Oneida Financial Reports 2008 First Quarter Operating Results

The decrease in net income is primarily the result of a non-cash charge to earnings reflecting a decrease in market value of certain investment securities.

Net income from operations for the first quarter, as referenced in the table below, was $870,000 or $0.11 per diluted share. This compares to net income from operations for the 2007 first quarter of $748,000, or $0.10 per diluted share. The increase in net income from operations was primarily due to an increase in net interest income, an increase in non-interest income and a decrease in the provision for income taxes, partially offset by an increase in non-interest expense. The acquisition of The National Bank of Vernon and the opening of a banking, insurance and retail center in the Griffiss Business and Technology Park in Rome, New York both completed in the second quarter of 2007 contributed to the increase in non-interest expense.

Total assets increased $87.6 million or 19.3%, to $542.7 million at March 31, 2008 from $455.0 million at March 31, 2007. The increase in the Company's assets is primarily due to the acquisition of The National Bank of Vernon resulting in an increase in loans receivable and an increase in investment and mortgage-backed securities. Loans receivable increased $36.9 million to $281.0 million at March 31, 2008 as compared with March 31, 2007, reflecting loan origination activities of Oneida Savings Bank and loans acquired from Vernon Bank of $26.0 million. The increase in loans receivable was partially offset by the sale of $18.3 million in fixed rate one-to-four family residential real estate loans during the trailing twelve month period. The Company does not originate and has no direct exposure to sub-prime, Alt-A, negative amortizing or other higher risk residential mortgages.

Investment securities increased $17.0 million to $95.1 million at March 31, 2008 as compared with $78.1 million at March 31, 2007. Mortgage-backed securities increased $37.4 million to $65.2 million at March 31, 2008 as compared with $27.8 million at March 31, 2007. The increase in total assets was supported by an increase of $102.4 million in total deposits to $422.2 million at March 31, 2008. Contributing to the increase was $54.6 million in deposits acquired from Vernon Bank. The increase in total deposits also enabled the Bank to reduce borrowings outstanding by $15.4 million to $56.4 million at March 31, 2008 compared with March 31, 2007. The acquisition of The National Bank of Vernon resulted in an increase in goodwill and other intangible assets of $5.9 million. Premises and equipment also increased $3.5 million from March 31, 2007 to March 31, 2008 partially the result of the addition of three Vernon Bank offices.

Net interest income increased for the first quarter of 2008 to $3.7 million compared with $3.1 million for the first quarter of 2007. The increase in net interest income primarily is due to an increase in the net interest margin earned which was 3.38% for the three months ending March 31, 2008 as compared with 3.34% for the same period in 2007.

Interest income was $6.7 million for the first quarter of 2008; an increase of 17.7% as compared with interest income of $5.7 million during the same period in 2007. This increase in interest income during the three months ended March 31, 2008 resulted primarily from an increase in the average balances of interest-earning assets during the current period of $70.9 million. This increase was partially offset by a decrease in the yield of 8 basis points on interest earning assets, reflecting the decrease in short-term market interest rates during the current quarter.

Total interest expense increased to $3.0 million for the three months ended March 31, 2008. This is compared with interest expense of $2.6 million during the same 2007 period. The increase for the three months ended March 31, 2008 was due to an increase in the average balances of interest-bearing liabilities during the current period of $69.7 million. Average borrowed funds outstanding were $56.8 million for the three months ending March 31, 2008, compared with $66.8 million in average borrowings outstanding during the first quarter of 2007. Interest expense on deposits increased 29.8% during the first quarter of 2008 to $2.3 million as compared with the same period of 2007. Average interest-bearing deposits were $341.4 million for the three months ending March 31, 2008, compared with $261.7 million during the first quarter of 2007. The cost of interest-bearing liabilities decreased 21 basis points during the first quarter of 2008 as compared with the same period in 2007.

Non-interest income was $4.0 million during the first quarter of 2008 compared with $4.2 million for the same 2007 period. The decrease in non-interest income was the result of the fair value adjustment for certain investment securities which resulted in a charge against earnings of $604,000 during the first quarter of 2008 as previously described. This earnings charge was partially offset by increases in all other sources of non-interest income from operating activities. Commissions and fees on the sale of non-banking products through the Company's subsidiaries for the three months ended March 31, 2008 increased 5.7% as compared with the same period during 2007. Non-interest income was further supported by an increased level of service charges on deposit accounts, increasing $111,000 or 21.0% for the three months ended March 31, 2008 compared with 2007. Other non-interest income from operations also increased $79,000 or 19.5% during the current quarter.

Non-interest expense was $7.2 million for the three months ended March 31, 2008 compared with $6.3 million for the three months ended March 31, 2007. The increase in non-interest expense is primarily the result of an increase in equipment and other operating expenses associated with the expansion of our banking franchise resulting from the acquisition of the National Bank of Vernon and the completion of our banking, insurance and retail center at the Griffiss Business and Technology Park in Rome, New York. In addition, an increase in operating expenses associated with our insurance agency and consulting subsidiaries associated with revenue increases contributed to the increase in non-interest expense. There was no provision for loan losses made during first quarter of 2008 and no provisions made during the 2007 period. The Company continues to monitor the adequacy of the allowance for loan losses given the risk assessment of the loan portfolio and current economic conditions. The continued low level of net loan charge-offs and non- performing assets supports the lack of provision for loan losses during the first quarter of 2008. The ratio of the loan loss allowance to loans receivable is 0.89% at March 31, 2008 compared with a ratio of 0.85% at March 31, 2007. The level of the allowance as a percentage of loans reflects improvement in various credit factors, including the current level in non-performing assets.

Stockholders' equity was $58.8 million, or 10.8% of assets at March 31, 2008 compared with $58.4 million, or 12.8% of assets, at March 31, 2007. The increase in stockholders' equity was primarily a result of the contribution of net earnings for the trailing twelve month period. Partially offsetting the increase in stockholders' equity were valuation adjustments made for the Company's available for sale investment and mortgage-backed securities as well as the adoption of FAS 159 on January 1, 2008. In addition, stockholders' equity was reduced through the payment of cash dividends in February 2008.

This release may contain certain forward-looking statements, which are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact the Company's earnings in future periods. Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products, and services.

All financial information provided at and for the quarter ended March 31, 2008 and all quarterly data is unaudited. Selected financial ratios have been annualized where appropriate. Operating data is presented in thousands of dollars, except for per share amounts. -- Oneida Financial Corp.