EXHIBIT 13

2011 ANNUAL REPORT TO STOCKHOLDERS

Oneida Financial Corp.

Consolidated Financial Statements

December 31, 2011 and 2010

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Oneida Financial Corp.

Oneida, New York

We have audited the accompanying consolidated statements of condition of Oneida Financial Corp. as of December 31, 2011 and 2010 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Oneida Financial Corp. as of December 31, 2011 and 2010 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011 in conformity with U.S. generally accepted accounting principles.

/s/ Crowe Horwath LLP

Crowe Horwath LLP

March 22, 2012

Livingston, New Jersey

Oneida Financial Corp.

Consolidated Statements of Condition

December 31, 2011 and 2010

Assets	2011			2010
Cash and due from banks	$	22,910,284		$	15,607,813
Federal funds sold		17,661,389			18,133,603
Total cash and cash equivalents		40,571,673			33,741,416
Trading securities		7,010,349			7,691,331
Securities available-for-sale		197,305,166			227,477,867
Securities held-to-maturity (fair value $49,264,203 and $25,069,752 respectively)		47,198,910			24,143,606
		—			—
Mortgage loans held for sale		688,416			857,181
Loans receivable		287,818,861			286,849,908
Allowance for loan losses		(2,899,525	)		(4,276,449	)
Net loans receivable		284,919,336			282,573,459
Federal Home Loan Bank stock, at cost		2,101,700			2,108,900
Premises and equipment, net		21,379,743			19,902,630
Accrued interest receivable		2,226,551			2,454,753
Bank owned life insurance		16,978,468			16,331,793
Other assets		18,385,587			19,777,031
Goodwill		23,982,454			23,300,621
Other intangible assets		964,226			1,217,941
Total Assets	$	663,712,579		$	661,578,529
Liabilities and Stockholders' Equity
Interest bearing deposits	$	481,505,452		$	486,984,708
Non-interest bearing deposits		69,119,138			65,179,106
Borrowings		11,000,000			12,000,000
Other liabilities		14,126,801			11,494,420
Total liabilities		575,751,391			575,658,234
Commitments and contingent liabilities (Note 14)		—			—
Oneida Financial Corp. Stockholders' equity:
Preferred stock, 10,000,000 shares authorized ; 0 issued and outstanding		—			—
Common stock, $.01 par value, 30,000,000 shares authorized; 6,915,570
issued at December 31, 2011; 7,164,794 shares issued at December 31, 2010		69,156			71,648
Additional paid-in capital		43,396,150			45,636,501
Retained earnings		47,210,558			44,816,499
Accumulated other comprehensive loss		(2,122,238	)		(6,198,239	)
Treasury stock (at cost, 2,521 shares)		(19,790	)		(19,790	)
Unearned employee stock ownership plan (ESOP) (78,956 and 118,228 shares)		(631,648	)		(945,824	)
Total Oneida Financial Corp. stockholders' equity - controlling interest		87,902,188			83,360,795
Noncontrolling interest		59,000			2,559,500
Total stockholders' equity		87,961,188			85,920,295
Total Liabilities and Stockholders' Equity	$	663,712,579		$	661,578,529

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

2

Oneida Financial Corp.

Consolidated Statements of Income

Years Ended December 31, 2011, 2010 and 2009

	2011			2010			2009
Interest and dividend income:
Interest and fees on loans	$	15,588,323		$	16,791,404		$	17,761,357
Interest and dividends on investment securities:
U. S. Government and agency obligations		1,849,419			1,927,182			1,068,409
Corporate debt and equity obligations		868,829			795,810			1,333,524
Mortgage-backed securities		3,064,709			2,628,810			3,481,521
Tax exempt securities		1,792,354			1,304,501			988,844
Other		598,158			293,257			330,233
Interest on federal funds sold
and interest-earning deposits		21,140			39,007			37,324
Total interest and dividend income		23,782,932			23,779,971			25,001,212
Interest expense:
Savings deposits		358,232			507,841			488,033
Money market and interest-bearing checking		1,076,740			1,571,647			1,654,830
Time deposits		2,077,158			2,606,188			3,734,008
Short-term borrowings		30,108			465,650			245,156
Long-term borrowings		480,975			530,020			1,451,765
Total interest expense		4,023,213			5,681,346			7,573,792
Net interest income		19,759,719			18,098,625			17,427,420
Provision for loan losses		1,050,000			1,650,000			760,000
Net interest income after
provision for loan losses		18,709,719			16,448,625			16,667,420
Other-than-temporary impairment loss
Total impairment loss		(382,172	)		(2,822,283	)		(2,908,143)
Loss recognized in other comprehensive income		14,748			399,172			613,302
Net impairment loss recognized in earnings		(367,424	)		(2,423,111	)		(2,294,841	)
Net gains on sales of securities		425,730			1,522,260			787,842
Changes in fair value of trading securities		198,632			103,280			1,725,032
Non-interest income		24,654,329			22,888,310			20,884,330
Non-interest expenses		35,746,767			33,607,038			32,189,556
Income before income taxes		7,874,219			4,932,326			5,580,227
Provision for income taxes		1,953,000			914,200			1,210,920
Net Income		5,921,219			4,018,126			4,369,307
Less: net income attributable to noncontrolling interest		191,938			257,438			255,950
Net Income attributable to Oneida Financial Corp.	$	5,729,281		$	3,760,688		$	4,113,357
Earnings per share - basic	$	0.82		$	0.53		$	0.58
Earnings per share - diluted	$	0.82		$	0.53		$	0.58

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

3

Oneida Financial Corp.

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2011, 2010 and 2009

																						Unearned			Total Equity
																Accumulated						Employee			Attributable
							Additional									Other						Stock			To Oneida
	Common Stock						Paid-In			Retained			Comprehensive			Comprehensive			Treasury			Ownership			Financial			Noncontrolling
	Shares			Amount			Capital			Earnings			Income			Income(Loss)			Stock			Plan			Corp.			Interest			Total
Balance at December 31, 2008		8,322,452		$	83,225		$	19,221,421		$	41,584,629			—		$	(5,562,481	)	$	(3,057,552	)	$	—		$	52,269,242		$	2,560,000		$	54,829,242
Net income											4,113,357		$	4,113,357												4,113,357			255,950			4,369,307
Distributions to non-controlling interest																										—			(255,950	)		(255,950	)
Other comprehensive loss, net of tax
Unrealized gains on securities arising
during period														514,308
Reclassification adjustment for losses included
in net income														1,506,999
Net unrealized holding losses														2,021,307
Change in unrealized loss on pension benefits														648,051
Other comprehensive income before tax														2,669,358
Income tax benefit														1,067,743
Other comprehensive income, net of tax														1,601,615			1,601,615									1,601,615						1,601,615
Comprehensive income													$	5,714,972
Shares earned under stock plans								258,830																		258,830						258,830
Tax benefit from stock plans								3,608																		3,608						3,608
Common stock cash dividends: $.23 per share											(1,673,714	)														(1,673,714	)					(1,673,714	)
Redemption in noncontrolling interest																										—			(1,000	)		(1,000	)
Treasury stock purchased																				(379,976	)					(379,976	)					(379,976	)
Treasury stock reissued								(1,903	)											366,114						364,211						364,211
Balance at December 31, 2009		8,322,452		$	83,225		$	19,481,956		$	44,024,272			—		$	(3,960,866	)	$	(3,071,414	)	$	—		$	56,557,173		$	2,559,000		$	59,116,173
Net income											3,760,688		$	3,760,688												3,760,688			257,438			4,018,126
Distributions to non-controlling interest																										—			(257,438	)		(257,438	)
Other comprehensive loss, net of tax
Unrealized losses on securities arising
during period														(4,724,655	)
Reclassification adjustment for losses included
in net income														900,851
Net unrealized holding losses														(3,823,804	)
Change in unrealized loss on pension benefits														94,848
Other comprehensive loss before tax														(3,728,956	)
Income tax benefit														1,491,583
Other comprehensive loss, net of tax														(2,237,373	)		(2,237,373	)								(2,237,373	)					(2,237,373	)
Comprehensive income													$	1,523,315
Shares earned under stock plans								185,598																		185,598						185,598
Tax benefit from stock plans								9,165																		9,165						9,165
Common stock cash dividends: $.42 per share											(2,968,461	)														(2,968,461	)					(2,968,461	)
Increase in noncontrolling interest																										—			500			500
Treasury stock purchased																				(155,877	)					(155,877	)					(155,877	)
Treasury stock reissued								(888	)											170,923						170,035						170,035
Proceeds of common stock offering and																																—
conversion of existing shares, net of expenses		(688,001	)		(6,880	)		29,003,988															(1,260,000	)		27,737,108						27,737,108
Retirement of 469,657 treasury stock		(469,657	)		(4,697	)		(3,031,881	)											3,036,578						—						—
Allocation of ESOP shares								(11,437	)														314,176			302,739						302,739
Balance at December 31, 2010		7,164,794		$	71,648		$	45,636,501		$	44,816,499			—		$	(6,198,239	)	$	(19,790	)	$	(945,824	)	$	83,360,795		$	2,559,500		$	85,920,295

(Continued)

4

Oneida Financial Corp.

Consolidated Statements of Stockholders’ Equity (Continued)

Years Ended December 31, 2011, 2010 and 2009

																						Unearned			Total Equity
																Accumulated						Employee			Attributable
							Additional									Other						Stock			To Oneida
	Common Stock						Paid-In			Retained			Comprehensive			Comprehensive			Treasury			Ownership			Financial			Noncontrolling
	Shares			Amount			Capital			Earnings			Income (Loss)			Income(Loss)			Stock			Plan			Corp.			Interest			Total
Balance at December 31, 2010 (continued)		7,164,794		$	71,648		$	45,636,501		$	44,816,499					$	(6,198,239	)	$	(19,790	)	$	(945,824	)	$	83,360,795		$	2,559,500		$	85,920,295
Net income											5,729,281		$	5,729,281												5,729,281			191,938			5,921,219
Distributions to non-controlling interest																										—			(191,938	)		(191,938	)
Other comprehensive income, net of tax
Unrealized gains on securities arising
during period														7,381,962
Reclassification adjustment for gains included
in net income														(58,306	)
Net unrealized holding gains														7,323,656
Change in unrealized loss on pension benefits														(530,322	)
Other comprehensive income before tax														6,793,334
Income tax expense														(2,717,333	)
Other comprehensive income, net of tax														4,076,001			4,076,001									4,076,001						4,076,001
Comprehensive income													$	9,805,282
Tax benefit from stock plans								(4,424	)																	(4,424	)					(4,424	)
Common stock cash dividends: $.48 per share											(3,335,222	)														(3,335,222	)					(3,335,222	)
Redemption of noncontrolling interest																													(2,500,500	)		(2,500,500	)
Stock repurchased and retired		(249,224	)		(2,492	)		(2,264,793	)																	(2,267,285	)					(2,267,285	)
Allocation of ESOP shares								28,866															314,176			343,042						343,042
Balance at December 31, 2011		6,915,570		$	69,156		$	43,396,150		$	47,210,558			—		$	(2,122,238	)	$	(19,790	)	$	(631,648	)	$	87,902,188		$	59,000		$	87,961,188

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

5

Oneida Financial Corp.

Consolidated Statements of Cash Flows

Years Ended December 31, 2011, 2010 and 2009

	2011			2010			2009
Operating activities:
Net income	$	5,921,219		$	4,018,126		$	4,369,307
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		1,782,859			1,981,965			2,078,087
Amortization of premiums and
(accretion of discounts) on securities, net		849,024			492,598			242,344
Net change in fair value of trading securities		(198,632	)		(103,280	)		(1,725,032	)
Provision for loan losses		1,050,000			1,650,000			760,000
Provision for deferred income taxes		453,435			(1,494,208	)		349,184
Gain on sale of premises and equipment		—			(62,870	)		—
Gain on sale of securities, net		(425,730	)		(1,522,260	)		(787,842	)
Loss on impairment of securities		367,424			2,423,111			2,294,841
ESOP shares earned		343,042			302,739			—
Stock compensation earned		—			185,598			258,830
Loss on sale of foreclosed assets		135,668			122,986			61,762
Gain on sale of loans		(487,628	)		(651,656	)		(343,622	)
Income taxes payable		(300,044	)		647,448			41,663
Accrued interest receivable		228,202			14,224			190,097
Other assets		(1,493,384	)		1,114,080			(3,876,969	)
Other liabilities		1,770,247			(314,180	)		4,896,373
Earnings on bank owned life insurance, net		(646,675	)		(601,684	)		(692,217	)
Origination of loans held for sale		(25,296,779	)		(36,846,898	)		(55,882,280	)
Proceeds from sale of loans		25,953,172			37,328,797			56,279,208
Proceeds from sale of trading securities		845,000			—			—
Net cash provided by operating activities		10,850,420			8,684,636			8,513,734
Investing activities:
Purchase of securities available for sale		(86,022,264	)		(244,076,005	)		(54,791,609	)
Proceeds from sales of securities available for sale		52,262,277			45,899,020			31,953,561
Maturities and calls of securities available for sale		54,875,009			60,670,003			20,813,063
Principal collected on securities available for sale		15,817,814			19,552,701			22,614,146
Purchase of securities held to maturity		(35,024,792	)		—			(50,040,459	)
Maturities and calls of securities held to maturity		6,998,432			19,060,975			1,000,000
Principal collected on securities held to maturity		4,778,473			4,318,540			1,300,916
Purchase of FHLB stock		(538,400	)		(476,600	)		(600,200	)
Redemption of FHLB Stock		545,600			1,032,500			1,119,400
Net (increase) decrease in loans		(3,934,486	)		10,065,786			5,404,815
Purchase of bank premises and equipment		(2,869,266	)		(1,274,858	)		(1,092,767	)
Proceeds from sale of bank premises and equipment		—			1,139,639			—
Proceeds from sale of foreclosed assets		412,621			540,549			373,120
Purchase of employee benefits company		(95,388	)		(117,520	)		(135,417	)
Purchase of insurance agency		(361,718	)		—			(84,245	)
Net cash provided by (used in) investing activities		6,843,912			(83,665,270	)		(22,165,676	)

(Continued)

6

Oneida Financial Corp.

Consolidated Statements of Cash Flows (Continued)

Years Ended December 31, 2011, 2010 and 2009

	2011			2010			2009
Financing activities:
Net increase in demand deposits,
savings, money market, interest-bearing checking and
mortgagor's escrow accounts	$	10,327,053		$	67,507,687		$	62,587,639
Net (decrease) increase in time deposits		(11,866,277	)		(4,708,280	)		1,078,671
Proceeds from borrowings		—			110,000			2,975,000
Repayment of borrowings		(1,000,000	)		(19,110,000	)		(24,800,000	)
Cash dividends		(3,365,128	)		(2,108,687	)		(1,673,714	)
Increase in noncontrolling interest		—			500			—
Redemption of noncontrolling interest		(2,500,500	)		—			(1,000	)
Dividends on preferred stock of subsidiary held by noncontrolling interest		(191,938	)		(257,438	)		(255,950	)
Repurchase of common shares		(2,267,285	)		—			—
Exercise of stock options (using treasury stock)		—			170,035			364,211
Purchase of treasury stock		—			(155,877	)		(379,976	)
Net proceeds of stock offering and conversion		—			27,737,108			—
Net cash (used in) provided by financing activities		(10,864,075	)		69,185,048			39,894,881
Increase (decrease) in cash and cash equivalents		6,830,257			(5,795,586	)		26,242,939
Cash and cash equivalents at beginning of year		33,741,416			39,537,002			13,294,063
Cash and Cash Equivalents at End of Year	$	40,571,673		$	33,741,416		$	39,537,002
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and obligations	$	4,041,821		$	5,745,286		$	7,753,508
Income taxes		1,715,025			1,810,015			875,285
Non-cash investing activities:
Transfer of loans to foreclosed assets		538,609			862,751			434,882
Non-cash financing activities:
Dividends declared and unpaid		829,868			859,774			—
Notes payable issued in connection with acquisition		361,718			—			—

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

7

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Nature of Operations

The consolidated financial statements include Oneida Financial Corp. (the "Company") and its wholly-owned subsidiary, Oneida Savings Bank (the “Bank”). Inter-company transactions and balances are eliminated in consolidation. Oneida Financial Corp. is a Maryland corporation. On July 7, 2010, Oneida Financial Corp. completed its conversion from the mutual holding company structure and the related public offering and is now a stock holding company that is fully owned by the public.  As a result of the conversion, the mutual holding company and former mid-tier holding company were merged into Oneida Financial Corp.  The Oneida Savings Bank (“Oneida Savings Bank”) is 100% owned by the Company and the Company is 100% owned by public stockholders.  The Company sold a total of 3,937,500 shares of common stock, par value $0.01 per share, in the subscription and community offerings, including 157,500 shares to the Oneida Savings Bank employee stock ownership plan.  All shares were sold at a price of $8.00 per share, raising $31.5 million in gross proceeds.  Conversion related expenses of $2.5 million were offset against the gross proceeds, resulting in $29.0 million of net proceeds.  Concurrent with the completion of the offering, shares of Oneida Financial Corp., a federal corporation, common stock owned by public stockholders were exchanged for 0.9136 shares of the Company’s common stock.  

The Bank is located in Central New York with offices in the City of Oneida and Rome and the Villages of Cazenovia, Hamilton, Canastota, Camden, Chittenango, Bridgeport, Vernon and Westmoreland and owns two banking related subsidiaries; Oneida Preferred Funding Corporation (OPFC) and The State Bank of Chittenango (SBC). The Bank is engaged primarily in accepting deposits and providing various types of loans to the community. The Bank also provides trust and brokerage services. OPFC, a Real Estate Investment Trust, primarily engages in investing activities of residential and commercial real estate mortgages. SBC is a limited purpose commercial bank subsidiary which is permitted to accept municipal deposit accounts from various municipalities, school districts and other public sources; a source of funds not available to the Bank under New York Law. The Bank also owns one insurance and financial services subsidiary; Bailey & Haskell Associates, Inc. (B&H) which has six central New York offices. The Bank also owns an employee benefits consulting and retirement plan administration firm, Benefit Consulting Group Inc. (BCG) which has an office in central New York. Workplace Health Solutions was established in January 2008 as a risk management company with services to help mitigate and prevent work related injuries. This subsidiary was developed to complement the products and services offered by our other subsidiaries with an overall philosophy of innovative risk management services.

Subsequent Events

The Company reviews subsequent events for recognition and disclosure.

Use of Estimates

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

8

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies (Continued)

Cash and Cash Equivalents

Cash and cash equivalents include cash, deposits with other financial institutions with original maturities fewer than 90 days and federal funds sold. Net cash flows are reported for customer loan and deposit transactions.

Trading Assets

Securities in which the fair value option has been elected are considered trading assets and are recorded at fair value with changes in fair value included in earnings. The fair value option has been elected for common and preferred equity securities as they do not have stated maturity values and the fair value fluctuates with market changes. Interest and dividends are included in net interest income based on the contractual amount of interest income. Cash flows from the purchase and sale of securities for which the fair value option has been elected are shown as operating activities within the consolidated statement of cash flows.

Investment Securities (including Mortgage-Backed Securities)

Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale when they might be sold before maturity. Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Loans Held for Sale

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

9

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies (Continued)

Loans Held for Sale (Continued)

Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Loans

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

Interest income on loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified as impaired loans. A loan is moved to non-accrual status in accordance with the Company’s policy, typically after 90 days of non-payment.

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

Concentration of Credit Risk

Most of the Company’s business activity is with customers located throughout Madison and Oneida Counties. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in those counties.

Allowance for Loan Losses

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

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

A loan is considered impaired, based on current information and events, if it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which

10

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or the fair value of collateral if repayment is expected solely from collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loans effective rate at inception. If a troubled debt restructuring is considered to be collateral dependent loan, the loan is reported, net at the fair value of the collateral. For the troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent 3 years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability and depth of the lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: commercial real estate loans, commercial loans, consumer loans, home equity loans and residential mortgages.

Loans secured by commercial real estate and multi-family residential properties generally are larger than one-to-four family residential loans and involve a greater degree of risk. Commercial and multi-family residential 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 management to monitor and evaluate.

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

11

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

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.

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 we offer to meet the financial services needs of our customers. Consumer loans generally involve greater credit risk than residential mortgage loans because of the difference in the underlying collateral. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the 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.

Home equity loans are secured by a borrower’s primary residence. Home equity loans are underwritten under the same criteria that we use to underwrite one-to-four family fixed-rate loans. Home equity loans may be underwritten with a loan to value ratio of 90% when combined with the principal balance of an existing mortgage loan. Home equity loans generally involve greater credit risk than the primary residential mortgage loans due to the potential of declines in collateral values, collectability as a result of foreclosure processes if the Bank is considered to be in a secondary position as well as the amount of expenses incurred during the process.

Residential real estate loans have as collateral a borrower’s primary residence. The risk of loss on these loans would be due to collateral deficiencies due to market deterioration or location and condition of the property. The foreclosure process of a primary residence is usually the final course of action on these types of loans. Given our underwriting criteria and the volume and balance of the loans as compared to collateral, the risk in this portfolio segment is less than that of the other segments.

Mortgage Servicing Rights

When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in servicing fee income. Fair value is based on market prices for comparable mortgage servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as

12

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies (Continued)

Mortgage Servicing Rights (Continued)

the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amounts. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase in income. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income which is reported on the income statement as other non-interest income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of theoutstanding principal; or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $431,033, $511,678 and $641,358 for the years ended December 31, 2011, 2010 and 2009.

Foreclosed Assets

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

Premises and Equipment

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

Federal Home Loan Bank (FHLB) Stock

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

Bank Owned Life Insurance

The Company has purchased life insurance policies on certain key officers. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

13

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies (Continued)

Goodwill and Other Intangible Assets

Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests of the acquiree. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. The Company has selected December 31 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

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

Long Term Assets

Premises and equipment, core deposit and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Loan Commitments

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

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Income Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax

14

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies (Continued)

Income Taxes (Continued)

examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

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

All companies included in the consolidated financial statements operate under tax sharing agreements and are allocated income taxes based on their operating income and applicable effective income tax rate. All amounts due to or from are settled annually.

Insurance

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

Trust Department Assets

Assets held in fiduciary or agency capacities for customers are not included in the accompanying consolidated statements of condition, since such items are not assets of the Company. Fees associated with providing trust management services are recorded as earned, and are included in Non-Interest Income. At December 31, 2011, the Bank maintained 518 trust/fiduciary accounts, with total assets of $110.8 million under management as compared to 539 trust/fiduciary accounts with $114.2 million of total assets at December 31, 2010.

Employee Benefits

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

Employee Stock Ownership Plan

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

Earnings per Share

Basic earnings per common share is net income available to common shareholders divided by the weighted average number of common shares outstanding during the period, excluding outstanding participating securities. ESOP shares are considered outstanding for the calculation unless unearned. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Company has determined that its previously outstanding non-vested stock awards are participating securities. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options and awards using the treasury stock method. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

15

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies (Continued)

Other Comprehensive Income (Loss)

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

Loss Contingencies

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

Restrictions on Cash

The Bank is required to maintain a reserve balance, as established by the Federal Reserve Bank of New York. The required average total reserve for the 14-day maintenance period for December 31, 2011 and 2010 was $850,000, which was represented by cash on hand or on deposit with the Federal Reserve Bank. Balances with the Federal Reserve Bank earn nominal interest.

Equity

Common stock has $0.01 par and 30,000,000 shares authorized. In addition, ten million shares of serial preferred stock were authorized. There is no serial preferred stock outstanding as of December 31, 2011.

Dividend Restrictions

Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the holding company or by the holding company to shareholders.

Treasury Stock

Prior to the stock offering common stock that was purchased was classified as treasury stock and recorded at cost. The shares reissued during 2010 were issued upon the exercise of stock options at average cost. Effective with the stock offering and conversion, the Company became a Maryland Corporation which does not recognize treasury shares but considers common stock repurchases to result in the retirement of stock. The shares repurchased in 2011 were considered retired.

Fair Value of Financial Instruments

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

Segments

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

16

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies (Continued)

Reclassification

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

Adoption of New Accounting Standards

In December 2010, the FASB amended existing guidance related to goodwill impairment testing. This guidance requires that if the carrying amount of a reporting unit is zero or negative, a qualitative assessment be performed to determine if it is more likely than not that goodwill is impaired. Step 2 of the impairment test shall be performed if it is determined that it is more likely than not that goodwill is impaired. The amendments in this guidance were effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The effect of adopting this standard did not have a material effect on the Company’s operating results or financial condition.

In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. With regard to determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the effective interest method to determine whether a concession has been granted. In absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtor’s ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This guidance was effective for interim and annual reporting periods beginning after June 15, 2011, and was applied retrospectively to the beginning of the annual period of adoption. For purpose of measuring impairment on newly identified troubled debt restructuring, the amendments were applied prospectively for the first interim or annual period beginning on or after June 15, 2011. The adoption of this guidance did not have a material effect on the Company’s operating results or financial condition.

In May 2011, the FASB issued an amendment to achieve common fair value measurements and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The Company is currently evaluating the impact of this amendment on the consolidated financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year and interim periods within that year that begins after December 15, 2011. The adoption of this amendment will change the presentation of the components of comprehensive income for the Company as part of the consolidated statement of stockholders’ equity.

17

Oneida Financial Corp.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies (Continued)

Adoption of New Accounting Standards (Continued)

In September 2011, the FASB amended existing guidance related to goodwill impairment testing. The amendment permits an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing these events and circumstances, it is concluded that it is not more likely than not that the fair value of a reporting unit is less that its carrying amount, then performing the two-step impairment test is unnecessary. The amendments in this guidance are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011 if financial statements for the most recent annual or interim period have not been issued. The adoption of this guidance is not expected to have a material effect on the Company’s operating results or financial condition.

2. Investment Securities and Mortgage-Backed Securities

The following table summarizes the amortized cost and fair value of the securities available-for-sale and securities held-to-maturity at December 31, 2011 and 2010 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses:

			2011
	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
Available-for-sale
Investment Securities
Debt securities:
U. S. Agencies	$	30,422,316	$	172,868	$	(17,206	)	$	30,577,978
Corporate		38,924,984		395,037		(2,240,060	)		37,079,961
Trust preferred securities		6,266,366		—		(2,651,506	)		3,614,860
State and municipals		45,524,498		2,509,938		—			48,034,436
Small Business Administration		9,994,830		159,986		(4,224	)		10,150,592
	$	131,132,994	$	3,237,829	$	(4,912,996	)	$	129,457,827
Residential Mortgage-Backed Securities
Fannie Mae	$	34,618,961	$	818,913	$	—		$	35,437,874
Freddie Mac		7,160,805		222,023		—			7,382,828
Government National Mortgage Assoc		22,124,507		893,393		—			23,017,900
Collateralized Mortgage Obligations		2,079,149		18,658		(89,070	)		2,008,737
	$	65,983,422	$	1,952,987	$	(89,070	)	$	67,847,339
Total available-for-sale	$	197,116,416	$	5,190,816	$	(5,002,066	)	$	197,305,166

18

Oneida Financial Corp.

Notes to Consolidated Financial Statements

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

			2011
	Amortized		Gross Unrecognized				Fair
	Cost		Gains		Losses		Value
Held-to-maturity
Investment Securities
Debt securities:
U. S. Agencies	$	13,626,745	$	192,658	$	—	$	13,819,403
State and municipals		8,161,012		1,102,047		—		9,263,059
Small Business Administration		503,493		5,563		—		509,056
	$	22,291,250	$	1,300,268	$	—	$	23,591,518
Residential Mortgage-Backed Securities
Fannie Mae	$	14,131,508	$	450,044	$	—	$	14,581,552
Freddie Mac		4,630,790		111,961		—		4,742,751
Government National Mortgage Assoc		6,145,362		203,020		—		6,348,382
	$	24,907,660	$	765,025	$	—	$	25,672,685
Total held-to-maturity	$	47,198,910	$	2,065,293	$	—	$	49,264,203

			2010
	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
Available-for-sale
Investment Securities
Debt securities:
U. S. Agencies	$	70,214,246	$	136,289	$	(1,205,122	)	$	69,145,413
Corporate		25,139,215		156,973		(1,042,765	)		24,253,423
Trust preferred securities		6,857,958		—		(3,455,057	)		3,402,901
State and municipals		50,249,041		529,172		(1,707,993	)		49,070,220
Small Business Administration		3,027,241		—		(91,247	)		2,935,994
	$	155,487,701	$	822,434	$	(7,502,184	)	$	148,807,951
Residential Mortgage-Backed Securities
Fannie Mae	$	38,331,436	$	287,881	$	(511,260	)	$	38,108,057
Freddie Mac		14,928,162		172,655		(150,777	)		14,950,040
Government National Mortgage Assoc		22,164,654		276,955		(307,353	)		22,134,256
Collateralized Mortgage Obligations		3,700,819		8,548		(231,804	)		3,477,563
	$	79,125,071	$	746,039	$	(1,201,194	)	$	78,669,916
Total available-for-sale	$	234,612,772	$	1,568,473	$	(8,703,378	)	$	227,477,867

19

Oneida Financial Corp.

Notes to Consolidated Financial Statements

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

			2010
	Amortized		Gross Unrecognized					Fair
	Cost		Gains		Losses			Value
Held-to-maturity
Investment Securities
Debt securities:
U. S. Agencies	$	3,998,308	$	139,892	$	—		$	4,138,200
State and municipals		8,270,081		483,578		—			8,753,659
Small Business Administration		663,269		—		(123	)		663,146
	$	12,931,658	$	623,470	$	(123	)	$	13,555,005
Residential Mortgage-Backed Securities
Fannie Mae	$	5,566,395	$	177,188	$	—		$	5,743,583
Freddie Mac		1,306,248		27,028		—			1,333,276
Government National Mortgage Assoc		4,339,305		98,583		—			4,437,888
	$	11,211,948	$	302,799	$	—		$	11,514,747
Total held-to-maturity	$	24,143,606	$	926,269	$	(123	)	$	25,069,752

The amortized cost and fair value of the investment securities portfolio are shown by expected maturities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	December 31, 2011
	Amortized		Fair
	Cost		Value
Available-for-sale
Within one year	$	10,497,991	$	10,532,351
After one year through five years		20,020,218		19,800,652
After five years through ten years		46,310,897		47,653,082
After ten years		54,303,888		51,471,742
Total	$	131,132,994	$	129,457,827
Held-to-maturity
Within one year	$	1,006,100	$	1,019,813
After one year through five years		3,096,000		3,255,878
After five years through ten years		10,584,433		11,269,383
After ten years		7,604,717		8,046,444
Total	$	22,291,250	$	23,591,518

	December 31, 2010
	Amortized		Fair
	Cost		Value
Available-for-sale
Within one year	$	5,331,027	$	5,358,875
After one year through five years		29,887,473		30,017,692
After five years through ten years		60,417,550		59,944,455
After ten years		59,851,651		53,486,929
Total	$	155,487,701	$	148,807,951
Held-to-maturity
Within one year	$	6,952	$	6,952
After one year through five years		4,128,000		4,339,349
After five years through ten years		6,421,863		6,531,626
After ten years		2,374,843		2,677,078
Total	$	12,931,658	$	13,555,005

20

Oneida Financial Corp.

Notes to Consolidated Financial Statements

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

Sales of available-for-sale securities were as follows:

	2011		2010		2009
Proceeds	$	52,262,277	$	45,899,020	$	31,953,561
Gross Gains	$	782,710	$	1,549,848	$	790,839
Gross Losses	$	356,980	$	27,588	$	2,997

The tax provision related to these net realized gains and losses was $164,715, $588,962 and $304,816 respectively.

Investment securities with a carrying value of $146,721,272 and $137,966,898 at December 31, 2011 and 2010 respectively were pledged to collateralize borrowing arrangements, secure public deposits and for other purposes required or permitted by law. At year-end 2011 and 2010, there were no holdings of securities of any one issuer, other than the U.S. Government, its agencies and government sponsored enterprises, in an amount greater than 10% of stockholders’ equity.

The following table summarizes securities with unrealized losses at December 31, 2011 and 2010 aggregated by major security type and length of time in a continuous unrealized loss position:

December 31, 2011	Less than 12 Months					More than 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
Available-for-Sale
U. S. Agencies	$	3,981,580	$	(17,206	)	$	—	$	—		$	3,981,580	$	(17,206	)
Corporate		16,547,668		(602,490	)		6,352,685		(1,637,570	)		22,900,353		(2,240,060	)
Trust preferreds		—		—			3,614,860		(2,651,506	)		3,614,860		(2,651,506	)
State and municipals		—		—			—		—			—		—
Small Business Administration		1,046,665		(4,204	)		5,104		(20	)		1,051,769		(4,224	)
Fannie Mae		—		—			—		—			—		—
Freddie Mac		—		—			—		—			—		—
Government National Mortgage Assoc		—		—			—		—			—		—
Collateralized Mortgage Obligations		—		—			723,689		(89,070	)		723,689		(89,070	)
Total available-for-sale	$	21,575,913	$	(623,900	)	$	10,696,338	$	(4,378,166	)	$	32,272,251	$	(5,002,066	)

21

Oneida Financial Corp.

Notes to Consolidated Financial Statements

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

December 31, 2010	Less than 12 Months					More than 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
Available-for-Sale
U. S. Agencies	$	50,289,047	$	(1,205,122	)	$	—	$	—		$	50,289,047	$	(1,205,122	)
Corporate		9,033,450		(96,151	)		4,043,200		(946,614	)		13,076,650		(1,042,765	)
Trust preferreds		—		—			3,402,901		(3,455,057	)		3,402,901		(3,455,057	)
State and municipals		32,161,960		(1,707,993	)		—		—			32,161,960		(1,707,993	)
Small Business Administration		2,930,457		(91,225	)		5,537		(22	)		2,935,994		(91,247	)
Fannie Mae		22,785,826		(511,260	)		—		—			22,785,826		(511,260	)
Freddie Mac		10,255,793		(150,777	)		—		—			10,255,793		(150,777	)
Government National Mortgage Assoc		11,530,435		(307,353	)		—		—			11,530,435		(307,353	)
Collateralized Mortgage Obligations		—		—			2,745,753		(231,804	)		2,745,753		(231,804	)
Total available-for-sale	$	138,986,968	$	(4,069,881	)	$	10,197,391	$	(4,633,497	)	$	149,184,359	$	(8,703,378	)
Held-to-Maturity
Small Business Administration	$	—	$	—		$	663,146	$	(123	)	$	663,146	$	(123	)
Total held-to-maturity	$	—	$	—		$	663,146	$	(123	)	$	663,146	$	(123	)

As of December 31, 2011, the Company’s security portfolio consisted of 354 securities, 36 of which were in an unrealized loss position. The majority of the unrealized losses are related to the Company’s agency, non-agency collateralized mortgage obligations, corporate and trust preferred securities as discussed below.

U.S. Agency and Agency Mortgage-Backed Securities

Fannie Mae, Freddie Mac, Ginnie Mae and the Small Business Administration guarantee the contractual cash flows of our agency and mortgage-backed securities. Fannie Mae and Freddie Mac are institutions which the government has affirmed its commitment to support. Our Ginnie Mae mortgage-backed securities are backed by the full faith and credit of the U.S. Government.

At December 31, 2011, of the six U.S. Government sponsored enterprise agency and mortgage-backed securities in an unrealized loss position in our available-for-sale portfolio, only one was in a continuous unrealized loss position for 12 months or more. The unrealized losses at December 31, 2011 were primarily attributable to changes in interest rates and illiquidity, and not credit quality. The Company does not have the intent to sell these agency and mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2011.

Non-Agency Collateralized Mortgage Obligations

All of our non-agency collateralized mortgage obligations carry various amounts of credit enhancement. These securities were purchased based on the underlying loan characteristics such as loan to value ratio, credit scores, property type, location and the level of credit enhancement. Current characteristics of each security are reviewed regularly by management. If the level of credit

22

Oneida Financial Corp.

Notes to Consolidated Financial Statements

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

loss coverage is sufficient; it indicates that we will receive all of the originally scheduled cash flows.

At December 31, 2011, the one non-agency collateralized mortgage obligation in an unrealized loss position was in a continuous unrealized loss position more than 12 months. It was rated Aaa or better at time of purchase. Including the security just disclosed, the Bank currently has two obligations totaling $1.4 million that based on the expected cash flows, delinquencies and credit support the Company has considered impaired and are currently below investment grade. The total impairment recorded during 2011 was $75,334. No impairment was recorded for 2010. The unrealized losses at December 31, 2011 and December 31, 2010 on these two securities were $89,070 and $144,000 respectively. These securities remain available for sale at December 31, 2011.

Corporate Debt Securities

At December 31, 2011, of the 20 corporate debt securities in an unrealized loss position, five were in a continuous unrealized loss position of 12 months or more. We have assessed these securities and determined that the decline in fair value was temporary. In making this determination, we considered the period of time the securities were in a loss position, the percentage decline in comparison with the securities’ amortized cost, the financial condition of the issuer, and the delinquency or default rates based on the applicable bond ratings. In addition, we do not have the intent to sell these securities and it is not more likely than not that we will be required to sell these securities before their anticipated recovery of their cost basis, which may be at maturity. Included in the five securities whose unrealized loss position exceeds 12 months was a $2.5 million Strats-Goldman Sachs Corporation obligation, maturing February 15, 2034 which is a variable rate note based on the 6 month LIBOR. The current rate on the security is 1.77%. The unrealized loss was $1,190,000 and $914,000 at December 31, 2011 and December 31, 2010 respectively. In addition to the items noted above, we reviewed capital ratios, public filings of the issuer and related trust documents in the review of the unrealized loss. Strats-Goldman Sachs Corporation is paying as agreed. The other four securities in a continuous unrealized loss position were finance sector corporate debt securities all rated above investment grade with variable interest rates that have maturities ranging from 2015 to 2020. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2011.

Trust Preferred Securities

The Company currently has $3.6 million invested in nine trust preferred securities as of December 31, 2011 whose unrealized losses have been in a continuous loss position exceeding 12 months or more. All of the trust preferred securities are pooled issuances. Of the $3.6 million, $976,000 has variable rates of interest. $3.6 million of the investments are on nonaccrual as of December 31, 2011. The unrealized losses at December 31, 2011 and December 31, 2010 on the nine securities totaled $2.7 million and $3.5 million respectively.

The following table provides detailed information related to the trust preferred securities held as of December 31, 2011:

23

Oneida Financial Corp.

Notes to Consolidated Financial Statements

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

																		Expected
														Number of		Actual		Additional		Excess
														Banks and		Deferrals and		Deferrals and		Subordination
														Insurance		Defaults		Defaults		Defaults
														Companies		as % of		as % of		as % of
			Book		Fair		Unrealized			Realized		Lowest		Currently		Original		Performing		Performing
Description	Class		Value (2)		Value		Loss			Loss (2) (3)		Rating (1)		Performing		Collateral		Collateral		Collateral
Preferred Term Ltd		Mezz	$	750,563	$	628,342	$	(122,221	)	$	337,591		C		17		38.07%		16.87%		-32.48%
Preferred Term Ltd		Mezz		1,505,862		1,206,417		(299,445	)		683,159		C		17		38.07%		16.87%		-32.48%
Preferred Term Ltd		Mezz		1,003,908		804,278		(199,630	)		455,440		C		17		38.07%		16.87%		-32.48%
Preferred Term X		B-3		813,166		329,978		(483,188	)		1,163,085		C		33		49.98%		14.37%		-80.21%
Preferred Term XV		B-2		634,119		244,530		(389,589	)		365,881		C		51		31.31%		15.24%		-31.94%
Preferred Term XV		B-3		640,993		248,704		(392,289	)		359,007		C		51		31.31%		15.24%		-31.94%
Preferred Term XXVI		C-1		673,435		117,011		(556,424	)		311,757		C		48		28.26%		19.01%		-21.20%
Preferred Term XXVI		D-1		-		-		-			496,788		C		48		28.26%		19.01%		-30.92%
MMCF IX		B-2		244,320		35,600		(208,720	)		710,345		D		17		50.68%		14.24%		-84.73%
			$	6,266,366	$	3,614,860	$	(2,651,506	)	$	4,883,053

(1) The table above presents ratings information as of December 31, 2011.  The securities had "investment grade"

      ratings by Moody's (Baa2 or better) at the time of purchase, but have since been downgraded by the ratings agencies

(2) Book value has been reduced by realized losses to reflect a new amortized cost basis

(3) Represents life to date cumulative loss recognized in the income statement

The structuring of trust preferred securities generally provide for a waterfall approach to absorbing losses whereby lower tranches are initially impacted and more senior tranches are impacted after lower tranches can no longer absorb losses. Likewise, the waterfall approach also applies to principal and interest payments received, as senior tranches have priority over lower tranches in the receipt of payments. In addition, there may be multiple classes within a single tranche that react differently to assumptions utilized in cash flow models due to the different features of the class such as fixed rate, floating rate, or a combination of both. In determining the amount of “currently performing” collateral for purposes of the table above, the total amount of issuers’ balances outstanding have been reduced by the amount in deferral and default. Also, for some of the securities, management has further reduced the total performing balance for the effects of issuers’ subsequent announcements of their intent to defer on the next applicable payment, and for other relevant circumstances through the date of issuance of the financial statements. Management considered all such announcements and circumstances known to us in evaluating the pooled trust preferred securities for OTTI as of December 31, 2011.

In the table above, “Excess Subordination Defaults as % of Performing Collateral” (Excess Subordination Ratio) was calculated as follows: total face value of performing collateral minus face value of all outstanding note balances not subordinate to our investment, divided by total face value of performing collateral. The Excess Subordination Ratio measures the extent to which there may be tranches within each pooled trust preferred structure available to absorb credit losses before the Company’s securities would be adversely impacted. In 2008, 2009 and 2010, the amount of deferrals and defaults on the pools described above rose significantly, which has resulted in

24

Oneida Financial Corp.

Notes to Consolidated Financial Statements

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

substantial reductions in the amounts of performing collateral. As a result, the negative Excess Subordination Ratio percentages shown in the table signify there is no support from subordinate tranches available to absorb losses before the Company’s securities would be adversely impacted. A negative Subordination Ratio is not definitive, in isolation, for determining whether or not OTTI should be recorded for a pooled trust preferred security. Other factors affect the timing and amount of cash flows available for payments to the note holders (investors); including the excess interest paid by the issuers (the issuers typically pay higher rates of interest than are paid out to the note holders).

The Company uses the OTTI evaluation model to compare the present value of expected cash flows to the previous estimates to ensure there are no adverse changes in cash flows during the quarter. The OTTI model considers the structure and term of the trust preferred securities and the financial condition of the underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the models are as follows:

	Significant inputs at December 31, 2011
Annual prepayment	1% annually
Projected severity of loss on current defaults	100%
Projected severity of loss on current deferrals	0% - 80%
Projected severity of loss on specific deferrals	0% - 80%
Projected additional defaults:	0.375% applied annually
Projected severity of loss on additional defaults	60 - 75%
Present value discount rates for OTTI	3.66% - 9.91%
Present value discount rates for fair value	15%

The discount rates range can vary depending on the index the instruments are tied to as well as the spread for each instrument. The Company uses market-based yield indicators as a baseline for determining appropriate discount rates, and then adjusts the resulting discount rates on the basis of its credit and structural analysis of specific trust preferred securities. The Company looks principally to market yields to maturity for investment grade and non investment grade trust preferred securities for which there is an active and liquid market. The next step is to make a series of adjustments to reflect the differences that nevertheless exist between these products (both credit and structural) and, most importantly, to reflect idiosyncratic credit performance differences (both actual and projected) between these products and the underlying collateral in the specific trust preferred securities. In addition, utilization of the individual trust preferred investment’s interest crediting rate and if applicable, margin index, is utilized in calculating the expected cash flows.

Prepayments can occur at the discretion of the issuer on predetermined call increments. The call provision allows the issuer to prepay some or the entire outstanding debt obligation on the fifth year and every fifth year thereafter. Due to the general weakness of the financial sector and the regulatory requirements to maintain and increase the capitalization of U.S. banks, the Company concluded that the issuers were unlikely to prepay their outstanding debt obligation and thereby reducing their individual capital ratios during this continued difficult economic cycle.

25

Oneida Financial Corp.

Notes to Consolidated Financial Statements

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

The Company reviews each issuer individually for projected future deferrals and defaults. The purpose of the individual issuer review is to determine if an individual issuer demonstrates a significant likelihood of potential deferral/default so as to require a further addition to the projected additional default percentages as outlined in the above table. This review includes obtaining quarterly financial information and monitoring news releases and pertinent information relative to those issuers. The Company specifically reviews certain financial ratios including Fitch Score and “Texas Ratio” as well as capital adequacy and participation in the Troubled Asset Relief Program of each issuer. The Company believes the “Texas Ratio (“TR”)” is a prominent indicator of the stress a financial institution is experiencing. The TR is calculated by dividing nonperforming assets and loans, including past due 90 days or more, by the sum of tangible equity and loan loss reserves. Management judgmentally establishes various credit criteria, and combinations of credit criteria and those issuers meeting some combination of such criteria are considered additional deferrals as of the reporting date. Based on the results of this analysis, the Company ensures that actual deferrals/defaults as well as forecasted deferrals/defaults of specific institutions are appropriately factored into the cash flow projections for each security. The default and recovery probabilities for each piece of collateral were formed based on the evaluation of collateral credit and a review of historical default data and current/near term operating conditions. There is no recovery estimated for actual defaulted issuers. Projected deferrals are modeled in a consistent manner with actual deferrals. One of these securities was fully impaired in 2009. Our model indicated additional other-than-temporary impairment on three of these securities, which resulted from management projecting additional defaults or deferrals during the period.

OTTI losses totaled $292,000 during 2011 which was recorded as expense. The other five trust preferred securities had no further other-than-temporary impairment in 2011. These eight securities remain classified as available-for-sale at December 31, 2011. It is possible that the underlying collateral of these securities will perform worse than expectations including an increase in deferrals/defaults above projections, which may lead to adverse changes in cash flows on these securities and potential future OTTI losses. Events that may trigger material declines in fair value for these securities in the future would include, but are not limited to, deterioration of credit metrics, such as significantly higher levels of defaults, and severity of loss on the underlying collateral and further illiquidity.

The table below presents a roll-forward of the credit losses recognized in earnings for years ended December 31:

	2011		2010		2009
Beginning Balance	$	5,739,797	$	3,316,686	$	1,021,845
Amounts related to credit loss for which no other-than temporary impairment		—
was previously recognized		75,334		311,757		2,294,841
Amounts realized for securities sold during the period		—		—		—
Amounts related to securities for which the company intends to sell or that it
will be more likely than not that the company will be required to sell
prior to recovery of amortized cost basis		—		—
Reductions for increases in cash flows expected to be collected that are
recognized over the remaining life of the security		—		—		—
Increases to the amount related to the credit  loss for which
other-than-temporary impairment was previously recognized		292,090		2,111,354		—
Ending Balance	$	6,107,221	$	5,739,797	$	3,316,686

26

Oneida Financial Corp.

Notes to Consolidated Financial Statements

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

Unrealized losses on other investments have not been recognized into income because the issuer(s) securities are of investment grade (except as indicated above), management does not intend to sell and it is more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the bond(s) approach maturity.

3. Loans Receivable

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

	2011			2010
Residential mortgages	$	88,534,353		$	90,033,471
Home equity loans		44,979,503			42,121,588
Consumer loans		34,340,467			35,879,455
Commercial real estate		82,269,122			77,850,512
Commercial loans		37,695,416			40,964,882
		287,818,861			286,849,908
Allowance for loan losses		(2,899,525	)		(4,276,449	)
Net loans	$	284,919,336		$	282,573,459

At December 31, 2011 and 2010 loans to officers and directors were approximately $9.2 million and $8.8 million respectively. During 2011 and 2010, $5.4 million and $3.9 million of new loans were made to officers and directors respectively. Net pay downs and repayments in aggregate on loans to officers and directors were approximately $5.1 million and $2.3 million during 2011 and 2010 respectively. Effect of changes in the composition of related parties was approximately $160,000 and $4,000 during 2011 and 2010 respectively.

At December 31, 2011 and 2010, Federal Home Loan Bank advances are collateralized by residential mortgages in the amount of $63,641,363 and $61,837,055, respectively pledged under a blanket collateral agreement.

The following table represents the activity in the allowance for loan losses by portfolio segment:

	Commercial			Commercial			Consumer			Home			Residential
	Loans			Real Estate			Loans			Equity			Mortgages			Total
December 31, 2011
Balance at beginning of year	$	2,667,827		$	575,780		$	337,339		$	264,625		$	430,878		$	4,276,449
Loans charged off		(2,273,355	)		(79,701	)		(249,428	)		(13,020	)		(26,501	)		(2,642,005	)
Recoveries		55,628			5,134			150,513			3,738			68			215,081
Provision for loan losses		84,895			808,598			87,699			9,170			59,638			1,050,000
Balance at end of year	$	534,995		$	1,309,811		$	326,123		$	264,513		$	464,083		$	2,899,525

	Commercial			Commercial			Consumer			Home			Residential
	Loans			Real Estate			Loans			Equity			Mortgages			Total
December 31, 2010
Balance at beginning of year	$	1,259,155		$	635,184		$	430,560		$	190,991		$	384,697		$	2,900,587
Loans charged off		(57,307	)		—			(249,310	)		(143,020	)		(159,064	)		(608,701	)
Recoveries		135,990			6,609			190,515			1,449			—			334,563
Provision for loan losses		1,329,989			(66,013	)		(34,426	)		215,205			205,245			1,650,000
Balance at end of year	$	2,667,827		$	575,780		$	337,339		$	264,625		$	430,878		$	4,276,449

27

Oneida Financial Corp.

Notes to Consolidated Financial Statements

3. Loans Receivable (Continued)

Activity in the allowance for loan losses was as follows:

	2009
Balance at beginning of year	$	2,624,283
Loans charged off		(693,336	)
Recoveries		209,640
Provision for loan losses		760,000
Balance at end of year	$	2,900,587

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2011 and 2010:

			Commercial		Commercial		Consumer		Home		Residential
December 31, 2011	Total		Loans		Real Estate		Loans		Equity		Mortgages
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	661,098	$	—	$	661,098	$	—	$	—	$	—
Collectively evaluated for impairment		2,238,427		534,995		648,713		326,123		264,513		464,083
Total ending allowance balance	$	2,899,525	$	534,995	$	1,309,811	$	326,123	$	264,513	$	464,083
Loans:
Individually evaluated for impairment	$	836,098	$	—	$	836,098	$	—	$	—	$	—
Collectively evaluated for impairment		286,982,763		37,695,416		81,433,024		34,340,467		44,979,503		88,534,353
Total ending loan balance	$	287,818,861	$	37,695,416	$	82,269,122	$	34,340,467	$	44,979,503	$	88,534,353

			Commercial		Commercial		Consumer		Home		Residential
December 31, 2010	Total		Loans		Real Estate		Loans		Equity		Mortgages
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,141,135	$	2,042,914	$	98,221	$	—	$	—	$	—
Collectively evaluated for impairment		2,135,314		624,913		477,559		337,339		264,625		430,878
Total ending allowance balance	$	4,276,449	$	2,667,827	$	575,780	$	337,339	$	264,625	$	430,878
Loans:
Individually evaluated for impairment	$	3,425,676	$	2,042,914	$	1,382,762	$	—	$	—	$	—
Collectively evaluated for impairment		283,424,232		38,921,968		76,467,750		35,879,455		42,121,588		90,033,471
Total ending loan balance	$	286,849,908	$	40,964,882	$	77,850,512	$	35,879,455	$	42,121,588	$	90,033,471

The following table presents information related to loans individually evaluated for impairment by segment of loans as of December 31, 2011 and 2010:

28

Oneida Financial Corp.

Notes to Consolidated Financial Statements

3. Loans Receivable (Continued)

	December 31, 2011
					Allowance				Cash Basis
	Unpaid				for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income
	Balance		Investment		Allocated		Investment		Recognized
With no related allowance recorded
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial loans	—		—		—		—		—
Consumer loans	—		—		—		—		—
Home equity	—		—		—		—		—
Residential mortgages	—		—		—		—		—
With an allowance recorded:		—		—		—		—		—
Commercial real estate		836,098		836,098		661,098		1,218,246		—
Commercial loans		—		—		—		1,074,271		9
Consumer loans		—		—		—		—		—
Home equity		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Total	$	836,098	$	836,098	$	661,098	$	2,292,517	$	9

	December 31, 2010
					Allowance				Cash Basis
	Unpaid				for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income
	Balance		Investment		Allocated		Investment		Recognized
With no related allowance recorded
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial loans		—		—		—		—		—
Consumer loans		—		—		—		—		—
Home equity		—		—		—		—		—
Residential mortgages		—		—		—		—		—
With an allowance recorded:		—		—		—		—		—
Commercial real estate		1,382,762		1,382,762		98,221		1,382,762		—
Commercial loans		2,042,914		2,042,914		2,042,914		2,144,366		35
Consumer loans		—		—		—		—		—
Home equity		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Total	$	3,425,676	$	3,425,676	$	2,141,135	$	3,527,128	$	35

The following table presents information for impaired loans as of December 31:

	2009
Impaired loans	$	2,158,500
Allocated allowance for loan losses	$	569,978
Average of impaired loans during the year	$	1,060,019
Cash-basis interest income recognized	$	106,862

29

Oneida Financial Corp.

Notes to Consolidated Financial Statements

3. Loans Receivable (Continued)

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class as of December 31, 2011 and December 31, 2010:

	December 31, 2011				December 31, 2010
			Loans Past  Due				Loans Past  Due
			Over 90 days				Over 90 days
			Still				Still
	Nonaccrual		Accruing		Nonaccrual		Accruing
Commercial real estate	$	836,098	$	—	$	1,555,411	$	—
Commercial loans		68,942		—		2,174,444		—
Consumer loans		—		—		—		—
Home equity		150,000		—		—		—
Residential mortgages		381,647		—		247,167		—
Total	$	1,436,687	$	—	$	3,977,022	$	—

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

2011			30 - 59		60 - 89		Greater than
			Days		Days		90 Days		Total		Loans Not
	Total		Past Due		Past Due		Past Due		Past Due		Past Due
Commercial real estate	$	82,269,122	$	—	$	—	$	836,098	$	836,098	$	81,433,024
Commercial loans		37,695,416		35,521		—		—		35,521		37,659,895
Consumer loans		34,340,467		108,739		—		—		108,739		34,231,728
Home equity		44,979,503		—		—		150,000		150,000		44,829,503
Residential mortgages		88,534,353		5,466		332,461		195,535		533,462		88,000,891
Total	$	287,818,861	$	149,726	$	332,461	$	1,181,633	$	1,663,820	$	286,155,041

The following table presents the aging of the recorded investment in past due loans as of December 31, 2010 by class of loans:

2010			30 - 59		60 - 89		Greater than
			Days		Days		90 Days		Total		Loans Not
	Total		Past Due		Past Due		Past Due		Past Due		Past Due
Commercial real estate	$	77,850,512	$	98,915	$	1,521,430	$	90,206	$	1,710,551	$	76,139,961
Commercial loans		40,964,882		10,978		275,022		52,636		338,636		40,626,246
Consumer loans		35,879,455		89,897		—		—		89,897		35,789,558
Home equity		42,121,588		5,411		—		—		5,411		42,116,177
Residential mortgages		90,033,471		—		95,275		247,167		342,442		89,691,029
Total	$	286,849,908	$	205,201	$	1,891,727	$	390,009	$	2,486,937	$	284,362,971

30

Oneida Financial Corp.

Notes to Consolidated Financial Statements

3. Loans Receivable (Continued)

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogenous loans, such as commercial and commercial real estate with an outstanding relationship greater than $250,000. Homogenous loans are reviewed when appropriate given foreclosures, bankruptcies or relationships that include non-homogenous loans. For homogenous loan pools, such as residential mortgages, home equity and consumer loans, the Company uses the payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on at least a monthly basis by the Company’s personnel and on a quarterly basis with respect to determining the adequacy of the allowance for loan losses. This analysis is performed on at least an annual basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncovered, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debts. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $250,000 or are included in groups of homogenous loans. Based on the most recent analysis performed (all loans graded within the past 12 months), the risk category by class of loans is as follows:

	Not				Special
December 31, 2011	Rated		Pass		Mention		Substandard		Doubtful
Commercial real estate	$	13,520,575	$	66,173,233	$	1,037,753	$	670,599	$	866,962
Commercial loans		15,320,492		22,088,715		130,803		58,276		97,130
Total	$	28,841,067	$	88,261,948	$	1,168,556	$	728,875	$	964,092

a	Not				Special
December 31, 2010	Rated		Pass		Mention		Substandard		Doubtful
Commercial real estate	$	17,049,640	$	59,250,451	$	—	$	1,550,421	$	—
Commercial loans		13,097,245		24,858,057		435,870		339,527		2,234,183
Total	$	30,146,885	$	84,108,508	$	435,870	$	1,889,948	$	2,234,183

31

Oneida Financial Corp.

Notes to Consolidated Financial Statements

4. Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company uses the following methods and significant assumptions to estimate the fair value of each type of financial instrument.

Securities: The fair values of trading securities and investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market price of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Trust Preferred Securities which are issued by financial institutions and insurance companies were historically priced using Level 2 inputs. The decline in the level of observable inputs and market activity in this class of investments by the measurement date has been significant and resulted in unreliable external pricing. Broker pricing and bid/ask spreads, when available, vary widely. The once active market has become comparatively inactive. As such, these investments are now priced using Level 3 inputs.

The Company has developed an internal model for pricing these securities. Information such as historical and current performance of the underlying collateral, deferral/default rates, collateral coverage ratios, break in yield calculations, cash flow projections, liquidity and credit premiums required by a market participant, and financial trend analysis with respect to the individual issuing financial institutions and insurance companies, are utilized in determining individual security valuations. Due to current market conditions as well as the limited trading activity of these securities, the market value of the securities is highly sensitive to assumption changes and market volatility.

Non-rated local municipal securities which are Bond Anticipation Notes or other bonds were historically priced using level 2 inputs. The market activity for these types of instruments is localized within our own market. We are considering these to be more level 3 pricing due to the lack of certain brokers providing quotes on this type of security. The Company does obtain broker quotes as available and reviews past history of the contractual payments and financial condition of the municipalities in determining an appropriate market value for this type of security.

32

Oneida Financial Corp.

Notes to Consolidated Financial Statements

4. Fair Value (Continued)

Common and preferred equity securities are generally priced using Level 1 or Level 2 inputs due to the market activity of these types of securities. One of the preferred securities is considered level 3 pricing due to the limited trading activity of the individual security in the market and lack of certain brokers providing quotes on this type of security. The Company does obtain available, if any broker quotes, reviews past history of contractual payments and financial condition of the corporation in determining an appropriate market value for this type of security.

Impaired Loans: Impaired commercial real estate loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $836,000, with a valuation allowance of $661,000 at December 31, 2011 resulting in an additional provision for loan losses of $563,000 for the year then ended. Impaired commercial real estate loans had a principal balance of $1.4 million with a valuation allowance of $98,000 as of December 31, 2010. Estimates of fair value used for other collateral supporting commercial loans generally is not observable in the marketplace and therefore, such valuations have been classified as Level 3. Impaired commercial loans had a principal balance of $2.0 million with a valuation allowance of $2.0 million as of December 31, 2010 resulting in an additional provision for loan losses of $1.6 million for the year then ended. This loan was charged off in April 2011. There were no impaired commercial loans outstanding at December 31, 2011.

Loan Servicing Rights: Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income.

Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments, from third party investors.

Assets measured at fair value on a recurring basis, are summarized below: 

			Fair Value Measurements
			at December 31, 2011 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Trading securities
Common and preferred equities	$	7,010,349	$	3,004,597	$	2,087,000	$	1,918,752
Available for sale securities
U.S. Agency		30,577,978		—		30,577,978		—
Corporate		37,079,961		—		37,079,961		—
Trust preferreds		3,614,860		—		—		3,614,860
State and municipal		48,034,436		—		40,539,152		7,495,284
Small Business Administration		10,150,592		—		10,150,592		—
Residential mortgage-backed securities		65,838,602		—		65,838,602		—
Collateralized mortgage obligations		2,008,737		—		2,008,737		—
Total	$	204,315,515	$	3,004,597	$	188,282,022	$	13,028,896

33

Oneida Financial Corp.

Notes to Consolidated Financial Statements

4. Fair Value (Continued)

			Fair Value Measurements
			at December 31, 2011 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Trading securities
Common and preferred equities	$	7,691,331	$	—	$	5,790,079	$	1,901,252
Available for sale securities
U.S. Agency		69,145,413		—		69,145,413		—
Corporate		24,253,423		—		24,253,423		—
Trust preferreds		3,402,901		—		—		3,402,901
State and municipal		49,070,220		—		49,070,220		—
Small Business Administration		2,935,994		—		2,935,994		—
Residential mortgage-backed securities		75,192,353		—		75,192,353		—
Collateralized mortgage obligations		3,477,563		—		3,477,563		—
Total	$	235,169,198	$	—	$	229,865,045	$	5,304,153

The Bank transferred $3,004,597 in common and preferred equities from Level 2 to Level 1 during 2011. There were no transfers between Level 1 and Level 2 during 2010.

The table below presents reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2011 and 2010:

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	Trading			Trust			Municipal
	Securities			Preferreds			Securities			Total
Beginning balance, January 1, 2011	$	1,901,252		$	3,402,901		$	—		$	5,304,153
Total gains or losses (realized/unrealized)
Included in earnings
Interest income on securities		(19,614	)		—			—			(19,614	)
Other changes in fair value		37,114			—			—			37,114
Net impairment losses recognized in earnings		—			(292,090	)		—			(292,090	)
Included in other comprehensive income		—			803,553			—			803,553
Interest payments applied to principal		(299,504	)		—			(299,504	)
Purchases, sales, issuances and settlement, net		—			—			—			—
Transfers in and/or out of Level 3		—			—			7,495,284			7,495,284
Ending balance, December 31, 2011	$	1,918,752		$	3,614,860		$	7,495,284		$	13,028,896

34

Oneida Financial Corp.

Notes to Consolidated Financial Statements

4. Fair Value (Continued)

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	Trading						Trust
	Securities			Corporate			Preferreds			Total
Beginning balance, January 1, 2010	$	2,058,843		$	2,250,000		$	5,920,764		$	10,229,607
Total gains or losses (realized/unrealized)
Included in earnings
Interest income on securities		(39,228	)		3,033			—			(36,195	)
Other changes in fair value		(118,363	)		—			—			(118,363	)
Net impairment losses recognized in earnings		—			—			(2,309,222	)		(2,309,222	)
Included in other comprehensive income		—			(678,033	)		60,068			(617,965	)
Interest payments applied to principal		—			—			(268,709	)		(268,709	)
Purchases, sales, issuances and settlement, net		—			—			—			—
Transfers in and/or out of Level 3		—			(1,575,000	)		—			(1,575,000	)
Ending balance, December 31, 2010	$	1,901,252		$	—		$	3,402,901		$	5,304,153

Mortgage servicing rights and loans held for sale are carried at the lower of cost or fair value. There was no valuation allowance for mortgage servicing rights and loans held for sale as of December 31, 2011 and 2010, and no charges included in earnings were reported for the years then ended.

The carrying amounts and estimated fair values of financial instruments, at December 31, 2011 and December 31, 2010 are as follows:

	2011				2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial assets:	(Amounts in thousands)
Cash and cash equivalents	$	40,572	$	40,572	$	33,741	$	33,741
Trading securities		7,010		7,010		7,691		7,691
Investment securities, available-for-sale		197,305		197,305		227,478		227,478
Investment securities, held-to-maturity		47,199		49,264		24,144		25,070
Loans held for sale		688		710		857		865
Loans receivable, net		284,919		297,488		282,573		297,342
Federal Home Loan Bank stock		2,102		N/A		2,109		N/A
Accrued interest receivable		2,227		2,227		2,455		2,455
Financial liabilities:
Deposits	$	550,625	$	553,670	$	552,164	$	560,226
Federal Home Loan Bank advances		11,000		11,260		12,000		12,308
Accrued interest payable		35		35		53		53

The methods and assumptions, not previously presented, used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. The method for determining the fair values for securities were described previously. For fixed rate loans or deposits and for variable rate loans or deposits

35

Oneida Financial Corp.

Notes to Consolidated Financial Statements

4. Fair Value (Continued)

with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on current rates for similar financing. It is not practicable to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability. The fair value of off-balance-sheet items is not considered material.

Fair Value Option

The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets and liabilities carried at fair value for the years ended December 31, 2011, 2010 and 2009:

	Changes in Fair Values for the year ended December 31, 2011
	for Items Measured at Fair Value
	Pursuant to Election of the Fair Value Option
				Total Changes
				in Fair Values
	Other			Included in
	Gains and	Interest	Interest	Current Period
	Losses	Income	Expense	Earnings
Trading securities	$           198,632	$                  (19,614)	$                      -	$           179,018

	Changes in Fair Values for the year ended December 31, 2010
	for Items Measured at Fair Value
	Pursuant to Election of the Fair Value Option
				Total Changes
				in Fair Values
	Other			Included in
	Gains and	Interest	Interest	Current Period
	Losses	Income	Expense	Earnings
Trading securities	$           103,280	$                  (39,229)	$                      -	$             64,051
	Changes in Fair Values for the year ended December 31, 2009
	for Items Measured at Fair Value
	Pursuant to Election of the Fair Value Option
				Total Changes
				in Fair Values
	Other			Included in
	Gains and	Interest	Interest	Current Period
	Losses	Income	Expense	Earnings
Trading securities	$        1,725,032	$                  (39,228)	$                      -	$        1,685,804

5. Secondary Mortgage Market Activities

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

36

Oneida Financial Corp.

Notes to Consolidated Financial Statements

5. Secondary Mortgage Market Activities (Continued)

	2011		2010		2009
Mortgage loan portfolios serviced for:
Freddie Mac	$	110,886,694	$	114,974,199	$	111,043,793
Federal Home Loan Bank	$	21,928,662	$	21,157,900	$	15,252,193

Custodial escrow balances maintained in connection with serviced loans were approximately $1,649,000 and $1,686,000 at December 31, 2011 and 2010, respectively.

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

	2011			2010			2009
Balance at beginning of year	$	535,205		$	500,750		$	320,210
Additions		149,831			203,176			331,104
Disposals		—			—			—
Amortized to expense		(162,690	)		(168,721	)		(150,564	)
Balance at end of year	$	522,346		$	535,205		$	500,750
Valuation Allowance	$	—		$	—		$	—

The fair value of mortgage servicing rights exceeded book value as of year-end 2011 and 2010 and such balances are included in Other Assets in the Consolidated Statement of Condition. As of December 2011 and 2010, no impairment was recorded for mortgage servicing rights.

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

2012	$	150,692
2013		109,523
2014		79,128
2015		56,754
2016		40,266

6. Premises and Equipment

Premises and equipment consist of the following at December 31:

	2011			2010
Land	$	3,509,066		$	2,394,542
Buildings		23,787,412			22,744,244
Equipment and fixtures		9,658,096			8,968,017
Construction in progress		7,915			—
		36,962,489			34,106,803
Accumulated depreciation		(15,582,746	)		(14,204,173	)
Net book value	$	21,379,743		$	19,902,630

Depreciation expense was $1,392,153, $1,569,975 and $1,608,017 in 2011, 2010 and 2009 respectively. In October 2010, the Company sold the building and equipment that represented our South Utica Office. Proceeds of $1.2 million were received from the sale and the Company recorded a gain on sale of $95,000.

37

Oneida Financial Corp.

Notes to Consolidated Financial Statements

7. Goodwill and Other Intangible Assets

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

	Banking		Insurance			Benefit Consulting
	Activities		Activities			Activities		Total
Balance as of January 1, 2009	$	10,005,131	$	10,184,021		$	2,774,287	$	22,963,439
Goodwill acquired		—		84,245			135,417		219,662
Balance as of December 31, 2009		10,005,131		10,268,266			2,909,704		23,183,101
Goodwill acquired		—		—			117,520		117,520
Balance as of December 31, 2010		10,005,131		10,268,266			3,027,224		23,300,621
Transfer of Goodwill		—		(1,133,075	)		1,133,075		—
Goodwill acquired		—		586,445			95,388		681,833
Balance as of December 31, 2011	$	10,005,131	$	9,721,636		$	4,255,687	$	23,982,454

During 2006, the Company completed its acquisition of Parsons, Cote & Company. Goodwill in the amount of $576,000 and intangible assets in the amount of $71,000 were recorded as part of the Parsons, Cote & Company acquisition. Under the terms of the agreement, contingent purchase payments based on future performance levels may be made over a three-year period ending December 31, 2008. Additional goodwill in the amount of $84,245 was recorded for the contingent purchase payment made in 2009.

During 2006, the Company completed its acquisition of Benefit Consulting Group LLC. Goodwill in the amount of $2.5 million and other intangible assets in the amount of $1.1 million were recorded as part of the acquisition of Benefit Consulting Group LLC. Under the terms of the agreement, contingent purchase payments based on future performance levels may be made over a five-year period ending December 31, 2010. Additional goodwill in the amount of $95,388, $117,520 and $135,417 was recorded for the contingent purchase payment made in 2011, 2010 and 2009 respectively based on performance through December 31, 2010. During 2011, $1.1 million of goodwill was transferred between the insurance activities and the benefit consulting activities which represented the movement of a segment of business that was transferred from Bailey and Haskell Associates, Inc. to Benefit Consulting Group LLC after the acquisition of Benefit Consulting Group LLC.

During 2011, the Company completed its acquisition of David Holmes Agency, Inc., an insurance agency operating in Utica, New York. The Company paid $361,718 in cash and established a note payable for $361,718 to be paid monthly over 24 months with interest at 3.00% per annum for fixed assets and other intangible assets. Goodwill in the amount of $586,445 and intangible assets in the amount of $136,991 were recorded in conjunction with the acquisition. David Holmes Agency, Inc has been subsequently merged into Bailey and Haskell Associates, Inc. During 2011, the Company paid $163,099 in principal and $7,919 in interest payments on the note.

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value, which is determined through a two-step impairment test. Management has identified that the Company has four reporting units, its banking unit, its insurance unit, its employee benefits consulting unit and its risk management activities unit. There is no goodwill attributable to the risk management activities unit. Step 1 includes the determination of the carrying value of each reporting unit, including the existing goodwill and intangible assets, and estimating the fair value of the reporting unit. If the carrying amount of the reporting units exceeds their fair value, we are required to perform a second step to the impairment test.

38

Oneida Financial Corp.

Notes to Consolidated Financial Statements

7. Goodwill and Other Intangible Assets (Continued)

Our annual impairment analysis as of December 31, 2011 and 2010 indicated that a step 2 analysis was not necessary. As of December 31, 2011 and 2010, no impairment was recorded for goodwill.

Other intangible assets consist of the following at December 31:

	As of December 31, 2011
	Gross
	Carrying		Accumulated
	Value		Amortization			Net
Core deposit intangible	$	2,705,391	$	(2,060,448	)	$	644,943
Customer relationship intangible		1,402,534		(1,083,251	)		319,283
Total	$	4,107,925	$	(3,143,699	)	$	964,226

	As of December 31, 2010
	Gross
	Carrying		Accumulated
	Value		Amortization			Net
Core deposit intangible	$	2,705,391	$	(1,786,368	)	$	919,023
Customer relationship intangible		1,265,543		(966,625	)		298,918
Total	$	3,970,934	$	(2,752,993	)	$	1,217,941

Aggregate amortization expense was $390,706, $411,990 and $470,070 for 2011, 2010 and 2009.

Estimated amortization expense for each of the next five years:

2012	$	338,877
2013		283,441
2014		141,974
2015		103,457
2016		67,539

8. Due to Depositors

Amounts due to depositors at December 31 are as follows:

	2011		2010
Non-interest bearing demand	$	69,119,138	$	65,179,106
Savings		103,609,613		89,524,824
Money market and interest-bearing checking		236,523,193		244,230,823
Time deposits		140,328,624		152,194,901
Mortgage escrow funds		1,044,022		1,034,160
Total due to depositors	$	550,624,590	$	552,163,814

At December 31, 2011 and 2010, time deposits with balances in excess of $100,000 totaled $50,725,385 and $55,031,612, respectively.

39

Oneida Financial Corp.

Notes to Consolidated Financial Statements

8. Due to Depositors (Continued)

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

	2011				2010
Maturity	Amount		Percent		Amount		Percent
One year or less	$	99,609,377		71.0%	$	116,262,311		76.4%
One to two years		15,525,191		11.1		16,981,836		11.2
Two to three years		10,425,319		7.4		6,013,705		3.9
Three to four years		6,227,121		4.4		7,002,939		4.6
Four to five years		8,536,161		6.1		5,866,443		3.9
Over five years		5,455		0.0		67,667		0.0
	$	140,328,624		100.0%	$	152,194,901		100.0%

9. Borrowings

Outstanding borrowings as of December 31 are as follows:

	2011		2010
Short-term borrowings:
Federal Home Loan Bank overnight line of credit	$	—	$	—
Federal Home Loan Bank advances		5,000,000		1,000,000
Long-term borrowings:
Federal Home Loan Bank advances		6,000,000		11,000,000
	$	11,000,000	$	12,000,000

Borrowings at December 31, 2011 have maturity dates as follows:

	Interest
	Rate
2012		3.34%	$	5,000,000
2013		5.00%		5,000,000
2014		5.33%		1,000,000
			$	11,000,000

All outstanding advances are fixed rate. Each advance is payable at its maturity date, with a prepayment penalty. At December 31, 2011, borrowings are collateralized by pledged securities, which had a carrying value of $734,000 and residential mortgages in the amount of $63,641,363 pledged under a blanket collateral agreement. At December 31, 2011, the Bank has available $52.6 million of overnight borrowing capacity with the Federal Home Loan Bank of which none was outstanding at December 31, 2011. The Bank also has available a $5,000,000 unsecured line of credit with Key Bank of which $0 is outstanding at December 31, 2011, a $5,000,000 unsecured line of credit with M&T Bank of which $0 is outstanding at December 31, 2011 and a $10,000,000 unsecured line of credit with Fifth Third Bank of which $0 is outstanding at December 31, 2011.

 At December 31, 2010, borrowings are collateralized by pledged securities, which had a carrying value of $3.9 million and residential mortgages in the amount of $62,752,350 pledged under a blanket collateral agreement. At December 31, 2010, the Bank has available $50.1 million of

40

Oneida Financial Corp.

Notes to Consolidated Financial Statements

9. Borrowings (Continued)

overnight borrowing capacity with the Federal Home Loan Bank of which none was outstanding at December 31, 2010. The Bank also has available a $5,000,000 unsecured line of credit with Key Bank of which $0 is outstanding at December 31, 2010. In addition, the Bank also has available a $5,000,000 unsecured line of credit with M&T Bank of which $0 is outstanding at December 31, 2010.

10. Income Taxes

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

	2011		2010			2009
Current:
Federal	$	1,281,207	$	2,073,533		$	865,283
State		218,358		334,875			(3,547	)
Deferred:
Federal		384,793		(1,206,333	)		299,057
State		68,642		(287,875	)		50,127
	$	1,953,000	$	914,200		$	1,210,920

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

	2011			2010			2009
Federal statutory income tax rate		34	%		34	%		34	%
State tax, net of federal benefit		2	%		1	%		1	%
Tax exempt investment income		(8	)%		(10	)%		(7	)%
Earnings from bank owned life insurance		(3	)%		(4	)%		(4	)%
Other		0	%		(1	)%		(1	)%
Effective tax rate expense		25	%		20	%		23	%

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

41

Oneida Financial Corp.

Notes to Consolidated Financial Statements

10. Income Taxes (Continued)

	2011			2010
	Asset (Liability)
Allowance for loan losses	$	1,111,000		$	1,646,000
Deferred compensation		238,000			255,000
Investment security charges/adjustments		5,241,000			5,171,000
Unrealized losses on securities available for sale		—			2,854,000
Pension benefits		626,000			451,000
Other		89,000			66,000
subtotal deferred tax assets		7,305,000			10,443,000
Depreciation		(565,000	)		(443,000	)
Mortgage related fees		(369,000	)		(382,000	)
Intangible amortization		(493,000	)		(367,000	)
Purchase accounting adjustments		(158,000	)		(250,000	)
Prepaid expenses		(79,000	)		(278,000	)
Unrealized gains on securities available for sale		(75,000	)		—
Other		(98,000	)		(84,000	)
subtotal deferred tax liability		(1,837,000	)		(1,804,000	)
Total deferred income tax asset, net	$	5,468,000		$	8,639,000

Realization of deferred tax assets is dependent upon the ability to carry back deductions to prior periods when the deferred tax assets are realized and/or in generating sufficient taxable income in future periods. Based on the Company’s history of taxable income and expected future taxable income, the Company has determined that a valuation allowance is not required.

At December 31, 2011 and December 31, 2010, the Company had no unrecognized tax benefits. The Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months.

The Company recognizes interest and penalties related to income tax matters as part of income tax expense. At December 31, 2011 and December 31, 2010, there were no amounts accrued for interest and penalties.

The Company is subject to U.S. federal income tax as well as New York state income tax. The Company is no longer subject to federal or state examinations for tax years prior to 2008. The tax years of 2008-2010 remain open to federal and state examination.

During 2011, the Internal Revenue Service completed an examination of the 2008 and 2009 federal income tax returns. The examination had no material impact on the financial statements. Additionally, during 2011, the State of New York completed an examination of the 2008 New York income tax return. The examination had no material impact on the financial statements.

11. Benefit Plans

The Bank provides a noncontributory defined benefit retirement accumulation plan (cash balance plan) covering substantially all employees. Under the plan, retirement benefits are primarily a function of the employee's years of service and level of compensation. As of June 15, 2004, the Bank had a plan amendment to freeze the plan benefits for plan participants. The Bank uses a December 31 measurement date for its pension plan. State Bank of Chittenango, a limited purpose commercial bank subsidiary of Oneida Savings Bank, participated in the New York State Bankers

42

Oneida Financial Corp.

Notes to Consolidated Financial Statements

11. Benefit Plans (Continued)

Retirement System (the System) plan which was a noncontributory defined benefit plan covering substantially all employees. Under the plan, retirement benefits were primarily a function of the employee’s years of service and level of compensation. The plan was frozen as of May 31, 2002. State Bank of Chittenango uses a December 31 measurement date for its pension plan.

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

	Oneida Savings Bank						State Bank of Chittenango
	2011			2010			2011			2010
Change in benefit obligation:
Benefit obligation at beginning of year	$	4,371,899		$	4,288,665		$	2,395,770		$	2,332,039
Service cost		—			—			26,261			21,899
Interest cost		211,449			211,573			123,774			131,694
Actuarial gain (loss)		34,698			46,726			270,854			123,779
Benefits paid		(235,258	)		(175,065	)		(217,298	)		(213,641	)
Benefit obligation at end of year	$	4,382,788		$	4,371,899		$	2,599,361		$	2,395,770
Change in plan assets, at fair value:
Beginning plan assets	$	3,574,529		$	3,233,423		$	2,135,136		$	2,169,447
Actual return		5,437			316,171			2,425			177,294
Benefits paid		(235,258	)		(175,065	)		(212,405	)		(211,605	)
Employer contributions		200,000			200,000			21,900			—
Ending plan assets	$	3,544,708		$	3,574,529		$	1,947,056		$	2,135,136
Funded status at year end (plan assets less benefit obligation)	$	(838,080	)	$	(797,370	)	$	(652,305	)	$	(260,634	)

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

	Oneida Savings Bank				State Bank of Chittenango
	2011		2010		2011		2010
Net actuarial loss (gain)	$	2,457,886	$	2,284,174	$	1,267,925	$	911,315
Prior service cost (credit)		—		—		—		—
	$	2,457,886	$	2,284,174	$	1,267,925	$	911,315

The accumulated benefit obligation for the Oneida Savings Bank pension plan was $4,382,788 and $4,371,899 at year-end 2011 and 2010 respectively. The accumulated benefit obligation for the State Bank of Chittenango pension plan was $2,599,361 and $2,395,770 at year-end 2011 and 2010 respectively.

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

43

Oneida Financial Corp.

Notes to Consolidated Financial Statements

11. Benefit Plans (Continued)

	Oneida Savings Bank									State Bank of Chittenango
	2011			2010			2009			2011			2010			2009
Service cost benefits earned during the period	$	—		$	—		$	—		$	26,261		$	21,899		$	26,716
Interest cost on projected benefit obligation		211,449			211,573			163,330			123,774			131,694			135,800
Expected return on plan assets		(266,768	)		(243,442	)		(205,187	)		(141,928	)		(155,498	)		(139,125	)
Net amortization and deferral		122,317			126,009			146,753			48,854			42,783			56,480
Net periodic pension cost		66,998			94,140			104,896			56,961			40,878			79,871
Net loss (gain)		173,712			(152,012	)		(391,825	)		405,464			99,947			(199,746	)
Prior service cost (credit)		—			—			—			—			—			—
Amortization of prior service cost		—			—			—			(48,854	)		(42,783	)		(56,480	)
Total recognized in other comprehensive		173,712			(152,012	)		(391,825	)		356,610			57,164			(256,226	)
income
Total recognized in net periodic benefit
cost and other comprehensive income	$	240,710		$	(57,872	)	$	(286,929	)	$	413,571		$	98,042		$	(176,355	)

The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $65,019.

	Oneida Savings Bank			State Bank of Chittenango
Assumptions	2011	2010	2009	2011	2010	2009
Weighted-average assumptions used to determine
benefit obligation at year-end
Discount rate	4.98%	5.05%	3.97%	4.27%	5.38%	5.89%
Weighted-average assumptions used to
determine net cost
Discount rate	5.05%	3.97%	5.06%	5.38%	5.89%	6.03%
Expected return on plan assets	7.50%	7.50%	7.50%	7.00%	7.50%	7.50%

Oneida Savings Bank Plan Assets

The Company’s overall investment strategy is to achieve a mix of approximately 65% of investments for long-term growth and 35% for near-term benefit payments to preserve the long-term earnings power of the assets. The target allocations for plan assets are shown in the table below. Equity securities primarily include investments in common stock. Fixed income securities include corporate bonds, government issues and mortgage-backed securities. Other fixed income securities include a money market account and checking account.

The weighted average expected long-term rate of return is estimated based on current trends in the plan assets as well as projected future rates of return on those assets. The following assumptions were used in determining the long-term rate of return:

Equity securities Dividend discount model, the smoothed earnings yield model and the equity risk premium model

44

Oneida Financial Corp.

Notes to Consolidated Financial Statements

11. Benefit Plans (Continued)

Fixed income securities Current yield to maturity and forecasts of future yields

The long term rate of return considers historical returns. There were no adjustments made to historical returns.

The plan is prohibited from investing in the following investments or transactions: (1) commodities and futures; (2) warrants; (3) Eurobonds; (4) naked option transactions; (5) margin purchase securities; (6) private placements; (7) short sales of securities; (8) unregistered or restricted stock and (9) speculative derivatives. All assets selected for inclusion in the Portfolio must have a readily ascertainable market value and must be generally considered marketable at the time of purchase.

The Company’s pension plan asset allocation at year-end 2011 and 2010, target allocation for 2012, and expected long-term rate of return by asset category are as follows:

				Percentage of						Weighted-
	Target			Plan Assets						Average Expected
	Allocation			at December 31						Long Term Rate
Asset Category	2012			2011			2010			of Return
Equity Securities		60	%		60	%		49	%		10	%
Debt Securities		40	%		30	%		51	%		5	%
Other		0	%		10	%		0	%
Total		100	%		100	%		100	%		8	%

The fair value of the plan assets, as previously defined, at December 31, 2011, by asset category, is as follows:

			Fair Value Measurements
			at December 31, 2011 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Plan Assets:
Cash	$	415,378	$	415,378	$	—	$	—
Equities
Common stock		2,030,556		2,030,556		—		—
Real estate investment trust		45,086		45,086
Fixed income securities						—
Corporate bonds		—		—		—		—
Government issues (US Treasuries)		102,464		—		102,464		—
FHLMC		86,244		—		86,244		—
FNMA		104,438		—		104,438		—
Exchange traded funds		760,542		760,542
Total	$	3,544,708	$	3,251,562	$	293,146	$	—

45

Oneida Financial Corp.

Notes to Consolidated Financial Statements

11. Benefit Plans (Continued)

The fair value of plan assets, as previously defined, at December 31, 2010, by asset category, is as follows

			Fair Value Measurements
			at December 31, 2010 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Plan Assets:
Cash	$	141,186	$	141,186	$	—	$	—
Equities
Common stock		1,762,177		1,762,177		—		—
Fixed income securities						—
Corporate bonds		349,918		—		349,918		—
Government issues (US Treasuries)		973,885		—		973,885		—
FHLMC		150,539		—		150,539		—
FNMA		196,824		—		196,824		—
Total	$	3,574,529	$	1,903,363	$	1,671,166	$	—

There were no plan assets measured at fair value using significant unobservable inputs (Level 3) for period ending December 31, 2011 and 2010.

State Bank of Chittenango Plan Assets

The Company’s overall investment strategy is to achieve a mix of approximately 97% of investments for long-term growth and 3% for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target allocations for System assets are shown in the table below. Cash equivalents consist primarily of short term investment funds. Equity securities primarily include investments in common stock and depository receipts. Fixed income securities include corporate bonds, government issues and mortgage-backed securities. Other financial instruments primarily include rights and warrants.

The weighted average expected long-term rate of return is estimated based on current trends in the System’s assets as well as projected future rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by ASOP No. 27 ”Selection of Economic Assumptions for Measuring Pension Obligations” for long term inflation, and the real and nominal rate of investment return for a specific mix of asset classes. The following assumptions were used in determining the long-term rate of return:

Equity securities	Dividend discount model, the smoothed earnings yield model and the equity risk premium model
Fixed income securities	Current yield to maturity and forecasts of future yields
Other financial instruments	Comparison of the specific investment’s risk to that of fixed income and equity instruments and using judgment

46

Oneida Financial Corp.

Notes to Consolidated Financial Statements

11. Benefit Plans (Continued)

The long term rate of return considers historical returns. Adjustments were made to historical returns in order to reflect expectations of future returns. These adjustments were due to factor forecasts by economists and long-term U.S. Treasury yields to forecast long-term inflation. In addition, forecasts by economists and others for long-term GDP growth were factored into the development of assumptions for earnings growth and per capita income.

Effective September 2011, the System revised its investment guidelines. The System currently prohibits its investment managers from purchasing any security greater than 5% of the portfolio at the time of purchase or greater than 8% at market value in any one issuer. In addition the following are prohibited: (1) Equity security short sales, unregistered securities and margin purchases; (2) fixed income securities that are of Baa2/BBB quality or less, mortgage backed derivatives that have an inverse floating rate coupon or that are interest only securities, any asset backed security that is not issued by the U.S. Government or its agencies or its instrumentalities and securities of less than A-quality may not in the aggregate exceed 10% of the investment manager’s portfolio; and (3) other financial instruments such as unhedged currency exposure in countries not defined as “high income economies” by the World Bank. Prior to September 2011, investments in emerging countries as defined by Morgan Stanley Emerging Markets Index and structured notes were prohibited. All other investments not prohibited by the System are permitted. At December 31, 2011, the System holds certain investments which are no longer deemed acceptable to acquire. These positions will be liquidated when the investment managers deem that such liquidation is in the best interest of the System.

The Company’s pension plan asset allocation at year-end 2011 and 2010, target allocation for 2012 and expected long-term rate of return by asset category are as follows:

			Percentage of						Weighted-
	Target		Plan Assets						Average Expected
	Allocation		at December 31,						Long Term Rate
Asset Category	2012		2011			2010			of Return
Cash equivalents		0 - 20%		11	%		11	%		0.4	%
Equity securities		40 - 60%		48	%		48	%		4.6	%
Fixed income securities		40 - 60%		41	%		41	%		1.9	%
Other financial instruments		0 - 5%		0	%		0	%		0	%
Total				100	%		100	%		6.9	%

47

Oneida Financial Corp.

Notes to Consolidated Financial Statements

11. Benefit Plans (Continued)

The following table represents the Plan’s fair value hierarchy for its financial assets (investments), as defined previously measured at fair value on a recurring basis as of December 31, 2011:

			Fair Value Measurements
			at December 31, 2011 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Plan Assets:
Cash equivalents
Foreign currencies	$	3,366	$	3,366	$	—	$	—
Short term investment funds		203,281		—		203,281		—
Equities
U.S. Large cap		580,397		580,397		—		—
U.S. Mid cap		78,941		78,941		—		—
U.S. Small cap		1,809		1,809		—		—
International		271,783		271,783		—		—
Fixed income securities
Corporate bonds
Rated single A or higher by S&P		80,820		—		80,820		—
Rated below single A by S&P		94,616		—		94,616		—
Government issues		441,757		—		441,757		—
Collateralized mortgage obligations
Rated single A or higher by S&P		175,584		—		175,584		—
Rated below single A by S&P		14,702		—		14,702		—
Total	$	1,947,056	$	936,296	$	1,010,760	$	—

48

Oneida Financial Corp.

Notes to Consolidated Financial Statements

11. Benefit Plans (Continued)

The fair value of plan assets, as previously defined, at December 31, 2010, by asset category, is as follows:

			Fair Value Measurements
			at December 31, 2010 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Plan Assets:
Cash equivalents
Foreign currencies	$	4,621	$	4,621	$	—	$	—
Short term investment funds		235,193		—		235,193		—
Equities
U.S. Large cap		595,347		595,347		—		—
U.S. Mid cap		60,815		60,815		—		—
U.S. Small cap		4,500		4,500		—		—
International		369,267		369,267		—		—
Fixed income securities
Corporate bonds
Rated single A or higher by S&P		116,467		—		116,467		—
Rated below single A by S&P		81,774		—		81,774		—
Government issues		620,696		—		620,696		—
Collateralized mortgage obligations
Rated single A or higher by S&P		32,069		—		32,069		—
Rated below single A by S&P		14,387		—		14,387		—
Total	$	2,135,136	$	1,034,550	$	1,100,586	$	—

There were no plan assets measured at fair value using significant unobservable inputs (Level 3) for the period ending December 31, 2011 and 2010.

The Company expects to contribute $243,127 to the Plans for the year ending December 31, 2012.

The following benefit payments are expected to be paid:

	Oneida		State Bank
Fiscal year ending December 31:	Savings Bank		Of Chittenango
2012	$	350,000	$	208,533
2013		368,000		230,632
2014		386,000		261,854
2015		405,000		298,368
2016		425,000		327,258
Years 2017 - 2021		2,468,000		2,106,659

In addition to the retirement plan, the Company sponsors a 401(k) savings plan which enables employees who meet the plan's eligibility requirements to defer income on a pre-tax basis.

49

Oneida Financial Corp.

Notes to Consolidated Financial Statements

11. Benefit Plans (Continued)

Employees may elect to contribute a portion of their compensation, with the Company matching the contribution up to 5% of compensation. Employer contributions associated with the plan amounted to $655,808, $622,681 and $570,401 for the years ended December 31, 2011, 2010 and 2009, respectively.

The Bank provides The Oneida Savings Bank Employee Stock Ownership Plan (“ESOP”) with all employees meeting the age and service requirements eligible to participate in the Plan. Employees are eligible for the Plan if they are twenty-one years of age and have one year of service with at least 1,000 hours. The ESOP purchased 157,500 shares of common stock as part of the second step conversion (see Footnote 22) which was funded by a loan from the Company payable in ten equal installments over 10 years bearing a variable interest rate of prime at the beginning of the year which was 3.25% for 2011 and 2010. Loan payments are to be funded by cash contributions from the Bank. The loan can be prepaid without penalty. Shares purchased by the ESOP are maintained in a suspense account and held for allocation among the participants. As loan payments are made, shares are committed to be released and subsequently allocated to employee accounts at each calendar year end. Compensation expense is recognized related to the shares committed to be released based on the average market price during the period. Cash dividends received on unallocated shares are used to pay debt service. For the purpose of computing earnings per share, unallocated ESOP shares are not considered outstanding. Contributions to the ESOP during 2011 and 2010 were $288,538 and $331,100 respectively. Expense recorded for 2011 and 2010 was $343,042 and $302,739 respectively. In 2009, the Company made a discretionary contribution to the plan and recorded compensation expense of $300,000 for the plan to purchase additional shares to allocate to participants.

Shares held by the ESOP were as follows:

	2011		2010
Allocated to participants		366,202		338,987
Unearned		78,956		118,228
Total ESOP shares		445,158		457,215
Fair value of unearned shares	$	750,082	$	928,090

12. Stock Based Compensation Plans

The Company had two share based compensation plans as described below. Total compensation cost that has been charged against income for those plans was $185,598 and $258,830 for 2010, and 2009. The total income tax benefit was $71,455 and $99,649. Both plans were final in 2010; therefore there was no activity or expense associated with them for 2011.

Stock Option Plan

The Company’s 2000 Stock Option Plan, which was shareholder approved, permitted the granting of share options to its directors, officer and key employees for up to 342,205 share of common stock. The exercise price of options granted was equal to the market value of the Company’s shares at the date of grant; those options vest and become exercisable ratably over a one to five-year period. The plan also has a reload feature which entitles the option holder, who has delivered common stock as payment of the exercise price for option stock, to a new option to acquire additional shares in the amount equal to the shares traded in. The option period during which the

50

Oneida Financial Corp.

Notes to Consolidated Financial Statements

12. Stock Based Compensation Plans (Continued)

reload option may be exercised expires at the same time as that of the original option that the holder has exercised. The Company has a policy of using shares held as treasury stock to satisfy share option exercises. Compensation recorded in conjunction with these plans was $13,102 and $78,543 for 2010, and 2009, respectively. All options granted expired April 2010.

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

	2010			2009
Risk-free interest rate		0.50	%		0.50	%
Expected stock price volatility		66.32	%		62.09	%
Expected dividend rate		3.00	%		3.00	%
Expected life		0.17			0.94

There was no unrecognized compensation cost for this plan as of December 31, 2010 as all shares are vested under the terms of the plan. New grants are for the reload option feature which are expensed at date of grant.

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

	2010		2009
Intrinsic value of options exercised	$	163,977	$	489,449
Cash received from option exercises		34,835		9,326
Shares received from option exercises		12,396		31,839
Tax benefit realized from option exercises		25,644		—
Weighted average fair value of options granted		1.057		2.467

Recognition Plan

The Management Recognition and Retention Plan provides for the issuance of shares of restricted stock to directors, officers and key employees. Compensation expense equal to the market value of Oneida Financial Corp.’s stock on the grant date is recognized ratably over the five year vesting period for shares of restricted stock granted that were fully vested at December 31, 2010. Compensation recorded in conjunction with these plans was $172,496 and $180,287 for 2010 and 2009 respectively. There were no shares available for future awards as of December 31, 2010. Shares unallocated under the plan available for future awards were 10,311 as of December 31, 2009. As of December 31, 2010, there was no unrecognized compensation cost related to nonvested shares granted under the Plan. The total fair value of shares vested during the years ended December 31, 2010 and 2009 were $124,658 and $146,780 respectively.

51

Oneida Financial Corp.

Notes to Consolidated Financial Statements

13. Non-Interest Income and Expenses

Non-interest income and non-interest expenses for the years ended December 31 consist of the following:

	2011		2010		2009
Non-interest income:
Service charges on deposit accounts	$	2,586,518	$	2,635,334	$	2,615,542
Commissions and fees on sales
of non-banking products		19,422,025		17,498,748		15,836,266
Cash surrender value increase		646,675		601,684		696,916
Gain on sale of loans		487,628		651,656		343,622
Other		1,511,483		1,500,888		1,391,984
Total non-interest income	$	24,654,329	$	22,888,310	$	20,884,330
Non-interest expenses:
Salaries and employee benefits	$	23,065,164	$	21,445,701	$	20,425,328
Building occupancy and equipment		4,838,369		4,996,850		4,748,134
FDIC and N.Y.S. assessment		609,682		860,121		1,121,204
Advertising		619,999		529,901		542,817
Postage and telephone		694,607		672,276		681,307
Director compensation		275,854		297,021		243,185
Professional fees		425,456		294,875		386,333
Consultant Fees		1,258,856		1,031,920		780,977
Travel and meetings		951,118		814,600		752,836
Insurance		374,539		321,423		344,388
Dues and subscriptions		212,434		207,287		167,944
Service fees		923,804		795,712		720,755
ORE expenses		129,672		57,476		38,423
Contributions		130,794		109,341		87,497
Sales tax		6,921		4,602		4,279
Other		838,792		755,942		674,079
Intangible amortization		390,706		411,990		470,070
Total non-interest expenses	$	35,746,767	$	33,607,038	$	32,189,556

14. Commitments

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

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

	2011				2010
	Fixed		Variable		Fixed		Variable
Financial instruments whose contract	Rate		Rate		Rate		Rate
amounts represent credit risk:
Commitments to extend credit	$	18,328,572	$	2,896,500	$	2,214,374	$	4,371,771
Unused lines of credit		2,789,175		48,102,533		3,371,847		47,571,131

52

Oneida Financial Corp.

Notes to Consolidated Financial Statements

14. Commitments (Continued)

Commitments to make loans are generally made for periods of 60 days or less. The fixed rate loan commitments have interest rates ranging from 3.75% to 6.75% and maturities ranging from 15 years to 30 years. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but includes residential and commercial real estate.

15. Dividends and Restrictions

The Company’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of the New York State Banking. In addition to state law requirements and the capital requirements discussed below, the circumstances under which the Bank may pay dividends are limited by federal statutes, regulations, and policies. Retained earnings of the Bank are subject to certain restrictions under New York State Banking regulations. The amount of retained earnings legally available for dividends under these regulations was $9,915,343 and $6,162,202 as of December 31, 2011 and 2010 respectively.

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

16. Regulatory Matters

The Bank is subject to regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of December 31, 2011, the Bank meets all capital adequacy requirements to which it is subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2011 and 2010, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

53

Oneida Financial Corp.

Notes to Consolidated Financial Statements

16. Regulatory Matters (Continued)

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

											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2011:
Total Capital
(to Risk Weighted Assets)	$	64,045,250		15.62	%	$	32,798,038		8	%	$	40,997,548		10	%
Tier I Capital
(to Risk Weighted Assets)	$	61,145,725		14.91	%	$	16,399,019		4	%	$	24,598,529		6	%
Tier I Capital
(to Average Assets)	$	61,145,725		9.62	%	$	25,432,984		4	%	$	31,791,230		5	%
As of December 31, 2010:
Total Capital
(to Risk Weighted Assets)	$	61,963,691		15.15	%	$	32,714,122		8	%	$	40,892,652		10	%
Tier I Capital
(to Risk Weighted Assets)	$	57,687,242		14.11	%	$	16,357,061		4	%	$	24,535,591		6	%
Tier I Capital
(to Average Assets)	$	57,687,242		9.17	%	$	25,155,277		4	%	$	31,444,096		5	%

The following represents a reconciliation of Bank capital to regulatory capital as of December 31:

	December 31,
	2011			2010
GAAP equity	$	83,061,936		$	75,132,251
Accumulated other comprehensive income		2,122,238			6,157,097
Goodwill, net of applicable deferred taxes		(23,271,490	)		(22,728,230	)
Intangible assets, net of applicable deferred taxes		(714,724	)		(820,356	)
Disallowed portion of mortgage servicing rights		(52,235	)		(53,520	)
Tier 1 Capital	$	61,145,725		$	57,687,242
General regulatory allowance for loan losses		2,899,525			4,276,449
Total Capital	$	64,045,250		$	61,963,691

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

54

Oneida Financial Corp.

Notes to Consolidated Financial Statements

17. Parent Company Statements

Condensed financial information of Oneida Financial Corp. follows:

Condensed Balance Sheets
	December 31,
	2011		2010
Assets:
Cash	$	5,112,909	$	8,556,062
Investments in and advances to subsidiary		83,061,936		75,132,251
ESOP loan receivable		610,078		929,858
Securities available for sale		—		1,931,430
Other assets		346,190		303,427
Total assets	$	89,131,113	$	86,853,028
Liabilities and shareholders' equity:
Other liabilities	$	1,169,925	$	909,849
Due to related parties		—		22,883
Shareholders' equity		87,961,188		85,920,296
Total liabilities and shareholders' equity	$	89,131,113	$	86,853,028

Condensed Statements of Income
	Years Ended December 31,
	2011			2010			2009
Revenue:
Dividends from subsidiary	$	—		$	—		$	2,000,000
Interest on investments and deposits		71,743			41,288			725
Rental income		—			—			—
Total revenue		71,743			41,288			2,000,725
Expenses:
Compensations and benefits		420,000			53,084			139,500
Other expenses		186,171			168,150			171,436
Total expenses		606,171			221,234			310,936
(Loss) income before taxes and equity
in undistributed net income of subsidiary		(534,428	)		(179,946	)		1,689,789
Benefit for income taxes		(207,000	)		(82,000	)		(120,000	)
(Loss) income before equity in undistributed
net income of subsidiary		(327,428	)		(97,946	)		1,809,789
Equity in undistributed net income:
Subsidiary bank		6,056,709			3,858,634			2,303,568
Net income attributable to Oneida Financial Corp.	$	5,729,281		$	3,760,688		$	4,113,357

55

Oneida Financial Corp.

Notes to Consolidated Financial Statements

17. Parent Company Statements (Continued)

Condensed Statements of Cash Flow
	Years Ended December 31,
	2011			2010			2009
Operating activities:
Net income attributable to Oneida Financial Corp.	$	5,729,281		$	3,760,688		$	4,113,357
Adjustments to reconcile net income to
net cash provided by operating activities:
ESOP shares earned		343,042			302,739			—
Other assets/liabilities, net		219,791			(177,651	)		25,757
Equity in undistributed net income of subsidiary bank		(6,056,709	)		(3,858,634	)		(2,303,568	)
Net cash provided by operating activities		235,405			27,142			1,835,546
Investing activities:
Purchase of securities available for sale		—			(2,000,000	)		—
Maturities and calls of securities available for sale		2,000,000			—			—
Investment in subsidiary bank		2,157,458			(13,539,841	)		1,000
Decrease (increase) in ESOP loan		319,780			(929,858	)		—
Change in due from  related parties		(22,883	)		(794,257	)		(33,655	)
Net cash provided by (used in) investing activities		4,454,355			(17,263,956	)		(32,655	)
Financing activities:
Dividends paid		(3,365,128	)		(2,108,687	)		(1,673,714	)
Increase in noncontrolling interest		—			500			—
Redemption of noncontrolling interest		(2,500,500	)		—			(1,000	)
Repurchase of common shares		(2,267,285	)		—			—
Exercise of stock options (using treasury stock)		—			170,035			364,211
Purchase of treasury stock		—			(155,877	)		(379,976	)
Net proceeds of stock offering and conversion		—			27,737,108			—
Net cash (used in) provided by financing activities		(8,132,913	)		25,643,079			(1,690,479	)
Net (decrease) increase in cash and cash equivalents		(3,443,153	)		8,406,265			112,412
Cash and cash equivalents at beginning of year		8,556,062			149,797			37,385
Cash and cash equivalents at end of year	$	5,112,909		$	8,556,062		$	149,797
Supplemental disclosures of cash flow information:
Non-cash financing activities:
Dividends declared and unpaid	$	829,868		$	859,774		$	—

56

Oneida Financial Corp.

Notes to Consolidated Financial Statements

18. Earnings per Share 

Earnings per common share have been computed based on the following for the years ended December 31:

	2011		2010			2009
Net income attributable to Oneida Financial Corp.	$	5,729,281	$	3,760,688		$	4,113,357
Net earnings allocated to participating securities		—		(11,192	)		(18,958	)
Net earnings  allocated to common stock	$	5,729,281	$	3,749,496		$	4,094,399
Basic
Weighted average common shares outstanding
including shares considered participating securities		7,003,703		7,085,131			7,115,633
Less: Average participating securities		—		(14,973	)		(26,882	)
Weighted average shares		7,003,703		7,070,158			7,088,751
Basic earnings per share	$	0.82	$	0.53		$	0.58
Diluted
Net earnings allocated to common stock	$	5,729,281	$	3,749,496		$	4,094,399
Weighted average common shares outstanding for basic		7,003,703		7,070,158			7,088,751
Dilutive effect of stock options		—		1,860			24,753
Weighted average shares		7,003,703		7,072,018			7,113,504
Diluted earnings per share	$	0.82	$	0.53		$	0.58

There were no potentially dilutive securities outstanding for 2011. Stock options of 0 and 78,721 shares of common stock were not considered in computing dilutive earnings per common share for 2010 and 2009 because they were anti-dilutive.

57

Oneida Financial Corp.

Notes to Consolidated Financial Statements

19. Other Comprehensive Income (Loss)

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

	2011			2010			2009
Unrealized gains (losses)  on available for sale securities
Available for sale securities:
Unrealized holding gains (losses) on securities arising
during period	$	7,425,665		$	(2,511,240	)	$	3,810,506
Less: reclassification adjustment for (gains)
realized in income		(425,730	)		(1,522,260	)		(787,842	)
Net unrealized gains (losses)		6,999,935			(4,033,500	)		3,022,664
Tax effect		(2,799,974	)		1,613,400			(1,209,066	)
Net-of-tax amount		4,199,961			(2,420,100	)		1,813,598
Other-than-temporary impaired securities:
Unrealized holding (losses)  on securities arising
during period	$	(43,702	)	$	(2,213,414	)	$	(3,296,198	)
Less: reclassification adjustment for losses
realized in income		367,424			2,423,111			2,294,841
Net unrealized gains (losses)		323,722			209,697			(1,001,357	)
Tax effect		(129,489	)		(83,879	)		400,543
Net-of-tax amount		194,233			125,818			(600,814	)
Change in unrealized loss on  pension liability		(530,322	)		94,848			648,051
Tax effect		212,129			(37,939	)		(259,220	)
Net-of-tax amount		(318,193	)		56,909			388,831
	$	4,076,001		$	(2,237,373	)	$	1,601,615

The following is a summary of the change in accumulated other comprehensive income balances, net of tax from December 31, 2010 to December 31, 2011:

	Balance			Current			Balance
	at			Period			at
	12/31/2010			Change			12/31/2011
Unrealized (losses) gains on securities available for sale	$	(4,280,946	)	$	4,394,194		$	113,248
Unrealized loss on pension benefits		(1,917,293	)		(318,193	)		(2,235,486	)
Total	$	(6,198,239	)	$	4,076,001		$	(2,122,238	)

58

Oneida Financial Corp.

Notes to Consolidated Financial Statements

19. Other Comprehensive Income (Loss) (Continued)

The following is a summary of the accumulated other comprehensive income balances included in stockholders’ equity at December 31, 2011:

	Gross			Balance at
	Balance at			Tax			12/31/2011
	12/31/2011			Effect			net of tax
Unrealized gains (losses)  on securities available for sale	$	188,750		$	(75,502	)	$	113,248
Unrealized loss on pension benefits		(3,725,810	)		1,490,324			(2,235,486	)
Total	$	(3,537,060	)	$	1,414,822		$	(2,122,238	)

20. Segment Information

The Company has determined that it has four primary business segments, its banking franchise, its insurance activities, its employee benefit consulting activities and its risk management activities. For the years ended December 31, 2011, 2010 and 2009, the Company’s insurance activities consisted of those conducted through its wholly owned subsidiary, Bailey & Haskell Associates, Inc. For the years ended December 31, 2011, 2010 and 2009, the benefit consulting activities consisted of those conducted through its wholly owned subsidiary, Benefit Consulting Group Inc. For the year ended December 31, 2011, 2010 and 2009, the risk management activities consisted of those conducted through its wholly owned subsidiary Workplace Health Solutions Inc. Information about the Company is presented in the following table for the periods indicated:

	2011
							Risk
	Banking		Insurance		Consulting		Management
	Activities		Activities		Activities		Activities			Total
Net interest income	$	19,759,719	$	—	$	—	$	—		$	19,759,719
Provision for loan losses		1,050,000		—		—		—			1,050,000
Net interest income after provision
for loan losses		18,709,719		—		—		—			18,709,719
Non-interest income		5,489,242		11,603,209		6,482,456		1,336,360			24,911,267
Non-interest expenses		17,128,181		10,075,521		5,382,755		1,377,451			33,963,908
Depreciation and amortization		1,511,682		171,507		98,424		1,246			1,782,859
Income (loss) before taxes		5,559,098		1,356,181		1,001,277		(42,337	)		7,874,219
Income tax expense (benefit)		964,600		586,000		413,000		(10,600	)		1,953,000
Net income (loss)		4,594,498		770,181		588,277		(31,737	)		5,921,219
Less: net income attributable to
noncontrolling interest		191,838		—		—		—			191,838
Net income (loss) attributable to
Oneida Financial Corp.	$	4,402,660	$	770,181	$	588,277	$	(31,737	)	$	5,729,381
Total Assets	$	641,445,777	$	22,835,569	$	7,399,574	$	306,400		$	671,987,320

59

Oneida Financial Corp.

Notes to Consolidated Financial Statements

20. Segment Information (Continued)

	2010
							Risk
	Banking		Insurance		Consulting		Management
	Activities		Activities		Activities		Activities			Total
Net interest income	$	18,098,625	$	—	$	—	$	—		$	18,098,625
Provision for loan losses		1,650,000		—		—		—			1,650,000
Net interest income after provision
for loan losses		16,448,625		—		—		—			16,448,625
Non-interest income		4,591,991		10,515,421		5,936,999		1,046,328			22,090,739
Non-interest expenses		16,380,671		9,428,009		4,729,998		1,086,395			31,625,073
Depreciation and amortization		1,685,384		169,131		125,486		1,964			1,981,965
Income (loss) before taxes		2,974,561		918,281		1,081,515		(42,031	)		4,932,326
Income tax expense (benefit)		78,800		404,000		447,000		(15,600	)		914,200
Net income (loss)		2,895,761		514,281		634,515		(26,431	)		4,018,126
Less: net income attributable to
noncontrolling interest		257,438		—		—		—			257,438
Net income (loss) attributable to
Oneida Financial Corp.	$	2,638,323	$	514,281	$	634,515	$	(26,431	)	$	3,760,688
Total Assets	$	643,116,251	$	20,184,212	$	5,509,696	$	150,903		$	668,961,062

	2009
							Risk
	Banking		Insurance		Consulting		Management
	Activities		Activities		Activities		Activities			Total
Net interest income	$	17,427,420	$	—	$	—	$	—		$	17,427,420
Provision for loan losses		760,000		—		—		—			760,000
Net interest income after provision
for loan losses		16,667,420		—		—		—			16,667,420
Non-interest (loss) income		5,266,097		9,694,191		5,650,646		491,429			21,102,363
Non-interest expenses		16,289,195		8,580,478		4,532,450		709,346			30,111,469
Depreciation and amortization		1,699,210		223,847		153,430		1,600			2,078,087
(Loss) Income before taxes		3,945,112		889,866		964,766		(219,517	)		5,580,227
Income tax (benefit) expense		517,720		378,000		405,200		(90,000	)		1,210,920
Net (loss) income		3,427,392		511,866		559,566		(129,517	)		4,369,307
Less:  net income (loss) attributable
to noncontrolling interest		255,950		—		—		—			255,950
Net income (loss) attributable to
Oneida Financial Corp	$	3,171,442	$	511,866	$	559,566	$	(129,517	)	$	4,113,357
Total Assets	$	571,983,646	$	19,962,553	$	4,389,768	$	89,526		$	596,425,493

60

Oneida Financial Corp.

Notes to Consolidated Financial Statements

20. Segment Information (Continued)

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

Assets	2011			2010
Total assets for reportable segments	$	671,987,320		$	668,961,062
Elimination of intercompany cash balances		(8,274,741	)		(7,382,533	)
Consolidated total	$	663,712,579		$	661,578,529

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

21. Quarterly Financial Data (Unaudited)

	Interest		Net Interest		Net
2011	Income		Income		Income		Basic		Diluted
	(Dollars in thousands)
First Quarter	$	5,999	$	4,839	$	1,413	$	0.20	$	0.20
Second Quarter		6,034		5,013		1,696		0.24		0.24
Third Quarter		5,985		5,039		956		0.14		0.14
Fourth Quarter		5,764		4,868		1,664		0.24		0.24
2010
First Quarter	$	5,837	$	4,281	$	627	$	0.09	$	0.09
Second Quarter		5,924		4,448		814		0.11		0.11
Third Quarter		6,021		4,628		815		0.12		0.12
Fourth Quarter		5,997		4,742		1,505		0.21		0.21

22. Conversion and Reorganization

On February 9, 2010, the Board of Directors of Oneida Financial, MHC (“MHC”), the Company and Oneida Savings Bank (“Bank”) adopted a Plan of Conversion and Agreement and Plan of Reorganization under the terms of which the Company undertook a “second step” conversion (the “Conversion”), and the Bank reorganized from the two-tier mutual holding company structure to the stock holding company structure. Prior to the completion of the Conversion, the MHC owned approximately 55.0% of the common stock of the Company.

In connection with the Conversion, the outstanding shares of Oneida Financial Corp owned by the MHC were sold to the depositors of Oneida Savings Bank and other public investors. Completion of the Conversion and Offering resulted in the issuance of 7,164,794 shares of common stock. A total of 3,937,500 shares were sold in the subscription, community and syndicated offerings, at $8.00 per share. An additional 3,227,294 shares were issued to the former public stockholders of the Company based upon an exchange ratio of 0.9136 new shares for each share of Oneida Financial Corp common stock held at the close of business on July 7, 2010. Common shares held by the Company’s ESOP and Recognition and Retention Plan prior the conversion were also exchanged using the conversion ratio of 0.9136. The Conversion was accounted for as a change in corporate form with no resulting change in the historical basis of the Company’s assets, liabilities and equity. Costs related to the Offering, primarily marketing fees paid to the Company’s investment banking firm, professional fees, registration fees, printing and mailing costs were $2.5 million and

61

Oneida Financial Corp.

Notes to Consolidated Financial Statements

22. Conversion and Reorganization (Continued)

accordingly, net proceeds were $27.7 million. In addition, as part of the conversion and dissolution of the MHC, the Company received $36,000 of cash previously held by the MHC. As a result of the Conversion and offering, Oneida Financial Corp. was succeeded by a new, fully public, Maryland corporation with the same name and the MHC ceased to exist.

Also pursuant to the plan of conversion, a liquidation account was created by the Holding Company for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders (as those terms are defined in the plan of conversion) in an amount equal to (i) the MHC’s ownership interest in the Company’s total stockholders’ equity as of the date of the latest statement of financial condition used in the prospectus plus (ii) the value of the net assets of the MHC as of the date of the latest statement of financial condition of the MHC used in the prospectus. The plan of conversion also provides the establishment of a bank liquidation account at the Bank to support the Holding Company’s liquidation account. The liquidation account is designed to provide payments to depositors of their liquidation interests in the event of a liquidation of the Holding Company and the Bank or a liquidation solely of the Bank. Specifically, in the unlikely event that either the Bank or the Holding Company and the Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by distribution to eligible depositors of their interests in the liquidation account maintained by the Holding Company.

62

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

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

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

The Company does not undertake, and specifically declines any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited consolidated financial statements and should be read in conjunction with the business and financial information regarding Oneida Financial Corp. provided in the consolidated financial statements and corresponding notes to the financial statements.

Overview – The Companies

Oneida Financial Corp. (“Company”) is a Maryland corporation that owns all of the outstanding common stock of Oneida Savings Bank. In 2010 Oneida Financial MHC (the former mutual holding parent company) converted from mutual to stock form (the “Conversion”). In connection with the Conversion the 55.0% ownership position of Oneida Financial MHC was sold to depositors of the Bank and the public (the “Offering”). Upon completion of the Conversion and Offering, the Company issued 7,164,794 shares of common stock. A total of 3,937,500 shares were sold in the offering at $8.00 per share, and an additional 3,227,294 shares were issued to former public stockholders of the Company’s predecessor based on an exchange ratio of 0.9136 shares of the Company’s stock for each share of old Oneida Financial Corp. common stock held as of the close of business on July 6, 2010. Following the completion of the Conversion and Offering, Oneida Financial MHC ceased to exist.

Oneida Financial Corp.’s executive offices are located at 182 Main Street, Oneida, New York 13421. Its telephone number at this address is (315) 363-2000 and its website address is www.oneidafinancial.com.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities, mortgage-backed securities and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting primarily of deposits and Federal Home Loan Bank advances and other borrowings. Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to interest-bearing liabilities. Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, fees from our insurance agency, benefits consulting and risk management subsidiaries and fees from trust services, and net gains and losses on sale of investments. Interest income and noninterest income are offset by provisions for loan losses, general administrative and other expenses, including employee compensation and benefits and occupancy and equipment costs, as well as by state and federal income tax expense.

Our results of operations are also significantly affected by general economic and competitive conditions, particularly with respect to changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially affect our financial condition and results of operations.

63

Oneida Savings Bank. Oneida Savings Bank is a New York chartered savings bank headquartered in Oneida, New York. Oneida Savings Bank was originally founded in 1866 as a mutual (meaning no stockholders) savings bank. In 1998, Oneida Savings Bank converted to a New York chartered stock savings bank. Since 1998 the Bank has grown its traditional community banking franchise organically and through acquisitions of banks and nonbank companies that offer insurance sales, financial services, employee benefits consulting and other risk management products and services. The expansion into insurance and other financial services businesses has enabled Oneida Savings Bank to evolve from a traditional savings bank to a full-service financial services organization.

Oneida Savings Bank’s deposits are insured by the Federal Deposit Insurance Corporation up to the maximum amount permitted by law. Oneida Savings Bank is a community bank engaged primarily in the business of accepting deposits from customers through its main office and 11 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, consumer loans and commercial business loans and to invest in mortgage-backed and other securities. In November 2011, Oneida Savings Bank opened its eleventh full service branch office located in Rome, New York. Municipal deposit banking services are provided through a limited purpose commercial bank subsidiary, The State Bank of Chittenango. Oneida Savings Bank also sells insurance and other commercial services and products through Bailey & Haskell Associates, Inc., its wholly owned insurance agency subsidiary, and provides employee benefits consulting services through Benefit Consulting Group, Inc., its wholly owned consulting services subsidiary. In addition, Oneida Savings Bank provides risk management services to help mitigate and prevent work related injuries through its wholly owned subsidiary Workplace Health Solutions, Inc. Oneida Savings Bank is subject to comprehensive regulation and examination by the Federal Deposit Insurance Corporation and the New York State Banking Department.

Oneida Savings Bank’s executive offices are located at 182 Main Street, Oneida, New York 13421. Its telephone number at this address is (315) 363-2000 and its website address is www.oneidabank.com.

The State Bank of Chittenango. The State Bank of Chittenango is a New York chartered limited purpose commercial bank headquartered in Chittenango, New York. Oneida Savings Bank acquired State Bank of Chittenango in 2002 and retained the municipal banking operations of the bank in a limited purpose wholly owned subsidiary. New York State law prohibits a savings bank from directly soliciting and servicing public funds (deposits of counties, cities, towns, school districts, etc.). Holding State Bank of Chittenango as a limited purpose commercial bank subsidiary has enabled us to offer municipal deposit banking services throughout our market area.

Bailey & Haskell Associates. Bailey & Haskell Associates, Inc. is the wholly owned insurance agency subsidiary of Oneida Savings Bank and is headquartered in Oneida, New York. It has five other offices in New York State and one office in South Carolina. Oneida Savings Bank completed the acquisition of Bailey & Haskell Associates in 2000. Bailey & Haskell Associates is a full-service insurance and financial services firm with over 90 employees providing services to over 19,000 customers. Bailey & Haskell Associates offers personal and commercial property insurance and other risk management products and services. Bailey & Haskell Associates represents many leading insurance companies, including Travelers, CNA, Hartford, Progressive, Cincinnati and Utica National. We have acquired six insurance agencies in the decade following the acquisition of Bailey & Haskell Associates, including the David Holmes Agency, Inc. which was added during 2011. All of the acquired insurance agencies were merged into Bailey & Haskell Associates.

Benefit Consulting Group. Benefit Consulting Group, Inc., originally acquired in 2006, is the wholly owned employee benefits consulting and retirement plan administration subsidiary of Oneida Savings Bank. Benefit Consulting Group is headquartered in Oneida, New York and operates from offices in North Syracuse, New York and satellite offices in several branch offices of Oneida Savings Bank. Benefit Consulting Group currently serves more than 700 corporate and personal clients and offers employee benefit related services that are complementary to those provided by Oneida Savings Bank and Bailey & Haskell Associates. Benefit Consulting Group provides investment management, financial planning and estate planning services to individuals, and provides defined contribution and benefit plans, actuarial services and human resources management services to businesses.

Workplace Health Solutions. Workplace Health Solutions, Inc. is the wholly owned risk management subsidiary of Oneida Savings Bank. It is headquartered in Oneida, New York and operates from offices in North Syracuse, New York. Workplace Health Solutions was established in January 2008 as a risk management company with services to help mitigate and prevent work related injuries. Specifically, Workplace Health Solutions works with employers to develop informed hiring programs, coordinates employee training programs and consults with and advises employers relative to workers’ compensation coverage and incidents. In addition, this subsidiary develops a network of medical professionals to evaluate injured workers and arrange for the proper treatment of and recovery from workplace injuries from a risk management

64

perspective. Workplace Health Solutions was developed to complement and refer the products and services offered by our other subsidiaries with an overall philosophy of providing innovative risk management services.

Oneida Preferred Funding Corp. Oneida Savings Bank established Oneida Preferred Funding Corp. in 1999 as a wholly owned real estate investment trust subsidiary.

Business Strategy

In guiding our operations, we seek to implement various strategies designed to enhance the institution’s profitability consistent with safety and soundness considerations. These strategies include a continuing focus on our community banking franchise while distinguishing our company as a complete financial services provider, and by promoting and continuing to expand our insurance, consulting and risk management businesses. We believe these strategies will enable us to continue to grow our assets, while providing superior service to our customers, remaining focused on high asset quality, continuing to grow and diversify revenue and generating favorable returns to our stockholders. The following are the key elements of our business strategy:

Continuing Our Community Oriented Focus. We have been committed to meeting the financial needs of the communities we serve and providing quality service to our customers. We believe we can be more effective than many of our competitors in serving our customers because of our ability to promptly and effectively respond to customer needs and inquiries. Our ability to succeed in our communities is enhanced by the stability of senior management. Senior management has an average tenure with Oneida Savings Bank of over 20 years and each individual who comprises senior management has over 25 years experience in the banking industry.

Our community focus is further supported by the community service activities of our employees and the charitable activities of The Oneida Savings Bank Charitable Foundation. Our foundation was established in December 1998 in connection with our initial public offering. The foundation provides funds to eligible nonprofit organizations to help them carry out unique, innovative projects in specific fields of interest. The foundation’s goal is to fund projects that will enhance the quality of life in the communities served by Oneida Savings Bank.

Expanding Our Geographic Reach. Since 1998, we have grown our traditional community banking franchise organically and through acquisitions of banks and nonbank businesses that offer trust services, insurance sales, financial services, employee benefits consulting and risk management services. The expansion into insurance and other financial services businesses has enabled Oneida Savings Bank to evolve from a traditional savings bank to a full-service financial services organization. We plan to continue to seek opportunities to grow our business through a combination of de novo branching and complementary acquisitions in our existing market and contiguous markets. We will consider acquisition opportunities that expand our geographic reach in banking, insurance or other complementary financial service businesses, although we do not currently have any agreements or understandings regarding any specific acquisition.

Continuing to Improve Earnings and Diversify Income Sources. We continue to seek ways of increasing our income by increasing our fee income and other sources of non-interest income through traditional banking sources and insurance and financial services businesses.

· Community Banking. We continue to actively market our core banking products to attract new fee-based deposit accounts and checking account related services to new and existing customers. We offer our customers internet banking, an account overdraft program, e-commerce capabilities and debit cards as an account retention tool and to increase non-interest income. These products and services represent continuing sources of fee income. We also emphasize our trust department services with the expectation that fees generated by the trust department will increase as the assets under management grow. In addition, we receive fee income from servicing loans sold in the secondary market.

· Financial Service Subsidiaries. In recent years, we have increased the services and products we offer through our insurance agency, benefits consulting, and risk management subsidiaries. We initially entered the insurance and financial services business with the acquisition in October 2000 of Bailey & Haskell Associates, Inc. The expansion of our financial services business has continued to provide an increasing revenue source. We intend to continue to expand our financial services businesses to increase our earnings and diversify our revenue sources

Growing Our Loan Portfolios. We intend to grow our loan portfolios while continuing to exercise prudent loan underwriting and administration standards.

65

· Emphasizing Origination of Commercial Real Estate, Consumer and Commercial Business Loans. We have sought to increase commercial real estate, consumer and commercial business lending in a controlled, safe and sound manner. Because these loans generally have higher yields and shorter terms than one-to-four family residential mortgage loans, our goal is to increase the origination of these loans consistent with safety and soundness considerations. At December 31, 2011, our loan portfolio was composed of 28.5% commercial real estate loans, 11.9% consumer loans and 13.1% commercial business loans.

· Continuing the Origination of One-to-Four Family Real Estate Loans. Historically, Oneida Savings Bank has emphasized the origination of one-to-four family residential mortgage loans within Madison and Oneida counties and the surrounding counties. During 2011, our one-to-four family mortgage loan originations have been primarily fixed-rate loans. We generally sell our fixed-rate one-to-four family loan originations and such loans are sold without recourse and on a servicing-retained basis. During the years ended December 31, 2011 and 2010, we sold $25.5 million and $36.7 million, respectively, in fixed-rate one-to-four family mortgage loans. In addition, adjustable-rate mortgage (“ARM”) loans and hybrid ARM loans, which have a fixed rate of interest for the first three to five years and adjust annually thereafter, represented a lower percentage of total originations. Residential real estate loan origination volume, particularly fixed-rate originations, continued to decrease during 2011 compared with 2010 and 2009 due to a reduction in the volume of refinancing and new loan origination.

Continuing Our Conservative Underwriting Standards and Maintaining our Strong Asset Quality. We continue to maintain strong asset quality and reserve coverage. At December 31, 2011, our non-performing loans totaled $1.4 million or 0.5% of total loans and our ratio of allowance for loan losses to total non-performing loans was 201.81%. At December 31, 2010, our non-performing loans totaled $4.0 million or 1.38% of total loans and our ratio of allowance for loan losses to total non-performing loans was 107.54%. The decrease in the non-performing loans was primarily attributable to the charge-off of a fully reserved, impaired, unsecured commercial loan with a principal balance of $2.0 million in April 2011. Of the $1.4 million of non-performing loans, $836,000 represents a commercial lending relationship which has been considered to be impaired and a specific allowance of $661,000 has been established at December 31, 2011. Our asset quality reflects our conservative underwriting standards, the diligence and experience of our loan collection personnel and the stability of the local economy. As part of our evaluation of our asset quality, we also use an independent third party loan review firm to evaluate certain parts of the loan portfolio on a semiannual basis. Finally, we have not and do not plan to originate or participate in any sub-prime or Alt-A lending programs or loans.

Growing Our Core Deposit Base. Oneida Savings Bank is a market leader in offering deposit accounts in the communities we serve. We continue to emphasize offering core deposits to individuals, businesses and municipalities located in our market area. Core deposits represent our best opportunity to develop customer relationships that enable us to cross sell the products and services of our complementary subsidiaries. Core deposits are our least costly source of funds which improves our interest rate spread and also contributes non-interest income from account related services.

Financial Condition

Assets. Total assets at December 31, 2011 were $663.7 million, an increase of $2.1 million, or 0.3%, from $661.6 million at December 31, 2010. The increase in total assets was primarily attributable to an increase in loans receivable.

Management continues to maintain a diversified loan portfolio mix. This strategy is supported through the origination and retention of consumer and commercial business loans with the intent of increasing the average yield on our interest-earning assets, and the origination for sale in the secondary market of lower yielding fixed-rate one-to-four family residential real estate loans. Total consumer, commercial business and commercial real estate loans decreased by $391,000 during 2011. The decrease in consumer, commercial business and commercial real estate loans was primarily due to a decrease in commercial lending and consumer loans partially offset by an increase in commercial real estate loans. Commercial loans decreased partially due to the charge-off of a fully reserved, impaired, unsecured commercial loan with a principal balance of $2.0 million in April 2011 as well as a decrease in the outstanding balance on lines of credit. The decrease in consumer lending was largely attributable to a decrease in demand, particularly in automobile lending. Residential real estate loans decreased $1.7 million during 2011. During the year ended December 31, 2011, a total of $25.5 million in fixed-rate residential mortgage loans were sold compared with loan sales of $36.7 million during 2010.

Oneida Savings Bank reinvests proceeds from loan sales and investment sales and investment security maturities in other loans as new loan origination volume warrants. Investment and mortgage-backed securities provide improved liquidity

66

as compared with individual mortgage loans thereby allowing Oneida Savings Bank to accommodate periods of increased loan demand.

Mortgage-backed securities increased $2.9 million, or 3.2%, to $92.8 million at December 31, 2011 as compared with $89.9 million at December 31, 2010. Investment securities decreased $10.0 million, or 6.2%, to $151.7 million at December 31, 2011 as compared to $161.7 million at December 31, 2010. The decrease in investment securities was primarily the result of the increase in loans receivable and cash and cash equivalents due to the timing of the reinvestment of call and maturity proceeds.

Trading securities decreased $681,000, or 8.9%, to $7.0 million at December 31, 2011 as compared with $7.7 million at December 31, 2010 and represent common and preferred equity securities that we have elected to adjust to fair value. The decrease in trading securities was due to the sale of preferred securities during the year offset by the increase in fair value during 2011 that was reflected through the income statement.

Cash and cash equivalents increased $6.9 million, or 20.5%, to $40.6 million at December 31, 2011 from $33.7 million at December 31, 2010. The increase in cash and cash equivalents was due to the timing of reinvesting excess cash in investment and mortgage-backed securities.

Oneida Financial Corp. invests in bank-owned life insurance to provide a funding source for benefit plan obligations. Bank-owned life insurance also generally provides non-interest income that is nontaxable. Federal regulations generally limit the investment in bank-owned life insurance to 25% of the sum of Oneida Savings Banks’ tier 1 capital and its allowance for loan losses. At December 31, 2011, this limit was $16.0 million, and our investment in bank-owned life insurance at that date totaled $17.0 million. We exceeded the limit as a result of acquiring bank-owned life insurance as part of a small bank acquisition but have reduced the excess as a result of the increased capital from our stock offering and conversion.

Liabilities. Total liabilities increased by $93,000, or 0.02%, to $575.8 million at December 31, 2011 from $575.7 million at December 31, 2010. The increase was primarily the result of an increase in other liabilities of $2.6 million offset by a decrease in deposits of $1.6 million and a decrease in borrowings of $1.0 million.

Deposit accounts decreased $1.6 million, or 0.3%, to $550.6 million at December 31, 2011 from $552.2 million at December 31, 2010. Interest-bearing deposit accounts decreased by $5.5 million, or 1.1%, to $481.5 million at December 31, 2011 from $487.0 million at December 31, 2010. Non-interest bearing deposit accounts increased $3.9 million, or 6.0%, to $69.1 million at December 31, 2011 from $65.2 million at December 31, 2010. Core deposit accounts which include checking, savings and money market accounts increased $10.3 million or 2.6%. Time deposits decreased $11.9 million or 7.8%. The increase in core deposit accounts was the result of an increase in municipal deposits offered through our limited purpose commercial banking subsidiary, State Bank of Chittenango, offset by a decrease in our retail deposits. Municipal deposits increased $1.6 million to $118.9 million at December 31, 2011 from $117.3 million at December 31, 2010.

Borrowings decreased $1.0 million, or 8.3%, to $11.0 million at December 31, 2011 from $12.0 million at December 31, 2010. The decrease in borrowings was due to our decision not to renew a portion of the advances that matured during the year. At December 31, 2011, there were no overnight advances outstanding. Overnight advances are accessed from time to time to fund loan originations and short-term deposit outflows.

Other liabilities increased $2.6 million, or 22.6%, to $14.1 million at December 31, 2011 from $11.5 million at December 31, 2010. The increase in other liabilities is primarily due to an increase in future dated commissions and premiums payable in our insurance subsidiary at December 31, 2011.

Stockholders’ Equity. Total stockholders’ equity at December 31, 2011 was $88.0 million, an increase of $2.1 million, or 2.4%, from $85.9 million at December 31, 2010. The change in total equity is the result of net income of $5.7 million combined with an increase in accumulated other comprehensive income (“AOCI”) of $4.1 million at December 31, 2011 resulting from an increase in the market value of mortgage-backed and investment securities and the change in the unrealized loss on pension benefits. Changes in interest rates and market volatility resulted in an increase in the net unrealized gain on our available-for-sale securities. Offsetting these increases in total equity was a reduction of $2.5 million due to the repurchase by the Bank of a non-controlling interest in a subsidiary, the repurchase of 249,224 shares of common stock of the Company and the declaration of cash dividends during the trailing twelve months.

67

Analysis of Net Interest Income

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

68

Average Balance Sheet. The following table sets forth certain information relating to our average balances, average yields and costs, and certain other information for the years ending December 31, 2011, 2010 and 2009. For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities is expressed both in dollars and rates. No tax equivalent adjustments were made. The average balance is an average daily balance. Non-accrual loans have been included in the average balances.

	For the Years Ending December 31,
	2011								2010						2009
	Average				Yield/		Average				Yield/		Average				Yield/
	Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate
	( dollars in thousands )
Interest-earning assets:
Loans receivable	$	287,098	$	15,588		5.43%	$	293,711	$	16,791		5.72%	$	298,449	$	17,761		5.95%
Investment and MBS securities		260,077		7,848		3.02%		202,742		6,648		3.28%		154,151		6,905		4.48%
Federal funds		24,561		21		0.09%		31,919		39		0.12%		13,723		37		0.27%
Equity securities		7,321		326		4.45%		7,385		302		4.09%		6,290		298		4.74%
Total interest-earning assets		579,057		23,783		4.11%		535,757		23,780		4.44%		472,613		25,001		5.29%
Non interest-earning assets:
Cash and due from banks		10,969						13,188						11,725
Other assets		75,597						75,112						74,999
Total Assets	$	665,623					$	624,057					$	559,337
Interest-bearing liabilities:
Money market deposits	$	178,414	$	1,014		0.57%	$	158,842	$	1,465		0.92%	$	117,472	$	1,516		1.29%
Savings accounts		99,127		358		0.36%		87,483		508		0.58%		80,714		488		0.60%
Interest-bearing checking		65,321		63		0.10%		55,853		106		0.19%		46,359		139		0.30%
Time deposits		146,843		2,077		1.41%		152,734		2,606		1.71%		153,870		3,734		2.43%
Borrowings		11,552		503		4.35%		21,072		996		4.73%		36,235		1,697		4.68%
Notes payable		205		8		3.90%		—		—		—		1		—		—
Total interest-bearing liabilities		501,462		4,023		0.80%		475,984		5,681		1.19%		434,651		7,574		1.74%
Non interest-bearing liabilities:
Demand deposits		67,436						60,024						63,711
Other liabilities		8,029						10,740						6,867
Total liabilities		576,927						546,748						505,229
Stockholders' equity		88,696						55,498						56,733
Total Liabilities and
Stockholders' Equity	$	665,623					$	602,246					$	561,962
Net interest income			$	19,760					$	18,099					$	17,427
Net interest spread						3.30%						3.25%						3.55%
Net earning assets	$	77,595					$	59,773					$	37,962
Net interest margin				3.41%						3.38%						3.69%
Ratio of interest-earning assets
to interest-bearing liabilities				115.47%						112.56%						108.73%

69

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

	Years Ended December 31,
	2011 vs. 2010									2010 vs. 2009
	Increase / (Decrease)						Total			Increase / (Decrease)						Total
	Due to						Increase/			Due to						Increase/
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
	( In thousands)
Interest-earning assets:
Loans receivable	$	(359	)	$	(844	)	$	(1,203	)	$	(271	)	$	(699	)	$	(970	)
Investment and mortgage-backed securities		1,730			(530	)		1,200			1,593			(1,850	)		(257	)
Federal funds		(6	)(12)					(18	)		22	(20)					2
Equity securities		(3	)		27			24			45			(41	)		4
Total interest-earning assets	$	1,362		$	(1,359	)	$	3		$	1,389		$	(2,610	)	$	(1,221	)
Interest-bearing liabilities:
Money market deposits	$	111		$	(562	)	$	(451	)	$	382		$	(433	)	$	(51	)
Savings accounts		42			(192	)		(150	)		39	(19)					20
Interest-bearing checking		9			(52	)		(43	)		18			(51	)		(33	)
Time deposits		(83	)		(446	)		(529	)		(19	)		(1,109	)		(1,128	)
Borrowings		(415	)		(78	)		(493	)		(717	)		16			(701	)
Notes payable		8			—			8			—			—			—
Total interest-bearing liabilities	$	(328	)	$	(1,330	)	$	(1,658	)	$	(297	)	$	(1,596	)	$	(1,893	)
Net increase in net interest income							$	1,661								$	672

Comparison of Operating Results for the Years Ended December 31, 2011 and December 31, 2010

General. Net income for the year ended December 31, 2011 was $5.7 million compared to net income of $3.8 million for the year ended December 31, 2010. For the year ended December 31, 2011, the basic net income per share was $0.82 as compared with the 2010 reported basic income per share of $0.53. The increase in net income is primarily the result of an increase in net interest income, an increase in net investment gains, an increase in the change in fair value of investment securities, an increase in non-interest income and a decrease in the provision for loan losses. These increases in income were partially offset by an increase in non-interest expense and an increase in income tax provision during 2011 as compared with 2010.

The net income from operations for the year ending December 31, 2011, which excludes non-cash impairment charges incurred on eight trust preferred securities and two privately issued collateralized mortgage obligation of $367,000 and the non-cash benefit to earnings recognized in connection with the increase in market value of our trading securities of $199,000, net of $42,000 in income taxes, was $5.9 million or $0.84 per basic share. This compares to net income from operations for the year ending December 31, 2010 of $5.6 million, or $0.79 per basic share. Net income excluding the non-cash charges and benefits to earnings increased due primarily to an increase in net interest income, an increase in non-interest income and a decrease in the provisions for loan losses, partially offset by a decrease in investment gains realized and an increase in non-interest expense and

70

income tax provisions. We believe these non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of our business, and facilitate investors’ assessments of business and performance trends in comparison to others in the financial services industry. In addition, we believe the exclusion of these items enables management to perform a more effective evaluation and comparison of our results and to assess the overall performance of our business in relation to our ongoing operations.

Interest and Dividend Income. Interest and dividend income increased by $3,000, or 0.01%, to $23.8 million for the year ended December 31, 2011 from $23.8 million for the year ended December 31, 2010. Interest and fees on loans decreased by $1.2 million for the year ended December 31, 2011 as compared with the same period in 2010. Interest and dividend income on mortgage-backed and other investment securities increased $1.3 million to $8.2 million for the year ended December 31, 2011 from $6.9 million for the year ended December 31, 2010. Interest income earned on federal funds sold decreased $18,000 during 2011 as compared with the year ended December 31, 2010.

The decrease in income on loans resulted from a decrease of 29 basis points in the average yield on loans to 5.43% from 5.72% as well as a decrease of $6.6 million in the average balance of loans to $287.1 million in 2011 from $293.7 million in 2010. As of December 31, 2011, residential real estate loans totaled $89.2 million, a decrease of $1.7 million from December 31, 2010. During 2011, a total of $25.5 million in fixed-rate residential real estate loans were sold in the secondary market. In addition, commercial real estate loans increased $4.4 million to $82.3 million at December 31, 2011 from $77.9 million at December 31, 2010. At December 31, 2011, total loans receivable were $288.5 million as compared with $287.7 million at December 31, 2010, an increase of 0.3%. The decrease in the yield on loans is a result of continued lower market interest rates during 2011 as compared with 2010.

The increase in interest income from investment and mortgage-backed securities was the result of an increase of $57.4 million in the average balance of investment and mortgage-backed securities to $260.1 million at December 31, 2011 from $202.7 million at December 31, 2010 partially offset by a decrease of 26 basis points in the average yield earned to 3.02% from 3.28%. The increase in the average balance on investment and mortgage-backed securities is the result of the investment of the net proceeds of the Company’s stock offering during the second half of 2010.

Interest income on federal funds sold decreased as a result of a decrease in the average balance of federal funds sold of $7.3 million to $24.6 million during the 2011 period as compared with $31.9 million at December 31, 2010 as well as a decrease of 3 basis points in the average yield. The decrease in the yield is due to decreases in interest rates paid on federal funds during the period. The decrease in the average balance of federal funds sold reflects a decision in 2010 to increase the total liquidity of Oneida Financial Corp. due to the temporary investment of stock proceeds.

Income from equity securities increased $24,000 due to an increase in the average yield of 36 basis points from 4.09% as of December 31, 2010 to 4.45% as of December 31, 2011. The average balance decreased $64,000 from $7.4 million as of December 31, 2010 to $7.3 million as of December 31, 2011.

Interest Expense. Interest expense decreased $1.7 million, or 29.8%, to $4.0 million for the year ended December 31, 2011 from $5.7 million for the year ended December 31, 2010. The decrease in interest expense was primarily due to a decrease in interest paid on deposit accounts during 2011 of $1.2 million, decreasing to $3.5 million during 2011 from $4.7 million during 2010. In addition, borrowing expense decreased to $503,000 for 2011 compared with $1.0 million for 2010.

The decrease in interest expense paid on deposits was primarily due to a decrease in the average cost of deposits. Core deposits, including money market accounts, savings accounts and interest-bearing checking accounts, experienced an increase in the average balance of $40.7 million, or 13.5%, to $342.9 million at an average cost of 0.42% during 2011 from $302.2 million at an average cost of 0.69% during 2010. During the same period the average balance of time deposits decreased $5.9 million or 3.9%, to $146.8 million in 2011 from $152.7 million during 2010 and the average rate paid on time deposits decreased 30 basis points.

The decrease in borrowing expense was due to the decrease in the average balance of borrowings outstanding in 2011 to $11.6 million as compared with $21.1 million during 2010. In addition, the average rate paid on borrowings decreased by 38 basis points to 4.35% for the 2011 period.

71

Provision for Loan Losses. Provision for loan losses decreased $600,000, or 36.4%, to $1.1 million for the year ended December 31, 2011 as compared with a provision of $1.7 million for the year ended December 31, 2010. The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent 3 years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability and depth of the lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

The decrease in the provision from 2010 to 2011 was primarily the result of the Company increasing a specific reserve for an impaired unsecured commercial relationship with a principal balance of $2.0 million to $2.0 million as of December 31, 2010 which was subsequently charged-off in the second quarter of 2011. This charge-off did not result in a significant increase in the provision for loan losses using the historical charge-off experience due to the nature of this relationship. The commercial loan portfolio is a small portfolio. Relationships over $250,000 as well as all commercial lines of credit are reviewed at least annually. This relationship was a commercial line of credit. The Bank does not have any other relationships in the type of business this borrower was in. All of our current lines of credit are rating higher than this relationship was and also carry minimal balances on their lines. In addition, the Bank has not taken any net charge-offs on this type of loan over the past five years. Given these circumstances, this charge-off was not considered as part of the actual loss history experienced by the Company when evaluating the allowance allocated to commercial loans at December 31, 2011 and the related provision for loan losses. Non-performing loans have decreased during the year ended December 31, 2011, totaling $1.4 million or 0.2% of total assets at December 31, 2011 compared with $4.0 million or 0.6% of total assets at December 31, 2010. The decrease is due in part to the charge off of the unsecured commercial relationship. Net charge-off activity for the year ended December 31, 2011 was $2.4 million as compared with $275,000 in net charge-offs during 2010. The balance of the allowance for loan losses was $2.9 million or 1.02% of loans receivable at December 31, 2011 compared with $4.3 million or 1.51% of loans receivable at December 31, 2010.

Non-interest Income. Non-interest income increased by $1.8 million, or 7.9%, to $24.7 million for the year ended December 31, 2011 from $22.9 million for the year ended December 31, 2010.

Revenue derived from Oneida Savings Bank’s subsidiaries increased $1.9 million, or 10.9%, to $19.4 million during 2011 as compared with $17.5 million during 2010. Insurance subsidiary revenue of Bailey & Haskell Associates was $11.6 million for the year ended December 31, 2011 as compared with $10.5 million during 2010. The increase in insurance subsidiary revenue is primarily due to increased sales volume and a high level of account revenue retention from the prior year. Consulting activities of Benefit Consulting Group generated revenue of $6.5 million for the year ended December 31, 2011 as compared with $5.9 million during 2010. The increase in consulting revenue is primarily the result of an increase in employee benefit consulting services and increased pension administration revenue resulting from required pension plan amendments prepared for clients. Risk management activities of Workplace Health Solutions generated $1.3 million of revenue for the year ended December 31, 2011 as compared with $1.0 million in revenue during 2010.

Deposit account service fees remained stable at $2.6 million during the year ended December 31, 2011 and 2010. The combination of fee reductions and higher account balances currently maintained resulted in more stable deposit account service fee revenue.

We experienced a decrease in income from the sale and servicing of fixed-rate residential real estate loans. Such income decreased to $919,000 during 2011 compared with $1.1 million during 2010. The decrease is primarily the result of a decrease in the profit on sales of loans in 2011 as compared with 2010 due to the decrease in loan sales.

Change in fair value of investments. We have identified the preferred and common equity securities we hold in the investment portfolio as trading securities and as such the change in fair value of these securities is reflected as a non-cash

72

adjustment through the income statement. For the year ended December 31, 2011 the market value of our trading securities increased $199,000 as compared with an increase of $103,000 in the 2010 period.

Net investment Gains (Losses). Net investment gains for the year ended December 31, 2011 were $58,000 as compared to net investment losses of $901,000 during 2010. The increase in net investment gains was the result of the decrease in the non-cash impairment charges. Non-cash impairment charges of $367,000 were recorded for the year ended December 31, 2011 as compared to $2.4 million recorded for the year ended December 31, 2010 for eight trust preferred securities and two privately issued collateralized mortgage obligations which were determined to be other-than-temporarily impaired. The trust preferred securities are diversified pools of collateralized debt obligations primarily issued by domestic financial institutions and their holding companies. Partially offsetting the non-cash impairment charges were investment gains resulting from our decision to realize a portion of the appreciation in our mortgage-backed and investment securities portfolio resulting in net gains realized of $425,000 during 2011 and $1.5 million during 2010.

Non-interest Expense. Non-interest expense increased by $2.1 million or 6.2% to $35.7 million for the year ended December 31, 2011 from $33.6 million for the year ended December 31, 2010. The increase was primarily due to an increase in operating expenses associated with our insurance agency and consulting subsidiaries associated with commissions paid concurrent with revenue increases.

Salaries, wages and other compensation paid to the employees of Oneida Financial Corp. during 2011 was $23.1 million, an increase of $1.7 million, or 7.9%, as compared with compensation expense of $21.4 million during 2010. The increase in compensation expense was primarily the result of the increase in sales of insurance and other non-banking products through our subsidiaries resulting in an increase in commissions paid and employee benefit expense.

Building occupancy and equipment expense decreased $159,000, or 3.2%, to $4.8 million for the year ended December 31, 2011 as compared to $5.0 million during 2010. In October 2010, the Company sold the building and equipment that represented our South Utica Office.

Other non-interest expense increased $680,000, or 9.5%, to $7.8 million for the year ended December 31, 2011 as compared to $7.2 million during 2010. The increase in other non-interest expense was primarily the result of consultant or broker charges related to the sales of insurance and other non-banking products through our subsidiaries. Consultant or broker charges increased by $227,000, or 22.0%, to $1.3 million for the year ended December 31, 2011 as compared to $1.0 million during 2010.

Provision for Income Taxes. Provision for income taxes was $2.0 million for the year ended December 31, 2011, an increase of $1.0 million from the 2010 income tax provision recorded of $914,000. The increase in income tax provision reflects the increase in pre-tax income for 2011 as compared to 2010 as well as an increase in the effective tax rate for the 2011 period. The higher effective tax rate was due to changes in the Bank’s tax exempt and tax preferred investment income and overall tax rate in effect for the year.

Comparison of Operating Results for the Years Ended December 31, 2010 and December 31, 2009

General. Net income for the year ended December 31, 2010 was $3.8 million compared to net income of $4.1 million for the year ended December 31, 2009. For the year ended December 31, 2010, the basic net income per share was $0.53 as compared with the 2009 reported basic income per share of $0.58. The decrease in net income is primarily the result of an increase in provision for loan losses, a decrease in the change in fair value of investment securities and an increase in non-interest expense. These decreases in income were partially offset by an increase in net interest income, an increase in non-interest income, a decrease in net investment losses and a decrease in income tax provision during 2010 as compared with 2009.

The net income from operations for the year ending December 31, 2010, which excludes non-cash impairment charges incurred on eight trust preferred securities and one privately issued collateralized mortgage obligation of $2.4 million and the non-cash benefit to earnings recognized in the connection with the increase in market value of our trading securities of $103,000, net of $454,000 in income taxes, was $5.6 million or $0.79 per basic share. This compares to net income from operations for the year ending December 31, 2009 of $4.6 million, or $0.64 per basic share. Net income excluding the non-cash charges and benefits to earnings increased due primarily to an increase in net interest income, an increase in investment gains realized and an increase in non-interest income, partially offset by an increase in non-interest expense, provisions for loan losses and income tax provisions. We believe these non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of our business, and facilitate investors’ assessments of business and performance trends in comparison to others in the financial

73

services industry. In addition, we believe the exclusion of these items enables management to perform a more effective evaluation and comparison of our results and assess performance in relation to our ongoing operations.

Interest and Dividend Income. Interest and dividend income decreased by $1.2 million, or 4.9%, to $23.8 million for the year ended December 31, 2010 from $25.0 million for the year ended December 31, 2009. Interest and fees on loans decreased by $970,000 for the year ended December 31, 2010 as compared with the same period in 2009. Interest and dividend income on mortgage-backed and other investment securities decreased $253,000 to $6.9 million for the year ended December 31, 2010 from $7.2 million for the year ended December 31, 2009. Interest income earned on federal funds sold increased $2,000 during 2010 as compared with the year ended December 31, 2009.

The decrease in income on loans resulted from a decrease of 23 basis points in the average yield on loans to 5.72% from 5.95% as well as a decrease of $4.7 million in the average balance of loans to $293.7 million in 2010 from $298.4 million in 2009. As of December 31, 2010, residential real estate loans totaled $90.9 million, a decrease of $10.9 million from December 31, 2009. During 2010, a total of $36.7 million in fixed-rate residential real estate loans were sold in the secondary market. In addition, commercial real estate loans increased $5.8 million to $77.9 million at December 31, 2010 from $72.1 million at December 31, 2009. At December 31, 2010, total loans receivable were $287.7 million as compared with $298.7 million at December 31, 2009, a decrease of 3.7%. The decrease in the yield on loans is a result of continued lower market interest rates during 2010 as compared with 2009.

The decrease in interest income from investment and mortgage-backed securities was the result of a decrease of 120 basis points in the average yield earned to 3.28% from 4.48% partially offset by an increase of $48.5 million in the average balance of investment and mortgage-backed securities to $202.7 million at December 31, 2010 from $154.2 million at December 31, 2009. The increase in the average balance on investment and mortgage-backed securities is the result of purchases during the year reflecting the increase in municipal deposits that require collateral to be pledged against the balances as well as the investment of the net proceeds of the Company’s stock offering.

Interest income on federal funds sold increased as a result of an increase in the average balance of federal funds sold of $18.2 million to $31.9 million during the 2010 period as compared with $13.7 million at December 31, 2009 partially offset by a decrease of 15 basis points in the average yield. The decrease in the yield is due to decreases in interest rates paid on federal funds during the period. The increase in the average balance of federal funds sold reflects a decision in 2010 to increase the total liquidity of Oneida Financial Corp due to the temporary investment of stock proceeds.

Income from equity securities increased $4,000 due to an increase in the average balance of $1.1 million from $6.3 million as of December 31, 2009 to $7.4 million as of December 31, 2010. The average yield decreased 65 basis points from 4.74% as of December 31, 2009 to 4.09% as of December 31, 2010.

Interest Expense. Interest expense decreased $1.9 million, or 25.0%, to $5.7 million for the year ended December 31, 2010 from $7.6 million for the year ended December 31, 2009. The decrease in interest expense was primarily due to a decrease in interest paid on deposit accounts during 2010 of $1.2 million, decreasing to $4.7 million during 2010 from $5.9 million during 2009. In addition, borrowing expense decreased to $1.0 million for 2010 compared with $1.7 million for 2009.

The decrease in interest expense paid on deposits was primarily due to a decrease in the average cost of deposits. Core deposits, including money market accounts, savings accounts and interest-bearing checking accounts, experienced an increase in the average balance of $57.7 million, or 23.6%, to $302.2 million at an average cost of 0.69% during 2010 from $244.5 million at an average cost of 0.88% during 2009. During the same period the average balance of time deposits decreased $1.2 million or 0.8%, to $152.7 million in 2010 from $153.9 million during 2009 and the average rate paid on time deposits decreased 72 basis points.

The decrease in borrowing expense was due to the decrease in the average balance of borrowings outstanding in the 2010 period to $21.1 million as compared with $36.2 million during the 2009 period, offset by a 5 basis point increase in the average rate paid on borrowed funds to 4.73% for the 2010 period.

Provision for Loan Losses. Provision for loan losses increased $890,000, or 117.1%, to $1.7 million for the year ended December 31, 2010 as compared with a provision of $760,000 for the year ended December 31, 2009. The increase in the provision from 2009 to 2010 was primarily the result of the Company increasing a specific reserve for an impaired unsecured commercial relationship with a principal balance of $2.0 million to $2.0 million as of December 31, 2010 as compared to $570,000

74

as of December 31, 2009. Non-performing loans have increased during the year ended December 31, 2010, totaling $4.0 million or 0.60% of total assets at December 31, 2010 compared with $551,000 or 0.09% of total assets at December 31, 2009. The increase is due in part to the impaired unsecured commercial relationship as well as an additional commercial relationship with two commercial mortgages totaling $1.4 million that is also considered impaired at December 31, 2010. This commercial relationship was considered impaired due to the contractual terms of the loans not being met as the properties that secure the loans are part of a settlement of an estate involving numerous parties. Net charge-off activity for the year ended December 31, 2010 was $275,000 as compared with $483,000 in net charge-offs during 2009. The balance of the allowance for loan losses was $4.3 million or 1.51% of loans receivable at December 31, 2010 compared with $2.9 million or 0.98% of loans receivable at December 31, 2009.

Non-interest Income. Non-interest income increased by $2.0 million, or 9.6%, to $22.9 million for the year ended December 31, 2010 from $20.9 million for the year ended December 31, 2009.

Revenue derived from Oneida Savings Bank’s subsidiaries increased $1.7 million, or 10.8%, to $17.5 million during 2010 as compared with $15.8 million during 2009. Insurance subsidiary revenue of Bailey & Haskell Associates was $10.5 million for the year ended December 31, 2010 as compared with $9.7 million during 2009. The increase in insurance subsidiary revenue is primarily due to increased sales volume and a high level of account revenue retention from the prior year. Consulting activities of Benefit Consulting Group generated revenue of $5.9 million for the year ended December 31, 2010 as compared with $5.7 million during 2009. The increase in consulting revenue is primarily the result of an increase in employee benefit consulting services and increased pension administration revenue resulting from required pension plan amendments prepared for clients. Risk management activities of Workplace Health Solutions generated $1.0 million of revenue for the year ended December 31, 2010 as compared with $491,000 in revenue during 2009. The increase in risk management revenue was the result of continued client growth for this new subsidiary established at the beginning of 2008.

Deposit account service fees remained stable at $2.6 million during the year ended December 31, 2010 and 2009. The combination of fee reductions and higher account balances currently maintained resulted in more stable deposit account service fee revenue.

We experienced an increase in income from the sale and servicing of fixed-rate residential real estate loans. Such income increased to $1.1 million during 2010 compared with $985,000 during 2009. The increase is primarily the result of an increase in the profit on sales of loans in 2010 as compared with 2009.

Change in fair value of investments. We have identified the preferred and common equity securities we hold in the investment portfolio as trading securities and as such the change in fair value of these securities is reflected as a non-cash adjustment through the income statement. For the year ended December 31, 2010 the market value of our trading securities increased $103,000 as compared with an increase of $1.7 million in the 2009 period.

Net investment losses. Net investment losses for the year ended December 31, 2010 were $901,000 as compared with net investment losses of $1.5 million during 2009. The net investment loss was the result of a non-cash impairment charge of $2.4 million recorded for the year ended December 31, 2010 as compared to $2.3 million recorded for the year ended December 31, 2009 for eight trust preferred securities and one privately issued collateralized mortgage obligation which were determined to be other-than-temporarily impaired. The trust preferred securities are diversified pools of collateralized debt obligations primarily issued by domestic financial institutions and their holding companies. Partially offsetting the non-cash impairment charges were investment gains resulting from our decision to realize a portion of the appreciation in our mortgage-backed and investment securities portfolio resulting in net gains realized of $1.5 million during 2010 and $788,000 during 2009.

Non-interest Expense. Non-interest expense increased by $1.4 million or 4.3% to $33.6 million for the year ended December 31, 2010 from $32.2 million for the year ended December 31, 2009. The increase was primarily due to an increase in operating expenses associated with our insurance agency and consulting subsidiaries associated with commissions paid concurrent with revenue increases

Salaries, wages and other compensation paid to the employees of Oneida Financial Corp. during 2010 was $21.4 million, an increase of $1.0 million, or 4.9%, as compared with compensation expense of $20.4 million during 2009. The increase in compensation expense was primarily the result of the increase in sales of insurance and other non-banking products through our subsidiaries resulting in an increase in commissions paid and employee benefit expense. In 2006, Oneida Financial Corp. approved a Management Recognition and Retention Plan for directors, officers and key employees. The expense associated with this benefit was $172,000 for 2010 as compared with $180,000 in 2009.

75

Building occupancy and equipment expense increased $249,000, or 5.2%, to $5.0 million for the year ended December 31, 2010 as compared to $4.7 million during 2009.

Other non-interest expense increased $147,000, or 2.1%, to $7.2 million for the year ended December 31, 2010 as compared to $7.0 million during 2009. The increase in other non-interest expense was primarily the result of consultant or broker charges related to the sales of insurance and other non-banking products through our subsidiaries. Consultant or broker charges increased by $251,000, or 32.1%, to $1.0 million for the year ended December 31, 2010 as compared to $781,000 during 2009.

Provision for Income Taxes. Provision for income taxes was $914,000 for the year ended December 31, 2010, a decrease of $297,000 from the 2009 income tax provision recorded of $1.2 million. The decrease in income tax provision reflects the decrease in effective tax rate for 2010 as compared with 2009. The lower effective tax rate was due to changes in the Bank’s tax exempt and tax preferred investment income and overall tax rate in effect for the year.

Application of Critical Accounting Policies

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

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

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

As of December 31, 2011, $47.2 million of securities were considered held-to-maturity and are carried at amortized cost on our statement of condition. Securities available-for-sale, which represented $197.3 million at December 31, 2011, are recorded at current market value on our statement of condition. Unrealized gains or losses, net of the deferred tax effect, are reported in other comprehensive income as a separate component of stockholders’ equity. Recorded values are based on prices obtained from nationally recognized resources or securities dealer’s valuations. We conduct a quarterly review and evaluation of the securities portfolios to determine if any declines in fair value are other than temporary. For debt securities that do not meet the aforementioned criteria, the amount of the impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other

76

comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Securities in which the fair value option has been elected, which include both common and preferred equity securities, are classified as trading assets and are recorded at fair value on our statement of condition. Changes in fair value are included in earnings.

The estimation of fair value is significant to several of our assets, including trading securities and securities available-for-sale. Fair values are determined based on third party sources, when available. Furthermore, accounting principles generally accepted in the United States require disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements. Fair values may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates and the shape of the yield curve.

Fair values for securities available-for-sale are typically based on quoted market prices. If a quoted market price is not available, fair values are estimated using quoted market prices for similar securities or level 3 values. Note 4 to the consolidated financial statements provides additional information on how we determine level 3 values.

The valuation of our obligation associated with pension plans utilizes various actuarial assumptions. These assumptions include discount rate and expected return on plan assets. Specific discussion of the assumptions used by management is discussed in Note 11.

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

Management of Market Risk and Other Risks

Our most significant form of market risk is interest rate risk, as the majority of our assets and liabilities are sensitive to changes in interest rates. Ongoing monitoring and management of this risk is an important component of our asset and liability management process. We do not own any trading assets other than common and preferred equity securities classified as trading in accordance with fair value accounting. We do not engage in hedging transactions, such as interest rate swaps and caps, other than forward sale commitments on certain mortgage loan commitments. Our interest rate risk management program focuses primarily on evaluating and managing the composition of our assets and liabilities in the context of various interest rate scenarios. Factors beyond Management’s control, such as market interest rates and competition, also have an impact on interest income and interest expense.

Interest Rate Risk. We have used the following strategies to manage interest rate risk: (i) emphasizing the origination and retention of adjustable-rate residential mortgage loans, adjustable-rate commercial mortgage loans, other business purpose loans and consumer loans consisting primarily of auto loans; (ii) selling substantially all newly originated longer-term fixed rate one-to-four family residential mortgage loans into the secondary market without recourse and on a servicing retained basis; (iii) seeking to increase and diversify our sources of revenue, particularly non-interest income and (iv) managing our 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 improves our position for increases in market interest rates and better matches the maturities of our certificate of deposit accounts. Certificates of deposit that mature in one year or less, at December 31, 2011 totaled $99.6 million, or 19.9% of total interest-bearing liabilities of which $5.8 million represents municipal deposits. Borrowed funds that mature in one year or less at December 31, 2011 totaled $5.0 million, or 1.0% of total interest-bearing liabilities. Management believes that this balanced approach to investing will reduce the exposure to interest rate fluctuations and will enhance long-term profitability.

Net Income and Portfolio Value Analysis. Our 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 our 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 and reinvestment rates.

77

 The following sets forth our net interest income and NPV as of December 31, 2011.

	Net Interest Income								Net Portfolio Value
Change in Interest Rates In Basis Points (Rate Shock)	Dollars Amount		Dollar Change			Percent Change			Dollars Amount		Dollar Change			Percent Change
	(Dollars in thousands)
+500	$	17,660	$	(2,100	)		(10.63	)%	$	34,403	$	(42,326	)		(55.16	)%
+400	$	18,914	$	(846	)		(4.28	)%	$	45,651	$	(31,078	)		(40.50	%
+300	$	19,724	$	(36	)		(0.18	)%	$	56,870	$	(19,859	)		(25.88	)%
+200	$	20,266	$	506			2.56	%	$	67,727	$	(9,002	)		(11.73	)%
+100	$	20,315	$	555			2.81	%	$	74,660	$	(2,069	)		(2.70	)%
Static	$	19,760	$	—			-%		$	76,729	$	—			-%
-100	$	18,983	$	(777	)		(3.93	)%	$	80,807	$	4,078			5.31	%

The following sets forth our net interest income and NPV as of December 31, 2010.

	Net Interest Income								Net Portfolio Value
Change in Interest Rates In Basis Points (Rate Shock)	Dollars Amount		Dollar Change			Percent Change			Dollars Amount		Dollar Change			Percent Change
	(Dollars in thousands)
+500	$	19,227	$	1,128			6.23	%	$	25,187	$	(47,138	)		(65.18	)%
+400	$	19,122	$	1,023			5.65	%	$	32,358	$	(39,967	)		(55.26	)%
+300	$	19,009	$	910			5.03	%	$	43,178	$	(29,147	)		(40.30	)%
+200	$	18,684	$	585			3.23	%	$	55,673	$	(16,652	)		(23.02	)%
+100	$	18,446	$	347			1.92	%	$	65,897	$	(6,428	)		(8.89	)%
Static	$	8,099	$	—			-%		$	72,325	$	—			-%
-100	$	17,527	$	(527	)		(3.16	)%	$	79,190	$	6,865			9.49	%

As of December 31, 2011, a 200 basis point increase in market interest rates was estimated to have a positive impact of 2.56% on net interest income during 2012 while a 300 basis point increase in rates would have a negative impact of 0.18% on net interest income during 2012. This analysis is based on numerous assumptions including the nature and timing of interest rate levels, prepayment on loans and securities, deposit decay rates, pricing decisions on loans and deposits and other assumptions, and should not be relied upon as being indicative of expected operating results.

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 in the table assumes that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and 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 our 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 our net interest income and will differ from actual results.

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

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

78

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

The securities investment policy is established by the Board of Directors. This policy dictates that investment decisions will be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets and desired risk parameters. In pursuing these objectives, management considers the ability of an investment to provide earnings consistent with factors of quality, maturity, marketability and risk diversification. We will only purchase securities rated as investment grade by a nationally recognized investment rating agency. The ability of an issuer of a corporate debt instrument to repay the obligation is influenced by a number of factors including general economic conditions, cash flow, events in specific industries, regional crisis, bankruptcy and many other factors. Corporate bonds are not typically guaranteed beyond their ability to repay and therefore may result in a loss to us if conditions change from those in place at the time the investment was acquired. We conduct a quarterly evaluation of the securities portfolio to determine if any declines in fair value are other-than-temporary. Part of this analysis includes forecasting of rate projections and investment spreads over bond indices as compared to historical performance. Fluctuations in market conditions could impact the evaluation and outcome of projections.

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

Legal Proceedings. We and our subsidiaries are subject to various legal actions arising in the normal course of business. For a complete discussion see our Annual Report on Form 10-K “ITEM 3. LEGAL PROCEEDINGS”.

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

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

Liquidity management is both a short-term and long-term responsibility of management. We adjust our investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) projected purchases of investment and mortgage-backed securities, (iii) acquisition activities, (iv) expected deposit flows, (v) yields available on interest-bearing deposits, and (vi) liquidity of its asset/liability management program. Excess liquidity is generally invested in interest-earning overnight deposits, federal funds sold and other short-term U.S. agency obligations. At December 31, 2011, cash and interest-earning deposits totaled $40.6 million, or 6.1% of total assets.

If Oneida Savings Bank requires funds beyond its ability to generate them internally, it has the ability to borrow funds from the FHLB. Oneida Savings Bank may borrow from the FHLB under a blanket agreement, which assigns all investments in FHLB stock as well as qualifying first mortgage loans equal to 150% of the outstanding balance as collateral to secure the amounts borrowed. At December 31, 2011, Oneida Savings Bank has available $52.6 million of overnight borrowing capacity with the Federal Home Loan Bank of which none was outstanding at December 31, 2011. In addition, we can utilize investment and mortgage-backed securities as collateral for repurchase agreements. We also maintain lines of credit with various commercial banks as an additional source of short-term borrowing. At December 31, 2011 we had approximately $20.0 million available to us under these borrowing arrangements.

79

We must also maintain adequate levels of liquidity to satisfy loan commitments. At December 31, 2011, we had outstanding commitments to originate loans of $72.1 million. We anticipate that we will have sufficient funds to meet current loan commitments.

Certificates of deposit, which are scheduled to mature in one year or less from December 31, 2011, totaled $99.6 million of which $5.8 million represent municipal deposits. Based upon our experience and current pricing strategy, management believes that a significant portion of such deposits will remain with the Bank. Deposits less than $100,000 totaled $281.2 million at December 31, 2011.

Management believes that our liquidity policies and sources are effective to satisfy current and anticipated financial commitments.

Capital Requirements. The FDIC has adopted risk-based capital guidelines to which Oneida Savings 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. Oneida Savings Bank is required to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of such regulatory capital to regulatory risk-weighted assets is referred to as the Bank’s “risk-based capital ratio.” Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the categories perceived as representing greater risk.

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

Based on the foregoing, Oneida Savings Bank is currently classified as a “well capitalized” savings institution. The following table sets forth information regarding Oneida Savings Bank’s capital levels as of December 31, 2011.

	Minimum Required	To Be Well capitalized Under prompt Corrective Action Provisions	Actual
Tier I Capital to Average Assets	4%	5%	9.62%
Tier I Capital to Risk-Weighted Assets	4%	6%	14.91%
Total Capital to Risk-Weighted Assets	8%	10%	15.62%

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

Contractual Obligations: The following table presents as of December 31, 2011, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.

(Dollars in thousands)			Payments Due In
Contractual Obligation	Note Reference		One Year or Less		One to Three Years		Three to Five Years		Over Five Years		Total
Certificates of Deposit		8	$	99,609	$	25,951	$	14,763	$	6	$	140,329
Borrowings		9	$	5,000	$	6,000	$	—	$	—	$	11,000

Commitments and Off-Balance Sheet Arrangements: In the normal course of business, to meet the financing needs of its customers and to reduce its exposure to fluctuations in interest rates, we are a party to financial instruments with off-balance sheet risk, held for purposes other than trading. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument, for loan commitments and standby letters of credit, is represented by the contractual amount of those instruments, assuming that the amounts are fully advanced and that collateral or other security is of no value. We use the same credit policies in making such commitments as we do for on-balance sheet loans. The amount of

80

collateral obtained, if deemed necessary by us upon extension of credit, is based on management’s credit evaluation of the borrower. Commitments to originate loans, unused lines of credit, and unadvanced portions of construction loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments are expected to expire without being drawn upon. Therefore, the amounts presented below do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments that we issue to guarantee the performance by a customer to a third party. These guarantees are issued primarily to support public and private borrowing arrangements, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.

The following table details the amounts and expected maturities of significant commitments and off-balance sheet arrangements as of December 31, 2011. Further discussion of these commitments and off-balance sheet arrangements is included in Note 14 to the consolidated financial statements.

Commitments to extend credit:	One Year or Less		One to Three years		Three to Five years		Over Five years		Total
	(In thousands)
Commercial real estate and commercial business	$	48,148	$	633	$	—	$	—	$	48,781
Residential real estate		3,649		—		—		—		3,649
Revolving home equity lines		407		2,812		2,579		12,336		18,134
Consumer revolving credit		1,279		—		—		—		1,279
Standby letters of credit		257		17		—		—		274

Impact of Inflation and Changing Prices

Our consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

Market for Common Stock. The Company’s common stock commenced trading on the NASDAQ Global Market on July 7, 2010, following the completion of the conversion and offering. Prior to that date, the common stock of old Oneida Financial Corp., the Company’s predecessor, had traded on the NASDAQ Capital Market since December 30, 1998. The table below provides information on the high and low trading prices of the common stock for the periods indicated, as reported on the NASDAQ Stock Market, as well as the dividends paid during such periods. All per share amounts prior to the completion of the conversion are adjusted to reflect the 0.9136 exchange ratio used in the conversion. The Company’s common stock is traded on the NASDAQ Global Market under the symbol “ONFC”.

	Price Per Share				Cash
	High		Low		Dividend Per Share
2011
Fourth quarter	$	9.67	$	8.74	$	0.12
Third quarter		9.24		8.30		0.12
Second quarter		8.94		8.30		0.12
First quarter		9.05		7.85		0.12
2010
Fourth quarter	$	8.24	$	7.06	$	0.12
Third quarter		8.25		7.18		0.06
Second quarter		10.95		7.80		—
First quarter		10.95		9.34		0.12

81

As of December 31, 2011, there were 6,913,049 shares of the Company’s common stock issued and approximately 1,316 shareholders of record. The shareholders of record include banks and brokers who act as nominees, each of whom may represent more than one shareholder.

The Board of Directors of the Company declared four quarterly cash dividends during the year ended December 31, 2011. The table above represents the payment of the cash dividends. With the second step conversion in 2010, the Board moved to a quarterly dividend payment instead of a semiannual payment. The Board will review the dividend regularly and expects to maintain a regular quarterly dividend in the future, dependent upon the Company’s earnings, financial condition and other factors. The Company relies in part on dividends from the Bank to fund the payment of dividends to Company stockholders. See Note 15 of the Consolidated Financial Statements for a discussion of restrictions on the Bank’s ability to pay dividends.

Stock Performance Graph. Set forth hereunder is a stock performance graph comparing (a) the cumulative total return on the Common Stock for the period beginning December 31, 2006, as reported by the Nasdaq Market, through December 31, 2011, (b) the cumulative total return on stocks included in the S&P 500 Index over such period, (c) the cumulative total return on stocks included in the Nasdaq Bank Index over such period, and (d) the cumulative total return of publicly traded thrifts or thrift holding companies located in the Mid-Atlantic Region over such period. Cumulative return assumes the reinvestment of dividends, and is expressed in dollars based on an assumed investment of $100. The graph reflects stock price information for the Company since July 7, 2010, and for the Company’s predecessor prior to that date, and reflects the impact of the exchange ratio used in the conversion for the period prior to July 7, 2010.

	Period Ending
Index	12/31/06	12/31/07	12/31/08	12/31/09	12/31/10	12/31/11
Oneida Financial Corp.	100.00	84.82	69.65	87.95	75.56	95.22
S&P 500	100.00	103.53	63.69	78.62	88.67	88.67
SNL Mid-Atlantic U.S. Thrifts	100.00	80.17	64.62	58.98	65.05	48.19
Nasdaq Bank Index	100.00	77.93	59.29	48.32	54.06	47.34

Assuming an initial investment in the Common Stock of Oneida Financial Corp. of $100.00 at December 31, 2006, the cumulative total value with dividends reinvested would be $95.22 at December 31, 2011.