Seneca-Cayuga Bancorp (SCAY) 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

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

For the transition period from              to             

Commission file number 000-51726

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)

Indicate by check mark whether the issuer (1) has 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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ¨  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

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

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

Class	Outstanding at May 13, 2009
Common Stock, par value $0.01	2,336,300

TABLE OF CONTENTS

Part I – Financial Information
Item 1	Financial Statements (unaudited)
	Consolidated Statements of Financial Condition as of March 31, 2009 and December 31, 2008	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2009 and 2008	4
	Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2009 and 2008	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008	6
	Notes to Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4T	Controls and Procedures	21
Part II – Other Information
Item 1	Legal Proceedings	21
Item 1A	Risk Factors	21
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3	Defaults Upon Senior Securities	22
Item 4	Submission of Matters to a Vote of Security Holders	22
Item 5	Other Information	22
Item 6	Exhibits	22
Signatures		22

2

Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Financial Condition (Unaudited)

March 31, 2009 and December 31, 2008

(Dollars in thousands, except share data)

	March 31, 2009			December 31, 2008
Assets
Cash and due from banks	$	2,710		$	3,854
Interest-bearing deposits in banks		181			165
Cash and cash equivalents		2,891			4,019
Interest-bearing term deposits		2,289			2,489
Trading securities		2,131			2,473
Securities available for sale		1,980			2,193
Securities held to maturity (fair value 2009 - $13,155 and 2008 - $13,000)		13,127			12,939
Loans receivable, net of allowance for loan losses (2009 - $595 and 2008 - $558)		142,414			138,002
Federal Home Loan Bank of New York stock, at cost		1,531			1,759
Premises and equipment, net		6,556			6,254
Foreclosed assets		92			155
Bank-owned life insurance		3,607			3,574
Pension plan asset		1,601			86
Intangible assets, net and goodwill		356			362
Accrued interest receivable		710			684
Other assets		2,192			2,051
Total assets	$	181,477		$	177,040
Liabilities and Shareholders’ Equity
Liabilities
Non-interest bearing deposits	$	11,587		$	11,308
Interest-bearing deposits		127,379			117,628
Total deposits		138,966			128,936
Short-term borrowings		1,965			10,700
Long-term debt		21,754			18,316
Advances from borrowers for taxes and insurance		636			860
Official checks		582			644
Other liabilities		808			741
Total liabilities		164,711			160,197
Commitments and contingencies		—			—
Shareholders’ Equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized, zero shares issued and outstanding		—			—
Common stock, $0.01 par value, 9,000,000 shares authorized, Shares issued – 2,380,500 and shares outstanding - 2009 - 2,336,300 and 2008 - - 2,371,300		24			24
Additional paid-in-capital		9,908			9,913
Retained earnings		9,544			9,409
Treasury stock, at cost, 2009 - 44,200 and 2008 - 9,200 shares		(252	)		(63	)
Accumulated other comprehensive loss		(1,694	)		(1,664	)
Unearned ESOP shares, at cost		(764	)		(776	)
Total shareholders’ equity		16,766			16,843
Total liabilities and shareholders’ equity	$	181,477		$	177,040

See accompanying notes to unaudited consolidated financial statements.

3

Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)

	For the three months ended March 31,
	2009			2008
Interest and dividend income:
Loans, including fees	$	2,076		$	1,660
Debt securities:
Mortgage-backed		151			193
Tax-exempt		12			1
Trading securities		11			63
Interest-bearing term deposits		19			—
Other		16			68
Total interest and dividend income		2,285			1,985
Interest expense:
Deposits		750			837
Short-term borrowings		22			1
Long-term debt		177			99
Total interest expense		949			937
Net interest income		1,336			1,048
Provision for loan losses		41			30
Net interest income after provision for loan losses		1,295			1,018
Non-interest income:
Banking fees and service charges		271			276
Insurance commissions		1			4
Mortgage banking income, net		35			26
Net loss on trading securities		(19	)		(5	)
Other		38			21
Total non-interest income		326			322
Non-interest expense:
Compensation and benefits		672			651
Occupancy and equipment expenses		274			269
Service charges		139			129
Professional fees		147			89
Advertising		93			85
Directors fees		41			37
Supplies		19			19
Telephone and postage		56			50
Other		58			23
Total non-interest expense		1,499			1,352
Income (loss) from continuing operations before income taxes		122			(12	)
Income tax expense (benefit)		42			(15	)
Net income from continuing operations		80			3
Discontinued operations:
Income from discontinued operations		90			88
Income tax expense		35			37
Net income from discontinued operations		55			51
Net income	$	135		$	54
Net income from continuing operations per common share	$	0.03		$	—
Net income from discontinued operations per common share	$	0.02		$	0.02
Weighted average number of common shares outstanding		2,294			2,297

See accompanying notes to unaudited consolidated financial statements.

4

Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Shareholders’ Equity (Unaudited)

For Three Months Ended March 31, 2009 and 2008

(Dollars in thousands)

	Common Stock		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Unearned ESOP Shares			Total Shareholders’ Equity
Balance, January 1, 2008	$	24	$	9,934		$	9,916		$	—		$	(469	)	$	(840	)	$	18,565
Cumulative effect of a change in accounting principle upon the change in pension plan measurement date under SFAS 158 (net of $5 tax expense)		—		—			(19	)		—			4			—			(15	)
Comprehensive income:
Net income		—		—			54			—			—			—			54
Pension plan gains and losses and past service liability recognized in pension expense (net of $3 tax expense)		—		—			—			—			4			—			4
Unrealized holding losses on securities available for sale (net of $32 tax benefit)		—		—			—			—			(52	)		—			(52	)
Total comprehensive income																			6
ESOP shares committed to be released (1,556 shares)		—		(5	)		—			—			—			16			11
Balance, March 31, 2008	$	24	$	9,929		$	9,951		$	—		$	(513	)	$	(824	)	$	18,567
Balance, January 1, 2009	$	24	$	9,913		$	9,409		$	(63	)	$	(1,664	)	$	(776	)	$	16,843
Comprehensive income:
Net income		—		—			135			—			—			—			135
Pension plan gains and losses and past service liability recognized in pension expense (net of $21 tax expense)		—		—			—			—			33			—			33
Unrealized holding losses on securities available for sale (net of $40 tax benefit)		—		—			—			—			(63	)		—			(63	)
Total comprehensive income																			105
Treasury stock purchase (35,000 shares)		—		—			—			(189	)		—			—			(189	)
ESOP shares committed to be released (1,556 shares)		—		(5	)		—			—			—			12			7
Balance, March 31, 2009	$	24	$	9,908		$	9,544		$	(252	)	$	(1,694	)	$	(764	)	$	16,766

See accompanying notes to unaudited consolidated financial statements.

5

Seneca-Cayuga Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	For the three months ended March 31,
	2009			2008
Cash flows from operating activities:
Net income	$	135		$	54
Adjustments to reconcile net income to net cash from operating activities:
Accretion of discounts and amortization of premiums, net		(2	)		(2	)
Net change in trading securities		342			654
Loans originated for sale		(1,276	)		—
Proceeds from sale of loans		1,288			—
Gains on loans sold		(11	)		—
Provision for loan losses		41			30
Depreciation and amortization		102			92
Net gain on sale of foreclosed assets		(4	)		—
Foreclosed asset impairment		18			—
Non-cash ESOP expense		7			11
Income from bank-owned life insurance		(33	)		(21	)
Increase in pension plan asset		(1,461	)		(4	)
Amortization of intangible assets		7			7
Increase in accrued interest receivable		(26	)		(16	)
Increase in other assets		(123	)		(105	)
Increase (decrease) in official checks and other liabilities		5			(270	)
Net cash from operating activities		(991	)		430
Cash flows from investing activities:
Maturity of interest-bearing term deposits		200			—
Principal repayments on held-to-maturity securities		598			753
Principal repayments on available-for-sale securities		111			22
Maturities and calls of securities held-to-maturity		5			10
Purchases of held-to-maturity securities		(790	)		—
Net increase in loans		(4,454	)		(2,406	)
Purchases of Federal Home Loan Bank stock		(724	)		(78	)
Proceeds from sale of Federal Home Loan Bank stock		952			130
Proceeds from sale of foreclosed assets		49			—
Purchases of premises and equipment		(404	)		(436	)
Net cash from investing activities		(4,457	)		(2,005	)
Cash flows from financing activities:
Increase in deposits		10,030			7,584
Net decrease in short-term borrowings		(8,735	)		—
Advances of long-term debt		4,500			—
Repayment of long-term debt		(1,062	)		(957	)
Decrease in advance payments by borrowers for taxes and insurance		(224	)		(181	)
Purchase of treasury stock		(189	)		—
Net cash from financing activities		4,320			6,446
Net change in cash and cash equivalents		(1,128	)		4,871
Cash and cash equivalents at beginning of period		4,019			7,421
Cash and cash equivalents at end of period	$	2,891		$	12,292
Supplementary information:
Interest paid	$	957		$	940
Net loans transferred to foreclosed real estate		—			75
Income taxes paid		—			1

See accompanying notes to unaudited consolidated financial statements.

6

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 accounting principles generally accepted in the United States of America for interim financial information, the instructions for Form 10-Q and Article 10 of Regulation S-X. 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.

The unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the years ended December 31, 2008 and 2007, included in its Annual Report filed on Form 10-K dated March 27, 2009.

Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

The consolidated financial statements at March 31, 2009 and for the three months ended March 31, 2009 and 2008 include the accounts of the Seneca-Cayuga Bancorp, Inc., 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. Earnings Per Share

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

3. Pension Benefits

The composition of net periodic benefit plan cost for the three months ended March 31 is as follows:

	For the Three Months Ended March 31,
	2009			2008
	(in thousands)
Service cost	$	51		$	49
Interest cost		65			59
Expected return on assets		(131	)		(95	)
Amortization of unrecognized loss		58			11
Amortization of past service liability		(4	)		(4	)
Net periodic pension expense	$	39		$	20

The Company has contributed $1.5 million to its pension plan as of March 31, 2009, and no further contributions are anticipated this year.

4. Comprehensive Income

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

7

Seneca-Cayuga Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

The components of other comprehensive loss and related tax effects for the three months ended March 31 are as follows:

	For the Three Months Ended March 31,
	2009			2008
	(in thousands)
Gross change in unrealized losses on securities available for sale	$	(103	)	$	(84	)
Reclassification adjustment for amortization of pension plan net loss and past service liability recognized in net periodic pension expense		54			7
Other comprehensive loss before tax		(49	)		(77	)
Tax benefit		19			29
Other comprehensive loss	$	(30	)	$	(48	)

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

	March 31, 2009			December 31, 2008
	(in thousands)
Unrealized (gains) losses on securities available-for-sale (net of tax benefit (expense) 2009 - $27; 2008 - ($13))	$	(43	)	$	20
Net pension losses and past service liability (net of tax benefit 2009 - $1,050; 2008 - $1,071)		(1,651	)		(1,684	)
	$	(1,694	)	$	(1,664	)

5. Fair Value Accounting

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

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

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

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

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

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

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

8

Seneca-Cayuga Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

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

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

	At March 31, 2009				At December 31, 2008
	Carrying Amount		Fair Value		Carrying Value		Fair Value
	(In thousands)
Financial assets:
Cash and cash equivalents	$	2,891	$	2,891	$	4,019	$	4,019
Interest-bearing term deposits in banks		2,289		2,289		2,489		2,489
Trading securities		2,131		2,131		2,473		2,473
Securities available-for-sale		1,980		1,980		2,193		2,193
Securities held-to-maturity		13,127		13,155		12,939		13,000
Loans receivable		142,414		148,906		138,002		142,424
Federal Home Loan Bank of New York stock		1,531		1,531		1,759		1,759
Accrued interest receivable		710		710		684		684
Financial liabilities:
Deposits		138,966		141,229		128,936		131,015
Short-term borrowings		1,965		1,965		10,700		10,711
Long-term debt		21,754		21,566		18,316		18,854
Accrued interest payable		66		66		74		74
Off-balance sheet instruments:
Commitments to extend credit		—		—		—		—

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

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

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

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

9

Seneca-Cayuga Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

Description	March 31, 2009		Fair Value Measurements at March 31, 2009
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Trading securities	$	2,131	$	2,131	$	—	$	—
Securities available-for-sale		1,980		1,980		—		—
Total	$	4,111	$	4,111	$	—	$	—

Description	December 31, 2008		Fair Value Measurements at December 31, 2008
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Trading securities	$	2,473	$	2,473	$	—	$	—
Securities available-for-sale		2,193		2,193		—		—
Total	$	4,666	$	4,666	$	—	$	—

In addition to disclosures of the fair value of assets on a recurring basis, SFAS 157 requires disclosures for asset and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed. There were no assets or liabilities whose carrying values were re-measured at fair value during the three months ended March 31, 2009.

6. Discontinued Operations

In December 2008, we committed to a plan to sell our insurance segment, and on February 5, 2009, we accepted a letter of intent from a third party indicating their intention to acquire our Agency’s insurance business. We made the decision to sell this segment upon determining that, despite restructuring, we were unable to earn an acceptable return on our investment. We are actively negotiating terms with a buyer and expect to complete the sale of this business by the end of the second quarter of 2009. Of the $1.0 million in insurance segment assets (see note 7), goodwill and intangible assets with a book value of $356,000 at March 31, 2009 are included in the sale. In addition, we expect to sell some computer equipment with a book value of less than $7,500 at March 31, 2009. The remaining assets consist primarily of two buildings and improvements which will be retained by the Company.

7. Segment Reporting

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

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

10

Seneca-Cayuga Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

Information about the segments is presented in the following table for the period indicated:

	For the Quarter Ended March 31, 2009									For the Quarter Ended March 31, 2008
	Banking Activities			Insurance Activities			Total			Banking Activities			Insurance Activities			Total
	(in thousands)
Net interest income	$	1,336		$	—		$	1,336		$	1,048		$	—		$	1,048
Provision for loan losses		41			—			41			30			—			30
Net interest income after provision for loan losses		1,295			—			1,295			1,018			—			1,018
Other income		326			223			549			322			220			542
Compensation and benefits		(672	)		(110	)		(782	)		(651	)		(114	)		(765	)
Amortization of intangible assets		—			(7	)		(7	)		—			(7	)		(7	)
Other non-interest expense		(827	)		(16	)		(843	)		(701	)		(11	)		(712	)
Income before income taxes		122			90			212			(12	)		88			76
Income tax benefit (expense)		(42	)		(35	)		(77	)		15			(37	)		(22	)
Net income	$	80		$	55		$	135		$	3		$	51		$	54
Total assets	$	181,467		$	1,042		$	182,509		$	151,457		$	1,000		$	152,457

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

	March 31,
	2009			2008
	(in thousands)
Total assets for reportable segments	$	182,509		$	152,457
Elimination of intercompany balances		(1,032	)		(1,119	)
Consolidated total	$	181,477		$	151,338

The accounting policies of each segment are the same as those described in the summary of significant accounting policies included in Note 2 to the Company’s consolidated financial statements as of and for the year ended December 31, 2008 as included in the Company’s Annual Report on Form 10-K.

7. Recent Accounting Pronouncements

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

FASB statement No. 160,Noncontrolling Interest in Consolidated Financial Statements - An Amendment of ARB No. 51(“SFAS 160”) was issued in December 2007. This Statement established accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance became effective for the Company January 1, 2009. The adoption of SFAS 160 did not have any impact on the Company’s consolidated financial statements.

11

Seneca-Cayuga Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

In April 2009, the FASB issued FSP FAS 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly which provides additional guidance for estimating fair value in accordance with FASB Statement No. 157,Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009 and is applied prospectively, with early adoption permitted for periods ending after March 15, 2009. The Company elected to adopt FSP FAS 157-4 in the first quarter of 2009. The adoption of FSP FAS 157-4 did not have any impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2,Recognition and Presentation of Other-Than-Temporary Impairments which amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt securities in the financial statements and does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSB FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company elected to adopt FSP FAS 115-2 and FAS 124-2 in the first quarter of 2009. The adoption of FSB FAS 115-2 and FAS 124-2 did not have any impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instrumentswhich amends FASB Statement No. 107,Disclosures about Fair Value of Financial Instruments,to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements and also amends APB Opinion No. 28,Interim Financial Reporting,to require those disclosures in summarized financial information at interim reporting periods.FSP FAS 107-1 and APB 28-1 are effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company elected to adopt FSP FAS 107-1 and APB 28-1 in the first quarter of 2009.

12

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

General

The term “Company” refers to the consolidated entity of Seneca-Cayuga Bancorp, Inc. (the “Bancorp”), Seneca Falls Savings Bank (the “Bank”) and Seneca-Cayuga Personal Services, LLC. Seneca-Cayuga Personal Services, LLC is a wholly owned subsidiary of the Bank. At March 31, 2009, Seneca Falls Savings Bank, MHC, the Company’s mutual holding company parent, held 56% of the Bancorp’s issued and outstanding common stock.

Forward-Looking Statements

This Quarterly Report contains certain “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 including real estate values in the Company’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market areas 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 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 Company’s Annual Report for the year ended December 31, 2008 filed on Form 10-K dated March 27, 2009. 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, evaluation of securities for other-than-temporary impairment and deferred income tax accounting as our critical accounting policies.

Allowance for loan losses:

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

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

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,

13

delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

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

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

Securities:

Securities available-for-sale are reported at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss) and securities held-to-maturity for which the Company has the positive ability and intent to hold to maturity are reported at cost adjusted for premiums and discounts that are recognized in interest income using the level yield method. In accordance with FSP FAS 115-2 and FAS 124-2 unrealized credit losses on debt securities and all unrealized losses on equity securities are charged to earnings as an impairment loss when the decline in fair value of a security is judged to be other-than-temporary. Management evaluates securities for other-than-temporary impairment on a quarterly basis, and considers (1) whether the Company has the intent to sell the security and whether it is more likely than not that it will be required to sell the security prior to its anticipated recovery, (2) the length of time and the extent to which the fair value has been less than cost, and (3) the financial condition and near-term prospects of the issuer. For the three months ended March 31, 2009 and 2008, the Company did not recognize any other-than-temporary impairment losses. Future losses could be recognized if it is determined that securities are other-than-temporarily impaired.

Income Taxes:

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

Overview

Our results of operations depend in part 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, non-interest income and non-interest expense. Non-interest income currently consists primarily of deposit account fees

14

and service charges, dividends on mutual funds, increases in cash value-insurance, gains and losses on the sale or impairment of securities, gains and losses on trading securities and miscellaneous other income. In addition, non-interest income reflects changes in fair value for our trading securities, which may have a significant impact on our future results of operations. Non-interest 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, including deposit premiums. 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.

The government’s actions taken in response to the current economic crisis have been unprecedented, and included the approval of a $700 billion allocation toward purchasing troubled assets and stabilizing large financial institutions, temporarily guaranteeing senior debt of all FDIC-insured institutions, increasing FDIC insurance to $250,000 for all deposit accounts through December 31, 2009 and extending unlimited FDIC insurance on non-interest bearing deposit transaction accounts. There may be increased regulatory oversight implemented as a result of these actions. In addition, a substantial portion of the cost associated with economic recovery plans may be shifted to financial institutions in the manner similar to that during the 1980’s savings and loan crisis. The additional regulatory burden and costs may be significant to the Company.

The FDIC increased the current deposit insurance assessment rates uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis points) for the first quarter of 2009. The FDIC also changed the way federal deposit insurance assessment rates are calculated beginning in the second quarter of 2009 and thereafter. Due to the changes implemented, our FDIC assessment rate for the first quarter of 2009 increased by $20,000. Because of adjustments to its initial base assessment rate, we believe the rule will have a material negative effect on our earnings. The FDIC also adopted an interim rule imposing a 20 basis point emergency special assessment. The assessment is to be collected on September 30, 2009. The interim rule would also permit the FDIC to impose an emergency special assessment, of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance.

15

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 Quarter Ended March 31,
	2009							2008
	Average Balance		Interest			Yield/ Cost		Average Balance		Interest			Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	140,350	$	2,076		5.92	%	$	105,783	$	1,660		6.28	%
Mortgage-backed securities		11,788		151		5.09			14,395		193		5.36
Trading securities		2,309		11		2.08			5,177		63		4.87
Other interest-earning assets		7,632		47		2.46			7,378		69		3.74
Total interest-earning assets		162,079		2,285		5.64			132,733		1,985		5.98
Non-interest-earning assets		18,840							13,760
Total assets	$	180,919						$	146,493
Liabilities and equity:
Interest bearing liabilities:
Interest-bearing demand deposits and escrow	$	10,656		20		0.75	%	$	8,152		12		0.59	%
Money market accounts		6,843		34		1.99			4,924		23		1.87
Savings accounts		45,610		182		1.60			44,222		229		2.07
Certificates of deposit		59,258		514		3.47			49,898		573		4.59
Total interest-bearing deposits		122,367		750		2.45			107,196		837		3.12
Borrowings		27,599		199		2.88			9,366		100		4.27
Total interest-bearing liabilities		149,966		949		2.53			116,562		937		3.22
Other non-interest-bearing liabilities		13,341							11,359
Total liabilities		163,307							127,921
Equity		17,612							18,572
Total liabilities and equity	$	180,919						$	146,493
Net interest income			$	1,336						$	1,048
Interest rate spread						3.11	%						2.76	%
Net interest-earning assets	$	12,113						$	16,171
Net interest margin						3.30	%						3.16	%
Average interest-earning assets to average interest-bearing liabilities				108.08	%						113.87	%

Results of Operations for the Three Months Ended March 31, 2009 and 2008

General. Net income increased $81,000 to $135,000 for the three months ended March 31, 2009 compared to $54,000 for the same period in the prior year. The increase was primarily attributable to a $288,000 increase in net interest income and a $4,000 increase in non-interest income, partially offset by a $11,000 increase in the provision for loan losses, $147,000 increase in non-interest expense and $55,000 increase in income tax expense.

Net Interest Income. Net interest income increased $288,000, or 27.5%, to $1.3 million for the three months ended March 31, 2009 from $1.0 million for the three months ended March 31, 2008. The increase was due primarily to a $29.3 million increase in average interest-earning assets and a 69 basis point decrease in the cost of interest-bearing liabilities, offset partially by a $33.4 million increase in average interest-bearing liabilities and a 34 basis point decrease in the average interest-earning asset yield. The increase in average interest-earning assets is due to higher loan volumes driven by the low rate environment, which resulted in the decrease in the average interest-earning asset yield and the cost of interest-bearing liabilities. Asset growth was primarily funded by increased average certificates of deposit and borrowings.

16

Interest and Dividend Income.Interest and dividend income increased $300,000, or 15.1%, to $2.3 million for the three months ended March 31, 2009 from $2.0 million for the three months ended March 31, 2008. Interest income from loans increased $416,000, or 25.1%, offset partially by decreases in interest from mortgage-backed securities, trading securities and other interest-earning assets of $42,000, $52,000 and $22,000, respectively.

The increase in loan interest income is due to the $34.6 million, or 32.7%, increase in the average loans outstanding to $140.4 million for the quarter ended March 31, 2009 from $105.8 million for the quarter ended March 31, 2008. There was greater loan volume because of the historically low rate environment, and the increased loan production at lower rates reduced the average yield earned on loans by 36 basis points to 5.92% for the three months ended March 31, 2009 from 6.28% for the three months ended March 31, 2008.

Mortgage-backed securities average balances decreased $2.6 million, or 18.1%, to $11.8 million for the three months ended March 31, 2009 from $14.4 million for the three months ended March 31, 2008. Similarly, trading securities average balances decreased $2.9 million between the same comparable periods. Mortgage-backed securities and trading securities average balances declined as we did not purchase securities to replace maturities and amortization. The yield earned on mortgage-backed securities and trading securities decreased 27 basis points and 279 basis points, respectively, because several of the remaining securities are variable rate and repriced due to the low rate environment.

Interest from other interest-earning assets decreased $22,000, or 31.9%, to $47,000 for the three months ended March 31, 2009 from $69,000 for the three months ended March 31, 2008 primarily due to a 128 basis point decrease in yield earned, which reflects the lower rate environment.

Interest Expense. Interest expense increased $12,000, or 1.3%, to $949,000 for the three months ended March 31, 2009 from $937,000 for the three months ended March 31, 2008. The increase in interest expense is primarily due to higher average balances offset partially by reduced costs for savings accounts, certificates of deposit and borrowings.

Interest expense on interest-bearing demand deposits and escrow increased $8,000 to $20,000 for the three months ended March 31, 2009 from $12,000 for the three months ended March 31, 2008 due to a $2.5 million, or 30.7%, increase in average balances to $10.7 million for the three months ended March 31, 2009 from $8.2 million for the three months ended March 31, 2008. The increased average balances were the result of continuing marketing efforts specifically focused on demand deposit accounts. The cost of interest-bearing deposits and escrow increased 16 basis points between the same comparable periods as new account types introduced paid a higher rate of interest.

Money market account interest expense increased $11,000 to $34,000 for the three months ended March 31, 2009 from $23,000 for the three months ended March 31, 2008. The increased money market interest expense is primarily attributable to a $1.9 million increase in the average balances to $6.8 million for the three months ended March 31, 2009 from $4.9 million for the three months ended March 31, 2008. The higher average balances are the result of several new larger balance money market accounts opening during the fourth quarter of 2008.

Savings interest expense decreased $47,000, or 20.5%, to $182,000 for the three months ended March 31, 2009 from $229,000 for the three months ended March 31, 2008 despite average savings balances increasing $1.4 million, or 3.14%, to $45.6 million from $44.2 million between the same comparable periods. The decreased savings interest expense is due to a 47 basis point decrease in the cost of funds from 2.07% to 1.60% as we have reduced the rate offered on savings products in the current low rate environment.

Interest on certificates of deposits decreased $59,000, or 10.3%, to $514,000 for the three months ended March 31, 2009 from $573,000 for the three months ended March 31, 2008, which is primarily attributable to a 112 basis point decrease in certificates of deposit cost to 3.47% for the three months ended March 31, 2009 from 4.59% for the three months ended March 31, 2008 despite average certificate of deposit balances increasing $9.4 million during the same comparable period. The average cost decreased as rates offered on new and maturing certificates of deposit were reduced as a result of the current low rate environment.

17

Interest expense on borrowings increased $99,000 to $199,000 for the three months ended March 31, 2009 from $100,000 for the three months ended March 31, 2008 due primarily to an $18.2 million, or 194.7%, increase in average borrowings to $28.0 million for the three months ended March 31, 2009 from $9.4 million for the three months ended March 31, 2008. The effects of the increased average balance of borrowings was partially offset by a 139 basis point decrease in borrowing costs to 2.88% from 4.27% during the same comparable period.

Provision for Loan Losses. The provision for loan losses was $41,000 for the three months ended March 31, 2009 as compared to $30,000 for the three months ended March 31, 2008. Loans in non-accrual status that were included in loans receivable totaled $382,000 as of March 31, 2009 as compared to $216,000 at December 31, 2008. The allowance for loan losses as of March 31, 2009 and December 31, 2008 represented 0.42% and 0.41% of total loans, respectively. The provision was increased to reflect the higher risk associated with the increased balances and diversity of the loan portfolio.

Non-Interest Income. Non-interest income increased $4,000, or 1.2%, to $326,000 for the three months ended March 31, 2009 from $322,000 for the three months ended March 31, 2008. The increase is primarily due to an increase of $9,000 in mortgage banking income and a $17,000 increase in net other non-interest income, offset partially by a $14,000 increase in net loss on trading security activity and a $5,000 decrease in banking fees and service charges.

Mortgage banking income increased, as we sold $1.3 million in residential mortgages during the three months ended March 31, 2009, generating gains of $11,000, and no mortgages were sold during the prior comparable period.

The net loss on trading security activity for the three months ended March 31, 2009 was primarily due to $17,000 decrease in the market value of the AMF Ultra Short Mortgage Fund. Additionally, we redeemed $250,000 during the first quarter of 2009 at a loss of $3,000. We expect, subject to market conditions, to request further cash redemptions during the remainder of the year.

The $17,000 increase in other non-interest income is primarily from rental income for property purchased in 2008.

Non-Interest Expense. Non-interest expense increased $147,000, or 10.9%, and was $1.5 million for the three months ended March 31, 2009 and $1.4 million for the three months ended March 31, 2008. The increase was the result of an increase of $10,000 in service charges, $58,000 in professional fees, $42,000 in occupancy and equipment expense, $21,000 in compensation and benefits and a net increase of $15,000 in advertising, telephone and postage. The higher service charges are primarily as a result of higher ATM and debit card fees assessed for increased activity. Professional fees increased due to anticipated higher costs for external review of our internal controls. The preparation for the opening of our Union Springs branch resulted in additional costs for compensation and benefits, occupancy and equipment, advertising, telephone and postage.

Income Taxes. The income tax expense on pre-tax income from continuing operations was $42,000 for the three months ended March 31, 2009. The effective tax rate was 34.4% for the three months ended March 31, 2009 and is lower than the statutory rates due to tax-exempt earnings from the BOLI and municipal securities.

Comparison of Financial Condition at March 31, 2009 and December 31, 2008

Assets.Total assets increased by $4.4 million, or 2.5%, to $181.5 million at March 31, 2009 from $177.0 million at December 31, 2008. The increase in total assets was primarily the result of increases in net loans receivable, premises and equipment and pension plan asset, offset partially by a decrease in cash and cash equivalents, FHLB stock, trading securities and securities available-for-sale.

Cash and cash equivalents.Cash and cash equivalents decreased by $1.1 million, or 28.1%, to $2.9 million at March 31, 2009 from $4.0 million at December 31, 2008. Cash and due from banks were utilized to reduce short-term borrowings.

18

Interest-bearing term deposits. Interest-bearing term deposits decreased $200,000, or 8.0%, to $2.3 million at March 31, 2009 from $2.5 million at December 31, 2008 because we are not reinvesting the proceeds from maturing interest-bearing term deposits.

Trading securities.Trading securities decreased $342,000, or 13.8%, to $2.1 million at March 31, 2009 from $2.5 million at December 31, 2008. The decrease is primarily due to a $250,000 redemption from our investment in the AMF Ultra Short Mortgage Fund (the “Fund”) during February 2009. We expect, subject to market conditions, to fully divest of our holdings in the Fund by year end.

Securities available-for-sale.Securities available-for-sale decreased by $213,000, or 9.7%, to $2.0 million at March 31, 2009 from $2.2 million at December 31, 2008 from principal repayments received.

Securities held-to-maturity.Securities held-to-maturity increased $188,000, or 1.5%, to $13.1 million at March 31, 2009 from $12.9 million at December 31, 2008. We purchased $790,000 in new municipal securities and received principal repayments of $598,000 during the three months ended March 31, 2009.

Loans Receivable.Loans receivable increased by $4.4 million, or 3.2%, to $142.4 million at March 31, 2009 from $138.0 million at December 31, 2008. Loans funded during the three months ended March 31, 2009 were $10.9 million as compared to $7.3 million for the three months ended March 31, 2008. The current low rate environment is the primary reason for the increased loan volume. We have doubled our automobile and manufactured home volume as compared to the prior year first quarter and residential mortgages and construction loan volume has increased more than 50% each. Commercial and nonresidential mortgage volume has also increased but not significantly. We plan to continue to diversify our loan portfolio by focusing on increasing our nonresidential, commercial, home equity, manufactured home and automobile loans to the extent the market allows.

FHLB stock.FHLB stock decreased $228,000, or 13.0%, to $1.5 million at March 31, 2009 from $1.8 million at December 31, 2008 which is the result of reducing our FHLB borrowings.

Premises and Equipment.Premises and equipment increased by $302,000, or 4.8%, to $6.6 million at March 31, 2009 from $6.3 million at December 31, 2008. The increase is due to the costs incurred to start construction on our new branch in Union Springs which opened May 12, 2009.

Pension plan asset.Pension plan asset increased $1.5 million to $1.6 million at March 31, 2009 from $86,000 at December 31, 2008. In January 2009, we contributed $1.5 million to the pension plan to replenish pension plan assets from losses incurred during 2008 and to reduce the likelihood of the plan becoming underfunded.

Deposits.Deposits increased by $10.0 million, or 7.8%, to $139.0 million at March 31, 2009 from $128.9 million at December 31, 2008. During the three months ended March 31, 2009, savings accounts increased $3.8 million, money market accounts increased $650,000 and time deposits increased $4.5 million which is likely due to concerns over the current economic conditions. In addition, our checking accounts increased $1.1 million, which is primarily attributable to our continuing marketing efforts that are focused on developing our checking account base.

Short-term borrowings.Short-term borrowings decreased $8.7 million to $2.0 million at March 31, 2009 from $10.7 million at December 31, 2008. We reduced short-term borrowings primarily from existing cash and deposit growth. In addition, some of the short-term borrowings were converted to long-term debt in order to take advantage of the low rate environment and reduce our interest rate risk exposure in an increasing rate environment.

Long-term debt.Long-term debt increased $3.4 million to $21.8 million at March 31, 2009 from $18.3 million at December 31, 2008. We increased our long-term debt in order to take advantage of the low rate environment and reduce our interest rate risk exposure in an increasing rate environment.

Shareholders’ Equity.Total shareholders’ equity decreased by $77,000, or 0.46%, to remain at $16.8 million at March 31, 2009 and at December 31, 2008. The net decrease is primarily the result of a $189,000 reduction from the repurchase of 35,000 shares of our stock and a $63,000 increase in unrealized losses on securities available for sale, offset partially by an increase from net income of $135,000 and other comprehensive income of $33,000 from the Bank’s pension plan.

19

Nonperforming Assets

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

	March 31, 2009			December 31, 2008
	(In thousands)
Non-accrual loans:
Real estate mortgages:
One- to-four-family	$	289		$	149
Non-residential		67			36
Home equity		20			20
Automobile		6			11
Total non-accrual loans		382			216
Foreclosed assets, net		92			155
Total non-performing assets	$	474		$	371
Ratios:
Non-performing loans to total loans		0.27	%		0.16	%
Non-performing loans to total assets		0.21	%		0.12	%
Non-performing assets to total assets		0.26	%		0.21	%

At March 31, 2009, one non-residential loan relationship with three loans outstanding and an aggregate balance of $116,000 was classified as substandard, with two loans totaling $50,000 accruing interest which are not included in the above table. The loans are all currently 30 days delinquent, and the borrower is adhering to a repayment plan. However, in the past, the borrower has been unable to maintain a consistent repayment schedule. There were no other loans or other assets that are not disclosed in the table or disclosed as classified or special mention, where known information about the possible credit problems of borrowers caused us to have serious doubts as to the ability of the borrowers to comply with 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 of New York that allows it to borrow up to $69.1 million. At March 31, 2009, the Company had outstanding advances and amortizing notes totaling $23.6 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 March 31, 2009.

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.

20

At March 31, 2009, the Company had $3.0 million in loan commitments to borrowers and unused lines of credit of approximately $6.7 million. For the first quarter ended March 31, 2009, the Company originated loans of $10.9 million, as compared to $7.3 million of loans originated in the first quarter of March 31, 2008. There were 10 loans sold during the first quarter ended March 31, 2009 with net proceeds of $1.3 million as compared to no loans sold during the first quarter of March 31, 2008. Letters of credit outstanding at March 31, 2009 totaled $19,000.

Time deposit accounts scheduled to mature within one year were $47.1 million at March 31, 2009. 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.

At March 31, 2009, the Bank exceeded each of the applicable regulatory capital requirements. The Bank’s leverage (Tier 1) capital at March 31, 2009 was $16.8 million, or 9.2% of adjusted assets. In order to be classified as “well-capitalized” by the Office of Thrift Supervision (“OTS”), the Bank is required to have Tier 1 capital of $9.1 million, or 5.00% of adjusted assets. To be classified as a well-capitalized bank by the OTS, the Bank must also have a total risk-based capital ratio of 10.0%. At March 31, 20909, the Bank had a total risk-based capital ratio of 14.0%.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required of this item.

Item 4T – 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 effective.

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.

Part II – Other Information

Item 1 – Legal Proceedings

At March 31, 2009, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

Item 1A-Risk Factors

A smaller reporting company is not required to provide the information required of this item.

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

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

21

The table below sets forth the information with respect to purchases made by or on behalf of the Company or any ‘affiliated purchaser’ (as defined in Rule 240.10b-18(a)(3)), of common stock during the quarter ended March 31, 2009.

	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
January 1 through January 31	25,000	6.08	25,000	84,825
February 1 through February 28	—	—	—	84,825
March 1 through March 31	10,000	3.68	10,000	74,825

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.

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 Accounting Officer
32.1	Section 1350 Certification of the Chief Executive Officer and Chief Accounting Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Seneca-Cayuga Bancorp, Inc.
Date: May 13, 2009	/s/ Menzo D. Case
	Menzo D. Case
	President and Chief Executive Officer
Date: May 13, 2009	/s/ Bonnie L. Morlang
	Bonnie L. Morlang
	Chief Accounting Officer

22

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 Accounting Officer	25
32.1	Section 1350 Certification of the Chief Executive Officer and Chief Accounting Officer	26

23