Seneca-Cayuga Bancorp (SCAY) 10QSB 2006 Q3 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

(Mark One)

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2006

¨ Transition report under Section 13 or l5(d) of the Exchange Act

For the transition period from            to            

Commission file number 000-52111

Seneca-Cayuga Bancorp, Inc.

(Exact name of registrant as specified in its charter)

United States of America	16-1601243
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

19 Cayuga Street, Seneca Falls, NY 13148

(Address of Principal Executive Offices)

(315) 568-5855

(Registrant’s telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ¨  Yes    x  No

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act.)    ¨  Yes    x  No

State the number of shares outstanding of each class of issuer’s classes of common stock as of the last practicable date:

Class	Outstanding at November 6, 2006
Common Stock, par value $.01	2,380,500

Transitional Small Business Disclosure Format (Check one):    ¨  Yes    x  No

TABLE OF CONTENTS

Part I – Financial Information
Item 1	Financial Statements (unaudited)
	Consolidated Statements of Financial Condition as of September 30, 2006 and December 31, 2005	3
	Consolidated Statements of Operations for the Three Months Ended September 30, 2006 and 2005	4
	Consolidated Statements of Operations for the Nine Months Ended September 30, 2006 and 2005	5
	Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2006 and 2005	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005	7
	Notes to Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Results of Operations and Financial Condition	12
Item 3	Controls and Procedures	20
Part II – Other Information
Item 1	Legal Proceedings	21
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3	Defaults Upon Senior Securities	21
Item 4	Submission of Matters to a Vote of Security Holders	21
Item 5	Other Information	21
Item 6	Exhibits	22
Signatures		22

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Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Financial Condition (Unaudited)

(Dollars in thousands, except per share data)

	September 30, 2006			December 31, 2005
Assets
Cash and due from banks	$	3,007		$	3,023
Interest-bearing deposits in banks		1,086			395
Cash and cash equivalents		4,093			3,418
Interest-bearing term deposits		4,000			—
Securities available for sale		24,486			30,372
Securities held to maturity (fair value 2006 - $23,891 and 2005 - $26,817)		24,445			27,311
Loans held for sale		—			66
Loans receivable, net of allowance for loan losses (2006 - $376 and 2005 - $371)		84,785			79,205
Federal Home Loan Bank of New York stock, at cost		1,403			1,490
Premises and equipment, net		4,450			4,691
Foreclosed assets		140			—
Bank-owned life insurance		2,784			2,128
Prepaid pension expense		1,385			1,162
Intangible assets, net and goodwill		417			435
Accrued interest receivable		704			634
Other assets		980			1,038
Total assets	$	154,072		$	151,950
Liabilities and Shareholders’ Equity
Liabilities
Non-interest bearing deposits	$	8,653		$	8,203
Interest-bearing deposits		103,759			104,712
Total deposits		112,412			112,915
Short-term borrowings		850			8,750
Long-term debt		19,066			18,478
Advances from borrowers for taxes and insurance		159			585
Official checks		1,970			779
Other liabilities		415			331
Total liabilities		134,872			141,838
Commitments and contingencies
Shareholders’ Equity
Preferred stock, $.01 par value, 1,000,000 shares authorized, zero shares issued and outstanding		—			—
Common stock, $.01 par value, 9,000,000 shares authorized, shares issued and outstanding – 2006 – 2,380,500; 2005 – 1,000		24			—
Additional paid-in-capital		9,947			80
Retained earnings		10,525			10,523
Accumulated other comprehensive loss		(379	)		(491	)
Unearned ESOP shares, at cost		(917	)		—
Total shareholders’ equity		19,200			10,112
Total liabilities and shareholders’ equity	$	154,072		$	151,950

See accompanying notes to unaudited consolidated financial statements.

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Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

	For the three months ended September 30,
	2006			2005
Interest and dividend income:
Loans, including fees	$	1,280		$	1,160
Debt securities:
Mortgage-backed		488			592
Taxable		26			18
Tax-exempt		2			3
Other		128			38
Total interest and dividend income		1,924			1,811
Interest expense:
Deposits		750			686
Short-term borrowings		20			46
Long-term debt		173			146
Total interest expense		943			878
Net interest income		981			933
Provision for loan losses		20			23
Net interest income after provision for loan losses		961			910
Non-interest income:
Banking fees and service charges		258			242
Insurance commissions		170			175
Mortgage banking income, net		42			29
Other		29			20
Total non-interest income		499			466
Non-interest expense:
Compensation and benefits		780			789
Occupancy and equipment expenses		240			264
Service charges		106			95
Professional fees		77			50
Advertising		84			102
Directors fees		33			32
Supplies		16			19
Telephone and postage		44			38
Amortization of intangible assets		7			8
Other		72			61
Total non-interest expense		1,459			1,458
Income (loss) before income taxes (benefit)		1			(82	)
Income tax expense (benefit)		2			(38	)
Net loss	$	(1	)	$	(44	)

See accompanying notes to unaudited consolidated financial statements.

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Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

	For the nine months ended September 30,
	2006			2005
Interest and dividend income:
Loans, including fees	$	3,797		$	3,349
Debt securities:
Mortgage-backed		1,530			1,837
Taxable		77			60
Tax-exempt		7			11
Other		254			100
Total interest and dividend income		5,665			5,357
Interest expense:
Deposits		2,195			1,948
Short-term borrowings		143			100
Long-term debt		509			453
Total interest expense		2,847			2,501
Net interest income		2,818			2,856
Provision for loan losses		70			73
Net interest income after provision for loan losses		2,748			2,783
Non-interest income:
Banking fees and service charges		759			689
Insurance commissions		549			622
Mortgage banking income, net		85			102
Gain on sale of securities available for sale		51			—
Other		80			48
Total non-interest income		1,524			1,461
Non-interest expense:
Compensation and benefits		2,295			2,307
Occupancy and equipment expenses		744			773
Service charges		305			261
Professional fees		205			157
Advertising		270			316
Directors fees		96			97
Supplies		54			50
Telephone and postage		129			106
Amortization of intangible assets		18			24
Other		161			192
Total non-interest expense		4,277			4,283
Loss before income benefit		(5	)		(39	)
Income tax benefit		(7	)		(31	)
Net income (loss)	$	2		$	(8	)

See accompanying notes to unaudited consolidated financial statements.

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Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Shareholders’ Equity (Unaudited)

For Nine months Ended September 30, 2006 and 2005

(In thousands)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Unearned ESOP Shares			Total Shareholders’ Equity
Balance, January 1, 2005	$	—	$	80	$	10,450		$	(26	)	$	—		$	10,504
Comprehensive loss:
Net loss		—		—		(8	)		—			—			(8	)
Unrealized holding losses (net of $168 tax benefit)		—		—		—			(264	)		—			(264	)
Total comprehensive loss															(272	)
Balance, September 30, 2005	$	—	$	80	$	10,442		$	(290	)	$	—		$	10,232
Balance, January 1, 2006	$	—	$	80	$	10,523		$	(491	)	$	—		$	10,112
Comprehensive income:
Net income		—		—		2			—			—			2
Unrealized holding gains (net of $72 tax expense)		—		—		—			112			—			112
Total comprehensive income															114
Shares issued in public offering		24		9,867		—			—			—			9,891
Shares purchased by ESOP		—		—		—			—			(933	)		(933	)
ESOP shares committed to be released		—		—		—			—			16			16
Balance, September 30, 2006	$	24	$	9,947	$	10,525		$	(379	)	$	(917	)	$	19,200

See accompanying notes to unaudited consolidated financial statements.

6

Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	For nine months ended September 30,
	2006			2005
Cash flows from operating activities:
Net income	$	2		$	(8	)
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums, net of accretion of discounts		10			11
Gains on sale of securities		(51	)		—
Loans originated for sale		(5,888	)		(3,309	)
Proceeds from sale of loans		5,963			3,354
Gains on sale of loans		(8	)		(29	)
Provision for loan losses		70			73
Depreciation and amortization		345			374
Net gains on sale of foreclosed property and assets		(18	)		(15	)
Noncash ESOP expense		16			—
Income from bank-owned life insurance		(56	)		(42	)
Increase in prepaid pension expense		(223	)		(220	)
Amortization of intangible assets		18			24
Increase in accrued interest receivable		(70	)		(37	)
Increase in other assets		(22	)		(52	)
Increase in official checks and other liabilities		1,275			1,489
Net cash provided by operating activities		1,363			1,613
Cash flows from investing activities:
Purchase of interest-bearing term deposits		(4,000	)		—
Principal repayments on mortgage-backed securities held-to-maturity		2,815			3,118
Proceeds from sale of securities available for sale		1,061			—
Maturities and calls of securities held-to-maturity		49			795
Principal repayments on mortgage-backed securities available for sale		5,107			6,132
Purchases of securities held-to-maturity		—			(2,553	)
Purchases of securities available for sale		(55	)		(33	)
Net increase in loans		(5,833	)		(8,529	)
Purchases of Federal Home Loan Bank stock		(1,216	)		(502	)
Proceeds from sale of Federal Home Loan Bank stock		1,303			690
Purchase of bank-owned life insurance		(600	)		—
Proceeds from sale of foreclosed assets		68			198
Purchases of premises and equipment		(104	)		(1,029	)
Net cash provided (used) by investing activities		(1,405	)		(1,713	)
Cash flows from financing activities:
(Decrease) increase in deposits		(503	)		3,824
Net decrease in short-term borrowings		(7,900	)		(675	)
Proceeds from long-term debt		5,000			—
Repayment of long-term debt		(4,412	)		(1,877	)
Decrease in advance payments by borrowers for taxes and insurance		(426	)		(304	)
Net proceeds from common stock offering		9,891			—
Purchase of shares for Employee Stock Ownership Program		(933	)		—
Net cash provided by financing activities		717			968
Net change in cash and cash equivalents		675			868
Cash and cash equivalents at beginning of period		3,418			3,135
Cash and cash equivalents at end of period	$	4,093		$	4,003
Supplementary information:
Interest paid	$	2,858		$	2,557
Income taxes paid		—			17
Net loans transferred to foreclosed real estate		190			221

See accompanying notes to unaudited consolidated financial statements.

7

Seneca-Cayuga Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Seneca-Cayuga Bancorp, Inc. and its wholly owned subsidiary (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and the instructions for Form 10-QSB. Accordingly, they do not include all of the information and footnotes necessary for a complete presentation of consolidated financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected in the consolidated financial statements. All such adjustments are of a normal, recurring nature.

The unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the years ended December 31, 2005 and 2004, included in its Registration Statement on Form SB-2 dated May 15, 2006.

Operating results for the three and nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

The consolidated financial statements at September 30, 2006 and for the three and nine months ended September 30, 2006 and 2005 include the accounts of the Company, Seneca Falls Savings Bank (the “Bank”) and the Bank’s wholly-owned subsidiary, Seneca-Cayuga Personal Services, LLC. All intercompany balances and transactions have been eliminated in consolidation.

2. Minority Stock Issuance

In July 2006, the Company completed its minority stock offering of 45% of the aggregate total voting stock of the Company pursuant to the laws of the United States of America and the rules and regulations of the Office of Thrift Supervision (“OTS”). In connection with the minority offering, 2,380,500 shares of common stock were issued, of which 1,071,225 shares were sold (including 93,315 shares issued to our Employee Stock Ownership Plan) at $10 per share raising net proceeds of $9.9 million. The stock was offered to eligible account holders, tax-qualified employee plans and to the public. After the offering, 55% of the Company’s outstanding common stock, or 1,309,275 shares, was owned by Seneca Falls Savings Bank, MHC. The offering closed on July 10, 2006.

Costs of $822,000 incurred in connection with the Stock Offering were deducted from the proceeds from the sale of stock.

3. Earnings Per Share

Earnings per share have not been presented since the minority stock offering was completed on July 10, 2006 and thus, such information would not be meaningful.

4. Comprehensive Income (Loss)

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

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Seneca-Cayuga Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

The components of other comprehensive income (loss) and related tax effects for the three and nine months ended September 30 are as follows:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2006			2005			2006			2005
	(in thousands)
Gross change in unrealized (gains) losses on securities available for sale	$	290		$	(288	)	$	235		$	(432	)
Reclassification adjustment for gains included in net income		—			—			(51	)		—
		290			(288	)		184			(432	)
Tax (expense) benefit		(113	)		112			(72	)		168
Other comprehensive (loss) income	$	177		$	(176	)	$	112		$	(264	)

5. Pension Benefits

The composition of net periodic benefit plan cost for the three and nine months ended September 30 is as follows:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2006			2005			2006			2005
	(in thousands)
Service cost	$	39		$	32		$	117		$	96
Interest cost		44			41			132			123
Expected return on assets		(74	)		(63	)		(222	)		(189	)
Amortization of unrecognized loss		12			12			36			36
Amortization of past service liability		2			2			6			6
Net periodic pension expense	$	23		$	24		$	69		$	72

The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2005, that it expected to contribute $67,000 to its pension plan in 2006. The contribution through September 30, 2006 was $292,000 and was increased in order to reduce the estimated unfunded current liability as of September 30, 2006 to zero. No further contributions are expected to be made during 2006.

6. Employee Stock Ownership Plan

At the same time as the reorganization and conversion, the Bank established an Employee Stock Ownership Plan (“ESOP”) for its employees. On July 10, 2006 ESOP acquired 93,315 shares of the Company’s common stock in the conversion with funds provided by a loan from the Company. Accordingly, $933,000 of common stock acquired by the ESOP is shown as a reduction of shareholders’ equity. The ESOP loan will be repaid principally from the Bank’s contributions to the ESOP. The loan is being repaid in semi-annually installments through 2021 and bears interest at the Wall Street Journal prime lending rate (8.25% at September 30, 2006). Shares are released to participants proportionately as the loan is repaid. The Bank will recognize compensation expense as shares are committed for release from collateral at their current market price. Dividends on allocated shares are recorded as a reduction of retained earnings and dividends on unallocated shares are recorded as a reduction of debt. The Company recognized $16,000 of compensation expense for the quarter and nine months ended September 30, 2006.

The Company accounts for its employee stock ownership plan (“ESOP”) in accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position 93–6. The cost of shares issued to the ESOP but not yet allocated to participants is presented in the consolidated statement of financial condition as a reduction of shareholders’ equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid–in capital. Dividends on allocated ESOP shares are reflected as a reduction of debt.

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Seneca-Cayuga Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Shares will be considered outstanding for earnings per share calculations when they are committed to be released; unallocated shares are not considered outstanding.

7. Regulatory Capital Requirements

At September 30, 2006, the Bank met each of the three minimum regulatory capital requirements. The following table summarizes the Bank’s regulatory capital position at September 30, 2006:

	Actual				Minimum For Capital Adequacy Purposes				Minimum To be Well- Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
At September 30, 2006:	(Dollars in thousands)
Tangible (to adjusted total assets)	$	17,065	11.13	%	$	2,300	1.50	%		N/A	N/A
Tier I capital (to risk-weighted assets)		16,168	22.97			N/A	N/A		$	4,223	6.00	%
Core (to adjusted total assets)		17,065	11.13			6,134	4.00			7,668	5.00
Total (to risk-weighted assets)		16,544	23.51			5,630	8.00			7,038	10.00

8. New Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”). SFAS 155 amends FASB Statement No. 133 and FASB Statement No. 140, and improves the financial reporting of certain hybrid financial instruments by requiring more consistent accounting that eliminates exemptions and provides a means to simplify the accounting for these instruments. Specifically, SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. The Company is required to adopt the provisions of SFAS 155, as applicable, beginning in 2007. Management does not believe the adoption of SFAS 155 will have a material impact on the Company’s consolidated financial position and results of operations.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets -An Amendment of FASB Statement No. 140” (“SFAS 156”). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective for the Company beginning in 2007. Management does not believe that the adoption of SFAS 156 will have a significant effect on its consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that companies recognize in their financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. Management does not believe that the adoption of FIN 48 will have a significant effect on its consolidated financial statements.

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. We are currently evaluating the potential impact, if any, of the adoption of FASB Statement No. 157 on our consolidated financial position, results of operations and cash flows.

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Seneca-Cayuga Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

In September 2006, the FASB issued FASB Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106, and 132R” (“SFAS 158”). This new standard requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Company is currently analyzing the effects of SFAS 158 but does not expect its implementation will have a significant impact on the Company’s financial condition or results of operations.

On September 13, 2006, the Securities and Exchange Commission issued Staff Accounting Bulleting No. 108 (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a potential current year misstatement. Prior to SAB 108, companies might evaluate the materiality of financial-statement misstatements using either the income statement or balance sheet approach, with the income statement approach focusing on new misstatements added in the current year, and the balance sheet approach focusing on the cumulative amount of misstatement present in a company’s balance sheet. Misstatements that would be material under one approach could be viewed as immaterial under another approach, and not be corrected. SAB 108 now requires that companies view financial statement misstatements as material if they are material according to either the income statement or balance sheet approach. The Company has analyzed SAB 108 and determined that upon adoption it will have no impact on the reported results of operations or financial condition.

In September 2006, the FASB issued FASB Staff Position AUG AIR-1, “Accounting for Planned Major Maintenance Activities” which is effective for fiscal years beginning after December 15, 2006. This position statement eliminates the accrue-in-advance method of accounting for planned major maintenance activities. We do not expect this pronouncement to have a significant impact on the determination or reporting of our financial results.

11

Seneca-Cayuga Bancorp, Inc.

Item 2 – Management’s Discussion and Analysis of Results of Operations and Financial Condition

General

Throughout the Management’s Discussion and Analysis (“MD&A”) the term, “the Company”, refers to the consolidated entity of Seneca-Cayuga Bancorp, Inc. (“Holding Company”), Seneca Falls Savings Bank and Seneca-Cayuga Personal Services, LLC. Seneca-Cayuga Personal Services, LLC is a wholly owned subsidiary of Seneca Falls Savings Bank. At September 30, 2006, Seneca Falls Savings Bank, MHC, the Company’s mutual holding company parent, whose activities are not included in the MD&A, held 45% of the Company’s common stock.

On July 10, 2006, the Company sold 1,071,225 shares or 45% of its common stock to subscribers in connection with its initial public stock offering including 93,315 shares purchased by the Seneca Falls Savings Bank Employee Stock Ownership Plan. Upon completion of the transaction, Seneca Falls Savings Bank, MHC, the Company’s federally chartered mutual holding company parent, held 1,309,275 shares or 55% of the Company’s outstanding common stock. Net proceeds from the initial public offering were approximately $9.9 million.

Forward-Looking Statements

This Quarterly Report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include:

• statements of our goals, intentions and expectations;

• statements regarding our business plans and prospects and growth and operating strategies;

• statements regarding the asset quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

Such statements are subject to certain risks, assumptions and uncertainties, including, among other things:

• significantly increased competition among depository and other financial institutions;

• our ability to execute our plan to grow our assets and increase our profitability;

• inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

• our ability to increase our non-interest income including insurance revenues;

• general economic conditions, either nationally or in our market areas, that are worse than expected;

• adverse changes in the securities markets;

• legislative or regulatory changes that adversely affect our business;

• our ability to enter new markets successfully and take advantage of growth opportunities;

• changes in consumer spending, borrowing and savings habits;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the Financial Accounting Standards Board; and

• changes in our organization, compensation and benefit plans.

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 that 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.

Critical Accounting Policies

The most significant accounting policies followed by the Company are presented in Note 2 to the consolidated financial statements (“the Consolidated Financial Statements”) included in the Holding Company’s Prospectus filed

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Seneca-Cayuga Bancorp, Inc.

pursuant to Rule 424(b) on May 26, 2006. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined. We have identified the accounting of our allowance for loan losses as our critical accounting policy.

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

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

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

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

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

Overview

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

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Seneca-Cayuga Bancorp, Inc.

Analysis of Net Interest Income

The following tables set forth average balance sheets, average yields and costs, and certain other information at the date and for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income.

	For the Three Months Ended September 30,
	2006							2005
	Average Balance		Interest			Yield/ Cost		Average Balance		Interest			Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	83,543	$	1,280		6.13	%	$	73,154	$	1,160		6.34	%
Mortgage-backed securities		44,215		488		4.41	%		56,420		592		4.20	%
Other interest-earning assets		13,682		156		4.56	%		8,110		59		2.91	%
Total interest-earning assets		141,440		1,924		5.44	%		137,684		1,811		5.26	%
Noninterest-earning assets		13,509							12,340
Total assets	$	154,949						$	150,024
Liabilities and equity:
Interest bearing liabilities:
Interest-bearing demand deposits and escrow	$	7,280	$	9		0.49	%	$	5,596	$	10		0.71	%
Money market accounts		6,549		32		1.95	%		8,210		31		1.51	%
Savings accounts		48,018		265		2.21	%		52,369		286		2.18	%
Certificates of deposit		43,133		444		4.12	%		39,316		359		3.65	%
Total interest-bearing deposits		104,980		750		2.86	%		105,491		686		2.60	%
Borrowings		20,447		193		3.78	%		24,216		192		3.17	%
Total interest-bearing liabilities		125,427		943		3.01	%		129,707		878		2.71	%
Other noninterest-bearing liabilities		11,346							9,644
Total liabilities		136,773							139,351
Equity		18,176							10,673
Total liabilities and equity	$	154,949						$	150,024
Net interest income			$	981						$	933
Interest rate spread						2.43	%						2.55	%
Net interest-earning assets	$	16,013						$	7,977
Net interest margin						2.77	%						2.71	%
Average interest-earning assets to average interest-bearing liabilities				112.77	%						106.15	%

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Seneca-Cayuga Bancorp, Inc.

	For the Nine Months Ended September 30,
	2006							2005
	Average Balance		Interest			Yield/ Cost		Average Balance		Interest			Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	81,533	$	3,797		6.21	%	$	70,445	$	3,349		6.34	%
Mortgage-backed securities		46,659		1,530		4.37	%		58,583		1,837		4.18	%
Other interest-earning assets		11,266		338		4.00	%		8,449		171		2.70	%
Total interest-earning assets		139,458		5,665		5.42	%		137,477		5,357		5.20	%
Noninterest-earning assets		13,313							12,195
Total assets	$	152,771						$	149,672
Liabilities and equity:
Interest bearing liabilities:
Interest-bearing demand deposits and escrow	$	6,936	$	29		0.56	%	$	5,023	$	26		0.69	%
Money market accounts		7,222		99		1.83	%		8,473		83		1.31	%
Savings accounts		49,646		798		2.14	%		52,513		825		2.09	%
Certificates of deposit		42,520		1,269		3.98	%		39,710		1,014		3.40	%
Total interest-bearing deposits		106,324		2,195		2.75	%		105,719		1,948		2.46	%
Borrowings		23,150		652		3.76	%		24,097		553		3.06	%
Total interest-bearing liabilities		129,474		2,847		2.93	%		129,816		2,501		2.57	%
Other noninterest-bearing liabilities		10,497							9,241
Total liabilities		139,971							139,057
Equity		12,800							10,615
Total liabilities and equity	$	152,771						$	149,672
Net interest income			$	2,818						$	2,856
Interest rate spread						2.49	%						2.63	%
Net interest-earning assets	$	9,984						$	7,661
Net interest margin						2.69	%						2.77	%
Average interest-earning assets to average interest-bearing liabilities				107.71	%						105.90	%

Results of Operations for the Three Months Ended September 30, 2006 and 2005

General. Net loss decreased $43,000, or 97.7%, to $1,000 for the three months ended September 30, 2006 compared to $44,000 for the same period in the prior year. The decrease was attributable to a $48,000 increase in net interest income, a $33,000 increase in non-interest income and a $3,000 decrease in the provision for loan losses, offset partially by a $1,000 increase in non-interest expense and a $40,000 increase in our income tax expense.

Net Interest Income. Net interest income increased $48,000, or 5.1%, to $981,000 for the three months ended September 30, 2006 from $933,000 for the three months ended September 30, 2005 despite a 12 basis point decline in our interest rate spread. The increase is primarily due to interest-earning assets increasing while interest-bearing liabilities declined, funded primarily by the stock offering proceeds.

Interest Income.Interest income increased $113,000 or 6.2%, and was $1.9 million for the three months ended September 30, 2006 as compared to $1.8 million for the three months ended September 30, 2005. The average interest-earning assets increased $3.8 million, or 2.7%, to $141.4 million at September 30, 2006 from $137.7 million at September 30, 2005. The increase in interest income resulted from an increase of $120,000, or 10.3%, in interest and fee income from loans due to a higher level of average loans driven by higher volumes of mortgage and other consumer loan originations and an increase of $97,000, or 164.4%, in other interest-earning assets, offset partially by a decrease of $104,000, or 17.6%, in interest earned from mortgage-backed securities because payments received from mortgage-backed securities were used to reduce borrowings. Other interest-earning assets include proceeds from the Holding Company’s stock offering, which were invested in short-term cash deposits. The yield earned on

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Seneca-Cayuga Bancorp, Inc.

interest-earning assets increased 18 basis points, or 56.7%, to 5.44% for the three months ended September 30, 2006 from 5.26% for the three months ended September 30, 2005, reflecting the modest movement in long-term rates despite significant increases in short-term rates over the last year.

Interest Expense. Interest expense increased $65,000, or 7.4%, to $943,000 for the three months ended September 30, 2006 from $878,000 for the three months ended September 30, 2005. The increase in interest expense reflects a 30 basis point increase in the average cost of interest-bearing liabilities to 3.01% for the three months ended September 30, 2006 from 2.71% for the three months ended September 30, 2005, which is primarily due to higher costs incurred for certificates of deposits and borrowings. Certificates of deposit costs increased 47 basis points to 4.12% from 3.65% and borrowing costs increased 61 basis points to 3.78% from 3.17%. Money market account costs also increased between the two periods to 1.95% from 1.51%. The higher costs are indicative of the market for instruments maturing in five years or less. The costs of interest-bearing demand deposits and escrow and savings did not change significantly between the two periods as the rates paid are not as sensitive to changes in the general rate environment.

The average balance of money market accounts declined $1.7 million, or 20.2%, to $6.5 million for the three months ended September 30, 2006 from $8.2 million for the three months ended September 30, 2005. In addition, the average balance of savings accounts declined $4.4 million, or 8.3%, to $48.0 million from $52.4 million during the same period. The decline in money market and savings accounts is primarily due to customers choosing either to transfer their balances to certificates of deposit, a higher yielding instrument, or to withdraw their funds in hopes of finding a higher yielding instrument elsewhere in the present rate environment. We increased the rates paid on certificates of deposit, consistent with that experienced in our market, which resulted in a increase of $3.8 million, or 9.7%, in the average certificates of deposit balances to $43.1 million from $39.3 million between the three months ended September 30, 2006 and 2005. The average balances of borrowings declined $3.8 million, or 15.6%, to $20.4 million for the three months ended September 30, 2006 from $24.2 million for the three months ended September 30, 2005. We used a portion of the Company’s stock offering proceeds and cash flows from mortgage-backed securities to repay short-term borrowings.

Provision for Loan Losses. The provision for loan losses was $20,000 for the three months ended September 30, 2006 as compared to $23,000 for the three months ended September 30, 2005. Loans in non-accrual status that were included in loans receivable totaled $417,000 as of September 30, 2006 as compared to $428,000 at December 31, 2005. The allowance for loan losses as of September 30, 2006 and December 31, 2005 represented 0.44% and 0.47% of total loans, respectively. We believe that the allowance for loan loss is sufficient to absorb known and inherent losses that are both probable and reasonably estimable at September 30, 2006.

Non-Interest Income. Non-interest income increased $33,000, or 7.1%, to $499,000 for the three months ended September 30, 2006 from $466,000 for the three months ended September 30, 2005. The increase was the result of a $16,000 increase in bank fees and service charges, driven by higher volumes of account activity, a $4,000 increase in income from bank owned life insurance, increased rental income of $5,000, resulting from a property purchased for potential future branching and a $13,000 increase in mortgage banking income, which is the result of gains being recognized on loans sold, offset partially by a $5,000 decrease in insurance commissions, driven by premium rate reductions in automobile and home insurance.

Non-Interest Expense. Non-interest expense was $1.5 million for the three months ended September 30, 2006 and 2005. Increases and decreases in the non-interest expense components offset each other. Occupancy and equipment expenses declined $24,000, or 9.1%, to $240,000 for the three months ended September 30, 2006 from $264,000 for the three months ended September 30, 2005 which is primarily due to utility cost savings obtained through the installation of a more efficient unit at our main office and to a reduction in equipment maintenance costs as we have selectively eliminated some of the prepaid contracts in favor of “pay-as-you-go” contracts. Professional fees increased $27,000, or 54.0%, to $77,000 for the three months ended September 30, 2006 from $50,000 for the three months ended September 30, 2005 which are the result of higher legal and accounting fees incurred as a public company. Advertising expense decreased $18,000, or 17.6%, for the three months ended September 30, 2006 to $84,000 from $102,000 for the three months ended September 30, 2005 as we have reduced the number of media used.

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Seneca-Cayuga Bancorp, Inc.

Income Taxes. Income taxes increased $40,000, or 105.3% to a $2,000 expense for the three months ended September 30, 2006 from a benefit of $38,000 for the three months ended September 30, 2005. The increase in expense is the direct result of higher levels of pre-tax income. The reason that income tax exceeds pre-tax income is primarily because the Company is subject to a New York State minimum tax based on average assets that more than offset the federal tax benefit recorded during the quarter.

Results of Operations for the Nine Months Ended September 30, 2006 and 2005

General. Net income increased $10,000, or 125.0%, to $2,000 for the nine months ended September 30, 2006 compared to a loss of $8,000 for the same period in the prior year. The increase was primarily attributable to a $63,000 increase in non-interest income and a $6,000 decrease in non-interest expense, offset partially by a $38,000 decrease in net interest income and a $24,000 increase in income tax expenses.

Net Interest Income. Net interest income decreased $38,000, or 1.3%, to $2.8 million for the nine months ended September 30, 2006 from $2.9 million for the nine months ended September 30, 2005. The decrease was attributable to a 36 basis point increase in the cost of interest-bearing liabilities, offset partially by a 22 basis point increase in yields earned on interest-earning assets which was largely due to a flat yield curve environment.

Interest Income.Interest income increased $308,000 or 5.8%, and was $5.7 million for the nine months ended September 30, 2006 as compared to $5.4 million for the nine months ended September 30, 2005. Our average interest-earning assets increased $2.0 million, or 1.4%, to $139.5 million at September 30, 2006 from $137.5 million at September 30, 2005. The increase in interest income resulted primarily from an increase of $448,000, or 13.4%, in interest and fee income from loans and an increase of $167,000, or 97.7%, in other interest-earning assets, offset partially by a decrease of $307,000, or 16.7%, in interest earned from mortgage-backed securities. Other interest-earning assets include proceeds from the Company’s stock offering, which were invested in short-term cash deposits. The yield earned on interest-earning assets increased 22 basis points, or 4.2%, to 5.42% for the nine months ended September 30, 2006 from 5.20% for the nine months ended September 30, 2005, reflecting the modest movement in long-term rates despite significant increases in short-term rates over the last year.

Interest Expense. Interest expense increased $346,000, or 13.8%, to $2.8 million for the nine months ended September 30, 2006 from $2.5 million for the nine months ended September 30, 2005. The increase in interest expense resulted despite the average balance of interest-earning liabilities declining $342,000, or 0.3%, to $129.5 million for the nine months ended September 30, 2006 from $129.8 million for the same period a year earlier. The increased interest expense is primarily the result of a shift in funding from money market and savings accounts to certificates of deposit. Average balances of money market accounts decreased $1.3 million, or 14.8%, to $7.2 million for the nine months ended September 30, 2006 from $8.5 million for the nine months ended September 30, 2005, and average balances of savings accounts decreased $2.9 million, or 5.5%, to $49.6 million from $52.5 million during the same time period. The decrease is attributable to accounts being transferred to certificates of deposit or being withdrawn as customers are seeking higher yields. The average balance of certificates of deposit increased $2.8 million, or 7.1%, to $42.5 million for the nine months ended September 30, 2006 from $39.7 million for the nine months ended September 30, 2005, which is primarily due to customers responding well to the higher yields earned on certificates of deposit causing a 58 basis point increase in certificates of deposit cost between the nine months ended September 30, 2006 and the nine months ended September 30, 2005. We increased our rates on certificates of deposit in order to be more competitive within our market area.

Provision for Loan Losses. The provision for loan losses was $70,000 for the nine months ended September 30, 2006 and $73,000 for the nine months ended September 30, 2005.

Non-Interest Income. Non-interest income increased $63,000, or 4.3%, and was $1.5 million for the nine months ended September 30, 2006 and 2005. Bank fees and service charges increased $70,000, or 10.2%, driven by higher volumes of account activity. Insurance commissions decreased $73,000, or 11.7%, reflecting a reduction in contingent income received and premium commission reductions in automobile and home insurance. Our mortgage banking income decreased $17,000, or 16.7%, as less gains were being recognized on loans sold, the effects of which were partially offset by an increase in servicing fees earned on loans sold. During 2006, the Company realized a $51,000 gain on the sale of a portion of a mutual fund investment, with no similar gains realized in 2005. Other non-interest income increased $32,000, or 66.7%, due to an increases of $15,000 and $19,000 in bank owned life insurance and rental income obtained form property purchased for potential future branching, respectively, offset partially by a $2,000 decrease in miscellaneous other non-interest income.

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Seneca-Cayuga Bancorp, Inc.

Non-Interest Expense. Non-interest expense decreased $6,000, or 0.1%, and was $4.3 million for the nine months ended September 30, 2006 and 2005. The decrease was the result of a $12,000 decrease in compensation and benefits, a $29,000 savings in occupancy and equipment expense, a $46,000 reduction in advertising, a $18,000 decline in fees incurred for collections and to repossess and maintain collateral and a decrease of $14,000 in other non-interest expense, partially offset by a $44,000 increase in service charges assessed by correspondent banks and third party items processing, a $48,000 increase in professional fees, which is the result of increased costs associated with being a publicly-held company, and a $23,000 increase in telephone and postage.

Income Taxes. The income tax benefit increased $24,000, or 77.4%, to a $7,000 benefit for the nine months ended September 30, 2006 from a benefit of $31,000 for the nine months ended September 30, 2005 due to a lower pre-tax loss. The effective tax rate differs from the statutory federal rate of 34% primarily because the Company’s non-taxable income derived from changes in the cash value of bank-owned life insurance policies.

Comparison of Financial Condition at September 30, 2006 and December 31, 2005

Assets.Total assets increased by $2.1 million, or 1.4%, to $154.1 million at September 30, 2006 from $152.0 million at December 31, 2005 primarily due to increases in cash and cash equivalents and loans, offset by decreases in securities. Asset growth was funded by subscription funds received from the Company’s minority stock offering.

Cash and cash equivalents.Cash and cash equivalents increased by $675,000, or 19.7% to $4.1 million at September 30, 2006 from $3.4 million at December 31, 2005, primarily due to proceeds received from the Holding Company’s stock offering, which were invested in short term deposits held at the Federal Home Loan Bank of New York. It is anticipated that these funds will be used to repay term borrowings maturing in the fourth quarter of 2006.

Loans Receivable.Loans receivable, including loans held for sale, increased by $5.6 million, or 7.0%, to $84.8 million at September 30, 2006 from $79.3 million at December 31, 2005. The increase in loans receivable was the primarily the result of automobile loan originations and, to a lesser extent, mortgages and other loans to consumers. The Bank has experienced an increase in referrals from auto dealers within the Bank’s market area.

Interest-earning term deposits.Interest bearing term deposits increased to $4.0 million at September 30, 2006, which represents a portion of the stock offering proceeds. It is anticipated that these funds will be used to repay term borrowings maturing in the first quarter of 2007.

Securities.Securities decreased by $8.8 million, or 15.2%, to $48.9 million at September 30, 2006 from $57.7 million at December 31, 2005. The decrease is primarily attributable to the sale of $1.1 million of a mutual fund investment in March 2006 and principal payments received from our mortgage-backed securities.

Deposits.Deposits decreased by $503,000, or 0.4%, to $112.4 million at September 30, 2006 from $112.9 million at December 31, 2005. While checking accounts and certificates of deposit have increased between the two period ends, savings and money market account balances have declined. Checking accounts have increased $1.7 million, or 11.9%, to $15.8 million at September 30, 2006 from $14.1 million at December 31, 2005 as there has been an emphasis placed on increasing checking accounts. Certificates of deposit increased $4.6 million, or 11.3%, to $45.3 million at September 30, 2006 from $40.7 million at December 31, 2005, which is a function of the competitive rates offered on the product. Savings accounts decreased $4.7 million, or 9.5%, to $45.2 million and money market accounts decreased $2.1 million, or 25.0%, to $6.2 million since December 31, 2005, which is due to customer preferences migrating to certificates of deposit and to customers withdrawing their deposits seeking higher yield alternatives.

Borrowings.Borrowings decreased by $7.3 million, or 26.9%, to $19.9 million at September 30, 2006 from $27.2 million at December 31, 2005. Short-term borrowings were repaid primarily from mortgage-backed securities and other principal repayments received during the period and from proceeds received from the Company’s stock offering.

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Seneca-Cayuga Bancorp, Inc.

Official checks. Official checks increased $1.2 million, or 152.9%, to $2.0 million at September 30, 2006 from $779,000 at December 31, 2005 caused primarily by customers withdrawing funds through the issuance of checks to pay their property taxes, which are due at the end of September.

Shareholders’ Equity.Total shareholders’ equity increased $9.1 million, or 89.7%, to $19.2 million at September 30, 2006 from $10.1 million at December 31, 2005. The increase is attributable to the Company’s public offering that generated net proceeds of $9.9 million after payment of $822,000 in conversion costs. Net proceeds of $933,000 were used to purchase stock for the Employee Stock Ownership Plan.

Nonperforming Assets

The table below is a summary of the Company’s non-performing assets at the dates indicated:

	September 30, 2006			December 31, 2005
	(in thousands)
Non-performing loans:
Real estate mortgages:
One- to-four-family	$	351		$	383
Home equity		62			39
Consumer		4			6
Total non-performing loans	$	417		$	428
Foreclosed assets, net		140			1
Total non-performing assets	$	557		$	429
Ratios:
Non-performing loans to total loans		0.49	%		0.54	%
Non-performing loans to total assets		0.27	%		0.28	%
Non-performing assets to total assets		0.36	%		0.28	%

Foreclosed assets increased principally as the result of two residential mortgage properties to which the Bank took title. These properties are actively being marketed, and their carrying values are at fair value.

At September 30, 2006, there were no other loans or other assets that were not disclosed in the table, where known information about the possible credit problems of borrowers caused us to have serious doubts as to the ability of the borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans in the future.

Liquidity and Capital Resources

Liquidity management involves the Company’s ability to generate cash or otherwise obtain funds at reasonable rates to support asset growth and reduce assets to meet deposit withdrawals, to maintain reserve requirements, and to otherwise operate the Company on an ongoing basis. The Company’s primary sources of funds consist of deposits, scheduled amortization and prepayments of loans and mortgage-backed securities, maturities of investments, interest-bearing deposits at other financial institutions and funds provided from operations. Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities, and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions, and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds.

The Company has an agreement with the Federal Home Loan Bank that allows it to borrow up to $44.3 million. At September 30, 2006, the Company had outstanding advances and amortizing notes totaling $19.8 million. The Company also has a repurchase agreement with a correspondent bank providing an additional $10 million in liquidity, which is secured by the Company’s mortgage-backed securities. There were no advances outstanding under the repurchase agreement at September 30, 2006.

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Seneca-Cayuga Bancorp, Inc.

A significant decrease in deposits in the future could result in the Company having to seek other sources of funds for liquidity purposes. Such sources could include, but are not limited to, additional borrowings, trust preferred security offerings, brokered deposits, negotiated time deposits, the sale of “available-for-sale” investment securities, the sale of securitized loans, or the sale of whole loans. Such actions could result in higher interest expense costs and/or losses on the sale of securities or loans.

At September 30, 2006, the Company had loan commitments to borrowers of approximately $2.5 million and unused lines of credit of approximately $5.5 million. For the third quarter ended September 30, 2006, the Company originated loans of $8.8 million, as compared to $10.6 million of loans originated for the quarter ended September 30, 2005. Proceeds from loans sold during the third quarter ended September 30, 2006 were $2.5 million as compared to $786,000 for the quarter ended September 30, 2005.There were no letters of credit outstanding at September 30, 2006.

Time deposit accounts scheduled to mature within one year were $27.0 million at September 30, 2006. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of these time deposits will remain with the Company. We are committed to maintaining a strong liquidity position; therefore, the Company monitors its liquidity position on a daily basis. The Company anticipates that it will have sufficient funds to meet its current funding commitments. The marginal cost of new funding however, whether from deposits or borrowings from the Federal Home Loan Bank, will be carefully considered as the Company monitors its liquidity needs. Therefore, in order to minimize its costs of funds, the Company may consider additional borrowings from the Federal Home Loan Bank in the future.

The Holding Company has completed a stock offering of 45.0% of the aggregate total voting stock of the Holding Company pursuant to the laws of the United States of America and the rules and regulations of the Office of Thrift Supervision (“OTS”). The stock was offered to eligible account holders, tax-qualified employee plans and to the public. The class of securities registered with the Commission was common stock, $0.01 par value. We sold 1,071,225 shares, the “adjusted maximum” approved by the OTS. The net proceeds from the offering were $9.9 million, which is net of $822,000 of costs associated with the Stock Offering. After the offering, 55% of the Company’s outstanding common stock, or 1,309,275 shares, is owned by The Seneca Falls Savings Bank, MHC.

The effective date of our Registration Statement on Form SB-2 filed with the Securities and Exchange Commission (File No. 333-132759) was May 15, 2006. Our offering commenced on May 15, 2006 and closed on July 10, 2006. Keefe, Bruyette & Woods served as our marketing agent for the offering.

At September 30, 2006, the Seneca Falls Savings Bank (“Bank”) exceeded each of the applicable regulatory capital requirements. The Bank’s leverage (Tier 1) capital at September 30, 2006 was $17.1 million, or 11.13% of adjusted assets. In order to be classified as “well-capitalized” by the FDIC, the Bank is required to have Tier 1 capital of $7.7 million, or 5.00% of adjusted assets. To be classified as a well-capitalized bank by the FDIC, the Bank must also have a total risk-based capital ratio of 10.0%. At September 30, 2006, the Bank had a total risk-based capital ratio of 23.51%.

Item 3 – Controls and Procedures

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

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

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Seneca-Cayuga Bancorp, Inc.

Part II – Other Information

Item 1 – Legal Proceedings

At September 30, 2006, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) On February 27, 2006, the Company’s Board of Directors adopted a Plan of Stock Issuance (the “Plan”). On March 28, 2006 the Company filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission (File No. 333-132759) with respect to the shares to be offered and sold pursuant to the Plan. The Company registered for offer and sale 1,071,225 shares of common stock, par value $0.01 per share, at an offering price of $10.00 per share. The registration statement was declared effective by the Securities and Exchange Commission on May 15, 2006.

Keefe, Bruyette & Woods was engaged to assist in the marketing of the common stock. For its services, Keefe, Bruyette & Woods received a fee of $100,000. In addition, Keefe, Bruyette & Woods was reimbursed for certain expenses, including attorney fees.

The stock offering, which was completed on July 10, 2006, resulted in gross proceeds of $10.7 million through the sale of 1,071,225 shares at a price of $10.00 per share. Expenses related to the offering were $822,000 including the expenses paid to Keefe, Bruyette & Woods. No other underwriting discounts, commissions or finders fees were paid in connection with the offering. Net proceeds of the offering were approximately $9.9 million.

The Company lent approximately $933,000 to the Employee Stock Ownership Plan (“ESOP”) of the Bank to purchase stock in the stock offering. In addition to the funds used for the ESOP loan, approximately $500,000 of the net proceeds of the offering was retained by the Company, and the remainder of the net proceeds was contributed to the Bank. All of such proceeds have been invested in short-term investments. On a longer term basis such proceeds will be invested as set forth under the caption “How We Intend to Use the Proceeds of the Offering” in our Registration Statement on Form S8-2 filed on May 15, 2006.

(c) There were no issuer purchases of equity securities during the quarter ended September 30, 2006.

Item 3 – Defaults Upon Senior Securities

Not applicable.

Item 4 – Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5 – Other Information

Not applicable.

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Seneca-Cayuga Bancorp, Inc.

Item 6 – Exhibits

Exhibit No.	Description
31.1	Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer
31.2	Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer
32.1	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Seneca-Cayuga Bancorp, Inc.

Date: November 6, 2006	/s/ Robert E. Kernan, Jr.
	Robert E. Kernan, Jr. President and Chief Executive Officer
Date: November 6, 2006	/s/ Menzo D. Case
	Menzo D. Case Executive Vice President and Chief Financial Officer

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Seneca-Cayuga Bancorp, Inc.

Index to Exhibits

Exhibit No.	Description	Page No.
31.1	Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer	24
31.2	Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer	25
32.1	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer	26

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