   One- to four-family ...........   $ 31,201       14.6%   $ 29,197       14.4%   $ 27,848       13.9%   $ 21,370       12.4%
   Multi-family ..................         --         --          --         --          --         --          --         --
   Home equity ...................      9,274        4.3      10,543        5.2      10,423        5.2       6,634        3.8
   Commercial real estate ........      6,299        2.9       4,174        2.0       1,799        0.9       1,248        0.7
                                     --------   --------    --------   --------    --------   --------    --------   --------
     Total real estate loans .....     46,774       21.8      43,914       21.6      40,070       20.0      29,252       16.9

Consumer Loans:
---------------
   Total consumer loans ..........     35,695       16.6      35,211       17.4      36,704       18.4      33,371       19.4

Commercial business loans:
--------------------------
   Total commercial loans ........     14,118        6.6      13,981        7.0      12,172        6.1      13,765        8.0
                                     --------   --------    --------   --------    --------   --------    --------   --------
   Total fixed-rate loans ........     96,587       45.0      93,106       46.0      88,946       44.5      76,388       44.3
                                     --------   --------    --------   --------    --------   --------    --------   --------

ADJUSTABLE RATE LOANS:
Real Estate Loans:
------------------
   One- to four-family ...........   $ 50,420       23.6%   $ 50,713       25.0%   $ 57,733       28.9%   $ 55,107       31.9%
   Multi-family ..................      2,154        1.0       2,378        1.2       1,983        1.0       1,003        0.6
   Home equity ...................     11,035        5.2       6,458        3.2       4,726        2.4       4,443        2.6
   Commercial real estate ........     36,267       17.0      31,632       15.6      28,297       14.1      22,269       12.9
                                     --------   --------    --------   --------    --------   --------    --------   --------
     Total real estate loans .....     99,876       46.8      91,181       45.0      92,739       46.4      82,822       48.0

Consumer Loans:
---------------
   Total consumer loans ..........        812        0.4         911        0.4         717        0.3         735        0.4

Commercial business loans:
--------------------------
   Total commercial business loans     16,586        7.8      17,513        8.6      17,603        8.8      12,620        7.3
                                     --------   --------    --------   --------    --------   --------    --------   --------
   Total adjustable-rate loans ...    117,274       55.0     109,605       54.0     111,059       55.5      96,177       55.7
                                     --------   --------    --------   --------    --------   --------    --------   --------

   Total loans ...................   $213,861     100.00%   $202,711     100.00%   $200,005     100.00%   $172,565     100.00%
                                     ========   ========    ========   ========    ========   ========    ========   ========

Less:
-----
   Allowance for loan losses .....      1,982                  2,115                  2,109                  1,672
                                     --------               --------               --------               --------
Total loans receivable, net ......   $211,879               $200,596               $197,896               $170,893
                                     ========               ========               ========               ========

<CAPTION>
                                       At December 31,
                                    ----------------------
                                            2000
                                    ----------------------
                                      Amount     Percent
                                    ---------   ----------
                                    (Dollars in thousands)
<S>                                  <C>          <C>
FIXED-RATE LOANS:
Real Estate Loans:
   One- to four-family ...........   $ 17,485       10.5%
   Multi-family ..................         --         --
   Home equity ...................      6,211        3.7
   Commercial real estate ........        775        0.5
                                     --------   --------
     Total real estate loans .....     24,471       14.7

Consumer Loans:
   Total consumer loans ..........     30,745       18.5

Commercial business loans:
   Total commercial loans ........     12,965        7.8
                                     --------   --------
   Total fixed-rate loans ........     68,181       41.0
                                     --------   --------

ADJUSTABLE RATE LOANS:
Real Estate Loans:
   One- to four-family ...........   $ 66,901       40.2%
   Multi-family ..................      1,134        0.7
   Home equity ...................      4,729        2.9
   Commercial real estate ........     17,967       10.8
                                     --------   --------
     Total real estate loans .....     90,731       54.6

Consumer Loans:
   Total consumer loans ..........        481        0.3

Commercial business loans:
   Total commercial business loans      6,900        4.1
                                     --------   --------
   Total adjustable-rate loans ...     98,112       59.0
                                     --------   --------

   Total loans ...................   $166,293     100.00%
                                     ========   ========

Less:
   Allowance for loan losses .....      1,632
                                     --------
Total loans receivable, net ......   $164,661
                                     ========
</TABLE>

                                       4
<PAGE>

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

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

      As a result of the lower interest rate environment during the past year, a
greater percentage of the Bank's one- to four-family loan originations consisted
of fixed-rate  one- to  four-family  mortgage  loans.  The Bank  originates  and
generally sells its fixed-rate one- to four-family loans on a servicing retained
basis without  recourse to the Bank. At December 31, 2004, loans serviced by the
Bank for others totaled $95.2  million.  During the year ended December 31, 2004
and  December  31,  2003,  the  Bank  sold  $18.6  million  and  $50.2  million,
respectively  in fixed-rate  one- to four-family  loans. As of December 31, 2004
the Bank had $2.9 million of mortgage  loan forward  sale  commitments  to hedge
interest  rate risk on certain  committed  originated  loans.  The fair value of
these commitments is not material.

      ARM loans  decrease the risk  associated  with changes in market  interest
rates by  periodically  repricing,  but involve other risks.  As interest  rates
increase,  the underlying  required periodic payments by the borrower  increase,
thus increasing the potential for default by the borrower. At the same time, the
marketability of the underlying  collateral may be adversely  affected by higher
interest  rates.  Upward  adjustment  of the  contractual  interest rate is also
limited by the maximum periodic and lifetime interest rate adjustment  permitted
by the  terms  of the ARM  loans,  and  therefore,  is  potentially  limited  in
effectiveness  during periods of rapidly rising  interest rates. At December 31,
2004,  23.6% of the  Bank's  loan  portfolio  consisted  of one- to  four-family
residential loans with adjustable interest rates.

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

      At December 31, 2004,  approximately $81.6 million, or 38.2% of the Bank's
loan   portfolio,   consisted  of  one-  to   four-family   residential   loans.
Approximately $128,000 of such loans (representing three loans) were included in
nonperforming loans as of that date.

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


                                       5
<PAGE>

loans are  originated  with  terms up to ten  years.  Home  equity  loans may be
underwritten  with a loan to value ratio of 85% when combined with the principal
balance of the existing  mortgage loan. The maximum amount of a home equity loan
may not exceed  $250,000  unless  approved by the Board of  Directors.  The Bank
appraises  the property  securing  the loan at the time of the loan  application
(but not  thereafter)  in order to determine the value of the property  securing
the home equity loans.  At December 31, 2004, the  outstanding  balances of home
equity  loans  totaled  $20.3  million,  or 9.5% of the Bank's  loan  portfolio.
Approximately  $31,000 of such loans  (representing  two loans) were included in
nonperforming loans as of that date.

      Commercial  Real Estate Loans.  At December 31, 2004,  $44.7  million,  or
20.9% of the total loan  portfolio  consisted of  commercial  real estate loans.
Commercial  real  estate  loans  are  secured  by  office  buildings,  mixed-use
properties,  religious  facilities  and other  commercial  properties.  The Bank
originates  adjustable  rate  commercial  mortgage  loans with terms of up to 20
years. The maximum  loan-to-value  ratio of commercial real estate loans is 80%.
At December 31, 2004,  the largest  commercial  real estate loan had a principal
balance of $1.6 million and was secured by a hotel and other  assets.  This loan
is performing in accordance with its terms. As of December 31, 2004,  there were
two  commercial  real  estate  loans  included  in  nonperforming   loans  which
approximated $436,000.

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

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

      Consumer  Lending.  At December 31, 2004,  consumer  loans  totaled  $36.5
million, or 17.0% of the total loan portfolio. The Bank's consumer loans consist
of automobile  loans,  mobile home loans,  secured  personal  loans  (secured by
bonds,  equity  securities or other readily  marketable  collateral),  and other
consumer loans  (consisting of passbook loans,  unsecured home improvement loans
and  recreational  vehicle  loans).  Consumer loans are originated with terms to
maturity of three to seven  years.  The Bank has sought to increase its level of
consumer  loans  primarily  through  increased   automobile  lending.  The  Bank
participates  in a number of indirect  automobile  lending  programs  with local
automobile  dealerships.  All indirect  automobile loans must satisfy the Bank's
underwriting  criteria for automobile loans  originated  directly by the Bank to
the  borrower  and must be approved by one of the Bank's  lending  officers.  At
December 31, 2004, loans secured by automobiles  totaled $32.1 million, of which
$27.3 million were  originated  through the Bank's indirect  automobile  lending
program.  The Bank has also sought to  increase  its level of  automobile  loans
directly  to  borrowers  by  increasing  its  marketing  efforts  with  existing
customers.  Automobile  loans  generally do not have terms exceeding five years.
The Bank does not provide financing for leased automobiles.

      Consumer loans generally have shorter terms and higher interest rates than
one- to  four-family  mortgage  loans.  In addition,  consumer  loans expand the
products and services offered by the Bank to better meet the financial  services
needs of its customers.  Consumer loans  generally  involve  greater credit risk
than  residential  mortgage  loans because of the  difference in the  underlying
collateral. Repossessed


                                       6
<PAGE>

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

      The  Bank's   underwriting   procedures  for  consumer  loans  include  an
assessment of the  applicant's  credit  history and the ability to meet existing
and proposed debt obligations.  Although the applicant's creditworthiness is the
primary  consideration,  the underwriting  process also includes a comparison of
the value of the security to the proposed loan amount.  The Bank underwrites its
consumer loans internally, which the Bank believes limits its exposure to credit
risks  associated  with loans  underwritten  or purchased from brokers and other
external sources. At December 31, 2004, there were no consumer loans included in
nonperforming loans as of that date.

Commercial  Business Loans. The Bank also originates  commercial business loans.
Commercial  business  loans are originated  with terms of up to seven years,  at
fixed rates of interest  except for lines of credit which have variable rates of
interest.  Commercial  business  loans are  originated  to persons  with a prior
relationship  with the Bank or referrals from persons with a prior  relationship
with  the  Bank.  The  decision  to grant a  commercial  business  loan  depends
primarily  on the  creditworthiness  and  cash  flow of the  borrower  (and  any
guarantors)  and  secondarily  on the  value of and  ability  to  liquidate  the
collateral which generally consists of receivables, inventory and equipment. The
Bank generally  requires  annual  financial  statements and tax returns from its
commercial  business  borrowers  and  personal  guarantees  from the  commercial
business  borrowers.  The Bank also generally  requires an appraisal of any real
estate that secures the commercial business loan. At December 31, 2004, the Bank
had $30.7 million of commercial  business loans which  represented  14.4% of the
total loan  portfolio.  On such date, the largest  commercial  business  lending
relationship  totaled $1.6  million,  which was secured by business  assets of a
not-for-profit  corporation. At December 31, 2004, unsecured commercial business
loans totaled $4.2 million.

      Commercial   business  lending   generally   involves  greater  risk  than
residential  mortgage  lending and involves  risks that are different from those
associated with  residential  and commercial  real estate  lending.  Real estate
lending is generally  considered to be collateral based, with loan amounts based
on  predetermined  loan to collateral  values and  liquidation of the underlying
real estate collateral is viewed as the primary source of repayment in the event
of borrower default. Although commercial business loans may be collateralized by
equipment or other business  assets,  the liquidation of collateral in the event
of a  borrower  default is often an  insufficient  source of  repayment  because
equipment  and other  business  assets may be obsolete or of limited use,  among
other things.  Accordingly,  the repayment of a commercial business loan depends
primarily on the  creditworthiness  of the borrower (and any guarantors),  while
liquidation  of  collateral  is a  secondary  and often  insufficient  source of
repayment.  At  December  31,  2004,  there were no  commercial  business  loans
included in nonperforming loans as of that date.


                                       7
<PAGE>

      Loan Maturity Schedule. The following table sets forth certain information
as of December 31, 2004,  regarding  the amount of loans  maturing in the Bank's
portfolio.  Demand  loans having no stated  schedule of repayment  and no stated
maturity and  overdrafts  are reported as due in one year or less. All loans are
included in the period in which the final contractual repayment is due.

<TABLE>
<CAPTION>
                                                                                 Ten
                                               One         Three     Five       Through     Beyond
                                              Through     Through   Through     Twenty-     Twenty-
                                 Within One    Three       Five       Ten        Five        Five
                                    Year       Years       Years     Years       Years       Years       Total
                                 ----------   --------    --------  --------    --------    --------   --------
                                                            (Dollars in thousands)
<S>                               <C>         <C>         <C>        <C>         <C>         <C>        <C>
Real estate loans:
   One- to four-family.......     $  1,888    $    885    $  2,004   $ 10,096    $ 47,516    $ 19,232   $ 81,621
   Home equity...............          247       2,129       2,333     15,219         284          97     20,309
   Commercial real estate....        3,038         527       1,629     10,885      28,641          --     44,720
                                  --------    --------    --------   --------    --------    --------   --------
     Total real estate loans.        5,173       3,541       5,966     36,200      76,441      19,329    140,650

Consumer and other loans.....        1,308      10,363      19,870      4,549         227         190     36,507

Commercial business loans....       13,063       5,586       6,743      4,494         813           5     30,704
                                  --------    --------    --------   --------    --------    --------   --------

     Total loans.............     $ 19,544    $ 19,490    $ 32,579   $ 45,243    $ 77,481    $ 19,524   $213,861
                                  ========    ========    ========   ========    ========    ========   ========
</TABLE>

      Fixed- and Adjustable-Rate  Loan Schedule.  The following table sets forth
at December 31, 2004, the dollar amount of all  fixed-rate  and  adjustable-rate
loans due after  December  31, 2005.  Adjustable-  and  floating-rate  loans are
included based on contractual maturities.

<TABLE>
<CAPTION>
                                                     Due After December 31, 2004
                                            -----------------------------------------------
                                               Fixed           Adjustable          Total
                                            ------------      ------------     ------------
                                                          (Dollars in thousands)
<S>                                         <C>               <C>              <C>
Real estate loans
   One- to four-family.................     $     29,403      $     50,330     $     79,733
   Home equity.........................            9,199            10,863           20,062
   Commercial real estate..............            4,574            37,108           41,682
                                            ------------      ------------     ------------
     Total real estate loans...........           43,176            98,301          141,477

Consumer and other loans...............           34,795               404           35,199
Commercial business loans..............           11,193             6,448           17,641
                                            ------------      ------------     ------------
     Total loans.......................     $     89,164      $    105,153     $    194,317
                                            ============      ============     ============
</TABLE>


                                       8
<PAGE>

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

                                               Year Ended December 31,
                                            -----------------------------
                                              2004       2003      2002
                                            --------   --------   -------
                                               (Dollars in thousands)
Originations by Type:
---------------------
Adjustable Rate:
     Real estate:
       One- to four-family ..............   $  7,585   $  5,733   $ 6,540
       Home equity ......................      6,695      6,570     2,857
       Commercial and real estate .......     10,581      8,873     7,977
                                            --------   --------   -------
       Total real estate loans ..........     24,861     21,176    17,374
       Consumer loans ...................        687      1,336       969
       Commercial business loans ........      9,304      6,532     4,270
                                            --------   --------   -------
           Total adjustable rate loans ..   $ 34,852   $ 29,044   $22,613
                                            --------   --------   -------
Fixed-Rate:
     Real estate:
       One- to four-family ..............   $ 30,946   $ 63,031   $36,989
       Home equity ......................      2,381      2,564     3,551
       Commercial and real estate .......      1.966      1,890     1,172
                                            --------   --------   -------
       Total real estate loans ..........     35,293     67,485    41,712
       Consumer loans ...................     20,833     20,641    19,085
       Commercial business loans ........     17,703     17,127    13,568
                                            --------   --------   -------
           Total fixed rate loans .......   $ 73,829   $105,253   $74,365
                                            --------   --------   -------
Total loans originated ..................   $108,681   $134,297   $96,978
                                            --------   --------   -------

Purchased Adjustable Rate:
--------------------------
     Real estate:
       One- to four-family ..............   $     --   $     --   $ 4,143
       Home equity ......................         --         --       354
       Commercial and real estate .......         --         --     1,940
                                            --------   --------   -------
       Total real estate loans ..........         --         --     6,437
       Consumer loans ...................         --         --        10
       Commercial business loans ........         --         --     3,964
                                            --------   --------   -------
           Total adjustable rate loans ..   $     --   $     --   $10,411
                                            --------   --------   -------
Fixed-Rate:
     Real estate:
       One- to four-family ..............   $     --   $     --   $ 8,080
       Home equity ......................         --         --     2,595
       Commercial and real estate .......         --         --        --
                                            --------   --------   -------
       Total real estate loans ..........         --         --    10,675
       Consumer loans ...................         --         --     6,582
       Commercial business loans ........         --         --        --
                                            --------   --------   -------
           Total fixed rate loans .......   $     --   $     --   $17,257
                                            --------   --------   -------
Total loans purchased ...................   $     --   $     --   $27,668
                                            --------   --------   -------

Sales:
------
     Real estate:
       One- to four-family ..............   $ 18,596   $ 50,222   $32,408
       Consumer loans ...................         --         --       542
                                            --------   --------   -------
Total loans sold ........................   $ 18,596   $ 50,222   $32,950

Repayments:
-----------
     Real estate:
       One- to four-family ..............   $ 18,224   $ 24,213   $14,240
       Home equity ......................      5,768      7,282     5,285
       Commercial and real estate .......      6,011      4,658     3,530
                                            --------   --------   -------
           Total real estate loans ......     30,003     36,153    23,055
     Consumer loans .....................     21,135     23,276    22,789
     Commercial business loans ..........     27,797     21,940    18,412
                                            --------   --------   -------
           Total repayments .............   $ 78,935   $ 81,369   $64,256
                                            --------   --------   -------
           Total reductions .............   $ 97,531   $131,591   $97,206
                                            --------   --------   -------

       Net increases ....................   $ 11,150   $  2,706   $27,440
                                            ========   ========   =======


                                       9
<PAGE>

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

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

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

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

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

      At December 31, 2004, the largest  aggregate  amount loaned by the Bank to
one borrower consisted of a commercial real estate loan and a commercial line of
credit to a real estate  holding  company with an outstanding  balance  totaling
$3.2 million.  Of this amount,  $3.1 million consisted of commercial real estate
loans secured by property.  At December 31, 2004 this lending  relationship  was
performing in accordance with its terms.

Delinquencies and Classified Assets

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


                                       10
<PAGE>

      Loans Past Due and Nonperforming  Assets.  Loans are reviewed on a regular
basis and are placed on  non-accrual  status when, in the opinion of management,
the  collection  of  additional  interest  is  doubtful.  Loans  are  placed  on
non-accrual  status  when either  principal  or interest is 90 days or more past
due.  Interest  accrued and unpaid at the time a loan is placed on a non-accrual
status is reversed  from  interest  income.  At December 31, 2004,  the Bank had
nonperforming  loans of  $595,000  and a ratio of  nonperforming  loans to total
loans of 0.28%. At December 31, 2004, the Bank's ratio of  nonperforming  assets
to total assets was 0.14%.

      Real  estate  acquired  as a result of  foreclosure  or by deed in lieu of
foreclosure  is classified as Other Real Estate ("REO") until such time as it is
sold.  When real estate is acquired  through  foreclosure  or by deed in lieu of
foreclosure, it is recorded at its fair value, less estimated costs of disposal.
If the value of the  property is less than the loan,  less any related  specific
loan loss  provisions,  the difference is charged against the allowance for loan
losses.  Any  subsequent  write-down  of REO is  charged  against  earnings.  At
December 31, 2004 and 2003, REO was $0 and $115,000 respectively.

      The following table sets forth  delinquencies in the Bank's loan portfolio
as of December 31, 2004.  When a loan is  delinquent  90 days or more,  the Bank
fully reverses all interest accrued and ceases to accrue interest thereafter.

<TABLE>
<CAPTION>
                                              Loans Delinquent for:
                         ------------------------------------------------------------------
                              60-89 Days         90 Days or More     Total delinquent Loans
                         -------------------   -------------------   ----------------------
                          Number     Amount     Number     Amount     Number        Amount
                         --------   --------   --------   --------   --------      --------
                                              (Dollars in thousands)
<S>                            <C>  <C>              <C>  <C>              <C>     <C>
One- to four-family ..         --   $     --          3   $    128          3      $    128
Home equity ..........          1         19          1         12          2            31
Commercial real estate         --         --          1         83          1            83
Consumer .............          1         --         --         --          1            --
Commercial business ..         --         --         --         --         --            --
                         --------   --------   --------   --------   --------      --------
  Total ..............          2   $     19          5   $    223          7      $    242
                         ========   ========   ========   ========   ========      ========
</TABLE>


                                       11
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       At December 31,
                                                             ------------------------------------------------------------------
                                                                2004          2003          2002          2001          2000
                                                             ----------    ----------    ----------    ----------    ----------
                                                                                   (Dollars in thousands)
<S>                                                          <C>           <C>           <C>           <C>           <C>
Non-accruing loans:
   One- to four-family ...................................   $      128    $      114    $       49    $      139    $      112
   Multi-family ..........................................           --            --            --            --            --
   Commercial real estate ................................          436            --            --            69            75
   Construction and land .................................           --            --            --            --            --
   Consumer ..............................................                         31            11            --            --
   Commercial business ...................................           --            22            --            --            --
                                                             ----------    ----------    ----------    ----------    ----------
     Total ...............................................          595           147            49           208           187
                                                             ----------    ----------    ----------    ----------    ----------

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

Total nonperforming loans ................................   $      595    $      181    $       49    $      208    $      187
                                                             ==========    ==========    ==========    ==========    ==========

Foreclosed assets:
   One- to four-family ...................................   $       --    $       --    $       --    $       77    $       55
   Multi-family ..........................................           --            --            --            --            --
   Commercial real estate ................................           --           115            --            --            --
   Construction and land .................................           --            --            --            --            --
   Consumer ..............................................           --            --            --            --            --
   Commercial business ...................................           --            --            --            --            --
                                                             ----------    ----------    ----------    ----------    ----------
     Total ...............................................           --           115            --            77            55
                                                             ==========    ==========    ==========    ==========    ==========

Total nonperforming loans as a percentage of total loans .         0.28%         0.09%         0.02%         0.01%         0.01%
                                                             ==========    ==========    ==========    ==========    ==========
Total nonperforming assets ...............................   $      595    $      296    $       49    $      285    $      242
                                                             ==========    ==========    ==========    ==========    ==========
Total nonperforming assets as a percentage of total assets         0.14%         0.07%         0.01%         0.08%         0.08%
                                                             ==========    ==========    ==========    ==========    ==========
</TABLE>

      During the years ended  December  31, 2004 and 2003,  respectively,  gross
interest  income of $33,800 and $7,000 would have been  recorded on  nonaccruing
loans under their original terms,  if the loans had been current  throughout the
period.  No interest  income was recorded on nonaccruing  loans during the years
ended December 31, 2004 and 2003.

      Classification  of  Assets.  On the  basis of  management's  review of its
assets, at December 31, 2004, the Bank had classified a total of $1.8 million of
loans as follows:

                                            At December 31,
                               ------------------------------------------
                                2004     2003     2002     2001     2000
                               ------   ------   ------   ------   ------
                                        (Dollars in Thousands)

      Special mention ......   $  533   $2,000   $   --   $  792   $   --
      Substandard ..........    1,124    1,376    1,661    1,214    1,750
      Doubtful assets ......       53       --      143       --       --
      Loss assets ..........       --       --       --       --       --
      Impaired assets ......       79      700      734       --       --
                               ------   ------   ------   ------   ------

           Total ...........   $1,789   $4,076   $2,536   $2,006   $1,750
                               ======   ======   ======   ======   ======


                                       12
<PAGE>

      Allowance for Loan Losses.  The  allowance for loan losses is  established
through a provision for loan losses based on management's evaluation of the risk
inherent in the loan portfolio and current economic conditions. The allowance is
established  based upon  management's  evaluation  of the probable and estimable
losses in the loan  portfolio,  the  composition of the loan portfolio and other
quantitative and qualitative factors. Management's evaluation of the adequacy of
the  allowance  is based on the  Bank's  past  loan loss  experience,  known and
inherent  risks in the  portfolio,  adverse  circumstances  that may  affect the
borrower's  ability to repay, the estimated value of any underlying  collateral,
and an analysis of the levels and trends of delinquencies,  charge-offs, and the
risk rating of the various loan  categories.  Such  evaluation  also  includes a
review of all loans on which full  collectibility may not be reasonably assured,
considering among other matters,  the estimated net realizable value or the fair
value of the underlying  collateral,  economic conditions,  historical loan loss
experience, geographic concentrations and other factors that warrant recognition
in  providing  for  an  adequate  loan  loss  allowance.  In  addition,  various
regulatory  agencies,   as  an  integral  part  of  their  examination  process,
periodically  review the Bank's  allowance for loan losses and valuation of real
estate owned.  Such agencies may require the Bank to recognize  additions to the
allowance  based on their  judgment about  information  available to them at the
time of their  examination.  At December 31, 2004, the total  allowance was $2.0
million,  which  amounted  to 0.94% of loans,  net and  333.1% of  nonperforming
loans.  Management considers whether the allowance should be adjusted to protect
against risks in the loan  portfolio.  Management  evaluates the adequacy of the
allowance and determines the  appropriate  level of provision for loan losses by
applying a range of estimated loss  percentages  for each category of performing
loans not  designated as problem  loans to determine an additional  component of
the allowance to protect against unascertainable risks inherent in any portfolio
of performing loans. Management monitors and modifies the level of the allowance
for loan losses in order to maintain it at a level which it  considers  adequate
to provide for potential loan losses.  For the years ended December 31, 2004 and
2003, the Bank had charge-offs of $698,000 and $725,000,  respectively,  against
this allowance.

      The Bank  evaluates  the  adequacy  of the  allowance  for loan losses and
determines  the  appropriate  level of provisions  for loan losses by applying a
range of estimated  loss  percentages  to each category of performing  loans and
classified loans. The allowance  adjustment is based upon the net change in each
portfolio  category,  as well as adjustment related to impaired loans, since the
prior quarter. A loan is considered  impaired,  based on current information and
events,  if it is probable that the Bank will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement.  The measurement of impaired loans is generally based on the
present  value of  expected  future  cash  flows  discounted  at the  historical
effective interest rate, except that all collateral-dependent loans are measured
for impairment based on the estimated fair value of the collateral  securing the
loan.  Management believes the current method of determining the adequacy of the
allowance  is prudent in light of the Bank's  intention to continue to diversify
its lending  operations  through the increased  origination  of consumer  loans,
commercial business loans and commercial real estate loans.


                                       13
<PAGE>

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

<TABLE>
<CAPTION>
                                                                      December 31,
                                                 -------------------------------------------------------
                                                  2004        2003        2002        2001        2000
                                                 -------     -------     -------     -------     -------
                                                                  (Dollars in thousands)
<S>                                              <C>         <C>         <C>         <C>         <C>
Balance at beginning of period ...............   $ 2,115     $ 2,109     $ 1,672     $ 1,632     $ 1,523

Charge-offs:
   One- to four-family .......................        --          13          19           8           7
   Commercial real estate ....................        --          --          --          25          --
   Construction and land .....................        --          --          --          --          --
   Consumer ..................................       415         509         382         294         260
   Commercial business .......................       283         203         406         176          44
                                                 -------     -------     -------     -------     -------
   Total .....................................       698         725         807         503         311
                                                 -------     -------     -------     -------     -------

Recoveries:
   One- to four-family .......................         2          --          34           1           3
   Commercial real estate ....................        --          --          --          --          --
   Construction and land .....................        --          --          --          --          --
   Consumer ..................................       102          95          62          50          66
   Commercial business .......................        11         106          23          12           6
                                                 -------     -------     -------     -------     -------
   Total .....................................       115         201         119          63          75
                                                 -------     -------     -------     -------     -------
Net charge-offs ..............................      (583)       (524)       (688)       (440)       (236)
Addition of allowance ........................        --          --         961          --          --
Additions charged to operations ..............       450         530         164         480         345
                                                 -------     -------     -------     -------     -------
Balance at end of period .....................   $ 1,982     $ 2,115     $ 2,109     $ 1,672     $ 1,632
                                                 =======     =======     =======     =======     =======

Allowance  for loan losses as a percentage  of
total loans receivable, net ..................      0.94%       1.05%       1.07%       0.98%       0.99%
                                                 =======     =======     =======     =======     =======

Ratio of net charge-offs to average loans ....      0.28%       0.26%       0.37%       0.26%       0.15%
                                                 =======     =======     =======     =======     =======
</TABLE>


                                       14
<PAGE>

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

<TABLE>
<CAPTION>
                                                            At December 31,
                           ---------------------------------------------------------------------------------
                                          2004                                        2003
                           --------------------------------------    ---------------------------------------
                                                        Percent                                    Percent
                                                        of Loans                                   of Loans
                           Amount of       Loan         in Each       Amount of       Loan         In Each
                           Loan Loss      Amounts     Category to     Loan Loss      Amounts      Category
                           Allowance    by Category   Total Loans    Allowances    by Category   Total Loans
                           ---------    -----------   -----------    ----------    -----------   -----------
                                                       (Dollars in thousands)
<S>                        <C>           <C>              <C>         <C>           <C>              <C>
Residential mortgages      $     334     $ 101,930         47.66%     $     330     $  96,611         47.81%
Commercial real estate           304        44,720         20.91            353        38,184         18.84
Consumer .............           677        36,507         17.07            675        36,122         17.82
Commercial business ..           644        30,704         14.36            743        31,494         15.53
Unallocated ..........            23            --            --             14            --            --
                           ---------     ---------     ---------      ---------     ---------     ---------
         Total .......     $   1.982     $ 213,861        100.00%     $   2,115     $ 202,711        100.00%
                           =========     =========     =========      =========     =========     =========

<CAPTION>

                                       At December 31,
                           --------------------------------------
                                           2002
                           --------------------------------------
                                                        Percent
                                                        of Loans
                           Amount of       Loan         In Each
                           Loan Loss      Amounts     Category to
                           Allowance    by Category   Total Loans
                           ---------    -----------   -----------
                                    (Dollars in thousands)
<S>                        <C>           <C>               <C>
Residential mortgages      $     459     $ 100,730         50.36%
Commercial real estate           409        32,079         16.04
Consumer .............           538        37,421         18.71
Commercial business ..           687        29,775         14.89
Unallocated ..........            16            --            --
                           ---------     ---------     ---------
         Total .......     $   2,109     $ 200,005        100.00%
                           =========     =========     =========
</TABLE>

<TABLE>
<CAPTION>
                                                            At December 31,
                              ----------------------------------------------------------------------------
                                             2001                                    2000
                              -------------------------------------   ------------------------------------
                                                         Percent                                Percent
                                                         of Loans                               of Loans
                              Amount of      Loan        in each      Amount of      Loan       in Each
                              Loan Loss     Amounts     Category to   Loan Loss    Amounts     Category to
                              Allowance   by Category   Total Loans   Allowance   by Category  Total Loans
                              ---------   -----------   -----------   ---------   -----------  -----------
                                                         (Dollars in thousands)
<S>                           <C>          <C>            <C>         <C>          <C>            <C>
Residential mortgages ...     $    382     $ 87,554        50.74%     $    487     $ 95,326        57.32%
Commercial real estate ..          366       24,520        14.21           280       19,876        11.95
Consumer ................          437       34,106        19.76           422       31,226        18.78
Commercial business .....          487       26,385        15.29           434       19,865        11.95
Unallocated .............           --           --           --             9           --           --
                              --------     --------     --------      --------     --------     --------
         Total ..........     $  1,672     $172,565       100.00%     $  1,632     $166,293       100.00%
                              ========     ========     ========      ========     ========     ========
</TABLE>



                                       15
<PAGE>

Securities Investment Activities

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

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

      Investment Securities.  At December 31, 2004, the Bank had $109.7 million,
or 26.0% of total assets,  invested in investment  securities,  which  consisted
primarily  of U.S.  Government  obligations,  tax-exempt  securities,  corporate
obligations,  a mutual fund and equity  investments in corporate and FHLB stock.
The corporate debt  obligations  reported  includes trust preferred  investments
with a book value of $2.5 million and an estimated  market value of $2.8 million
at December 31, 2004. SFAS No. 115 requires the Bank to designate its securities
as held to  maturity,  available  for sale or trading,  depending  on the Bank's
ability and intent regarding its  investments.  The Bank does not have a trading
portfolio.  Investment  securities  are  classified  as available  for sale.  At
December 31, 2004,  the Bank's  investment  securities  portfolio had a weighted
average remaining life expectancy of 8.92 years.


                                       16
<PAGE>

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

<TABLE>
<CAPTION>
                                                                             At December 31,
                                              -------------------------------------------------------------------------------
                                                       2004                         2003                        2002
                                              ---------     ---------     ---------     ---------     ---------     ---------
                                              Amortized       Fair        Amortized       Fair        Amortized       Fair
                                                Cost          Value         Cost          Value         Cost          Value
                                              ---------     ---------     ---------     ---------     ---------     ---------
                                                                          (Dollars in thousands)
<S>                                           <C>           <C>           <C>           <C>           <C>           <C>
Investment securities available for sale:
   Federal agency securities ............     $  38,835     $  38,213     $  45,840     $  45,500     $  48,594     $  49,507
   Corporate debt securities ............        21,767        22,194        31,175        31,736        42,751        42,250
   Tax exempt bonds .....................        30,743        31,168        25,496        26,109        12,642        12,962
   Public utilities .....................            --            --            --            --            --            --
   Equity securities ....................        14,720        14,898        15,020        15,334        15,020        14,852
                                              ---------     ---------     ---------     ---------     ---------     ---------
       Subtotal .........................       106,065       106,473       117,531       118,679       119,007       119,571
   FHLB stock ...........................         3,257         3,257         3,370         3,370         3,685         3,685
                                              ---------     ---------     ---------     ---------     ---------     ---------
       Total ............................     $ 109,322     $ 109,730     $ 120,901     $ 122,049     $ 122,692     $ 123,256
                                              =========     =========     =========     =========     =========     =========

Average remaining life of investment
   securities ...........................     8.92 years                  7.51 years                  6.07 years
Other interest earning assets:
   Interest-bearing deposits with banks .           986           986         1,340         1,340         2,092         2,092
   Federal funds sold ...................         3,180         3,180            --            --         2,400         2,400
                                              ---------     ---------     ---------     ---------     ---------     ---------
       Total loans ......................     $   4,166     $   4,166     $   1,340     $   1,340     $   4,492     $   4,492
                                              =========     =========     =========     =========     =========     =========

<CAPTION>

                                                                At December 31,
                                              ---------------------------------------------------
                                                        2001                       2000
                                              -----------------------     -----------------------
                                              Amortized       Fair        Amortized       Fair
                                                Cost          Value         Cost          Value
                                              ---------     ---------     ---------     ---------
                                                            (Dollars in thousands)
<S>                                           <C>           <C>           <C>           <C>
Investment securities available for sale:
   Federal agency securities ............     $  25,035     $  25,238     $  47,795     $  47,686
   Corporate debt securities ............        31,663        30,286        17,189        16,541
   Tax exempt bonds .....................         3,480         3,498         2,569         2,542
   Public utilities .....................           200           201           200           199
   Equity securities ....................        14,944        15,337        19,806        19,878
                                              ---------     ---------     ---------     ---------
       Subtotal .........................        75,322        74,560        87,559        86,846
   FHLB stock ...........................         3,830         3,830         3,950         3,950
                                              ---------     ---------     ---------     ---------
       Total ............................     $  79,152     $  78,390     $  91,509     $  90,796
                                              =========     =========     =========     =========

Average remaining life of investment
   securities ...........................     7.32 years                  6.40 years
Other interest earning assets:
   Interest-bearing deposits with banks .         4,909         4,909           297           297
   Federal funds sold ...................         9,900         9,900         1,600         1,600
                                              ---------     ---------     ---------     ---------
       Total loans ......................     $  14,809     $  14,809     $   1,897     $   1,897
                                              =========     =========     =========     =========
</TABLE>


                                       17
<PAGE>

      Investment  Portfolio  Maturities.  The  following  table  sets  forth the
scheduled  maturities,  cost,  market value and weighted  average yields for the
Bank's investment portfolio at December 31, 2004.

<TABLE>
<CAPTION>
                                                               December 31, 2004
                                        ---------------------------------------------------------------------
                                        Less Than       1 to 5         5 to 10         Over
                                         1 Year          Years          Years        10 Years         Total
                                        ---------      ---------      ---------      ---------      ---------
                                        Carrying       Carrying       Carrying       Carrying       Carrying
                                          Value          Value          Value          Value          Value
                                        ---------      ---------      ---------      ---------      ---------
                                                               (Dollars in Thousands)
<S>                                     <C>            <C>            <C>            <C>            <C>
   Federal agency securities ......     $     602      $  14,785      $   8,188      $  14,638      $  38,213
   Corporate debt securities ......            --          2,769            969         18,456         22,194
   Tax exempt bonds ...............         1,298          3,566         19,614          6,690         31,168
   Equity securities ..............            --             --             --         14,898         14,898
                                        ---------      ---------      ---------      ---------      ---------
     Total securities .............     $   1,900      $  21,120      $  28,771      $  54,682      $ 106,473
                                        =========      =========      =========      =========      =========

Weighted average yield (1) ........          2.89%          3.83%          3.85%          5.25%          4.54%
</TABLE>

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

      Mortgage-Backed  Securities. The Bank purchases mortgage-backed securities
in  order  to:  (i)  generate   positive  interest  rate  spreads  with  minimal
administrative  expense;  (ii) lower the Bank's  credit  risk as a result of the
guarantees  provided  by Freddie  Mac,  Fannie Mae,  and Ginnie  Mae;  and (iii)
increase liquidity.  At December 31, 2004, the amortized cost of mortgage-backed
securities  totaled $44.5  million or 10.5% of total  assets,  all of which were
classified as available for sale. The mortgage-backed  securities  portfolio had
coupon rates ranging from 2.25% to 8.50%, a weighted  average yield of 4.24% and
a weighted average life (including payment assumption) of 5.69 years at December
31, 2004. The estimated fair value of the Bank's  mortgage-backed  securities at
December 31, 2004 was $44.4 million which was $120,000  lower than the amortized
cost of $44.5 million.

      Mortgage-backed securities are created by the pooling of mortgages and the
issuance of a security with an interest rate that is less than the interest rate
on the underlying  mortgages.  Mortgage-backed  securities typically represent a
participation  interest in a pool of  single-family  or multi-family  mortgages,
although the Bank focuses its investments on mortgage-related  securities backed
by  single-family  mortgages.  The issuers of such  securities  (generally  U.S.
Government agencies and government sponsored enterprises,  including Fannie Mae,
Freddie Mac and Ginnie Mae) pool and resell the  participation  interests in the
form of securities to investors,  such as the Bank, and guarantee the payment of
principal and interest to these investors.  Mortgage-backed securities generally
yield less than the loans that underlie such  securities  because of the cost of
payment  guarantees  and  credit  enhancements.  In  addition,  mortgage-related
securities  are usually more liquid than  individual  mortgage  loans and may be
used  to  collateralize   certain  liabilities  and  obligations  of  the  Bank.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated over the life of the security,  which may require
adjustments  to the  amortization  of any premium or  accretion  of any discount
relating to such instruments  thereby reducing the net yield on such securities.
There  is also  reinvestment  risk  associated  with the cash  flows  from  such
securities  or in the event such  securities  are  redeemed  by the  issuer.  In
addition,  the market  value of such  securities  may be  adversely  affected by
changes in interest rates.  Management reviews prepayment estimates periodically
to ensure that prepayment  assumptions are reasonable considering the underlying
collateral  for the  securities  at issue  and  current  interest  rates  and to
determine  the  yield  and  estimated  maturity  of the  Bank's  mortgage-backed
securities  portfolio.  Of the Bank's $44.5 million  mortgage-backed  securities
portfolio at December 31, 2004,  $700,000 with a weighted average yield of 4.39%
had  contractual  maturities  within five years,  $1.9  million  with a weighted
average yield of 4.16% had contractual maturities of five to ten years and $41.9
million with a weighted  average  yield of 4.24% had  contractual  maturities of
over ten years.  However, the actual maturity of a mortgage-backed  security may
be less than its stated maturity due to prepayments of the underlying mortgages.
Prepayments  that  are  faster  than  anticipated  may  shorten  the life of the
security


                                       18
<PAGE>

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


                                       19
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                   -------------------------------------------------------------------------------
                                                             2004                       2003                        2002
                                                   -----------------------     -----------------------     -----------------------
                                                   Amortized       Fair        Amortized       Fair        Amortized       Fair
                                                     Cost          Value         Cost          Value         Cost          Value
                                                   ---------     ---------     ---------     ---------     ---------     ---------
                                                                               (Dollars in thousands)
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
Mortgage-backed securities available for sale:
  GinnieMae ..................................     $     416     $     444     $   1,504     $   1,588     $   4,256     $   4,448
  FannieMae ..................................        14,819        14,674        21,863        21,979        12,628        13,074
  FreddieMac .................................        19,706        19,672        22,795        22,934        18,914        19,369
  CMOs .......................................         9,151         9,182         4,961         4,723         2,127         2,116
  Small business administration ..............           405           405           565           564           713           712
                                                   ---------     ---------     ---------     ---------     ---------     ---------
      Total ..................................     $  44,497     $  44,378     $  51,688     $  51,788     $  38,638     $  39,719
                                                   =========     =========     =========     =========     =========     =========

<CAPTION>

                                                                       December 31,
                                                   ---------------------------------------------------
                                                             2001                 2000
                                                   -----------------------     -----------------------
                                                   Amortized       Fair        Amortized       Fair
                                                     Cost          Value         Cost          Value
                                                   ---------     ---------     ---------     ---------
                                                                  (Dollars in thousands)
<S>                                                <C>           <C>           <C>           <C>
Mortgage-backed securities available for sale:
  GinnieMae ..................................     $  14,661     $  14,875     $  13,349     $  13,457
  FannieMae ..................................        16,105        16,244        13,336        13,211
  FreddieMac .................................        19,395        19,528        13,793        13,754
  CMOs .......................................         2,140         2,156            50            51
  Small business administration ..............           883           883            --            --
                                                   ---------     ---------     ---------     ---------
      Total ..................................     $  53,184     $  53,686     $  40,528     $  40,473
                                                   =========     =========     =========     =========
</TABLE>


                                       20
<PAGE>

Sources of Funds

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

      Deposits.  The Bank offers a variety of deposit  accounts  with a range of
interest  rates and  terms.  The Bank's  deposit  accounts  consist of  savings,
interest-bearing demand accounts,  noninterest-bearing  checking accounts, money
market accounts and certificates of deposit. The Bank also offers IRAs and other
qualified  plan accounts.  The Bank has a commercial  bank  subsidiary  which is
permitted to accept  municipal  deposit  accounts  from various  municipalities,
school  districts  and  other  public  sources.   Through  our  special  purpose
subsidiary  at  December  31,  2004 the Bank  held  $8.5  million  in  municipal
deposits.

      At December 31, 2004,  deposits  totaled $301.6  million.  At December 31,
2004,  the Bank had a total of $115.0  million in  certificates  of deposit,  of
which $72.1 million had maturities of one year or less.  Although the Bank has a
significant  portion of its  deposits in shorter term  certificates  of deposit,
management monitors activity on these accounts.  Based on historical  experience
and the Bank's current pricing  strategy,  management  believes it will retain a
large portion of such accounts upon maturity.  At December 31, 2004 certificates
of deposit with balances of $100,000 or more totaled $27.7 million.

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

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

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                               -----------------------------------------------
                                                   2004              2003             2002
                                               -----------       -----------       -----------
                                                            (Dollars in thousands)
<S>                                            <C>               <C>               <C>
Opening balance ..........................     $   305,515       $   291,779       $   228,163
Deposits acquired in acquisition of SBC ..                                --            60,146
Deposits .................................       2,421,711         2,249,912         1,915,273
Withdrawals ..............................      (2,429,555)       (2,241,116)       (1,918,344)
Interest credited ........................           3,976             4,940             6,541
                                               -----------       -----------       -----------

Ending balance ...........................     $   301,647       $   305,515       $   291,779
                                               -----------       -----------       -----------

Net increase (decrease) ..................     $    (3,868)      $    13,736       $    63,616
                                               ===========       ===========       ===========

Percent increase (decrease) ..............           (1.27)%            4.71%            27.88%
                                               ===========       ===========       ===========
</TABLE>


                                       21
<PAGE>

      The following  table  indicates the amount of the Bank's  certificates  of
deposit by time remaining until maturity as of December 31, 2004.

<TABLE>
<CAPTION>
                                                                         Maturity
                                                     -----------------------------------------------
                                                     3 Months   Over 3 to 6  Over 6 to 12   Over 12
                                                     or Less       Months       Months       Months        Total
                                                     --------   -----------  ------------   --------      --------
                                                                       (Dollars in thousands)
<S>                                                  <C>          <C>           <C>          <C>          <C>
Certificates of deposit less than $100,000........   $ 20,551     $ 14,912      $20,735      $31,035      $ 87,233
Certificates of deposit of $100,000 or more.......      5,951        2,789        7,197       11,799        27,736
                                                     --------     --------      -------      -------      --------
Total of certificates of deposit..................   $ 26,502     $ 17,701      $27,932      $42,834      $114,969
                                                     ========     ========      =======      =======      ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                       December 31,
                                      ----------------------------------------------------------------------------
                                               2004                       2003                       2002
                                      ----------------------     ----------------------     ----------------------
                                       Amount       Percent       Amount       Percent       Amount       Percent
                                      ---------    ---------     ---------    ---------     ---------    ---------
                                                                 (Dollars in thousands)
<S>                                   <C>             <C>        <C>             <C>        <C>             <C>
Transactions and savings deposits:
Noninterest-bearing ..............    $  50,082        16.60%    $  46,644        16.25%    $  45,951        15.75%

Savings accounts .................       70,252        23.29        69,177        22.64        64,946        22.26
Interest-bearing checking ........       29,076         9.64        19,907         6.51        12,118         4.15
Money market accounts ............       37,268        12.36        40,038        13.11        35,206        12.07
                                      ---------    ---------     ---------    ---------     ---------    ---------
     Total .......................      186,678        61.89       178,766        58.51       158,221        54.23
                                      ---------    ---------     ---------    ---------     ---------    ---------

Certificates of deposit:
Less than 2.00% ..................       53,686        17.80        59,380        19.44        26,014         8.91
2.00-3.99% .......................       38,562        12.78        38,156        12.49        59,481        20.39
4.00-5.99% .......................       15,147         5.02        20,187         6.61        35,309        12.10
6.00-7.99% .......................        7,574         2.51         9,026         2.95        12,754         4.37
                                      ---------    ---------     ---------    ---------     ---------    ---------
     Total certificates of deposit      114,969        38.11       126,749        41.49       133,558        45.77
                                      ---------    ---------     ---------    ---------     ---------    ---------
        Total deposits ...........    $ 301,647       100.00%    $ 305,515       100.00%    $ 291,779       100.00%
                                      =========    =========     =========    =========     =========    =========
</TABLE>

      The following table sets forth the amount and remaining  maturities of the
Bank's certificates of deposit accounts at December 31, 2004.

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

March 31, 2005 ..............    $  20,335     $   4,045     $     383     $   1,739     $  26,502         23.05%
June 30, 2005 ...............       11,390         3,667           300         2,343        17,700         15.40
September 30, 2005 ..........       10,403         3,838           171         1,449        15,861         13.80
December 31, 2005 ...........        8,035         3,395            49           593        12,072         10.50
March 31, 2006 ..............        1,297         1,307           503         1,032         4,139          3.60
June 30, 2006 ...............          858         1,357         1,019            --         3,234          2.81
September 30, 2006 ..........          176         2,757         1,405            --         4,338          3.77
December 31, 2006 ...........          381         3,689           493            42         4,605          4.01
Thereafter ..................          811        14,507        10,824           376        26,518         23.07
                                 ---------     ---------     ---------     ---------     ---------     ---------
   Total ....................    $  53,686     $  38,562     $  15,147     $   7,574     $ 114,969        100.00%
                                 =========     =========     =========     =========     =========     =========

   Percent of total .........        46.70%        33.54%        13.17%         6.59%       100.00%
</TABLE>


                                       22
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     At December 31,
                                                                           ----------------------------------
                                                                             2004         2003         2002
                                                                           --------     --------     --------
                                                                                  (Dollars in thousands)
<S>                                                                        <C>          <C>          <C>
Short-term borrowings:
  Overnight line of credit ............................................    $     --     $  2,500     $  2,000
  Repurchase agreements - FHLB ........................................          --           --           xx
Term advances - FHLB ..................................................      13,500       13,500       16,500
Long-term borrowings:
  Repurchase agreements - FHLB ........................................      27,000       32,000       34,000
  Term advances - FHLB ................................................      23,900       19,400       21,000
                                                                           --------     --------     --------
    Total borrowings ..................................................    $ 64,400     $ 67,400     $ 73,500
                                                                           --------     --------     --------

Weighted Average interest cost of short-term borrowings during the year        1.34%        4.38%        4.63%
                                                                           --------     --------     --------
Weighted Average interest cost of long-term borrowings during the year         4.64%        4.75%        4.89%
                                                                           --------     --------     --------

Average Balance of borrowings outstanding during the year .............    $ 65,795     $ 68,757     $ 72,912
                                                                           --------     --------     --------
</TABLE>

      Trust Activities. The Bank provides trust and investment services, acts as
executor or  administrator  of estates and as trustee or  custodian  for various
types of trusts. Trust services are offered through the Bank's Trust Department.
Services include fiduciary services for trusts and estates, money management and
custodial   services.   At  December  31,   2004,   the  Bank   maintained   494
trust/fiduciary  accounts,  with total assets of $101.5 million under management
as compared to 435  trust/fiduciary  accounts with $79.9 million total assets at
December  31,  2003.  Management  anticipates  that  in  the  future  the  Trust
Department will become a more significant component of the Bank's business.

Limited Purpose Commercial Bank

      In connection  with the acquisition of SBC on May 31, 2002, the Bank holds
The State Bank of  Chittenango  as a limited  purpose  commercial  bank.  SBC is
permitted  to accept  municipal  deposits  from various  municipalities,  school
districts and other public sources;  a source of funds not available to the Bank
under New York Law. At December 31,  2004,  The State Bank of  Chittenango  held
$13.7 million in assets, consisting primarily of U.S. Government obligations and
mortgage-backed securities and $8.5 million in deposits.

Insurance Activities

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

Competition

      Competition in the banking and financial services industry is intense. The
Bank competes with commercial  banks,  savings  institutions,  mortgage  banking
firms, credit unions, finance companies,  mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere.  Many of
these competitors have  substantially  greater resources and lending limits than
the


                                       23
<PAGE>

Bank and may offer certain  services  that the Bank does not or cannot  provide.
Moreover, credit unions which offer substantially the same services as the Bank,
not subject to federal or state income taxation. Trends toward the consolidation
of  the  financial  services  industry,  and  the  removal  of  restrictions  on
interstate  branching and banking  powers may make it more difficult for smaller
institutions  such as the Bank to compete  effectively  with large  national and
regional banking institutions. The Bank's profitability depends upon its ability
to successfully compete in its market area.

Personnel

      As of December  31,  2004,  the Bank had 137  full-time  employees  and 10
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining  unit. The Bank considers its  relationship  with its employees to be
good.

Regulation

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

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

      New York Bank  Regulation.  The Bank derives its lending,  investment  and
other  authority  primarily  from the  applicable  provisions  of New York State
Banking  Law  and  the  regulations  of  the  Department,  as  limited  by  FDIC
regulations.  Under these laws and  regulations,  savings  banks,  including the
Bank,  may invest in real  estate  mortgages,  consumer  and  commercial  loans,
certain types of debt securities,  including  certain  corporate debt securities
and obligations of federal,  state and local  governments and agencies,  certain
types of  corporate  equity  securities  and  certain  other  assets.  Under the
statutory  authority  for  investing  in equity  securities,  a savings bank may
invest up to 7.5% of its assets in corporate stock,  with an overall limit of 5%
of its assets  invested  in common  stock.  Investment  in the stock of a single
corporation  is  limited to the  lesser of 2% of the  outstanding  stock of such
corporation or 1% of the savings bank's assets,  except as set forth below. Such
equity securities must meet certain earnings ratios and other tests of financial
performance.  A savings  bank's  lending powers are not subject to percentage of
assets limitations,  although there are limits applicable to single borrowers. A
savings bank may also,  pursuant to the "leeway"  power,  make  investments  not
otherwise  permitted  under the New York State  Banking Law.  This power permits
investments in otherwise impermissible  investments of up to 1% of assets in any
single investment, subject to certain restrictions and to an aggregate limit for
all such investments of up to 5% of assets.  Additionally,  in lieu of investing
in such securities in accordance with and reliance upon the specific  investment
authority  set  forth in the New York  State  Banking  Law,  savings  banks  are
authorized to elect to invest under a "prudent person" standard in a wider range
of  investment  securities as compared to the types of  investments  permissible
under such specific investment  authority.  However, in the event a savings bank
elects to utilize  the  "prudent  person"  standard,  it will be unable to avail
itself of the other provisions of the New York State Banking Law and regulations
which


                                       24
<PAGE>

set forth specific investment authority. The Bank has not elected to conduct its
investment  activities under the "prudent person"  standard.  A savings bank may
also exercise trust powers upon approval of the Department.

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

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

      Insurance of Accounts and  Regulation by the FDIC. The Bank is a member of
the  BIF,  which  is  administered  by the  FDIC.  Deposits  are  insured  up to
applicable limits by the FDIC and such insurance is backed by the full faith and
credit of the U.S.  Government.  As insurer,  the FDIC imposes deposit insurance
premiums and is authorized to conduct  examinations of and to require  reporting
by FDIC-insured institutions.  It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a  serious  risk to the  FDIC.  The FDIC  also  has the  authority  to  initiate
enforcement  actions against savings banks,  after giving the  Superintendent an
opportunity to take such action,  and may terminate the deposit  insurance if it
determines  that the institution has engaged or is engaging in unsafe or unsound
practices or is in an unsafe or unsound condition.

      The FDIC  establishes  deposit  insurance  premiums based upon the risks a
particular bank or savings  association  poses to its deposit  insurance  funds.
Under the risk-based  deposit insurance  assessment  system, the FDIC assigns an
institution  to one of  three  capital  categories  based  on the  institution's
financial  information,  as of the reporting period ending six months before the
assessment  period,  consisting  of:  (i)  well  capitalized;   (ii)  adequately
capitalized;   or  (iii)   undercapitalized   and  one  of   three   supervisory
subcategories  within each capital  group.  With respect to the capital  ratios,
institutions are classified as well capitalized or adequately  capitalized using
ratios that are  substantially  similar to the prompt  corrective action capital
ratios discussed above. Any institution that does not meet these two definitions
is deemed to be undercapitalized  for this purpose.  The supervisory subgroup to
which an institution is assigned is based on a supervisory  evaluation  provided
to the FDIC by the institution's  primary federal regulator and information that
the FDIC determines to be relevant to the institution's  financial condition and
the risk posed to the deposit insurance funds (which may include, if applicable,
information  provided by the institution's  state supervisor).  An institution's
assessment rate depends on


                                       25
<PAGE>

the capital category and supervisory category to which it is assigned. Under the
final   risk-based   assessment   system,   there  are  nine   assessment   risk
classifications (i.e., combinations of capital groups and supervisory subgroups)
to which different  assessment rates are applied.  Assessments rates for deposit
insurance  currently  range from 0 basis points to 27 basis points.  The capital
and  supervisory  subgroup  to which an  institution  is assigned by the FDIC is
confidential  and may not be  disclosed.  The Bank's  rate of deposit  insurance
assessments  will depend upon the category and  subcategory to which the Bank is
assigned  by the FDIC.  Any  increase  in  insurance  assessments  could have an
adverse effect on the earnings of the Bank.

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

      These guidelines divide a savings bank's capital into two tiers. The first
tier  ("Tier  I")   includes   common   equity,   retained   earnings,   certain
non-cumulative  perpetual  preferred stock  (excluding  auction rate issues) and
minority  interests  in  equity  accounts  of  consolidated  subsidiaries,  less
goodwill and other  intangible  assets  (except  mortgage  servicing  rights and
purchased   credit   card   relationships   subject  to  certain   limitations).
Supplementary  ("Tier  II")  capital  includes,  among other  items,  cumulative
perpetual and long-term  limited-life  preferred  stock,  mandatory  convertible
securities,  certain hybrid capital instruments,  term subordinated debt and the
allowance  for loan and lease  losses,  subject  to  certain  limitations,  less
required  deductions.  Savings banks are required to maintain a total risk-based
capital ratio of at least 8%, of which at least 4% must be Tier I capital.

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

      Limitations on Dividends and Other Capital Distributions. The FDIC has the
authority to use its  enforcement  powers to prohibit a savings bank from paying
dividends  if, in its opinion,  the payment of  dividends  would  constitute  an
unsafe or unsound practice.  Federal law also prohibits the payment of dividends
by a bank that will result in the bank  failing to meet its  applicable  capital
requirements  on a pro forma basis.  New York law also  restricts  the Bank from
declaring  a  dividend  which  would  reduce  its  capital  below (i) the amount
required to be maintained by state law and regulation, or (ii) the amount of the
Bank's liquidation account established in connection with the Reorganization.

      Prompt  Corrective  Action.  The federal banking agencies have promulgated
regulations  to implement  the system of prompt  corrective  action  required by
federal  law.  Under  the  regulations,  a bank  shall be deemed to be (i) "well
capitalized" if it has total  risk-based  capital of 10.0% or more, has a Tier I
risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of
5.0% or more and is not subject to any written capital order or directive;  (ii)
"adequately  capitalized" if it has a total risk-based  capital ratio of 8.0% or
more, a Tier I risk-based capital ratio of 4.0% or more and a Tier I leverage


                                       26
<PAGE>

capital  ratio of 4.0% or more (3.0% under certain  circumstances)  and does not
meet the definition of "well capitalized";  (iii) "undercapitalized" if it has a
total  risk-based  capital  ratio  that is less than 8.0%,  a Tier I  risk-based
capital ratio that is less than 4.0% or a Tier I leverage  capital ratio that is
less  than  4.0%  (3.0%  under  certain   circumstances);   (iv)  "significantly
undercapitalized"  if it has a total risk-based  capital ratio that is less than
6.0%,  a Tier I  risk-based  capital  ratio  that is less  than 3.0% or a Tier I
leverage   capital   ratio  that  is  less  than  3.0%;   and  (v)   "critically
undercapitalized"  if it has a ratio of tangible  equity to total assets that is
equal  to  or  less  than  2.0%.   Federal  law  and  regulations  also  specify
circumstances  under  which a  federal  banking  agency  may  reclassify  a well
capitalized  institution as adequately capitalized and may require an adequately
capitalized  institution to comply with supervisory actions as if it were in the
next lower  category  (except that the FDIC may not  reclassify a  significantly
undercapitalized institution as critically undercapitalized).

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

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

      Federal  law  and  FDIC  regulations  permit  certain  exceptions  to  the
foregoing limitation.  For example,  certain  state-chartered banks, such as the
Bank,  may continue to invest in common or preferred  stock listed on a National
Securities  Exchange or the National Market System of Nasdaq,  and in the shares
of an investment company registered under the Investment Company Act of 1940, as
amended.  As of December  31,  2004,  the Bank had $14.9  million of  securities
pursuant to this  exception.  As a savings  bank,  the Bank may also continue to
sell savings bank life insurance.


                                       27
<PAGE>

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

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

Federal Holding Company Regulation.

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

      Permitted  Activities.  Under OTS regulation and policy,  a mutual holding
company and a federally  chartered  mid-tier holding company such as the Company
may engage in the following activities:  (i) investing in the stock of a savings
association;  (ii)  acquiring  a mutual  association  through the merger of such
association into a savings association  subsidiary of such holding company or an
interim savings  association  subsidiary of such holding company;  (iii) merging
with or  acquiring  another  holding  company,  one of whose  subsidiaries  is a
savings association; (iv) investing in a corporation, the


                                       28
<PAGE>

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

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

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

      Waivers  of  Dividends  by  Mutual  Holding  Company.   Office  of  Thrift
Supervision  regulations require the Mutual Holding Company to notify the OTS of
any  proposed  waiver of its  receipt of  dividends  from the  Company.  The OTS
reviews dividend waiver notices on a case-by-case  basis, and, in general,  does
not object to any such  waiver if: (i) the  mutual  holding  company's  board of
directors  determines  that such  waiver  is  consistent  with  such  directors'
fiduciary duties to the mutual holding  company's  members;  (ii) for as long as
the savings association  subsidiary is controlled by the mutual holding company,
the  dollar  amount  of  dividends  waived by the  mutual  holding  company  are
considered as a restriction on the retained earnings of the savings association,
which restriction,  if material, is disclosed in the public financial statements
of the savings  association  as a note to the  financial  statements;  (iii) the
amount of any dividend  waived by the mutual  holding  company is available  for
declaration  as a  dividend  solely  to the  mutual  holding  company,  and,  in
accordance  with  SFAS 5,  where the  savings  association  determines  that the
payment  of  such  dividend  to the  mutual  holding  company  is  probable,  an
appropriate dollar amount is recorded as a liability; and (iv) the amount of any
waived dividend is considered as having been paid by the savings  association in
evaluating any proposed dividend under OTS capital distribution regulations. The
Mutual  Holding  Company  intends to  continue  to waive  dividends  paid by the
Company. Under OTS


                                       29
<PAGE>

regulations,  the Company's public  stockholders would not be diluted because of
any dividends  waived by the Mutual Holding Company (and waived  dividends would
not be considered in determining an appropriate exchange ratio) in the event the
Mutual Holding Company converts to stock form.

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

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

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


                                       30
<PAGE>

The USA PATRIOT Act

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

      Among  other  requirements,  Title III of the USA  PATRIOT Act imposes the
following requirements with respect to financial institutions:

      o     Pursuant to Section 352, all financial  institutions  must establish
            anti-money  laundering  programs  that  include,  at a minimum:  (i)
            internal   policies,   procedures,   and  controls;   (ii)  specific
            designation of an anti-money  laundering  compliance officer;  (iii)
            ongoing employee  training  programs;  and (iv) an independent audit
            function to test the anti-money laundering program.

      o     Section 326  authorizes the Secretary of the Department of Treasury,
            in conjunction with other bank regulators, to issue regulations that
            provide   for   minimum   standards   with   respect   to   customer
            identification  at the time new  accounts  are  opened.  On July 23,
            2002,  the Office of Thrift  Supervision  and the other federal bank
            regulators  jointly issued proposed rules to implement  Section 326.
            The proposed  rules require  financial  institutions  to establish a
            program specifying procedures for obtaining identifying  information
            from  customers  seeking  to open  new  accounts.  This  identifying
            information  would be  essentially  the same  information  currently
            obtained by most financial institutions for individual customers.

      o     Section  312  requires   financial   institutions   that  establish,
            maintain,   administer,   or  manage  private  banking  accounts  or
            correspondence  accounts in the United States for non-United  States
            persons  or their  representatives  (including  foreign  individuals
            visiting the United States) to establish appropriate, specific, and,
            where necessary,  enhanced due diligence policies,  procedures,  and
            controls designed to detect and report money laundering.

      o     Effective December 25, 2001,  financial  institutions are prohibited
            from   establishing,    maintaining,   administering   or   managing
            correspondent  accounts for foreign shell banks  (foreign banks that
            do not have a physical presence in any country), and will be subject
            to certain record keeping  obligations with respect to correspondent
            accounts of foreign banks.

      o     Bank  regulators  are  directed  to  consider  a  holding  company's
            effectiveness  in combating money  laundering when ruling on Federal
            Reserve Act and Bank Merger Act applications.

Sarbanes-Oxley Act of 2002

      On July 30, 2002, the President signed into law the  Sarbanes-Oxley Act of
2002  ("Sarbanes-Oxley"),  which  implemented  legislative  reforms  intended to
address  corporate and accounting  fraud. In addition to the  establishment of a
new accounting  oversight board that will enforce auditing,  quality control and
independence  standards  and will be  funded by fees  from all  publicly  traded
companies,  Sarbanes-Oxley  places certain restrictions on the scope of services
that may be provided by accounting


                                       31
<PAGE>

firms to their public  company  audit  clients.  Any  non-audit  services  being
provided to a public  company  audit  client  will  require  preapproval  by the
company's audit committee. In addition,  Sarbanes-Oxley makes certain changes to
the   requirements   for  audit  partner   rotation  after  a  period  of  time.
Sarbanes-Oxley  requires chief executive officers and chief financial  officers,
or their  equivalent,  to certify to the accuracy of periodic reports filed with
the Securities and Exchange Commission,  subject to civil and criminal penalties
if they  knowingly or  willingly  violate this  certification  requirement.  The
Company's  Chief  Executive  Officer  and Chief  Financial  Officer  have signed
certifications  to this Form 10-K as required by  Sarbanes-Oxley.  In  addition,
under Sarbanes-Oxley,  counsel will be required to report evidence of a material
violation of the  securities  laws or a breach of fiduciary duty by a company to
its chief  executive  officer or its chief legal  officer,  and, if such officer
does not appropriately  respond,  to report such evidence to the audit committee
or other similar committee of the board of directors or the board itself.

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

      Sarbanes-Oxley  also  increases  the  oversight  of, and codifies  certain
requirements  relating  to audit  committees  of public  companies  and how they
interact with the company's "registered public accounting firm." Audit Committee
members must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose  whether at least one member of the  committee is a "financial  expert"
(as such term is defined by the Securities and Exchange  Commission) and if not,
why not. Under Sarbanes-Oxley,  a company's registered public accounting firm is
prohibited from performing  statutorily mandated audit services for a company if
such company's chief executive officer,  chief financial  officer,  comptroller,
chief accounting officer or any person serving in equivalent  positions had been
employed by such firm and  participated  in the audit of such company during the
one-year  period  preceding  the  audit  initiation  date.  Sarbanes-Oxley  also
prohibits  any officer or director of a company or any other person acting under
their  direction  from  taking any  action to  fraudulently  influence,  coerce,
manipulate  or mislead any  independent  accountant  engaged in the audit of the
company's  financial  statements  for the  purpose of  rendering  the  financial
statements  materially  misleading.  Sarbanes-Oxley also requires the Securities
and Exchange  Commission to prescribe rules requiring  inclusion of any internal
control   report  and   assessment   by  management  in  the  annual  report  to
shareholders. Sarbanes-Oxley requires the company's registered public accounting
firm that  issues  the audit  report  to  attest to and  report on  management's
assessment of the company's internal controls.

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


                                       32
<PAGE>

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

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

      Federal Reserve System.  The Federal Reserve Board requires all depository
institutions  to  maintain  noninterest-bearing  reserves  at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW and  Super NOW
checking accounts).  At December 31, 2004, the Bank was in compliance with these
reserve requirements.

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

      New York State  Regulation.  The Bank is also subject to provisions of the
New York State Banking Law which imposes continuing and affirmative  obligations
upon banking institutions  organized in New York State to serve the credit needs
of its local  community  ("NYCRA")  which  are  substantially  similar  to those
imposed  by the CRA.  Pursuant  to the NYCRA,  a bank must file an annual  NYCRA
report and copies of all  federal  CRA reports  with the  Department.  The NYCRA
requires  the  Department  to make a  biennial  written  assessment  of a bank's
compliance with the NYCRA,  utilizing a four-tiered  rating system and make such
assessment  available to the public.  The NYCRA also requires the Superintendent
to consider a bank's NYCRA rating when reviewing a bank's  application to engage
in  certain   transactions,   including   mergers,   asset   purchases  and  the
establishment of branch offices or automated teller machines,  and provides that
such assessment may serve as a basis for the denial of any such application.

      The Bank's NYCRA rating as of its latest examination was "satisfactory."

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


                                       33
<PAGE>

      As a member,  the Bank is required to purchase and  maintain  stock in the
FHLB of New York.  As of December  31,  2004,  the Bank had $3.3 million of FHLB
stock.  The dividend  yield from FHLB stock was 3.05% at December  31, 2004.  No
assurance can be given that the FHLB will pay any dividends in the future.

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

Federal Taxation

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

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

      Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a  base  of  regular  taxable  income  plus  certain  tax  preferences
("alternative  minimum  taxable  income" or  "AMTI").  The AMT is payable to the
extent such AMTI is in excess of an exemption  amount.  Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Bank has
not  been  subject  to the  alternative  minimum  tax and  has no  such  amounts
available as credits for carryover.

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

State Taxation

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


                                       34
<PAGE>

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

Executive Officers of the Registrant

      Listed  below is  information,  as of December 31,  2004,  concerning  the
Company's  executive  officers.  There  are no  arrangements  or  understandings
between the  Registrant  and any of persons named below with respect to which he
or she was or is to be selected as an officer.

<TABLE>
         Name                Age            Position and Term
         ----              --------         --------------------------------------------------------------
<S>                          <C>            <C>
Michael R. Kallet            55             President and Chief Executive Officer since 1990

Eric E. Stickels             44             Executive Vice President and Chief Financial Officer since 1998

Thomas H. Dixon              51             Executive Vice President and Chief Credit Officer since 1996
</TABLE>

      A COPY OF THE  COMPANY'S  ANNUAL  REPORT ON FORM 10-K FOR THE FISCAL  YEAR
ENDED   DECEMBER   31,  2004  IS   AVAILABLE   FOR  REVIEW  ON  OUR  WEBSITE  AT
WWW.ONEIDABANK.COM  AND WILL BE FURNISHED  WITHOUT CHARGE TO  STOCKHOLDERS  UPON
WRITTEN OR TELEPHONIC REQUEST TO ERIC E. STICKELS,  SECRETARY,  ONEIDA FINANCIAL
CORP., 182 MAIN STREET, ONEIDA, NEW YORK 13421, OR CALL (315) 363-2000.


                                       35
<PAGE>

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

      The Bank conducts its business  through its main office located in Oneida,
New York, and seven additional full service branch offices.  The following table
sets forth  certain  information  concerning  Company  property and equipment at
December 31, 2004.  The aggregate  net book value of the Company's  premises and
equipment  was $9.9  million at December  31,  2004.  The  insurance  subsidiary
conducts its business  through one owned and four leased  facilities  with lease
expirations not exceeding five years.

<TABLE>
<CAPTION>
                                        Original             Date of         Net Book Value
                                          Year                Lease    of Property and Equipment
     Location                           Acquired           Expiration     at December 31, 2004
     --------                           --------           ----------     --------------------
                                                                         (Dollars in thousands)
<S>                                       <C>             <C>                 <C>
Main Office:
182 Main Street                           1889                 N/A            $1,985
Oneida, New York 13421

Branch Offices:
Camden Branch                             1997                 N/A               852
41 Harden Boulevard
Camden, New York 13316

Canastota Branch                          1999                 N/A               876
104 S. Peteboro St.
Canastota, New York 13032

Cazenovia Branch                          1971                 N/A             1,913
48 Albany Street
Cazenovia, New York 13035

Hamilton Branch                           1976                 N/A               224
35 Broad Street
Hamilton, New York 13346

Convenience Center                        1988                 N/A               252
585 Main Street
Oneida, New York 13421

Chittenango Branch                        2002                 N/A               833
101 Falls Boulevard
Chittenango, New York 13037

Bridgeport Branch                         2002            November 2006           57
8786 State Route 31
Bridgeport, New York 13030

Mortgage Center
126 Lenox Avenue                          1989                 N/A               136
Oneida, New York 13421

Operations Center
169 Main Street                           2001                 N/A             1,166
Oneida, New York 13421

Bailey & Haskell Associates, Inc.
Various locations                         2000               Various           1,366
(Headquarters)
169 Main Street
Oneida, New York 13421

Other Bank Property
102 S. Peterboro St.                      2000                 N/A               194
Canastota, New York 13032
</TABLE>


                                       36
<PAGE>

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

      Much of the Bank's market area is included in the 250,000-acre  land claim
of the Oneida Indian Nation  ("Oneidas").  The land claim area is held primarily
by private persons.  Over 16 years ago, the United States Supreme Court ruled in
favor of the Oneidas in a lawsuit  which  management  believes  was  intended to
encourage  the State of New York to negotiate an equitable  settlement in a land
dispute that has existed for 200 years.

      In June 1998,  the United  States  Justice  Department  intervened  in the
action on behalf of the Oneidas  against Madison County and Oneida County in New
York State.  In September 1998, a United States District Court removed a stay of
litigation,  having  been in place  since  the late  1980's  pending  settlement
negotiations.  In December 1998,  both the Oneidas and the United States Justice
Department filed motions to amend the long  outstanding  claim against the State
of New York.  The  motions  attempt to include in the claim,  various  named and
20,000 unnamed additional defendants,  who own real property in parts of Madison
and Oneida counties, thereby including the additional defendants in the original
suit.  The U.S.  District  Court  granted the motions to add as a defendant  the
State of New York, but denied the motions to add the private landowners. Neither
the Bank nor the Company is a named  defendant in the motion.  The Court further
rejected  as not being  viable the  remedies  of  ejectment  and/or of  monetary
damages against private  landowners.  In January 2001,  amended  complaints were
served by the Oneidas and the United States, which seek to eject the Counties of
Madison and Oneida from lands owned by the counties, and the Oneidas also seek a
declaration  that they have the right to possess  all land within the land claim
area.  In June 2001,  the Court  determined  that certain land  purchased by the
Oneidas  in 1997 and 1998 are  exempt  from real  estate  taxes,  accepting  the
Oneidas  argument  that the acquired  parcels lie within the  boundaries  of the
"reservation"  established in 1794 by the Federal  Government.  The State of New
York,  Counties of Madison and Oneida and the City of Sherrill have appealed the
Courts  decision with a court date set for March 2002. In February 2002, a joint
statement  was  issued by the  Oneidas,  State of New York and the  counties  of
Madison and Oneida,  indicating  that the  framework  for a settlement  had been
agreed upon  subject to the  approval by the State  legislature  and the Federal
Government.  In July 2003,  the United  States  Court of  Appeals  affirmed  the
decision of the lower court  against the City of Sherrill  but appeals  continue
relative to the decision against the Counties of Madison and Oneida.  In January
2005 the United  States  Supreme Court heard the appeal  brought  forward by the
City of Sherrill  against  the  Oneidas  arguing  that the  acquisition  of real
property by the Oneidas  within the land claim area does not return the property
to sovereign status.  Therefore, the City of Sherrill contends that the property
is subject to the payment of real property  taxes or reverts to the ownership of
the taxing authority if assessed  property taxes are not paid. The United States
Supreme Court is expected to file their decision on this case by June 2005.

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

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

      No matters  were  submitted  during  the fourth  quarter of the year ended
December 31, 2004 to a vote of securityholders.


                                       37
<PAGE>

                                     PART II

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

      For information  concerning the market for the Company's common stock, the
section  captioned  "Stockholder  Information" in the Company's Annual Report to
Stockholders  for the Year  Ended  December  31,  2004  (the  "Annual  Report to
Stockholders") is incorporated herein by reference.

      During the fourth  quarter of 2004 the  Company  did not  repurchased  any
shares of its common stock.

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

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

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

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

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

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

      Interest  Rate  Risk.  In recent  years,  the Bank has used the  following
strategies to manage  interest rate risk: (i)  emphasizing  the  origination and
retention of residential monthly and bi-weekly  adjustable-rate  mortgage loans,
commercial  adjustable-rate  mortgage  loans,  other business  purpose loans and
consumer loans consisting  primarily of auto loans;  (ii) selling  substantially
all newly  originated  longer-term  fixed-rate  one- to four-family  residential
mortgage  loans into the secondary  market  without  recourse and on a servicing
retained basis; and (iii) managing the Bank's investment activities in a prudent
manner in the  context  of overall  balance  sheet  asset/liability  management.
Investing  in  shorter-term  securities  will  generally  bear  lower  yields as
compared  to  longer-term  investments,  but will better  position  the Bank for
increases in market  interest  rates and better  matches the  maturities  of the
Bank's  certificate of deposit accounts.  Certificates of deposit that mature in
one year or less, at December 31, 2004 totaled $72.1 million,  or 22.8% of total
interest-bearing  liabilities.  The  wholesale  arbitrage  strategy of investing
allows  the Bank to  invest in  longer-term  assets by  hedging  the  additional
interest  rate  risk  with   liabilities   of  similar   maturity  or  repricing
characteristics. Borrowed funds that mature in one year or less, at December 31,
2004 totaled  $13.5  million,  or 4.27% of total  interest-bearing  liabilities.
Management  believes  that this balanced  approach to investing  will reduce the
exposure to interest rate fluctuations will enhance long-term profitability.


                                       38
<PAGE>

      Net  Income  and  Portfolio  Value  Analysis.  The  Bank's  interest  rate
sensitivity is monitored by management through the use of a net income model and
a net portfolio value ("NPV") model which  generates  estimates of the change in
the Bank's net income and NPV over a range of interest  rate  scenarios.  NPV is
the present value of expected cash flows from assets and liabilities.  The model
assumes estimated loan prepayment rates;  reinvestment rates. The following sets
forth the Bank's net income and NPV as of December 31, 2004.

<TABLE>
<CAPTION>
       Change in                Net Interest Income                 Net Portfolio Value
    Interest Rates        ---------------------------------------------------------------------
    In Basis Points        Dollar     Dollar     Percent       Dollar      Dollar     Percent
     (Rate Shock)          Amount     Change      Change       Amount      Change      Change
     ------------         ---------------------------------------------------------------------
                                                (Dollars in thousands)
<S>                       <C>        <C>            <C>       <C>        <C>            <C>
         +300             $13,920    $   (16)       (0.1)%    $54,317    $(13,941)      (20.4)%
         +200             $13,958    $    23         0.2%     $59,825    $ (8,433)      (12.4)%
         +100             $13,962    $    26         0.2%     $64,293    $ (3,965)       (5.8)%
        Static            $13,936    $    --          --%     $    --    $     --          --%
         -100             $13,871    $   (64)       (0.5)%    $70,294    $  2,037         3.0%
         -200             $13,708    $  (227)       (1.6)%    $70,588    $  2,330         3.4%
         -300             $13,429    $  (507)       (3.6)%    $69,544    $  1,287         1.9%
</TABLE>

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

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

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

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

      On  August  26,  2003,  the  Company's  Audit  Committee  of the  Board of
Directors  approved  a change in  auditors.  The Audit  Committee  approved  the
engagement of Crowe Chizek and Company LLC to serve as the Company's independent
public accountants, effective immediately.

      PwC performed audits of the consolidated  financial statements for the one
year ended December 31, 2002. Their report did not contain an adverse opinion or
a disclaimer  of opinion and was not  qualified  or modified as to  uncertainty,
audit scope, or accounting principles.

      During the year ended December 31, 2002 and from December 31, 2002 through
the effective date of the PwC termination,  there were no disagreements  between
the  Company  and  PwC on any  matter  of  accounting  principles  or  practice,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreements, if not resolved to the satisfaction of PwC, would have caused PwC
to make reference to the subject matter of such disagreements in connection with
its reports on the financial statements for such years.


                                       39
<PAGE>

      During the year ended  December 31, 2002, and from December 31, 2002 until
the  effective  date of the  dismissal of PwC, PwC did not advise the Company of
any of the following matters:

1.    That the internal  controls  necessary for the Company to develop reliable
      financial statements did not exist;

2.    That information had come to PwC's attention that had lead it to no longer
      be able  to rely on  management's  representations,  or that  had  made it
      unwilling  to be  associated  with the  financial  statements  prepared by
      management;

3.    That  there was a need to expand  significantly  the scope of the audit of
      the  Company,  or that  information  had come to PwC's  attention  that if
      further   investigated:   (i)  may  materially   impact  the  fairness  or
      reliability  of either a  previously-issued  audit  report  or  underlying
      financial  statements,  or the financial statements issued or to be issued
      covering  the fiscal  periods  subsequent  to the date of the most  recent
      financial statement covered by an audit report (including information that
      may  prevent  it from  rendering  an  unqualified  audit  report  on those
      financial  statements)  or (ii) may  cause it to be  unwilling  to rely on
      management's  representation or be associated with the Company's financial
      statements and that, due to its dismissal, PwC did not so expand the scope
      of its audit or conduct such further investigation;

4.    That  information  had  come to  PwC's  attention  that  it had  concluded
      materially   impacted  the  fairness  of  reliability  of  either:  (i)  a
      previously-issued  audit report or the underlying  financial statements or
      (ii) the financial  statements  issued or to be issued covering the fiscal
      period  subsequent  to the date of the most  recent  financial  statements
      covered by an audit report (including information that, unless resolved to
      the  accountant's  satisfaction,   would  prevent  it  from  rendering  an
      unqualified  report on those  financial  statements),  or that, due to its
      dismissal,  there  were no such  unresolved  issues  as of the date of its
      dismissal.

      The  Company  requested  that PwC  furnish a letter to the SEC  indicating
whether it agreed with the above  statements,  and this letter is filed herewith
as Exhibit 16 to this Annual Report on Form 10-K.

      During the year ended  December  31,  2002,  and from  December  31,  2002
through  the  engagement  of  Crowe  Chizek  and  Company  LLC as the  Company's
independent  accountant,  neither  the  Company  nor  anyone on its  behalf  had
consulted Crowe Chizek and Company LLC with respect to any accounting,  auditing
or financial reporting issues involving the Company. In particular, there was no
discussion with the Company  regarding the application of accounting  principles
to a specified transaction,  the type of audit opinion that might be rendered on
the financial statement, or any related item.

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

      (a) Evaluation of disclosure controls and procedures.

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

      (b) Changes in internal controls.


                                       40
<PAGE>

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

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

      None.

                                    PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
-------------------------------------------------

      Information  concerning  Directors  of  the  Company  is  incorporated  by
reference  from the  Company's  definitive  Proxy  Statement for the 2005 Annual
Meeting of  Stockholders  (the  "Proxy  Statement"),  specifically  the  section
captioned  "Proposal  I--Election  of  Directors."  In  addition,  see  Item  1.
"Executive Officers of the Registrant" for information  concerning the Company's
executive officers.

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

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

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

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

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

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

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

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

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

                                     PART IV

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

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

      (a)(1) Financial Statements


                                       41
<PAGE>

            o     Report of Independent Registered Public Accounting Firm

            o     Consolidated Statements of Condition,  December 31, 2004, 2003
                  and 2002

            o     Consolidated  Statements of Income,  Years Ended  December 31,
                  2004, 2003 and 2002

            o     Consolidated  Statements of Changes in  Stockholders'  Equity,
                  Years Ended December 31, 2004, 2003 and 2002

            o     Consolidated  Statements of Cash Flows,  Years Ended  December
                  31, 2004, 2003 and 2002

            o     Notes to Consolidated Financial Statements.

      (a)(2) Financial Statement Schedules

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

      (a)(3) Exhibits

            3.1   Certificate of Incorporation of Oneida Financial Corp.*

            3.2   Bylaws of Oneida Financial Corp.*

            4     Form of Stock Certificate**

            10.1  Employee Stock Ownership Plan**

            10.2  Stock Option Plan**

            10.3  Recognition and Retention Plan**

            13    Annual Report to Stockholders

            14    Code of Ethics****

            16    Letter regarding change in certifying accountant***

            21    Subsidiaries of the Company

            23.1  Consent of Independent Registered Public Accounting Firm -
                  Crowe Chizek and Company LLC

            23.2a Consent of Independent Registered Public Accounting Firm -
                  PricewaterhouseCoopers LLP

            23.2b Report of Independent Registered Publice Accounting Firm -
                  PricewaterhouseCoopers LLP

                                       42
<PAGE>

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

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

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

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

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

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

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

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

      (c) Not applicable.


                                       43
<PAGE>

                                   SIGNATURES

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

                                       ONEIDA FINANCIAL CORP.


Date: March 29, 2005                   By: /s/ Michael Kallet
                                           -------------------------------------
                                           Michael R. Kallet
                                           President and Chief Executive Officer

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

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

Date: March 29, 2005                               Date: March 29, 2005


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

Date: March 29, 2005                               Date: March 29, 2005


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

Date: March 29, 2005                               Date: March 29, 2005


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

Date: March 29, 2005                               Date: March 29, 2005


By: /s/ William Matthews                           By:  /s/ Michael Milmoe
    -----------------------------------------           -----------------------------------------------
     William D. Matthews, Director                      Michael W. Milmoe, Director

Date: March 29, 2005                               Date: March 29, 2005


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

Date: March 29, 2005                               Date: March 29, 2005


By: /s/ Frank White, Jr.
   ------------------------------------------
     Frank O. White, Jr., Director
Date: March 29, 2005
</TABLE>


</TEXT>
</DOCUMENT>