<PAGE>

                                  EXHIBIT 13

                         ANNUAL REPORT TO STOCKHOLDERS
<PAGE>

Pathfinder  Bancorp, Inc. is the parent company of Pathfinder Bank.  Pathfinder
Bank has two operating subsidiaries - Pathfinder REIT Inc., and Whispering Oaks
Development Corporation.

Pathfinder Bancorp, Inc.'s common stock currently trades on the NASDAQ Small Cap
Market under the symbol "PBHC".

The following table sets forth certain financial highlights of the consolidated
entity for the periods and at the dates indicated:
<TABLE>
<CAPTION>

                                            1999        1998        1997        1996        1995
---------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>         <C>         <C>         <C>
FOR THE YEAR (In Thousands)
 Interest Income                          $ 14,689    $ 14,056    $ 14,168    $ 13,213    $ 12,205
 Interest Expense                            7,035       6,969       6,892       6,414       6,259
 Net Interest Income                         7,654       7,086       7,276       6,799       5,946
 Net Income                                    930       1,209       1,854       1,272         990

PER COMMON SHARE (a) (b)
 Net Income:
 Primary                                      0.35        0.44        0.66        0.45        0.07
 Fully diluted                                0.35        0.42        0.66        0.45        0.07
 Book Value                                   7.61        8.12        8.20        7.44        7.22
 Cash dividends declared                      0.24        0.20        0.17        0.13        0.00
 Stock Price:
 IOP                                          5.00        5.00        5.00        5.00        5.00
 High                                        12.00      26.125       20.00       7.083       7.167
 Low                                          7.50       9.125        6.25       5.333       5.583
 Close                                       8.875       9.125        20.0        6.25        7.00

YEAR END (In Thousands)
 Total assets                             $216,324    $203,252    $196,770    $189,937    $180,752
 Interest-earning deposits at
    other financial institutions                --       1,800          --       1,550       8,200
 Investment securities                      43,049      32,665      33,663      36,673      44,932
 Mortgage-backed securities                 23,348      20,778      23,158      22,829       7,953
 Loans Receivable, net:
  Real estate                              118,643     115,380     109,543      99,047      91,023
  Consumer and other                        11,420       9,978      10,495       9,695       9,126
   Total loans receivable, net             130,063     125,358     120,038     108,742     100,149
 Intangible assets                           2,973       3,289       3,605       3,921       4,236
 Deposits                                  152,436     160,219     152,399     158,998     158,324
 Borrowed funds                             42,880      18,691      18,242       7,610          --
 Notes Payable ESOP                             --          --         430         486         425
 Equity                                     20,075      22,287      23,583      21,390      20,751

SELECTED PERFORMANCE RATIOS
 Return on average assets                     0.44%       0.62%       0.97%       0.69%       0.56%
 Return on average equity                     4.33        5.12        8.35        6.09        6.31
 Return on tangible equity                    5.44        6.36        9.28        7.28        5.99
 Average equity to average assets            10.24       12.05       11.59       11.32        8.84
 Equity to total assets                       9.28       10.97       11.98       11.26       11.47
 Dividend payout ratio                       67.65       45.07       26.19       29.37         0.0
 Net interest rate spread                     3.73        3.73        3.85        3.88        3.72
 Noninterest expense to total assets          3.30        3.24        2.93        2.82        2.94
 Nonperforming loans to
   net loans receivable                       1.96        1.46        1.24        2.05        0.92
 Nonperforming assets to
   total assets                               1.48        1.27        1.15        1.54        0.83
 Allowance for loan losses
   to net loans receivable                    0.88        0.75        0.69        0.83        0.35
 Number of full service offices                  5           5           5           5           5
</TABLE>
(a)  Earnings per share for 1995 are based on the period from November 15,1995
     to December 31, 1995.
(b)  Per common share data has been retroactively restated to reflect the three-
     for-two stock split paid on February 5, 1998 to shareholders of record
     January 26, 1998.

                                       2
<PAGE>

Cash Earnings and Related Returns

The Company's net income is significantly impacted by the non-cash amortization
of certain expenses associated with the Company's stock based compensation
plans, as well as, the amortization of goodwill.  The recognition of these
expense items are considered non-cash because they do not adversely impact the
Company's generation of tangible shareholders' equity since the full realization
of such items have previously been deducted from tangible shareholders' equity.
Management believes that a presentation of the Company's cash earnings (which
measure tangible equity generation), alongside reported earnings, is important
in determining the Company's financial capacity for growth, share repurchases,
and payments of dividends.

Cash earnings, which represent the amount by which tangible equity changes each
period due to operating results, includes reported earnings and excludes non-
cash charges for amortization relating to the allocation of ESOP stock, the
earned portion of Option plan and MRP stock, and the amortization of the premium
for deposits acquired ("goodwill"). Cash earnings increased tangible
shareholders' equity in 1999 by $1.5 million, or 64.7% more than reported
earnings would indicate.
<TABLE>
<CAPTION>

Cash Earnings Analysis
<S>                                         <C>       <C>       <C>

  For the Years Ended December 31,
--------------------------------------------------------------------------------------------------
  (in thousands, except per share data)       1999      1998      1997
--------------------------------------------------------------------------------------------------

Net Income                                     930    $1,209    $1,854
Add back non-cash expenses related to:
 Stock-related benefit plans                   544       599       494
 Amortization of intangible asset              316       316       316
 Associated tax benefits                      (258)     (274)     (243)
--------------------------------------------------------------------------------------------------
Cash earnings                               $1,532    $1,850    $2,421
--------------------------------------------------------------------------------------------------

Cash earnings per share-basic               $  .58    $  .67    $  .87
Cash earnings per share-diluted             $  .57    $  .65    $  .86
--------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Cash Earnings Performance Ratios

  For the Years Ended December 31,
--------------------------------------------------------------------------------------------------
                                                           1999     1998     1997
--------------------------------------------------------------------------------------------------
<S>                                                        <C>      <C>      <C>

 Return on average assets                                    .73%     .94%    1.26%
 Return on average tangible shareholders' equity            8.36%    9.44%   13.12%
 Non interest expense to average assets                     2.99%    2.89%    2.59%
 Efficiency ratio                                          70.84%   65.42%   57.37%

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</TABLE>

General

Throughout the Management's Discussion and Analysis the term, "the Company",
refers to the consolidated entity of Pathfinder Bancorp, Inc.  Pathfinder Bank
is a wholly owned subsidiary of Pathfinder Bancorp, Inc.  Pathfinder REIT, Inc.
and Whispering Oaks Development Corp. represent wholly owned subsidiaries of
Pathfinder Bank.  At December 31, 1999, Pathfinder Bancorp, Inc.'s only business
was the 100% ownership of Pathfinder Bank. At December 31, 1999, 1,552,500
shares, or 58.8%, of the Company's common stock was held by Pathfinder Bancorp,
MHC, the Company's mutual holding company parent and 1,086,745 shares, or 41.2%,
was held by the public.

When used in this Annual Report the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimate", "project" or
similar expression are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.  Such
statements are subject to certain risks and uncertainties, including, among
other things, changes in economic conditions in the Company's market area,
changes in policies by regulatory agencies, fluctuations in interest

                                       3
<PAGE>

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 results of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.

The Company's net income is primarily dependent on its net interest income,
which is the difference between interest income earned on its investments in
mortgage and other loans, investment securities and other assets, and its cost
of funds consisting of interest paid on deposits and other borrowings.  The
Company's net income also is affected by its provision for loan losses, as well
as by the amount of non-interest income, including income from fees, service
charges and servicing rights, net gains and losses on sales of securities and
loans, and non interest expense such as employee compensation and benefits,
deposit insurance premiums, occupancy and equipment costs, data processing costs
and income taxes.  Earnings of the Company also are affected significantly by
general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory authorities, which
events are beyond the control of the Company.  In particular, the general level
of market rates tends to be highly cyclical.

Management Succession

On January 14, 2000, Chris C. Gagas retired as President and Chief Executive
Officer of the Pathfinder Bancorp, MHC, Pathfinder Bancorp, Inc. and Pathfinder
Bank. Mr. Gagas continues as Chairman of the Board of the Company and its mutual
holding company parent.  Thomas W. Schneider succeeded him.  Mr. Schneider has
been employed by the Company since 1988 and most recently served as Executive
Vice President and Chief Financial Officer.

Bank Name Change

On November 16, 1999, Oswego City Savings Bank changed its name to Pathfinder
Bank.

Trust Department

During the fourth quarter of 1999, the Company began providing trust and
custodial services.  The Company incurred approximately $17,000 in expense
during 1999 associated with trust operations establishment.

Real Estate Investment Trust

On May 13, 1999, the Company established and funded Pathfinder REIT, Inc., a
Real Estate Investment Trust ("the REIT"), as a subsidiary of Pathfinder Bank.
The REIT holds a portion of the residential and commercial loans originated by
the Company.  The establishment of the REIT will enable the Company to secure a
method of achieving liquidity enhancement and contingency funding in the future.
The Company incurred expenses of approximately $90,000 during 1999 associated
with the establishment of the REIT.  At December 31, 1999, Pathfinder REIT, Inc.
had total assets of $31.4 million.

Impact of the Year 2000

Prior to year-end 1999, the Company had completed the assessment of its Year
2000 risk, had implemented all necessary system enhancements, and had tested all
systems and equipment to ensure customer service, and minimize its business
risks associated with the century date rollover.  A business resumption
contingency plan along with a liquidity contingency plan were in place to
provide for problems should they have occurred.  As a result of strong customer
communications and marketing efforts by both the Company and the banking
industry, consumer confidence in the banking industry increased.  The Company
experienced no significant year 2000 related deposit declines or cash
withdrawals in December of

                                       4
<PAGE>

1999. The month of January 2000 reflected a successful transition to the year
2000 of all the Company's systems and equipment. All year end processing was
completed as scheduled and daily processing since year-end has been performed
without any year 2000 related incidents. During the month of January, the
Company had successfully reinvested its contingency cash balances. The Company
estimates that interest expense was negatively impacted in December of 1999 by
$14,000 as a result of the cash being reserved for customer contingencies. Costs
of the Company's efforts to prepare its data processing systems for the impact
of the Year 2000 were approximately $180,000 in non-capitalized costs with the
majority of expenditures for software and hardware upgrades being capitalized
upon implementation in February 1999, and maintenance costs of operating
parallel systems. The total amount capitalized was $575,000 and is being
depreciated over an average of approximately four and one-third years. The
depreciation will result in additional annual expenses of approximately $133,000
over this period.

To date, there has been no indication that the quality of the Company's
commercial loan portfolio has had any negative year 2000 related impact.  The
Company believes that its year 2000 related business risks have been
significantly reduced with the successful operation of its systems during the
early part of the year 2000.  By the end of the first quarter of 2000, the
Company expects that a sufficient level of business activity with all its third
party vendors will indicate if any risk remains.  Until such time, the Company
will continue to maintain its year 2000 business resumption contingency plan to
manage such risk.

Business Strategy

The Company's business strategy is to operate as a well-capitalized, profitable
and independent community bank dedicated to providing quality customer service.
Generally, the Company has sought to implement this strategy by emphasizing
retail deposits as its primary source of funds and maintaining a substantial
part of its assets in locally-originated residential first mortgage loans and in
investment securities.  Specifically, the Company's business strategy
incorporates the following elements: (i) operating as a community-oriented
financial institution, maintaining a strong customer base; (ii) maintaining
capital in excess of regulatory requirements; (iii) emphasizing investment in
one-to-four family residential mortgage loans, and investment securities; and
(iv) maintaining a strong retail deposit base.

Highlights of the Company's business strategy are as follows:

Community-Oriented Institution

The Company is committed to meeting the financial needs of its customers in
Oswego County, New York, the county in which it operates.  The Company believes
it is large enough to provide a full range of personal and business financial
services, and yet is small enough to be able to provide such services on a
personalized and efficient basis.  Management believes that the Company can be
more effective in servicing its customers than many of its non-locally
headquartered competitors because of the Company's ability to quickly and
effectively provide senior management responses to customer needs and inquiries.
The Company's ability to provide these services is enhanced by the stability of
the Company's senior management, which has an average tenure with the Company of
over 13 years.

Management believes that the following actions over the past five years have
helped to enhance and preserve its presence as a community bank: the 1994
acquisition of two branches of the former Columbia Federal Savings located in
the cities of Oswego and Fulton; the public offering and subsequent
reorganization into the two-tier holding company structure to further enhance
growth and independence,  the expansion of the Company's small business lending
services, and the creation of a Trust division to further serve the community
needs and provide additional revenue sources.  The Company is committed to
exploring additional lines of business and the formation of strategic alliances
to maintain its independence and enhance its profitability in a competitive,
consolidating industry.

Capital and Asset Levels

The Company's shareholders' equity has decreased from $20.8 million at December
31, 1995 to $20.1 million at December 31, 1999.  Exclusive of treasury share
repurchases, the Company's equity has increased $2.4 million or 11.6% during the
same time period.  The Company's ratio of shareholders' equity to total assets
was 9.28% at December 31, 1999.  Total assets have increased by $35.6 million,
or 19.7%,

                                       5
<PAGE>

since December 31, 1995. The Company's capital exceeds all regulatory capital
requirements (see footnote # 15 of the consolidated financial statements for
Pathfinder Bancorp, Inc.).

Emphasis on Residential Mortgage Lending and Investment Securities

The Company emphasizes residential real estate financing and anticipates a
continued commitment to financing the purchase or improvement of residential
real estate in its market area.  Historically, the Company has not been an
active purchaser of loans or loan participations.  To supplement local mortgage
loan originations, the Company invests in investment securities consisting
primarily of investment grade corporate debt instruments, securities issued by
the United States Government, state and municipal obligations, mutual funds,
equity securities, and mortgage-backed securities.  By investing in these types
of assets, the Company reduces the credit risk of its asset base but must accept
lower yields than would typically be available on commercial real estate  loans
and multi-family real estate loans.  At December 31, 1999, 90.8% of the
Company's total loan portfolio consisted of loans secured by real estate.  In
addition, at December 31, 1999, 30.7% of the Company's total assets consisted of
investment securities.

Strong Retail Deposit Base

The Company has a relatively strong retail base drawn from the five full-service
offices in its market area.  At December 31, 1999, 55.4% of the Company's
deposit base of $152.4 million consisted of core deposits, which included non-
interest-bearing demand accounts, NOW accounts, passbook and club savings
accounts and money market deposit accounts. Core deposits are considered to be a
more stable and lower cost source of funds than certificates of deposit or
outside borrowings.  The Company will continue to emphasize retail deposits by
maintaining its network of full service offices, and providing depositors with a
full range of accounts.

Changes in Financial Condition

Comparison at December 31, 1999 and December 31, 1998.

Total assets increased $13.0 million, or 6.4%, to $216.3 million at December 31,
1999 from $203.3 million at December 31, 1998.  The increase in assets is
primarily the result of increases of $13.0 million, or 24.3%, in  investment
securities to $66.4 million from $53.4 million, and an increase of $4.7 million
in net loans receivable.  The increase in total assets was primarily the result
of the continued implementation of a wholesale growth strategy in which the
Company uses borrowings to fund the purchase of investments, and the origination
of loans, as well as offsetting reductions in core deposits. Additionally, the
Company had originations of mortgage loans held-for-sale of $3.8 million and
loan sale proceeds of $5.9 million from sales into the secondary market.  These
originations consist of 15 year and 30 year fixed rate mortgages.  The Company
services these mortgages and recognizes income from the capitalization of
mortgage servicing rights.  At December 31, 1999, the Company's mortgage loans
held-for-sale portfolio was $697,000, compared to $2.8 million at December 31,
1998. These asset increases were also offset by a $2.2 million dollar decrease
in cash and cash equivalents.

Non-performing loans (past due 90 days or more) increased $722,000, or 39.4%, to
$2.6 million at December 31, 1999, from $1.8 million at the end of the prior
year.  The non-performing loans to total loans ratio at December 31, 1999 was
2.0% compared to 1.5% at December 31, 1998.  The Company's allowance for loan
losses to total loans and non-performing loans was .88% and 45.0%, respectively,
at December 31, 1999. The increase in non-performing loans occurred primarily in
the Company's one-to-four family real estate loan portfolio.  While this trend
is indicative of the slow economic growth in the Company's market area, the
underwriting of these loans allows for relatively low loan-to-value ratios.  The
average loan-to-value ratio of the Company's non-performing one-to-four family
mortgage loans was approximately 63% at December 31, 1999.  The relatively low
loan-to-value ratio serves as a mitigating factor in estimating the company's
potential losses from credit default.

Total liabilities increased $16.2 million, or 9.0%, to $196.3 million at
December 31, 1999 from $180.1 million at the end of the prior fiscal year.  The
increase was primarily attributable to a $24.2 million increase in borrowed
funds to $42.9 million at December 31, 1999, from $18.7 at December 31, 1998.
The increase in borrowings represent term advances and reverse repurchase
agreements utilized to fund the Company's growth in its investment and loan
portfolios, as well as an extension of the Company's line of credit. The
increase in borrowed funds was partially offset by a $7.8 million decrease in
deposits, and a $1.1 million

                                       6
<PAGE>

decrease in other liabilities. The decrease in deposits was comprised of a $4.8
million, or a 7.5% decrease in savings accounts, a $2.3 million, or 14.3%,
decrease in interest-bearing demand deposits, and a $1.5 million decrease in
time accounts. The decrease in deposits reflects both the lack of significant
growth in the Company's market area and increased competitive forces for
alternative investment products and returns. The decrease in other liabilities
was the result of a $1.3 million increase in deferred taxes, partially offset by
a $196,000 increase in deferred compensation and a $143,000 increase in interest
payable.

Shareholders' equity decreased $2.2 million, or 9.9%, to $20.1 million at
December 31, 1999 from $22.3 million at December 31, 1998.  The decrease is
attributable to the repurchase of 113,475 shares of the Company's common stock
totaling $1.2 million, a decrease in accumulated other comprehensive income of
$1.9 million and dividends declared of $ 629,000.  The decreases were offset by
net income of $930,000 and stock based compensation earned of $544,000.

Comparison at December 31, 1998 and December 31, 1997.

Total assets increased $6.5 million, or 3.3%, to $203.3 million at December 31,
1998 from $196.8 million at December 31, 1997.  The increase in assets is
primarily the result of increases in the balance of net loans receivable to
$125.4 million from $120.0 million, an increase of $5.4 million, or 4.5%. This
increase was principally attributable to the deployment of maturing short term
investments to fund the demand for the Company's loan products, principally one
to four family mortgage loans and commercial real estate loans.  Increases also
occurred in the following areas: interest-bearing deposits at other financial
institutions increased by $1.8 million, cash and due from banks increased by
$382,000, premises and equipment increased $770,000, and other assets increased
$810,000.  The increase in premises and equipment consists primarily of upgrades
to the Company's data processing systems. The increase in other assets was
primarily attributable to a $554,000 increase in the cash value of life
insurance, an $84,000 increase in prepaid pension expense, $55,000 in
capitalized mortgage servicing rights, a $100,000 receivable from another
financial institution, and $76,000 in other prepaid expenses. These increases
were partially offset by decreases in investment securities of $3.4 million, or
6.0%, to $53.4 million from $56.8 million, and intangible assets of $316,000 to
$3.3 million from 3.6 million.

Non-performing loans (past due 90 days or more) increased $342,000, or 22.9%, to
$1.8 million at December 31, 1998, from $1.5 million at the end of the prior
year.  The non-performing loans to total loans ratio at December 31, 1998 was
1.5% compared to 1.2% at December 31, 1997.  The Company's allowance for loan
losses to total loans and non-performing loans was .75% and 51.3%, respectively,
at December 31, 1998.

Total liabilities increased $6.9 million, or 4.0%, to $180.1 million at December
31, 1998 from $173.2 million at the end of the prior fiscal year.  The increase
was primarily attributable to a $7.8 million increase in deposits to $160.2
million at December 31, 1998, from $152.4 at December 31, 1997. The increase in
deposits was comprised of a $5.8 million increase in interest bearing deposits
and a $2.0 million increase in non-interest bearing deposits. Savings accounts
increased $292,000, or .5%, to $64.2 million while time deposits increased $2.3
million, or 3.5%.   The Company's borrowings increased $449,000, or 2.5% to
$18.7 million at December 31, 1998 from $18.2 million at the end of the prior
year.

Shareholders' equity decreased $1.3 million, or 5.5%, to $22.3 million at
December 31, 1998 from $23.6 million at December 31, 1997.  The decrease is
attributable to the repurchase of 132,000 shares of the Company's common stock
totaling $1.9 million and dividends declared of $545,000, partially offset by
net income of $1.2 million, an increase in the unrealized appreciation on
investment securities available for sale of $269,000, a net decrease in unearned
ESOP and stock compensation plans of  $599,000.


Results of Operations

General

The Company had net income of $930,000, $1.2 million, and $1.9 million for the
fiscal years ended December 31, 1999, 1998 and 1997, respectively.  The decrease
in net income for the year ended December 31, 1999, compared to 1998 resulted
primarily from an increase in other expenses of $548,000, or 8.3%, to $7.1
million, and a decrease in other income of $382,000, or 24.1%.  This was
partially offset by an increase in net interest income of $567,000, or 8.1%.
The Company's return on average assets and

                                       7
<PAGE>

return on shareholders' equity for the years ended December 31, 1999, 1998 and
1997 were .44%, .62%, and .97% and 4.33%, 5.12%, and 8.35%, respectively. These
performance ratios tend to be below the Company's peer group during the period.
The peer group is derived from the FDIC Uniform Bank Performance Report and
comprises all FDIC insured savings banks having assets between $100 million and
$300 million. The peer groups annualized return on average assets for the
periods ended September 30, 1999 and December 31, 1998 and 1997 were .89%, .92%,
and .99%, respectively. The peer groups annualized return on average equity for
the periods ended September 30, 1999 and December 31, 1998 and 1997 were 7.53%,
7.78%, and 8.77%, respectively. The primary reason for declining earnings trends
and lower than peer returns is the growth rate in operating expenses exceeding
the rate of growth of revenue. During the three year period ended December 31,
1999, operating expenses increased at an average annualized rate of 11.0%, while
revenue, exclusive of securities gains/losses, increased at an average
annualized rate of 4.8%. The growth in operating expenses is representative of
the Company's actions to position the bank as a more diverse provider of
financial services. Management and the Board are committed to harnessing the
Company's enhanced capacity and capabilities to consistently grow revenue at a
rate in excess of the growth of expenses.

Comparison of Operating Results for the Years Ended December 31, 1999 and 1998

Interest Income

Interest income totaled $14.7 million for the year ended December 31, 1999, as
compared to $14.1 million for the year ended December 31, 1998, an increase of
$633,000 or 4.5%.  The increase in interest income was principally attributable
to an increase of $14.8 million in the average balance of interest-earning
assets to $191.9 million from $177.1 million, partially offset by a decrease in
the average yield on interest earning-assets to 7.72% from 8.03%.  The increase
in average interest-earning assets occurred as a result of growth in both the
securities and loan portfolio.  Average investment securities increased $11.0
million, or 22.0%, and average loans increased $3.8 million, or 3.0%.    The
yield reduction is principally the result of a lower interest rate environment
during the first 3 quarters of 1999, which in turn has resulted in new mortgage
loan originations at rates in excess of 90 basis points below the weighted
average rate of the existing loan portfolio which lowered the total portfolio to
8.27% from 8.56%, combined with the reinvestment of investment security
principal maturity's and prepayments taking place during the year at rates over
75 basis points less than the existing portfolio yield.  The increase in average
interest-earning assets was primarily attributable to the Company's continued
implementation of a wholesale growth strategy in which borrowings are utilized
to purchase investments and fund loan portfolio growth.

Interest income on real estate loans totaled  $9.6 million and $9.7 million for
the years ended December 31, 1999 and 1998, respectively.  The $142,000, or
1.5%, decrease resulted primarily from a decrease in the average yield on real
estate loans of .36%, to 7.97% for 1999 from 8.33% for 1998.  The decrease in
the average yield on real estate loans was partially offset by an increase of
$3.4 million, or 3.0%, in the average balance of such loans to $119.9 million
from $116.5 million.  The increase in the average balance on real estate loans
was principally due to the origination of 15 year term one-to-four family
residential mortgages loans, and one-to-four family adjustable rate mortgage
loans retained in the Company's portfolio.  The origination of adjustable rate
mortgage loans is primarily comprised of "5/1 ARMS" which have interest rates
that are fixed for the first five years and are adjustable annually thereafter,
and amortize over 30 years.  To a lesser degree, the Company also increased its
origination of commercial real estate loans. The decrease in the yield on
average real estate loans was attributable to the lower rates charged on the 15
year conforming mortgage loans originated during the year, and the initial rates
charged on 5/1 ARMS.

Interest income on consumer and other loans increased $79,000, or 6.7%, to $1.3
million for the year ended December 31, 1999 from $1.2 million for the year
ended December 31, 1998.  The increase was due to an increase in the average
yield on consumer and other loans to 11.56% from 11.19%, as well as an increase
in the average balance on consumer and other loans of $351,000, or 3.4%, to
$10.8 million from $10.5 million.  The increase in the average yield on consumer
and other loans reflects the Company's continuing efforts to provide lending to
qualified local businesses, which tend to carry higher interest rates.  The
increase in the average balance on consumer and other loans demonstrates
continued penetration into this particular segment of the market.

                                       8
<PAGE>

Interest income on mortgage-backed securities increased by $88,000, or 6.5%, to
$1.5 million from $1.4 million for the years ended December 31, 1999 and 1998,
respectively. The increase in interest income on mortgage-backed securities
resulted generally from a increase in the average yield on mortgage-backed
securities to 6.75% from 6.69%, as well as an increase in the average balance of
mortgage-backed securities of $1,134, or 5.6%.  The increase in the average
balance reflects the continued utilization of mortgage-backed securities in
repurchase agreement transactions by the Company.  The increase in the average
yield on mortgage-backed securities was a result of the funds from the scheduled
amortization and prepayments being reinvested at higher market rates.

Interest income on investment securities, on a tax equivalent basis, increased
$672,000, or 36.7%, for the year ended December 31, 1999 to $2.5 million from
$1.8 million for the same period in 1998.  The increase resulted primarily from
an increase in the average balance of investment securities of $11.7 million, or
43.6%, to $38.6 million at the end of the 1999 fiscal year from $26.9 million at
December 31, 1998.  The increase in average balance was partially offset by a
decrease in the average yield on investment securities, on a tax equivalent
basis, to 6.48% from 6.80% for the years ended December 31, 1999 and 1998,
respectively.  The increase in the average balance of investment securities
resulted primarily from the continuation of the Company's wholesale strategy
whereby borrowings are utilized to fund investment portfolio growth.

Interest income on interest-earning deposits decreased $85,000, or 58.6%, to
$60,000 for the year ended December 31, 1999 from $145,000 for the prior year.
The decrease was due to a $1.8 million, or 64.6%, decrease in the average
balance on interest-earning deposits, partially offset by an increase in the
average yield on such deposits to 5.99% from 5.13%.

Interest Expense

Interest expense increased $66,000, or .1%, to $7.0 million for the year ended
December 31 1999.  The increase was primarily attributable to an increased
utilization of borrowed funds in connection with the Company's continued
wholesale growth strategy and the use of borrowed funds to supplement deposit
declines.   The average balance of interest-bearing liabilities increased $14.5
million, or 8.9%, to $176.5 million at December 31, 1999 as compared to $162.0
million at the end of the prior year. The average cost of interest-bearing
liabilities decreased to 3.99% during the year ended December 31, 1999 from
4.30% for the year ended December 31, 1998.  The decrease in the average cost is
primarily attributable to reductions in the interest rates paid on NOW accounts
and savings deposits.  Interest expense on savings and club accounts decreased
$405,000, or 21.7%.  The average balance on savings and club accounts decreased
$2.0 million, or 3.1%, to $62.4 million for the year ended December 31, 1999
from $64.4 for the prior year, while the average cost of such deposits decreased
to 2.34% from 2.90%.  The average balance on time deposits remained relatively
constant when comparing the years ended December 31, 1999 and 1998, while the
average cost of time deposits decreased to 5.28% from 5.69%.  The decrease in
the average balance on the Company's core deposits is reflective of increased
competition form non-bank investment products and a lack of growth in the
Company's market area.  These conditions are anticipated to continue in the near
future.  The Company's borrowings consist of term and overnight advances from
the Federal Home Loan Bank of New York and funds obtained through repurchase
agreements ("repos").  Interest expense on borrowed funds increased $808,000, or
92.0%, to $1.7 million for the year ended December 31,1999 from $878,000 at the
prior year end.  This increase was primarily the result of a increase in the
average balance of the borrowings of  $15.6 million, to $30.5 million, from
$14.9 million for 1999 and 1998 respectively, partially offset be a decrease in
the average cost of borrowed fund of .35% to 5.53% from 5.88%.  The reduction in
the average cost of borrowed funds is primarily a result of approximately $10
million of borrowings being entered into during the fourth quarter of 1998 and
the first quarter of 1999 when the prevailing rates were at their lowest.


Average Balance Sheet

The following table sets forth certain information concerning average interest
earning assets and interest-bearing liabilities and the yields and rates
thereon. Interest income and resultant yield information in the table is on a
fully tax-equivalent basis for the three years ended December 31, 1999, 1998,
and 1997 using marginal federal income tax rates of 34%. Averages are computed
on the daily average balance for each month in the period divided by the number
of days in the period. Yields and amounts earned include loan fees. Non-accrual
loans have been included in interest-earning assets for purposes of these
calculations.

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                              1999                                 1998                                 1997
                               Average                Average     Average                Average    Average               Average
                               Balance    Interest   Yield/Cost   Balance    Interest   Yield/Cost  Balance   Interest   Yield/Cost
------------------------------------------------------------------------------------------------------------------------------------
                                                                               (in thousands)
<S>                           <C>         <C>        <C>         <C>         <C>        <C>         <C>       <C>         <C>
 Interest Earning Assets:
  Real Estate Loans           $119,893     $ 9,556      7.97%    $116,447    $  9,698      8.33%    $103,600     $ 8,971     8.66%
  Consumer & Other Loans        10,835       1,252     11.56%      10,484       1,173     11.19%      10,051       1,093    10.87%
  Mortgage-backed Securities    21,519       1,452      6.75%      20,385       1,364      6.69%      23,244       1,591     6.84%
  Taxable investment
   securities                   32,935       2,014      6.12%      20,877       1,330      6.37%      29,160       1.968     6.75%
  Non-taxable investment
   securities                    5,695         488      8.57%       6,034         500      8.29%       6,432         554     8.61%
  Interest-earning deposits      1,002          60      5.99%       2,829         145      5.13%       3,426         173     5.05%
----------------------------------------------------------------------------------------------------------------------------------
  Total interest-earning
   assets                     $191,879     $14,822      7.72%    $177,056    $ 14,210      8.03%    $175,913     $14,350     8.16%

Non Interest Earning Assets:
  Other assets                  18,525                             18,352                             16,017
  Allowance for loan losses     (1,000)                              (851)                              (936)
  Net unrealized gains
  on available for sale
   portfolio                       406                              1,443                                648
------------------------------------------------------------------------------------------------------------------------------------

     Total Assets             $209,810                           $196,000                           $191,642
--------------------------------------------------------------------------------------------------------------------------

Interest-bearing Liabilities:
  Now accounts                $ 15,119     $   273      1.81%    $ 14,281    $    331      2.32%    $ 13,346     $   341     2.56%
  Savings and club accounts     62,403       1,460      2.34%      64,417       1,865      2.90%      65,383       1,971     3.01%
  Time deposits                 68,482       3,616      5.28%      68,417       3,895      5.69%      70,591       3,975     5.63%
  Borrowings                    30,511       1,686      5.53%      14,927         878      5.88%      10,677         605     5.67%
------------------------------------------------------------------------------------------------------------------------------------

  Total Interest bearing
   liabilities                $176,515     $ 7,035      3.99%    $162,042    $  6,969      4.30%    $159,997     $ 6,892     4.31%
------------------------------------------------------------------------------------------------------------------------------------

Non-Interest-Bearing
Liabilities:
Demand deposits                  9,736                              8,436                              7,633
  Other liabilities              2,083                              1,913                              1,798
--------------------------------------------------------------------------------------------------------------------------
      Total liabilities        188,334                            172,391                            169,428
------------------------------------------------------------------------------------------------------------------------------------

  Shareholder's equity          21,476                             23,609                             22,214
--------------------------------------------------------------------------------------------------------------------------

  Total liabilities &
   shareholder's equity       $209,810                           $196,000                           $191,642
--------------------------------------------------------------------------------------------------------------------------

 Net interest income                       $ 7,787                           $  7,241                            $ 7,458

 Net interest rate spread                               3.73%                              3.73%                             3.85%

 Net interest margin                                    4.06%                              4.09%                             4.24%

 Ratio of average
  interest-earning assets
  to average
  interest-bearing
  liabilities                                         108.70%                            109.27%                           109.95%

</TABLE>

Rate/Volume Analysis

Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest earning assets and interest-bearing liabilities and
changing the volume or amount of these assets and liabilities. The following
table represents the extent to which changes in interest rates and changes in
the volume of interest earning assets and interest-bearing liabilities have
affected the Company's interest income and interest expense during the periods
indicated. Information is provided in each category with respect to: (i) changes
attributable to changes in volume (change in volume multiplied by prior rate);
(ii) changes attributable to changes in rate (changes in rate multiplied by
prior volume); and (iii) changes attributable to both rate and volume have been
allocated equally.
<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------

                                                          1999  vs. 1998                           1998 vs. 1997
                                                    Increase (Decrease) Due to                  Increase (Decrease) Due to
------------------------------------------------------------------------------------------------------------------------------------

                                                                         Total                                       Total
                                                                        Increase                                    Increase
                                                   Volume     Rate     (Decrease)      Volume           Rate       (Decrease)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                 (in thousands)
<S>                                               <C>         <C>      <C>             <C>              <C>        <C>
Interest Income:
 Real estate loans                                $  282    $  (424)       ($142)         $1,091          $(364)       $ 727
 Consumer and other loans                             39         40           79              47             33           80
 Mortgage-backed securities                           76         12           88            (195)           (32)        (227)
</TABLE>

                                       10
<PAGE>

<TABLE>
<S>                                               <C>         <C>      <C>             <C>              <C>        <C>
 Taxable investment securities                       752        (68)         684            (543)           (95)        (638)
 Non-taxable investment securities                   (28)        16          (12)            (34)           (20)         (54)
 Interest-earning deposits                          (101)        16          (85)            (30)             2          (28)
------------------------------------------------------------------------------------------------------------------------------------
  Total interest income                            1,020       (408)         612             336           (476)        (140)
Interest Expense:
 Now and escrow accounts                              18        (76)         (58)             23            (33)         (10)
 Savings and club accounts                           (51)      (354)        (405)            (31)           (75)        (106)
 Time deposits                                         3       (282)        (279)           (122)            42          (80)
 Borrowings                                          888        (80)         808             246             27          273
------------------------------------------------------------------------------------------------------------------------------------
Total Interest expense:                              858       (792)          66             116            (39)          77
------------------------------------------------------------------------------------------------------------------------------------

Net change in interest
 income                                           $  162     $  384       $  546          $  220          $(437)       $(217)
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

Net Interest Income

Net interest income increased $546,000, on a tax equivalent basis, for the year
ended December 31, 1999 as compared to December 31, 1998.  The increase occurred
due to an increase in the average balance of interest earning assets of $14.8
                          ------------------------------------------------------
million, or 8.4%, and a decrease in the average cost of interest-bearing
--------------------------------------------------------------------------------
liabilities to 3.99% from 4.30%, partially offset by an increase in the average
--------------------------------------------------------------------------------
balance of interest-bearing liabilities of $14.5 million, or 8.9%, and a
--------------------------------------------------------------------------------
decrease in the average yield of interest-earning assets to 7.72% from 8.03%.
----------------------------------------------------------------------------
Provision for Loan Losses

The Company maintains an allowance for loan losses based upon a monthly
evaluation of known and inherent risks in the loan portfolio, which includes a
review of the balances and composition of the loan portfolio as well as
analyzing the level of delinquencies in each segment of the loan portfolio.
Loan loss provisions are based upon management's estimate of the fair value of
the collateral and the Company's actual loss experience, as well as standards
applied by the FDIC.  The Company established a provision for possible loan
losses for the year ended December 31, 1999 of $373,000 as compared to a
provision of $382,000 for the year ended December 31, 1998.  The decrease in the
provision for loan losses is attributable a lower level of net charge offs
during 1999 when compared to 1998.  The Company's allowance for loan losses as a
percentage of total loans receivable was .88%, while the allowance for loan
losses to non-performing loans was 45.01% at December 31, 1999.

Non interest Income

The Company's non interest income is principally comprised of fees on deposit
accounts and transactions,  loan servicing, commissions, and net gain on
securities and loans.  Non interest income exclusive of net gains on securities
and loans increased $151,000 or 15.6%, to 1.1 million for the year ended
December 31, 1999, when compared to the same period in the prior year.  The
increase in non interest income, exclusive of net gain on securities and loans,
is a result of an ongoing effort by the Company to diversify its revenue sources
and lessen its dependence on net interest income.  As a component of this
objective, the Company has expanded its facilities and resources to provide
trust services and enhance its investment management services.  Net gain on
securities and loans decreased $532,000, or 86.1%, for the year ended December
31, 1999 when compared to the 1998 period.  The decrease in net gain on
securities and loans is a result of a reduction in the mark-to-market gain in
the Company's equity mutual fund holdings.

Non interest Expense

Non interest expense increased $548,000, or 8.3%, to $7.1 million for the year
ended December 31, 1999 from $6.6 million for the prior year. The increase in
non-interest expense was comprised of a $351,000, or 78.5% increase in data
processing charges, a $247,000, or 45.9% increase in professional and other
services, a $124,000 increase in building occupancy, and a $183,000 increase in
salaries and employee benefits. These increases were offset by a $379,000 charge
recorded in the prior year as a result of the termination of the Company's
merger transaction.  The increase in data processing costs are primarily the
result of increases in depreciation and maintenance on upgraded hardware and
software placed into service during the first quarter on 1999.  These upgrades
to hardware and software represent efforts by the company to undertake remedial
actions for Year 2000 contingency and enhance its ability to compete over

                                       11
<PAGE>

the near term. The increase in professional and other services is primarily
comprised of increased fees for information systems consulting, advertising
associated with the company name change, investment and risk management, and
attorney fees. The increase in building occupancy expense is principally due to
depreciation and maintenance increases associated with expansion of the
Company's main office. The increase in salaries and employee benefits is
primarily due to commissions paid to mortgage originators, accelerated
amortization of certain stock-based compensation plans, and annual salary
increases.

The Company's overhead (non-interest expense to average assets) and efficiency
ratios for the year ended December 31, 1999 were 3.40% and 80.5%, respectively.
The stock based compensation plan expenses and the Company's amortization of
goodwill represent non-cash expenses in that they do not decrease the generation
of tangible capital (see page xxx).  If these non-cash expenses were deducted
from the Company's overhead and efficiency ratios, those adjusted ratios for the
year ended December 31, 1999 would be 2.99% and 70.8%, respectively.

Income Tax Expense

Income tax expense decreased $75,000, or 15.1% to $421,000 for the year ended
December 31, 1999 from $495,000 for the prior year.  The decrease in income tax
expense reflected lower pre-tax income during the year.


Comparison of Operating Results for the Years Ended December 31, 1998 and 1997

Interest Income

Interest income totaled $14.1 million for the year ended December 31, 1998, as
compared to $14.2 million for the year ended December 31, 1997, a decrease of
$112,000, or 1.0%.  The decrease in interest income was principally attributable
to a decrease in the average yield on interest-earning assets to 8.03% from
8.16%, partially offset by an increase of $1.2 million, or .6%, in the average
balance of interest earning-assets to $177.1 million from $175.9 million. The
decline in yield on mortgages and investments was caused by a general decline in
market interest rates. The increase in average interest-earning assets was
primarily attributable to loan origination activity.  Loan originations totaled
45.7 million for the 1998 fiscal year, of which $28.1 were one-to-four family
residential mortgages.  Loan sales during this period were $7.7 million.  The
originations, less loan repayments and sales, increased the average balance of
real estate loans by $12.8 million, or 12.4%, to $116.5 million at December 31,
1998 from $103.6 million for the prior fiscal year. The average balance on
consumer and other loans increased by $433,000, or 4.3%.  The average balance on
mortgage-backed securities and investment securities decreased by $2.9 million
and $8.7 million, respectively.  The average balance on interest-earning
deposits at other financial institutions decreased by $597,000.

Interest income on real estate loans totaled  $9.7 million and $9.0 million for
the years ended December 31, 1998 and 1997, respectively.  The $727,000, or
8.1%, increase resulted primarily from an increase in the average balance of
real estate loans of $12.8 million, or 12.4%, to $116.5 million for 1998 from
$103.6 million for 1997.  The increase in the average balance on real estate
loan was partially offset by a reduction in the average yield on such loans to
8.33% from 8.66%.  The increase in the average balance on real estate loans was
principally due to the origination of 15 and 30 year term one-to-four family
residential mortgages loans held-for-sale and one-to-four family adjustable rate
mortgage loans retained in the Company's portfolio.

Interest income on consumer and other loans increased $80,000, or 7.3%, to $1.2
million for the year ended December 31, 1998 from $1.1 million for the year
ended December 31, 1997.  The increase was due to an increase in the average
yield on consumer and other loans to 11.19% from 10.87%, as well as an increase
in the average balance on consumer and other loans of $433,000, or 4.3%, to
$10.5 million from $10.1 million.

Interest income on mortgage-backed securities decreased by $227,000, or 14.3%,
to $1.4 million from $1.6 million for the years ended December 31, 1998 and
1997, respectively. The decrease in interest income on mortgage-

                                       12
<PAGE>

backed securities resulted generally from a decrease in the average balance on
mortgage-backed securities of $2.9 million, or 12.3%, to $20.4 million at
December 31, 1998 from $23.2 million at the end of the prior year, as well as a
decrease in the average yield on mortgage-backed securities to 6.69% from 6.84%.
The decrease in the average balance of mortgage-backed securities resulted from
the scheduled amortization and prepayments of principal on the underlying
mortgage loans.

Interest income on investment securities, on a tax equivalent basis, decreased
$692,000, or 27.4%, for the year ended December 31, 1998 to $1.8 million from
$2.5 million for the same period in 1997.  The decrease resulted primarily from
a decrease in the average balance of investment securities of $8.7 million, or
24.4%, to $26.9 million at the end of the 1998 fiscal year from $35.6 million at
December 31, 1997.  Additionally, the average yield on investment securities, on
a tax equivalent basis, decreased to 6.80% from 7.09% for the years ended
December 31, 1998 and 1997, respectively.  The decrease in the average balance
of investment securities resulted primarily from the reinvestment of funds from
maturing and called securities into loan originations.

Interest income on interest-earning deposits decreased $28,000, or 16.2%, to
$145,000 for the year ended December 31, 1998 from $173,000 for the prior year.
The decrease was due to a $597,000, or 17.4%, decrease in the average balance on
interest-earning deposits, partially offset by an increase in the average yield
on such deposits to 5.13% from 5.05%.

Interest Expense

Interest expense increased $77,000, or 1.1%, to $7.0 million for the year ended
December 31 1998, from $6.9 million for the prior year.  The increase was
primarily attributable to an increase in the use of borrowed funds which
resulted in a higher average balance on interest-bearing liabilities.  The
average balance of interest-bearing liabilities increased $2.0 million, or 1.3%,
to $162.0 million at December 31, 1998 as compared to $160.0 million at the end
of the prior year. The average cost of interest-bearing liabilities decreased to
4.30% during the year ended December 31, 1998  from 4.31% for the year ended
December 31, 1997.  The decrease in the average cost is primarily attributable
to reductions in the interest rates paid on NOW accounts and savings deposits.
Interest expense on savings and club accounts decreased $106,000, or 5.4%, while
the interest expense on time deposits decreased $80,000, or 2.0%.  The average
balance on savings and club accounts decreased $966,000, or 1.5%, to $64.4
million for the year ended December 31, 1998 from $65.4 for the prior year,
while the average cost of such deposits decreased to 2.90% from 3.01%.  The
stated rate of interest paid on fixed rate savings accounts was reduced to 2.15%
from 3.00% during the fourth quarter of 1998.  During 1998, the Company
introduced a tiered-rate savings account, which allows for higher rates of
interest at higher balances ranging from 2.15% to 3.25%.  At December 31, 1998,
$49.49 million, or 76.9%, of the total savings deposits were held in fixed rate
accounts while $14.9 million were held in the tiered-rate product.   The average
balance on time deposits decreased $2.2 million, or 3.1%, to $68.4 million for
the year ended December 31, 1998 from $70.6 million at December 31, 1997, while
the average cost of time deposits increased to 5.69% from 5.63%.  The average
balance of borrowed funds increased $4.2 million, or 39.8%, to $14.9 million at
December 31, 1998 as compared to $10.7 million at the end of the prior year.
The average cost of borrowed funds increased to 5.67% during the year ended
December 31, 1998 from 5.67 for the same period in the prior year.  The increase
in the average balance of borrowed funds reflects the Company's continued
emphasis on wholesale growth.


Net Interest Income

Net interest income decreased $217,000, on a tax equivalent basis, for the year
ended December 31, 1998 as compared to December 31, 1997.  The decrease occurred
due to a decrease in the ratio of average interest-earning assets to average
interest bearing liabilities to 109.27% from 109.95%, as well as a compression
of the Company's net interest rate spread to 3.73% from 3.85%.  These ratios are
the result of a $2.0 million, or 1.3%, increase in average interest-bearing
liabilities, and a decrease in the average yield of interest-earning assets to
8.03% from 8.16%.  These decreases were offset in part by an increase in the
average balance of interest earning assets of $1.1 million, or .6%, and a
decrease in the average cost on interest bearing liabilities to 4.30% from
4.31%.


Provision for Loan Losses

                                       13
<PAGE>

The Company maintains an allowance for loan losses based upon a monthly
evaluation of known and inherent risks in the loan portfolio, which includes a
review of the balances and composition of the loan portfolio as well as
analyzing the level of delinquencies in each segment of the loan portfolio.
Loan loss provisions are based upon management's estimate of the fair value of
the collateral and the Company's actual loss experience, as well as standards
applied by the FDIC.  The Company established a provision for possible loan
losses for the year ended December 31, 1998 of $382,000 as compared to a
provision of $261,000 for the year ended December 31, 1997.   The Company's
allowance for loan losses as a percentage of total loans receivable was .75%,
while the allowance for loan losses to non-performing loans was 51.20% at
December 31, 1998.

Non interest Income

Non interest income consists of servicing income and fee income, gains (losses)
on the sale of investment securities and loans and other operating income.

Non interest income increased $213,000, or 15.5%, to $1.6 million for the year
ended December 31, 1998, as compared to $1.4 million for the year ended December
31, 1997.  The increase in non interest income was primarily attributable to an
increase in fees and service charges of $26,000, or 5.3%, to $515,000 from
$489,000, and additional gains on the sale of investment securities and loans of
$290,000, partially offset by a decrease in other charges, commissions, and fees
of $107,000, or 29.1%, to $260,000 from $367,000.

Non interest Expense

Non interest expense increased $816,000, or 14.1%, to $6.6 million for the year
ended December 31, 1998 from $5.8 million for the prior year.  The increase in
non interest expense was primarily attributable to increases in employee
compensation and benefits of $199,000, or 6.8%, data processing costs of
$59,000, or 15.3%, professional service expense increases of $8,000, other
expense increases of $211,000, or 22.1%, and a charge of $379,000 in connection
with the cancellation of the merger.  The merger expenses were attributable to
professional services rendered for legal, tax, accounting work, as well as for
certain filing fees.  The increases in the employee compensation and benefits is
primarily the result of increased salaries of approximately of $105,000, stock
compensation expense of $40,000, and directors fees of $62,000.  The increase in
other expenses was primarily attributable to the following:  $81,000 in
connection with the liquidation of  certain OREO properties, $52,000 in non-
recurring data communications costs for networks, $49,000 for costs related to
the operation of the mid-tier holding company (principally franchise tax), and
$16,000 in additional liability insurance expense.  The expense increase were
partially offset by a decrease in occupancy costs of $40,000, or 6.0%.

The Company's overhead (non-interest expense to average assets) and efficiency
ratios for the year ended December 31, 1998 were 3.36% and 70.57%, respectively.
Exclusive of the merger costs the same ratios were 3.17% and 65.22%,
respectively. The stock based compensation plan expenses and the Company's
amortization of goodwill represent non-cash expenses in that they do not
decrease the generation of tangible capital (see page 14).  If these non-cash
expenses were deducted from the Company's overhead and efficiency ratios,
exclusive of the merger costs, those adjusted ratios for the year ended December
31, 1998 would be 2.70% and 52.33%, respectively.

Income Tax Expense

Income tax expense decreased $267,000, or 35.0% to $495,000 for the year ended
December 31, 1998 from $762,000 for the prior year.  The decrease in income tax
expense reflected lower pre-tax income during the year.

Quantitative and Qualitative Disclosure about Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates or prices such as interest rates, foreign currency
exchange rates, commodity prices, and equity prices.  The Company's most
significant form of market risk is interest rate risk, as the majority of the
Company's assets and liabilities are sensitive to changes in interest rates.
The Company's mortgage loan portfolio consists primarily of loans on residential
real property located in Oswego County, and is therefore subject to risks
associated with the local economy.  The Company's interest rate risk management
program focuses primarily on evaluating and managing the composition of the
Company's assets and liabilities in the context

                                       14
<PAGE>

of various interest rate scenarios. Factors beyond management's control, such as
market interest rates and competition, also have an impact on interest income
and interest expense. Other types of market risks do not arise in the normal
course of the Company's business activities.

The extent to which such assets and liabilities are "interest rate sensitive"
can be measured by an institution's interest rate sensitivity "gap".  An asset
or liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period.  The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and that
amount of interest-bearing liabilities maturing or repricing within that time
period.  A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities.  A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets.  During a period of rising
interest rates, a negative gap would tend to adversely affect net interest
income while a positive gap would tend to positively affect net interest income.
Conversely, during a period of falling interest rates, a negative gap would tend
to positively affect net interest income while a positive gap would tend to
adversely affect net interest income.

The Company does not generally maintain in its portfolio fixed interest rate
loans with terms exceeding 20 years.  In addition, ARM loans are originated with
terms that provide that the interest rate on such loans cannot adjust below the
initial rate.  Generally, the Company tends to fund longer term loans and
mortgage-backed securities with shorter term time deposits, repurchase
agreements, and advances.  The impact of this asset/liability mix creates an
inherent risk to earnings in a rising interest rate environment.  In a rising
interest rate environment, the Company's cost of shorter term deposits may rise
faster than its earnings on longer term loans and investments.  Additionally,
the prepayment of principal on real estate loans and mortgage-backed securities
tends to decrease as rates rise, providing less available funds to invest in the
higher rate environment.  Conversely, as interest rates decrease the prepayment
of principal on real-estate loans and mortgage-backed securities tends to
increase, causing the Company to invest funds in a lower rate environment.  The
potential impact on earnings from this mismatch, is mitigated to a large extent
by the size and stability of the Company's savings accounts.  Savings accounts
have traditionally provided a source of relatively low cost funding that have
demonstrated historically a low sensitivity to interest rate changes.  The
Company generally matches a percentage of these, which are deemed core, against
longer term loans and investments. In addition, the Company has sought to extend
the terms of its time deposits.  In this regard, the Company has on occasion
offered certificates of deposits with three and four year terms which allow
depositors to make a one-time election, at any time during the term of the
certificate of deposit, to adjust the rate of the certificate of deposit to the
then prevailing rate for a certificate of deposit with the same term.  The
Company has further sought to reduce the term of a portion of its rate sensitive
assets by originating one year ARM loans, five year/one year ARM loans (mortgage
loans which are fixed rate for the first five years and adjustable annually
thereafter), and by maintaining a relatively short term investment securities
(original maturities of three to five years) portfolio with staggered
maturities.

The Company manages its interest rate sensitivity by monitoring (through
simulation and net present value techniques) the impact on it's GAP position,
net interest income, net portfolio value and net portfolio value ratio to
changes in interest rates on its current and forecast mix of assets and
liabilities.  The Company has an Asset-Liability Management Committee which is
responsible for reviewing the Company's assets and liability policies, setting
prices and terms on rate-sensitive products, and monitoring and measuring the
impact of interest rate changes on the Company's earnings.  The Committee meets
monthly on a formal basis and reports to the Board of Directors on interest rate
risks and trends, as well as liquidity and capital ratios and requirements.  The
Company does not have a targeted gap range, rather the Board of Directors has
set parameters of percentage change by which net interest margin and the net
portfolio value are affected by changing interest rates.  The Board and
management deem these measures to be a more significant and realistic means of
measuring interest rate risk.  The results of these techniques are outlined
below in the GAP table.

Gap Table

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1999, which are
expected to reprice or mature based upon certain assumptions in each of the
future time periods shown.  The Company has assumed that its passbook savings,
NOW, and money market accounts which totaled $75.0 million at December 31, 1999
are withdrawn at the annual percentage rates set forth below.  These withdrawal
rates are based upon historical industry experience.  Management believes that
these assumptions approximate actual experience and considers them appropriate
and reasonable.

                                       15
<PAGE>

<TABLE>
<CAPTION>

                                                                    Amounts Maturing or Repricing
                                              Within    3 to 12     1 to 3     3 to 5     5 to 10    More than
                                            3 Months    Months       Years      Years      Years     10 Years      Total
-----------------------------------------------------------------------------------------------------------------------------------
                                                                       (Dollars In Thousands)
<S>                                         <C>        <C>         <C>         <C>        <C>       <C>         <C>
Interest-earning assets:
Real estate loans:
 Residential one-to-four family:
    Market index ARM's                       $16,073   $ 17,248    $ 11,868    $ 5,723    $ 2,572    $     0     $ 53,484
    Fixed rate                                   405      1,876       8,469      7,590     11,035      4,247       33,622
 Commercial and multi-family
    ARM's                                      5,040      5,403       5,063        463          0          0       15,969
    Fixed                                        108        471       1,911      1,688      2,423          0        6,601
    Home equity fixed rate loans                 147      1,396         462      1,670      2,275          0        5,950
    Home equity line of credit                 3,541          0           0          0          0          0        3,541
 Consumer loans                                  241        664       2,540         49          0          0        3,494
 Commercial business loans                     1,569        435       4,047      1,284      1,264         36        8,635
 Mortgage-backed securities                    1,284      3,188       5,189      4,069      6,401      3,924       24,055
 Investment securities                         8,453        276       8,231      3,458     17,856      5,561       43,835
------------------------------------------------------------------------------------------------------------------------------------

     Total interest-earning assets            36,861     30,957      47,780     25,994     43,826     13,768      199,186
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

Interest-bearing liabilities:
  Passbook accounts                              463      6,618      13,312      9,865     14,857     15,212       60,327
  NOW accounts                                 2,309      6,928       4,759          0          0          0       13,996
  Certificate accounts                        12,600     33,488      16,188      3,629      2,457          0       68,362
  Repurchase agreements                       17,540     10,117       6,913      1,000      7,310          0       42,880
      Total interest-bearing liabilities      32,912     57,151      41,172     14,494     24,624     15,212      185,565
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

Interest-earning assets less interest-
  bearing liabilities ("interest rate
  sensitivity gap")                            3,949    (26,194)      6,608     11,500     19,202     (1,444)
Cumulative excess (deficiency) of
  interest-sensitive assets over
  interest-sensitive liabilities               3,949    (22,245)    (15,637)    (4,137)    15,065     13,621
Interest sensitivity gap
   to total assets                              1.83     (12.11)       3.05       5.32       8.88       (.67)
Cumulative interest sensitivity gap
   to total assets                              1.83     (10.28)      (7.23)     (1.91)      6.97        6.3
Ratio of interest-earning assets to
  interest-bearing liabilities                112.00      54.17      116.05     179.34     177.98      90.51
Cumulative ratio of interest-earning
  assets to interest-bearing liabilities      112.00      75.30       88.08      97.16     108.84     107.34
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

At December 31, 1999, the total interest bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing in the same period by $22.2 million, representing a cumulative one-
year gap ratio of a negative 12.11%.  Simulation and net present value analysis
demonstrate percentage changes to net interest income and net portfolio value of
a negative 14.16% and a negative 11.94%, respectively, in an upward 200 basis
point parallel shift in the yield curve.

The above assumptions are annual percentage rates based on remaining balances
and should not be regarded as indicative of the actual withdrawals that may be
experienced by the Company.  Moreover, certain shortcomings are inherent in the
analysis presented by the foregoing tables.  For example, interest rates on
certain types of liabilities may fluctuate in advance of or lag behind changes
in market interest rates.  Moreover, in the event of a change in interest rates,
withdrawal levels would likely deviate significantly from those assumed in
calculating the tables.

Changes in Net Interest Income and Net Portfolio Value

The following table measures the Company's interest rate risk exposure in terms
of the percentage change in its net interest income and net portfolio value as a
result of hypothetical changes in 100 basis point increments in market interest
rates.  Net portfolio value (also referred to as market value of portfolio
equity)

                                       16
<PAGE>

represent the fair value of net assets (determined as the market value of assets
minus the market value of liabilities). The table quantifies the changes in net
interest income and net portfolio value to parallel shifts in the yield curve.
The column "Net Interest Income Percent Change" measures the change to the next
twelve month's projected net interest income, due to parallel shifts in the
yield curve. The column "Net Portfolio Value Percent Change" measures changes in
the current net mark-to-market value of assets and liabilities due to parallel
shifts in the yield curve. The base case assumes December 31, 1999 interest
rates. The Company uses these percentage changes as a means to measure interest
rate risk exposure and quantifies those changes against guidelines set by the
Board of Directors as part of the Company's Interest Rate Risk policy.

The Company's current interest rate risk exposure is within those guidelines set
forth.
<TABLE>
<CAPTION>

                       1999                                             1998
----------------------------------------------------------------------------------------------------------
   Change                   Percentage    Percentage    Change                Percentage    Percentage
     In          NPV        Change in     Change in     In         NPV        Change in     Change in
   Interest      Capital    Net Income    Net Market    Interest   Capital    Net Income    Net Market
    Rates        Ratio      Interest      Value         Rates      Ratio      Interest      Value
----------------------------------------------------------------------------------------------------------
<S>              <C>        <C>           <C>           <C>        <C>        <C>           <C>
    -300         15.58%         4.59%       2.52%       -300       14.02%        -0.40%       10.87%
    -200         16.40%         7.42%       6.55%       -200       13.97%         3.47%        9.12%
    -100         16.55%         4.65%       5.92%       -100       13.67%         2.32%        5.40%
       0         16.00%         0.00%       0.00%          0       13.17%         0.00%        0.00%
     100         15.24%        -5.90%      -7.11%        100       12.11%        -3.59%       -9.99%
     200         14.44%       -11.94%     -14.16%        200       10.78%        -7.57%      -21.79%
     300         13.57%       -18.27%     -21.34%        300        9.43%       -12.00%      -33.25%

</TABLE>

Liquidity and Capital Resources

The Company's primary sources of funds are deposits, borrowed funds,
amortization and prepayment of loans and maturities of investment securities and
other short-term investments, and earnings and funds provided from operations.
While scheduled principal repayments on loans are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition.  The Company
manages the pricing of deposits to maintain a desired deposit balance.  In
addition, the Company invests excess funds in short-term interest-bearing and
other assets, which provide liquidity to meet lending requirements.  For
additional information about cash flows from the Company's operating, financing,
and investing activities, see Statements of Cash Flows included in the Financial
Statements.  The Company adjusts its liquidity levels in order to meet funding
needs of deposit outflows, payment of real estate taxes on mortgage loans and
loan commitments.  The Company also adjusts liquidity as appropriate to meet its
asset and liability management objectives.  The Company's liquidity has been
enhanced by its membership in the Federal Home Loan Bank of New York, whose
competitive advance programs and lines of credit will provide the Company with a
safe, reliable and convenient source of funds.

A major portion of the Company's liquidity consists of cash and cash
equivalents, which are a product of operating, investing, and financing
activities.  The primary sources of cash were net income, principal repayments
on loans and increases in deposit accounts and borrowed funds. The Company has
experienced a decrease in savings account deposits during the past three years.
Savings account balances decreased $6.2 million, or 9.5%, from $65.6 million at
December 31, 1996 to $59.4 million at December 31, 1999.  The decrease in
savings account deposits has caused the Company to rely, at times, on overnight
borrowings for liquidity purposes.  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, 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 December 31, 1999, the Company had outstanding loan commitments of $3.0
million.  This amount includes the unfunded portion of loans in process.
Certificates of deposit scheduled to mature in less that

                                       17
<PAGE>

one year at December 31, 1999 totaled $46.1 million. Based on prior experience,
management believes that a significant portion of such deposits will remain with
the Company.

New Accounting Pronouncements

Accounting for Derivative Instruments and Hedging Activities.  In June of 1998,
the Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" effective for all
fiscal quarters for fiscal years beginning after June 15, 2000.  This statement
requires an entity to recognize all derivative financial instruments as either
assets or liabilities in the consolidated statement of condition and measure
those instruments at fair value.  Management does not believe that this
statement will have a significant impact on the results of operation or
shareholders' equity of the Company.

Common Stock and Related Matters

The Common Stock trades and is listed on The Nasdaq SmallCap Stock Market under
the symbol "PBHC" and the short name PathBcp.  The common stock was issued on
November 15, 1995 at $5.00 per share (adjusted for the three for two stock split
on February 5, 1998).  As of February 25, 2000, there were 410 shareholders of
record and 2,614,245 outstanding shares of common stock.

Share Repurchases

On January 22, 1999, the Company announced its second share repurchase program
for the purchase of up to 135,000 shares.  At December 31, 1999 the program has
resulted in the repurchase of 113,475 shares at an average price of $10.54.

The following table sets forth the high and low closing bid prices and dividends
paid per share of common stock for the periods indicated.
<TABLE>
<CAPTION>
                                                               Dividends
         Quarter ended          High            Low               Paid
    ---------------------      -------        -------          ----------
    <S>                        <C>            <C>              <C>

    December 31, 1999          $10.000        $ 7.500           $.0600
    September 30, 1999          10.000          7.938           $.0600
    June 30, 1999               11.000          8.750           $.0600
    March 31, 1999              12.000          9.250           $.0600
    December 31, 1998           10.375          9.125           $.0500
    September 30, 1998          23.000         12.000           $.0500
    June 30, 1998               26.125         21.000           $.0500
    March 31, 1998              24.625         17.172           $.0500

</TABLE>

Payment of dividends on the common stock is subject to determination and
declaration by the Board of Directors and will depend upon a number of factors,
including capital requirements, regulatory limitations on the payment of
dividends, Pathfinder Bank and its subsidiaries results of operations and
financial condition, tax considerations, and general economic conditions.  No
assurance can be given that dividends will be declared or, if declared, what the
amount of dividends will be, or whether such dividends, once declared, will
continue.

                                       18
<PAGE>

                                                Independent Auditors' Report



Board of Directors and Shareholders
Pathfinder Bancorp, Inc.
Oswego, New York

In our opinion, the accompanying consolidated statements of condition and the
related consolidated statements of income and comprehensive income, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of Pathfinder Bancorp, Inc. at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.  These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.  We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.



PricewaterhouseCoopers LLP
Syracuse, New York
February 11, 2000

                                       19
<PAGE>

<TABLE>
<CAPTION>
Statements of Condition

                                                                                        December 31,
                                                                            --------------------------------
                                                                                    1999            1998
------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                 <C>
ASSETS:
 Cash and due from banks                                                    $  4,280,255    $  4,716,238
 Federal funds sold                                                                 ----       1,800,000
------------------------------------------------------------------------------------------------------------
      Total cash and cash equivalents                                          4,280,255       6,516,238
 Investment securities
 (approximate fair value $66,397,000 and $53,443,000)                         66,397,491      53,443,039
 Mortgage loans - held-for-sale                                                  697,405       2,841,931
 Loans:
 Real estate                                                                 119,167,708     116,161,445
 Consumer and other                                                           12,129,363      10,334,531
------------------------------------------------------------------------------------------------------------
      Total loans                                                            131,297,071     126,495,976
 Less:  Allowance for loan losses                                              1,149,677         939,161
     Unearned discounts and origination fees                                      84,453         199,156

------------------------------------------------------------------------------------------------------------
      Loans receivable, net                                                  130,062,941     125,357,659

 Premises and equipment, net                                                   4,869,553       4,489,928
 Accrued interest receivable                                                   1,431,251       1,237,069
 Other real estate                                                               641,384         742,163
 Intangible assets, net                                                        2,973,365       3,289,121
 Other assets                                                                  4,969,908       5,334,919
------------------------------------------------------------------------------------------------------------
      Total assets                                                          $216,323,553    $203,252,067
============================================================================================================

 LIABILITIES AND SHAREHOLDERS' EQUITY:
 Deposits:
  Interest bearing                                                          $142,690,583    $150,745,802
  Non-interest bearing                                                         9,745,513       9,473,352
------------------------------------------------------------------------------------------------------------
   Total deposits                                                            152,436,096     160,219,154
 Borrowed funds                                                               42,879,500      18,691,000
 Other liabilities                                                               933,345       2,055,228
------------------------------------------------------------------------------------------------------------
   Total liabilities                                                         196,248,941     180,965,382

 Shareholders' equity:
 Common stock, par value $.10 per share; authorized
    9,000,000 shares; 2,884,720 and 2,877,470 shares issued and
       2,639,245 and 2,745,470  outstanding, respectively.                       288,472         287,747
   Additional paid-in-capital                                                  6,912,580       6,828,836
   Retained earnings                                                          18,121,372      17,820,409
   Unearned stock based compensation                                            (981,125)     (1,428,746)
      Accumulated other comprehensive (loss) income                             (895,894)      1,012,462
      Unearned ESOP shares                                                      (287,609)       (346,917)
   Treasury stock, at cost; 245,475 and 132,000 shares respectively           (3,083,184)     (1,887,106)
------------------------------------------------------------------------------------------------------------
   Total shareholders' equity                                                 20,074,612      22,286,685
------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                  $216,323,553    $203,252,067
============================================================================================================
</TABLE>

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

                                       20
<PAGE>

<TABLE>
<CAPTION>
Statements of Income
                                                                                                   December 31,
                                                                                     -----------------------------------------------

                                                                                       1999           1998           1997
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                    <C>            <C>            <C>
INTEREST INCOME:
  Loans                                                                                $10,807,715    $10,871,385    $10,063,659
  Interest and dividends on investments:
     U.S. Treasury and agencies                                                            391,496        198,401        407,628
     State and political subdivisions                                                      355,767        345,303        372,376
     Corporate obligations                                                               1,509,688      1,032,369      1,477,630
     Marketable equity securities                                                          112,610         98,951         82,819
     Mortgage-backed securities                                                          1,451,756      1,364,002      1,590,701
     Federal funds sold and interest-bearing deposits                                       59,551        145,132        172,839
------------------------------------------------------------------------------------------------------------------------------------
     Total interest income                                                              14,688,583     14,055,543     14,167,652
INTEREST EXPENSE:
  Interest on deposits                                                                   5,348,868      6,091,009      6,287,117
  Interest on borrowed funds                                                             1,686,202        878,364        604,844
------------------------------------------------------------------------------------------------------------------------------------
     Total interest expense                                                              7,035,070      6,969,373      6,891,961

     Net interest income                                                                 7,653,513      7,086,170      7,275,691
  Provision for loan losses                                                                372,910        381,561        261,112
------------------------------------------------------------------------------------------------------------------------------------
     Net interest income after provision for loan losses                                 7,280,603      6,704,609      7,014,579
------------------------------------------------------------------------------------------------------------------------------------

OTHER INCOME:
  Service charges on deposit accounts                                                      525,363        460,954        488,799
  Mortgage servicing fees                                                                  218,644         53,797           ----
  Cash surrender value                                                                     125,028        192,368        188,315
  Net gain on securities and loans                                                          86,130        618,448        328,565
  Other charges, commissions and fees                                                      249,099        260,170        366,883
------------------------------------------------------------------------------------------------------------------------------------

     Total other income                                                                  1,204,264      1,585,737      1,372,562
------------------------------------------------------------------------------------------------------------------------------------

OTHER EXPENSES:
  Salaries and employee benefits                                                         3,300,004      3,116,577      2,917,470
  Building occupancy                                                                       750,618        626,231        666,082
  Data processing expenses                                                                 798,027        447,024        387,741
  Professional and other services                                                          783,872        537,339        529,724
  Amortization of intangible assets                                                        315,756        315,756        315,756
  Merger expense                                                                              ----        378,896           ----
  Other expenses                                                                         1,185,721      1,164,689        953,920
------------------------------------------------------------------------------------------------------------------------------------
     Total other expenses                                                                7,133,998      6,586,512      5,770,693

Income before income taxes                                                               1,350,869      1,703,834      2,616,448
Provision for income taxes                                                                 420,474        495,033        762,087
------------------------------------------------------------------------------------------------------------------------------------

Net income                                                                             $   930,395    $ 1,208,801    $ 1,854,361
  Other comprehensive (loss) income, net of taxes:
    Unrealized net (losses) gains on securities:
    Unrealized holding (losses) gains arising during period                            $(3,217,269)   $   437,441    $   538,574
    Reclassification adjustment for gains included
    in net income                                                                           14,685         11,602         11,596
------------------------------------------------------------------------------------------------------------------------------------

                                                                                        (3,202,584)       449,043        550,170
  Income tax benefit (provision)                                                         1,294,228       (179,617)      (220,068)
------------------------------------------------------------------------------------------------------------------------------------

Other comprehensive (loss) income, net of tax                                           (1,908,356)       269,426        330,102
------------------------------------------------------------------------------------------------------------------------------------

Comprehensive (loss) income                                                            $  (977,961)   $ 1,478,227    $ 2,184,463
------------------------------------------------------------------------------------------------------------------------------------

   Net income per share - basic                                                               $.35           $.44           $.66
------------------------------------------------------------------------------------------------------------------------------------

   Net income per share - diluted                                                             $.35           $.42           $.66
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements

                                       21
<PAGE>

Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
                                                          Common Stock                   Additional                    Unearned
                                                ----------------------------------       Paid in          Retained     Stock Based
                                                  Shares                    Amount       Capital          Earnings     Compensation
----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                     <C>             <C>            <C>           <C>
Balance, December 31, 1996                       1,916,666               $  1,916,666    $  3,750,726   $ 15,787,666   $        --
   Net Income                                                                                              1,854,361
    ESOP shares earned                                                                         59,692
    Unearned stock-based
      compensation awarded                                                                  2,203,500                   (2,203,500)
    Stock based compensation earned                                                                                        367,250
    Change in unrealized
     net appreciation
     on investment securities
    Dividends declared
          ($0.17 per share)                                                                                 (485,612)
    Three-for-two stock split and reduction
   in par value of common stock                    958,333                 (1,629,166)      1,629,166
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                       2,874,999                    287,500       7,643,084     17,156,415    (1,836,250)
   Net Income                                                                                              1,208,801
    ESOP shares earned                                                                        127,533
    Stock options exercised                          2,471                        247          16,207
    Treasury stock purchased
    Common stock issued under stock
       based compensation plan                                                               (957,988)
    Stock based compensation earned                                                                                       407,504
    Change in unrealized
     net appreciation
     on investment securities
    Dividends declared
          ($0.20 per share)                                                                                 (544,807)
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                       2,877,470                    287,747       6,828,836     17,820,409    (1,428,746)
   Net Income                                                                                                930,395
    ESOP shares earned                                                                         36,742
    Stock options exercised                          7,250                        725          47,002
    Treasury stock purchased
   Stock based compensation earned                                                                                         447,621
    Change in unrealized
     net depreciation on
     investment securities
    Dividends declared
          ($0.24 per share)                                                                                 (629,432)
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                       2,884,720               $    288,472    $  6,912,580   $ 18,121,372   $  (981,125)
==================================================================================================================================
<CAPTION>
                                               Accumulated
                                                  Other        Unearned
                                              Comprehensive       ESOP                    Treasury
                                              Income (loss)      Shares                     Stock           Total
--------------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>                        <C>             <C>
Balance, December 31, 1996                    $    412,934    $   (477,908)              $       --      $21,390,084
   Net Income                                                                                              1,854,361
    ESOP shares earned                                              66,858                                   126,550
    Unearned stock-based
      compensation awarded                                                                                        --
    Stock based compensation earned                                                                          367,250
    Change in unrealized
     net appreciation
     on investment securities                      330,102                                                   330,102
    Dividends declared
          ($0.17 per share)                                                                                 (485,612)
    Three-for-two stock split and reduction
   in par value of common stock                                                                                   --
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                         743,036        (411,050)                      --        23,582,735
   Net Income                                                                                               1,208,801
    ESOP shares earned                                              64,133                                    191,666
    Stock options exercised                                                                                    16,454
    Treasury stock purchased                                                             (2,845,094)       (2,845,094)
    Common stock issued under stock
       based compensation plan                                                              957,988               --
    Stock based compensation earned                                                                           407,504
    Change in unrealized
     net appreciation                             269,426                                                     269,426
     on investment securities
    Dividends declared
          ($0.20 per share)                                                                                  (544,807)
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                       1,012,462        (346,917)             (1,887,106)        22,286,685
   Net Income                                                                                                 930,395
    ESOP shares earned                                              59,308                                     96,050
    Stock options exercised                                                                                    47,727
    Treasury stock purchased                                                            (1,196,078)        (1,196,078)
   Stock based compensation earned                                                                            447,621
    Change in unrealized
     net depreciation on
     investment securities                     (1,908,356)                                                 (1,908,356)
    Dividends declared
          ($0.24 per share)                                                                                  (629,432)
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                    $   (895,894)      $(287,609)            $(3,083,184)       $20,074,612
=====================================================================================================================
</TABLE>

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

                                      22
<PAGE>

<TABLE>
<CAPTION>
Statements of Cash Flows
                                                                           Years Ended December 31
------------------------------------------------------------------------------------------------------------------------------------

                                                                    1999            1998            1997
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                             <C>             <C>             <C>
OPERATING ACTIVITIES:
  Net Income                                                    $    930,395    $  1,208,801    $  1,854,361
  Adjustments to reconcile net income to net cash
    provided by operating activities:
  Provision for loan losses                                          372,910         381,561         261,112
  ESOP and other stock-based compensation earned                     543,671         599,170         493,800
  Deferred income tax benefit                                       (101,638)       (117,667)        (76,942)
  Proceeds from sale of loans                                      5,919,922       7,726,767            ----
  Originations of loans held-for-sale                             (3,848,919)     (8,961,646)           ----
  Realized and unrealized loss/(gain)  on:
   Sale of real estate acquired through foreclosure                   48,332          68,741            ----
   Loans                                                              73,523         (59,410)          6,697
   Available-for-sale investment securities                         (159,653)       (559,038)       (335,262)
  Depreciation                                                       425,135         231,617         235,282
  Amortization of intangibles                                        315,756         315,756         315,756
  Net amortization of premiums and discounts on
   investment securities                                             292,701         (39,951)         65,923
  (Increase) decrease  in interest receivable                       (194,182)        206,106          22,827
  Net change in other assets and liabilities                         542,706        (480,270)        (71,829)
------------------------------------------------------------------------------------------------------------------------------------

     Net cash provided by operating activities                     5,160,659         520,537       2,771,725
------------------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
  Purchase of investment securities available-for-sale           (27,418,591)    (15,633,561)     (8,482,036)
  Purchase of investment securities held-to-maturity                 (32,724)           ----            ----
  Proceeds from maturities and principal reductions of
    investment securities held-to-maturity                              ----       4,270,000       4,790,000
  Proceeds from maturities and principal reductions of
    investment securities available-for-sale                       9,435,170      14,863,726       6,420,245
  Proceeds from sale of:
   Real estate acquired through foreclosure                          171,188         753,334         586,109
   Available-for-sale investment securities                        1,726,061         926,143         792,352
  Net increase in loans                                           (5,170,784)     (6,276,483)    (13,484,773)
  Purchase of premises and equipment                                (804,760)     (1,001,275)       (571,072)
  Decrease (increase) in surrender value of life insurance            75,315        (474,230)       (188,315)
  Other investing activities                                         (26,149)       (234,573)       (279,179)
------------------------------------------------------------------------------------------------------------------------------------

     Net cash used in investing activities                       (22,045,274)     (2,806,919)    (10,416,669)
------------------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
  Net (decrease) increase in demand deposits,
    NOW accounts, savings accounts,
    money market deposit accounts and escrow deposits             (6,324,318)      5,475,054      (1,191,170)
  Net (decrease) increase  in time deposits                       (1,458,740)      2,344,959      (5,407,527)
  Proceeds from borrowings, net                                   24,188,500         449,000      10,632,000
  Repayments of note payable-ESOP                                       ----        (430,126)        (55,800)
  Proceeds from exercise of stock options                             47,727          16,454            ----
  Cash dividends                                                    (608,459)       (541,699)       (351,446)
  Treasury stock purchased                                        (1,196,078)     (2,845,094)           ----
------------------------------------------------------------------------------------------------------------------------------------

     Net cash provided by financing activities                    14,648,632       4,468,548       3,626,057
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------

     (Decrease) increase  in cash and cash equivalent             (2,235,983)      2,182,166      (4,018,887)
  Cash and cash equivalents at beginning of year                   6,516,238       4,334,072       8,352,959
------------------------------------------------------------------------------------------------------------------------------------

     Cash and cash equivalents at end of year                   $  4,280,255    $  6,516,238    $  4,334,072
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------

CASH PAID DURING THE PERIOD FOR:
  Interest                                                      $  6,891,736    $  7,014,726    $  6,835,301
  Income taxes paid                                                  605,000         868,950         795,705
NON-CASH INVESTING ACTIVITY:
  Transfer of loans to other real estate                              92,592         563,046         373,628
  Decrease (increase) in unrealized  gains and losses on
    available for sale investment securities                       3,202,584        (449,043)       (550,170)
NON-CASH FINANCING ACTIVITY:
  Dividends declared and unpaid                                      155,438         134,465         134,166

</TABLE>

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

                                       23
<PAGE>

Note 1: Summary of Significant Accounting Policies

Nature of operations

The accompanying consolidated financial statements include the accounts of
Pathfinder Bancorp, Inc. (the "Company") and its wholly owned subsidiaries,
Pathfinder Bank (the "Bank"), Whispering Oaks Development Inc. and Pathfinder
REIT, Inc. All inter-company accounts and activity have been eliminated in
consolidation.  The Company has five full service offices located in Oswego
County.  The Company is primarily engaged in the business of attracting deposits
from the general public in the Company's market area, and investing such
deposits, together with other sources of funds, in loans secured by one-to-four
family residential real estate and investment securities.

Pathfinder Bancorp, M.H.C., (the "Holding Company") a mutual holding company
whose activity is not included in the accompanying financial statements, owns
approximately 58.8% of the outstanding common stock of the Company.  Salaries,
employee benefits and rent approximating $151,700, $71,000 and $48,000 were
allocated from the Company to Pathfinder Bancorp, M.H.C. during 1999, 1998 and
1997, respectively.

On November 29,1999, Oswego City Savings Bank formally changed its name to
Pathfinder Bank, in conformity with its parent company.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks,
interest-bearing deposits (with original maturity of three months or less) and
federal funds sold. Generally, federal funds are purchased and sold for one-day
periods.  The estimated fair value of cash and cash equivalents approximates
carrying value.

Investment Securities

The Company classifies investment securities as held-to-maturity or available-
for-sale. Held-to-maturity securities are those that the Company has the
positive intent and ability to hold to maturity, and are reported at cost,
adjusted for amortization of premiums and accretion of discounts. Investment
securities not classified as held-to-maturity are classified as available-for-
sale and are reported at fair value, with net unrealized gains and losses
reflected as a separate component of shareholders' equity, net of the applicable
income tax effect. None of the Company's investment securities have been
classified as trading securities.

Gains or losses on investment security transactions are based on the amortized
cost of the specific securities sold. Fair values for investment securities are
based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.  Premiums and discounts on securities are amortized and accreted
into income using the straight-line method over the period to maturity.

Mortgage Loans Held-for-Sale

Mortgage loans held-for-sale are carried at the lower of cost or fair value.
Fair value is determined in the aggregate.

Loans

Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan origination fees and costs. Interest income is
generally recognized when income is earned using the interest method.
Nonrefundable loan fees received and related direct origination costs incurred
are deferred and amortized over the life of the loan using the interest method,
resulting in a constant effective yield over the loan term. Deferred fees are
recognized into income immediately upon prepayment of the related loan.

For variable rate loans that reprice frequently and with no significant credit
risk, fair values approximate carrying values. Fair values for fixed rate loans
are estimated using discounted cash flow analysis, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. The carrying amount of accrued interest approximates its fair
value.

                                       24
<PAGE>

Allowance for Possible Loan Losses

The adequacy of the allowance for possible loan losses is periodically evaluated
by the Company in order to maintain the allowance at a level that is sufficient
to absorb probable credit losses.  Management's evaluation of the adequacy of
the allowance is based on a review of the Company's historical loss experience,
known and inherent risks in the loan portfolio and an analysis of the levels and
trends of delinquencies and charge-offs.

A loan is considered impaired, based on current information and events, if it is
probable the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement.  The measurement of impaired loans is generally based upon the
present value of future cash flows discounted at the historical effective rate,
except that all collateral-dependent loans are measured for impairment based on
fair values of collateral.

Income Recognition on Impaired and Non-accrual Loans

Loans, including impaired loans, are generally classified as non-accrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days. When a loan is classified as non-accrual and the future
collectibility of the recorded loan balance is doubtful, collections of interest
and principal are generally applied as a reduction to principal outstanding.

When future collectibility of the recorded loan balance is expected, interest
income may be recognized on a cash basis. In the case where a non-accrual loan
had been partially charged off, recognition of interest on a cash basis is
limited to that which would have been recognized on the recorded loan balance at
the contractual interest rate. Cash interest receipts in excess of that amount
are recorded as recoveries to the allowance for loan losses until prior charge-
offs have been fully recovered.

The amount of loans on which the Company has ceased accruing interest aggregated
approximately $2,554,000 and $1,832,000 at December 31, 1999 and 1998,
respectively.  The amount of interest not accrued related to these loans was
approximately $84,000, $24,000 and $13,000 for 1999, 1998 and 1997,
respectively.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets, ranging up to 31.5 years for premises and 10 years
for equipment. Maintenance and repairs are charged to operating expenses as
incurred.  The asset cost and accumulated depreciation are removed from the
accounts for assets sold or retired and any resulting gain or loss is included
in the determination of income.

Other Real Estate

Properties acquired through foreclosure, or by deed in lieu of foreclosure, are
carried at the lower of cost (fair value at the date of foreclosure) or fair
value less estimated disposal costs. Write downs of, and expenses related to
other real estate holdings included in noninterest expense were $53,000, $60,000
and $63,000 in 1999, 1998 and 1997.

Intangible Assets

Intangible assets represent goodwill arising from branch acquisitions and are
being amortized on a straight-line basis over a 15-year period. The Company
periodically reviews the carrying value of intangible assets using fair value
methodologies.  Accumulated amortization approximated $1,763,000 and $1,447,000
at December 31, 1999 and 1998, respectively.

Mortgage Servicing Rights

Included in other assets is approximately $78,000 and $55,000 of mortgage
servicing rights at December 31, 1999 and 1998, respectively.  Originated
mortgage servicing rights are recorded at their fair value at the time of
transfer and are amortized in proportion to and over the period of estimated net
servicing income or loss.  The Company uses a valuation model that calculates
the present value of future cash flows to determine the fair value of servicing
rights.  In using this valuation method, the Company incorporated assumptions
that market participants would use in estimating future net servicing income,
which included estimates of the cost of servicing per loan, the discount rate,
and prepayment speeds.  The carrying value of the originated mortgage servicing
rights is periodically evaluated for impairment using these same market
assumptions.

Deposits

Interest on deposits is accrued and paid to the depositors or credited to the
depositors accounts monthly.

Fair values disclosed for demand, savings, and variable rate money market
accounts and certificates of deposit approximate their carrying values at the
reporting date. Fair values for fixed rate time deposits are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on similar certificates to a schedule of aggregated expected monthly
maturities on time deposits. The carrying value of accrued interest approximates
fair value.

                                       25
<PAGE>

Treasury Stock

Treasury stock purchases are recorded at cost.  During 1999, the Company
purchased 113,475 shares at an average cost of $10.54 per share.  The Company
considers the common stock to be an attractive investment, in view of the
current price at which the common stock is trading relative to the Company's
earnings per share, book value per share, and general market and economic
factors.  Treasury stock has also been acquired in order to have shares
available for issuance under the Management Recognition and Retention Plan.


Income Taxes

Provisions for income taxes are based on taxes currently payable or refundable
and deferred income taxes on temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are reported in the financial statements at
currently enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or settled.

Earnings per Share

Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding throughout each year.  Diluted
earnings per share gives effect to weighted average shares which would be
outstanding assuming the exercise of issued stock options using the treasury
stock method.

Trust Division

The Company has applied for and received regulatory approval to form a Trust
Department as a division of Pathfinder Bank.  The Company incurred approximately
$17,000 in expense during 1999 associated with trust operations start-up.

Fair Values of Financial Instruments

SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires
disclosure of fair value information of financial instruments, whether or not
recognized in the consolidated statement of 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 derived fair values estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument.  The carrying amounts and estimated
fair values of financial instruments at December 31, are as follows:
<TABLE>
<CAPTION>

                                                                      1999           1998
--------------------------------------------------------------------------------------------------
                                      Carrying      Estimated       Carrying      Estimated
                                      Amounts      Fair Values      Amounts      Fair Values
--------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>            <C>            <C>

  Cash and cash equivalents         $  4,280,255   $  4,280,000   $  6,516,238   $  6,516,000
  Investment securities               66,397,491     66,397,000     53,443,039     53,443,000
  Mortgage loans held-for-sale           697,405        697,000      2,841,931      2,888,000
  Loans                              130,062,941    131,109,000    125,357,659    127,369,000
  Accrued interest receivable          1,431,251      1,431,000      1,237,069      1,237,000
  Deposits                           152,436,096    138,327,000    160,219,154    157,979,000
  Borrowed funds                      42,879,500     42,016,000     18,691,000     18,693,000

</TABLE>

Reclassification
Certain amounts from 1998 and 1997 have been reclassified to conform to the
current year presentation.  These reclassications had no affect on net income as
previously reported.

                                       26
<PAGE>

Note 2: Investment Securities
The amortized cost and estimated fair value of investment securities are
summarized as follows:
<TABLE>
<CAPTION>

                                                                December 31, 1999
---------------------------------------------------------------------------------------------------------------
                                                                Gross        Gross
                                                Amortized     Unrealized   Unrealized    Estimated
                                                   Cost         Gains        Losses     Fair Value
---------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>          <C>          <C>
Held to maturity
   Corporate debt                              $   112,942    $       --   $       --   $   112,942
---------------------------------------------------------------------------------------------------------------
Available-for-sale:
Bond investments:
   U.S. Treasury and agencies                   11,167,203         3,395      286,033    10,884,565
   State and political subdivision               6,694,828       156,633      100,309     6,751,152
   Corporate                                    21,189,143        37,279    1,143,994    20,082,428
 Mortgage-backed                                24,055,195        13,184      719,689    23,348,690
---------------------------------------------------------------------------------------------------------------
   Total                                        63,106,369       210,491    2,250,025    61,066,835
Stock investments:
   Federal Home Loan Bank and other              4,671,340       546,374           --     5,217,714
---------------------------------------------------------------------------------------------------------------
Total available-for-sale                       $67,777,709    $  756,865   $2,250,025   $66,284,549
                                                              ==========   ==========   ===========

Net unrealized loss on available-for-sale       (1,493,160)
--------------------------------------------   -----------
Grand total carrying value                     $66,397,491
============================================   ===========

                                                                December 31, 1999
---------------------------------------------------------------------------------------------------------------
                                                                Gross        Gross
                                                Amortized     Unrealized   Unrealized    Estimated
                                                   Cost         Gains        Losses     Fair Value
---------------------------------------------------------------------------------------------------------------
Held to maturity
  Corporate debt                               $    80,218    $       --   $       --   $    80,218
---------------------------------------------------------------------------------------------------------------
Available-for-sale:
Bond investments:
   U.S. Treasury and agencies                    1,470,989        42,470        1,246     1,512,213
   State and political subdivision               5,906,335       420,035           --     6,326,370
   Corporate                                    20,266,946       346,720       16,408    20,597,258
    Mortgage-backed                             20,480,552       338,071       40,332    20,778,291
---------------------------------------------------------------------------------------------------------------
   Total                                        48,124,822     1,147,296       57,986    49,214,132
Stock investments:
   Federal Home Loan Bank and other              3,528,576       620,113           --     4,148,689
---------------------------------------------------------------------------------------------------------------
Total available-for-sale                       $51,653,398    $1,767,409   $   57,986   $53,362,821
                                                              ==========   ==========   ===========

Net unrealized gain on available-for-sale        1,709,423
--------------------------------------------   -----------
Grand total carrying value                     $53,443,039
============================================   ===========

</TABLE>

                                       27
<PAGE>

The amortized cost and estimated fair value of debt investments at December 31,
1999 by contractual maturity are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without penalties.
<TABLE>
<CAPTION>

                                                                                        Available for Sale        Held-to Maturity
------------------------------------------------------------------------------------------------------------------------------------

                                                                       Amortized     Estimated      Amortized        Estimated
                                                                         Cost        Fair Value        Cost          Fair Value
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                   <C>           <C>            <C>            <C>
 Due in one year or less                                              $   276,046   $    280,379   $         --         $       --
 Due after one year through five years                                 11,688,319     11,682,707             --                 --
 Due after five years through ten years                                18,900,701     17,970,186             --                 --
                         Due after ten years                            8,186,108      7,784,873        112,942            112,942
                         Mortgage-backed securities                    24,055,195     23,348,690             --                 --
------------------------------------------------------------------------------------------------------------------------------------

    Totals                                                            $63,106,369   $ 61,066,835   $    112,942         $  112,942
====================================================================================================================================


Note 3: Loans

  Major classifications of loans at December 31, are as follows:
------------------------------------------------------------------------------------------------------------------------------------

                                                                                     1999               1998
-------------------------------------------------------------------------------------------------------------------
  Real estate mortgages:
    Conventional                                                                    $ 85,635,997   $ 83,047,925
    Second mortgage loans                                                              9,491,545      9,630,621
    Construction                                                                       1,380,211      1,037,445
    FHA insured                                                                           43,147         66,852
    VA guaranteed                                                                         46,733         75,809
    Commercial                                                                        22,570,075     22,302,793
-------------------------------------------------------------------------------------------------------------------
                                                                                     119,167,708    116,161,445
-------------------------------------------------------------------------------------------------------------------
  Other loans:
    Consumer                                                                           3,378,452      3,902,896
    Lease financing                                                                      278,088        350,088
    Passbook loans                                                                       103,572        170,060
    Student                                                                               12,361         12,630
    Commercial                                                                         8,356,890      5,898,857
-------------------------------------------------------------------------------------------------------------------
                                                                                      12,129,363     10,334,531
-------------------------------------------------------------------------------------------------------------------
    Total loans                                                                      131,297,071    126,495,976
-------------------------------------------------------------------------------------------------------------------
  Less:
    Allowance for loan losses                                                          1,149,677        939,161
       Unearned discount and origination fees                                             84,453        199,156
-------------------------------------------------------------------------------------------------------------------
        Loans receivable, net                                                       $130,062,941   $125,357,659
-------------------------------------------------------------------------------------------------------------------
</TABLE>

The Company grants mortgage and consumer loans to customers throughout Oswego
and parts of Onondaga counties. Although the Company has a diversified loan
portfolio, a substantial portion of its debtors ability to honor their contracts
is dependent upon the counties employment and economic conditions.

At December 31, 1999 and 1998, loans to officers and directors were not
significant.

Mortgage loans serviced for others are not included in the accompanying
consolidated statements of condition.  The unpaid principle balances of mortgage
loans serviced for others was approximately $16,292,000 and $8,669,000 at
December 31, 1999 and 1998, respectively.

Note 4: Allowances for Loan Losses
Changes in the allowance for loan losses for the year ended December 31, are
summarized as follows:
<TABLE>
<CAPTION>

                                                                                   1999          1998         1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>           <C>          <C>

  Balance at beginning of year                                                     $  939,161    $ 827,521    $ 906,567
  Recoveries credited                                                                  27,926       11,014       18,113
  Provision for loan losses                                                           372,910      381,561      261,112
  Loans charged off                                                                  (190,320)    (280,935)    (358,271)
-------------------------------------------------------------------------------------------------------------------------
  Balance at end of year                                                           $1,149,677    $ 939,161    $ 827,521
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       28
<PAGE>

At December 31, 1999 and 1998, the Company had no loans for which specific
valuation allowances were recorded.


Note 5: Premises and Equipment
A summary of premises and equipment at December 31, is as follows:
<TABLE>
<CAPTION>

                                           1999         1998
--------------------------------------------------------------------
<S>                                     <C>          <C>
  Land                                  $  631,773   $  631,773
  Buildings                              3,735,579    3,228,123
  Furniture, fixture and equipment       3,207,417    2,319,478
  Construction in progress                 139,990      730,625
--------------------------------------------------------------------
                                         7,714,759    6,909,999
  Less: Accumulated depreciation         2,845,206    2,420,071
--------------------------------------------------------------------
                                        $4,869,553   $4,489,928
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>


Note 6: Deposits
A summary of amounts due to depositors at December 31, is shown as follows:
<TABLE>
<CAPTION>

                                                1999           1998
-----------------------------------------------------------------------------
<S>                                         <C>            <C>
  Savings accounts                          $ 59,430,007   $ 64,229,261
  Money market accounts                          418,126         75,395
  Time accounts                               67,945,116     69,403,856
  Demand deposits interest bearing            13,996,417     16,326,717
  Demand deposits non-interest bearing         9,745,513      9,473,352
  Mortgage escrow funds                          900,917        710,573
-----------------------------------------------------------------------------
                                            $152,436,096   $160,219,154
-----------------------------------------------------------------------------

</TABLE>

Time deposits with balances in excess of $100,000 amounted to approximately
$8,729,000 and $8,691,000 at December 31, 1999 and 1998, respectively.  The
approximate maturity of time deposits at December 31, is as follows:
<TABLE>
<CAPTION>

                                                                    1999                                1998
------------------------------------------------------------------------------------------------------------------------------------

               Year of Maturity                          Amount                Percent         Amount          Percent
------------------------------------------------------------------------------------------------------------------------------------
               <S>                                       <C>                   <C>             <C>             <C>

                     1                              $45,670,000                   67.2%      $51,729,000          74.5%
                     2                                9,123,000                   13.4%        8,314,000          12.0%
                     3                                7,067,000                   10.4%        5,077,000           7.3%
                     4                                1,973,000                    2.9%        1,413,000           2.1%
                     5                                1,655,000                    2.5%        1,190,000           1.7%
                 Thereafter                           2,457,000                    3.6%        1,681,000           2.4%
------------------------------------------------------------------------------------------------------------------------------------
                                                    $67,945,000                 100.0%       $69,404,000         100.0%
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
Note 7: Borrowed Funds

The composition of borrowings at December 31 as as follows:

<TABLE>
<CAPTION>
                                                                                            1999           1998
Short-term:
  Repurchase agreements                                                                 $ 9,242,000     $ 5,411,000
  Advances                                                                               14,065,000       5,580,000
  Overnight line of credit                                                                4,350,000               -
-------------------------------------------------------------------------------------------------------------------
        Total short term                                                                 27,657,000      10,991,000
-------------------------------------------------------------------------------------------------------------------
               <S>                                       <C>                   <C>             <C>             <C>

</TABLE>

                                       29
<PAGE>

<TABLE>
<S>                                                                                    <C>             <C>
Long-term:
  Repurchase agreements                                                                     912,500               -
  Advances                                                                               14,310,000       7,700,000
-------------------------------------------------------------------------------------------------------------------
        Total long- term                                                                $15,222,500     $ 7,700,000
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The principal balance, interest rate and maturity of the above borrowings at
December 31, 1999 is as follows:

<TABLE>
<CAPTION>
            Term                                                                                          Principal           Rates
<S>                                                                                                   <C>               <C>
Short-term:
 Repurchase agreements with Morgan Stanley
     due within 3 months                                                                                $ 4,886,000      5.85%-6.00%
     due within 3-6 months                                                                                  909,000            5.91%
     due within 6 months to 1 year                                                                          910,000            5.91%
 Repurchase agreements with FHLB
     due within 3 months                                                                                  2,537,000      5.68%-6.01%
------------------------------------------------------------------------------------------------------------------------------------
                                                          Total repurchase agreements                     9,242,000

 Advances with FHLB
     due within 3 months                                                                                  4,835,000      5.41%-5.99%
     due within 3-6 months                                                                                6,530,000      5.60%-6.18%
     due within 6 months to 1 year                                                                        2,700,000      4.80%-5.11%
         Total advances                                                                                  14,065,000
 Overnight line of credit with FHLB                                                                       4,350,000      3.60%
------------------------------------------------------------------------------------------------------------------------------------

Total short-term borrowings                                                                             $27,657,000
------------------------------------------------------------------------------------------------------------------------------------
Long-term:
 Repurchase agreement with Morgan Stanley
     due within 3 years                                                                                 $   912,500            5.35%
------------------------------------------------------------------------------------------------------------------------------------

 Advances with FHLB
     due within 2 years                                                                                   4,000,000     5.60%-5.31%
     due within 4 years                                                                                   1,000,000     5.61%
     due within 5 years                                                                                   1,000,000     5.43%
     due after 5 years                                                                                    7,310,000     5.56%-5.98%
 Total advances with FHLB                                                                                14,310,000
------------------------------------------------------------------------------------------------------------------------------------

Total long-term borrowings                                                                              $15,222,500
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
Other information related to borrowed funds is as follows:

<TABLE>
<CAPTION>
                                                                                           1999                    1998
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                     <C>
Maximum outstanding at any month end                                                    $43,349,000               $20,480,000
Average amount outstanding during the year                                               30,511,000                14,927,000
Average interest rate during the year                                                          5.53%                     5.88%
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

The repurchase agreements are collateralized by mortgage-backed and government
agency securities which had a carrying value of $13,242,000 at December 31,
1999.  The overnight line of credit agreement with the Federal Home Loan Bank
(FHLB) is used for liquidity purposes.   Interest on this line is determined at
the time of borrowing.  The average rate paid on the overnight line during 1999
approximated 5.30%.  At December 31, 1999, $10,102,100 was available under the
line of credit.  In addition to the overnight line of credit program, the
Company also has access to the FHLB's Term Advance Program under which it can
borrow at various terms and interest rates.  Residential mortgage loans in the
amount of $77.8 million have been pledged by the Company under a blanket
collateral agreement to secure the Company's lsine of credit and term
borrowings.

                                       30
<PAGE>

Note 8: Employee Benefits

The Company has a noncontributory defined benefit pension plan covering
substantially all employees. In addition, the Company provides certain health
and life insurance benefits for eligible retired employees.

The following tables set forth the changes in the plan's benefit obligation,
fair value of plan assets and prepaid (accrued) benefit cost as of December 31,
1999 and 1998.
<TABLE>
<CAPTION>

                                                                           Pension Benefits             Postretirement Benefits
------------------------------------------------------------------------------------------------------------------------------------

                                                                          1999          1998            1999              1998
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                    <C>           <C>           <C>               <C>
Change in benefit obligation:
  Benefit obligation at beginning of year                              $2,989,234    $2,477,313         $ 385,747         $ 377,729
   Service cost                                                           115,393        94,188             3,086             2,641
   Interest cost                                                          188,462       183,151            23,975            24,938
   Actuarial (gain) loss                                                 (426,076)      350,752                --            12,786
   Benefits paid                                                         (107,499)     (116,170)          (33,807)          (32,347)

------------------------------------------------------------------------------------------------------------------------------------

 Benefit obligation at end of year                                     $2,759,514    $2,989,234         $ 379,001         $ 385,747
------------------------------------------------------------------------------------------------------------------------------------

Change in plan assets:
   Fair value of plan assets at beginning of year                      $3,129,180    $3,231,536         $       -         $       -
   Actual return on plan assets                                           540,592        (4,338)
   Company contribution                                                        --        18,152
   Benefits paid                                                         (107,499)     (116,170)
------------------------------------------------------------------------------------------------------------------------------------

   Fair value of plan assets at end of year                            $3,562,273    $3,129,180         $       -         $       -
------------------------------------------------------------------------------------------------------------------------------------

Components of prepaid/accrued benefit cost
       Funded (unfunded) status                                        $  802,759    $  139,946         $(379,001)        $(385,747)

       Unrecognized prior service cost                                      3,377         4,457                --                --
       Unrecognized transition obligation                                     ---             -           235,953           254,931
       Unrecognized actuarial net (gain)loss                             (292,476)      435,814            24,999            25,273
------------------------------------------------------------------------------------------------------------------------------------

 Prepaid/(accrued) benefit cost                                        $  513,660    $  580,217         $(118,049)        $(105,543)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The significant assumptions used in determining the benefit obligation as of
December 31, 1999 and 1998 is as follows:

<TABLE>
<S>                                                                         <C>            <C>              <C>              <C>
   Weighted average discount rate                                            7.75%         6.50%             6.50%             6.50%

   Expected long-term rate of return on plan assets                          8.00%         8.00%                -                 -
   Rate of increase in future compensation levels                            5.50%         4.50%                -                 -
</TABLE>

Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans.  A one-percentage point change in the health
care cost trend rates (including those for the dental plan) would have the
following effects:
<TABLE>
<CAPTION>
                                                                 1 Percentage      1 Percentage
                                                                    Point              Point
                                                                  Increase           Decrease
--------------------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>
Effect on total of service and interest cost components             1,321             (1,241)
Effect on postretirement benefit obligation                        18,885            (17,738)
</TABLE>

Plan assets consist primarily of temporary cash investments and listed stocks
and bonds.

                                       31
<PAGE>

The composition of the net periodic benefit plan for the years ended December
31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
                                                                  Pension Benefits                    Postretirement Benefits
------------------------------------------------------------------------------------------------------------------------------------

                                                        1999           1998          1997        1999         1998          1997
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                  <C>          <C>             <C>           <C>          <C>        <C>

Service cost                                         $ 115,393      $  94,188     $  76,262     $ 3,086      $ 2,641     $  3,014
Interest cost                                          188,462        183,151       169,405      23,975       24,938       24,898
Amortization of transition obligation                      ---             --       (34,165)     18,978       18,978       18,978
Amortization of unrecognized prior service cost          1,080          1,080         1,080          --           --           --
Amortization of gains and losses                         7,656             --            --         274         (893)        (528)
Expected return on plan assets                        (246,034)      (253,781)     (208,272)         --           --
------------------------------------------------------------------------------------------------------------------------------------

Net periodic benefit plan cost                       $  66,557      $  24,638     $   4,310     $46,313      $45,664      $46,362
=================================================================================================================================
</TABLE>
The Company also offers a 401(k) plan to its employees.  Contributions to these
plans were $48,000, $45,000 and $41,400 for 1999, 1998, and 1997, respectively.

Note 9: Deferred Compensation and Supplemental Retirement Plans

The Company maintains optional deferred compensation plans for its directors
whereby fees normally received are deferred and paid by the Company based upon a
payment schedule commencing at age 65 and continue monthly for 10 years.
Directors must serve on the board for a minimum of 5 years to be eligible for
the Plan. At December 31, 1999 and 1998, other liabilities include approximately
$1,080,000 and $1,009,000, respectively, relating to deferred compensation.
Deferred compensation expense for the years ended December 31, 1999, 1998, and
1997 amounted to approximately $89,000, $136,000 and $150,000, respectively.

The Company has a supplemental executive retirement plan for the benefit of
certain executive officers.  At December 31, 1999 and 1998, other liabilities
include approximately $314,000 and $189,000 accrued under these plans.
Compensation expense includes approximately  $161,000, $53,000, and $46,000
relating to the supplemental executive retirement plan for 1999, 1998, and 1997,
respectively.


Note 10: Stock Based Compensation Plans

During 1997, shareholders approved the 1997 Stock Option Plan and Management
Recognition and Retention Plan for directors, officers and key employees.  Under
the Stock Option Plan, up to 132,249 options have been authorized for grant of
incentive stock options and non-qualified stock options.  All options have a 10-
year term and vest and become exercisable ratably over a 6-year period.
Activity in the Stock Option Plan is as follows:
<TABLE>
<CAPTION>

                                             Options     Option Price      Shares
                                           Outstanding     Per Share    Exercisable
-----------------------------------------------------------------------------------
<S>                                       <C>             <C>           <C>
    Outstanding at December 31, 1996               ---            ---           ---
    Granted                                    132,000         $6.583             0
    Exercised                                      ---            ---           ---
    Forfeited                                      ---            ---           ---
-----------------------------------------------------------------------------------
    Outstanding at December 31, 1997           132,000         $6.583             0
    Granted                                        ---            ---           ---
    Exercised                                   (2,500)           ---        19,500
    Forfeited                                      ---            ---           ---
-----------------------------------------------------------------------------------
    Outstanding at December 31, 1998           129,500         $6.583        19,500
    Granted                                        ---            ---           ---
    Exercised                                   (7,250)           ---        24,750
    Forfeited                                      ---            ---           ---
-----------------------------------------------------------------------------------
    Outstanding at December 31, 1999           122,250         $6.583        44,250
-----------------------------------------------------------------------------------
</TABLE>

In February 1997, the Board of Directors approved an option plan with an
exercise price equal to the market value of the Company's shares at the date of
grant, subject to shareholder approval.  Upon shareholder approval of the plans
in December 1997, the excess of market value over exercise price for approved
options approximated

                                       32
<PAGE>

$1,330,000. This amount has been recorded as unearned stock-based compensation
within the stockholders' equity section of the consolidated statement of
condition and will be recognized as compensation expense ratably over the 6-year
vesting period. Compensation expense for the years ended December 31, 1999, 1998
and 1997 approximated $272,000, $247,000, and $222,000, respectively.

During 1997, the Company awarded 52,350 shares (52,950 authorized) of restricted
stock under the Management Recognition and Retention Plan.  The market value of
shares awarded at the date of grant approximated $873,000 and has been
recognized in the accompanying statement of condition as unearned stock-based
compensation. Compensation expense for the years ended December 31, 1999, 1998,
and 1997 was $175,000, $160,000, and $145,000, respectively.  The market value
of shares awarded will be recognized as compensation expense ratably over the 6-
year restriction period.

The Company has elected to account for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25.  Pro forma amounts
of net income and earnings per share under Statement of Financial Accounting
Standards No. 123 are as follows:
<TABLE>
<CAPTION>

                                 1999                 1998                  1997
-----------------------------------------------------------------------------------------------
Net Income:
------------------------------------------------------------------------------------------------------------
<S>                           <C>                  <C>                   <C>
   As reported                 930,395             $1,208,801            $1,854,361
   Pro forma                   864,312              1,117,602             1,738,214

</TABLE>

<TABLE>
<CAPTION>
Earnings per share:           Basic      Diluted     Basic      Diluted      Basic      Diluted
------------------------------------------------------------------------------------------------------------
<S>                           <C>        <C>         <C>        <C>          <C>        <C>
             As reported      $ .35       $ .35      $ .44       $ .42       $ .66       $ .66
             Pro forma        $ .33       $ .32      $ .41       $ .40       $ .62       $ .62
</TABLE>

The fair value of these options was estimated at the date of grant using a
Black-Scholes options pricing model with the following assumptions for 1999,
1998 and 1997, respectively: risk free interest rate -  4.63%; dividend yield -
2.19%; market price volatility - 93.6%. An assumed weighted average option life
of 6 years has been utilized for each year.  For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period.  Therefore, the foregoing pro forma results
are not likely to be representative of the effects of reported net income of
future periods due to additional years of vesting.  The weighted-average fair
value per share of discounted options during 1999 is $46.07.

The Bank sponsors an Employee Stock Ownership Plan (ESOP) for employees who have
attained the age of 21 and who have completed a 12 month period of employment
with the Bank during which they worked at least 1,000 hours.  The Bank purchased
92,574 shares of common stock on behalf of the ESOP.  The purchase of the shares
was funded by a loan from the Company and the unearned shares are pledged as
collateral for the borrowing.  As the loan is repaid, earned shares are released
from collateral and are allocated to the particpants.  As shares are earned, the
Bank records compensation expense at the average market price of the shares
during the period.  Cash dividends received on unearned shares are allocated
among the participants and are reported as compensation expense.  ESOP
compensation expense approximated $96,000, $192,000 and $127,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.   Total earned shares at
December 31, 1999, 1998 and 1997 were 43,970, 33,920 and 23,052, respectively.
The estimated fair value of the remaining 48,604 unearned shares at December 31,
1999 is $431,000.  Unearned ESOP shares are not considered outstanding for
purposes of computing earnings per share.

Note 11: Income Taxes

The provision (benefit) for income taxes for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
                 1999         1998        1997
----------------------------------------------------
<S>           <C>          <C>          <C>
Current       $ 522,112    $ 612,700    $839,029
Deferred       (101,638)    (117,667)    (76,942)
----------------------------------------------------
              $ 420,474    $ 495,033    $762,087
----------------------------------------------------
</TABLE>
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
                                    1999       1998       1997
----------------------------------------------------------------
<S>                               <C>        <C>        <C>
Federal Income Tax                $384,853   $410,013   $642,237
New York State Franchise Tax        35,621     85,020    119,850
-----------------------------------------------------------------
                                  $420,474   $495,033   $762,087
-----------------------------------------------------------------
</TABLE>

                                       33
<PAGE>

The components of net deferred tax asset (liability), included in other
liabilities for the years ended December 31, are as follows:
<TABLE>
<CAPTION>

                                              1999           1998
---------------------------------------------------------------------
<S>                                        <C>           <C>
  Assets:
   Deferred and other compensation         $  777,581    $   724,063
   Allowance for loan losses                  288,047        182,191
   Investment securities                      597,263             --
   Loan origination fees                       33,731         79,543
   ESOP                                        12,500         10,977
   Postretirement benefits                     57,131         51,366
   Other                                        6,092          6,092
---------------------------------------------------------------------
                                            1,772,345      1,054,232
  Liabilities
   Prepaid pension                           (205,156)      (232,180)
   IIMF reserve                              (195,071)      (241,745)
   Depreciation                              (103,449)       (25,593)
   Accretion                                  (48,603)       (35,845)
   Other                                       (2,294)           ---
   Investments                                    ---       (686,820)
---------------------------------------------------------------------
                                             (554,573)    (1,222,183)
---------------------------------------------------------------------
   Net deferred tax asset (liability)      $1,217,772    $  (167,951)
---------------------------------------------------------------------
</TABLE>

The Company has determined that no valuation allowance is necessary as it is
more likely than not deferred tax assets will be realized through carryback to
taxable income in prior years, future reversals of existing temporary
differences and through future taxable income.

A reconciliation of the federal statutory income tax rate to the effective
income tax rate at December 31, is as follows:
<TABLE>
<CAPTION>

                                                1999    1998    1997
----------------------------------------------------------------------
<S>                                             <C>     <C>     <C>
 Federal statutory income tax rate              34.0%   34.0%   34.0%
 State tax, net of federal benefit               1.0     3.2     4.3
 Tax-exempt interest income and other, net      (3.9)   (8.1)   (9.2)
----------------------------------------------------------------------
 Effective income tax rate                      31.1%   29.1%   29.1%
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
Note 12: Earnings per Share

Basic earnings per share is computed based on the weighted average shares
outstanding.  Diluted earnings per share is computed based on the weighted
average shares outstanding adjusted for the dilutive effect of the assumed
exercise of stock options during the year.  The following is a reconciliation of
basic to diluted earnings per share for the years ended December 31:
<TABLE>
<CAPTION>

                                           Earnings       Shares         EPS
<S>                                    <C>            <C>          <C>
1999 Net Income                           $  930,395
     Basic EPS                               930,395   2,631,812       $.35
----------------------------------------------------------------------------
     Effect of dilutive securities:
             Stock options                         0      62,961
     Diluted EPS                             930,395   2,694,773       $.35
============================================================================

1998  Net Income                          $1,208,801
      Basic EPS                            1,208,801    2,773,673      $.44
----------------------------------------------------------------------------
      Effect of dilutive securities:
              Stock options                        0       81,206
      Diluted EPS                         $1,208,801    2,854,879      $.42
============================================================================

1997  Net Income                          $1,854,361
      Basic EPS                            1,854,361    2,798,610      $.66
----------------------------------------------------------------------------
      Effect of dilutive securities:
              Stock options                        0        3,603
</TABLE>

                                       34
<PAGE>

<TABLE>
<S>                                     <C>          <C>         <C>

   Diluted EPS                          1,854,361    2,802,213   $.66
====================================   ==========   ==========   ====
</TABLE>

Note 13: Commitments and Contingencies

The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments consist primarily of commitments to extend credit,
which involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the consolidated statement of condition. The contract
amount of those commitments to extend credit reflects the extent of involvement
the commitment has in this particular class of financial instrument. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual amount of the instrument.

The Company uses the same credit policies in making commitments as it does for
on-balance sheet instruments.

Financial instruments whose contract amounts
represent credit risk at December 31:
                                                            Contract Amount
                                                            1999       1998
--------------------------------------------------------------------------------
                 Commitment to extend credit             $8,973,000  $7,897,000

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitment amounts are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counter party. Collateral held varies but
may include residential real estate and income-producing commercial properties.
The fair value of these commitments as of December 31, 1999 and 1998, is not
readily determinable.

The Company leases land for a branch under an operating lease expiring in 2013.
Rent expense totaled approximately $16,000 in 1999, $16,200 in 1998, and $15,000
in 1997. The lease provides for renewal options for two 10 year periods at
specified amounts ranging from $18,000 to $24,000 per year. Rental payments are
subject to increases based upon the preceding years Revised Consumer Price
Index, but limited to 5% in any one year. Approximate minimum rental commitments
for the non-cancelable operating lease is as follows:
<TABLE>
<CAPTION>

Years ending December 31:
------------------------------------------------------------------------
<S>                                                  <C>
  2000                                                $ 16,000
  2001                                                  17,000
  2002                                                  17,000
  2003                                                  17,000
  2004                                                  18,000
  Thereafter                                           170,000
------------------------------------------------------------------------

   Total minimum lease payments                       $255,000
------------------------------------------------------------------------
</TABLE>

The Company is required to maintain a reserve balance as established by the
Federal Reserve Bank of New York.  The required average total reserve for the 14
day maintenance period ended December 29, 1999 was $574,000.

Note 14: Dividends and Restrictions

The board of trustees of Pathfinder Bancorp, M.H.C., determines whether the
Holding Company will waive or receive dividends declared by the Company each
time the Company declares a dividend, which is expected to be on a quarterly
basis. The Holding Company may elect to receive dividends and utilize such funds
to pay expenses or for other allowable purposes. The Federal Reserve Bank (the
"FRB") has indicated that (i) the Holding Company shall provide the FRB annually
with written notice of its intent to waive its dividends prior to the proposed
date of the dividend, and the FRB shall have the authority to approve or deny
any dividend waiver request; (ii) if a waiver is granted, dividends waived by
the Holding Company will not be available for payment to the minority
shareholders and such amounts will be excluded from the Company's capital
accounts for purposes of calculating dividend payments to minority shareholders;
(iii) the Company shall establish a restricted capital account in the amount of
any dividends waived by the Holding Company, and such restricted capital account
would be added to any liquidation account in the Company established in
connection with a conversion of the Holding Company to stock form and would be
maintained in accordance with OTS requirements. During 1999, the Company paid
cash dividends totaling $357,075 to the Holding Company.  The restricted capital
account has a $0 balance as of December 31, 1999.

                                       35
<PAGE>

Retained earnings of the Bank are subject to certain restrictions under New York
State Banking regulations. The amount of retained earnings restricted under
these regulations approximated $2,333,706 as of December 31, 1999.

Note 15: Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guideline and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classifications are also subject to
qualitative judgements by the regulators about components, risk weightings, and
other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain amounts and ratios (set forth in the table below)
of total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier 1 capital (as defined) to average assets (as
defined). Management believes, as of December 31, 1999, that the Bank meets all
capital adequacy requirements to which it is subject.

As of June 30, 1999, the Bank's most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as "well-capitalized", under
the regulatory framework for prompt corrective action.  To be categorized as
"well-capitalized", the Bank must maintain total risk based, Tier 1 risk-based
and Tier 1 leverage ratios as set for in the tables below. There are no
conditions or events since that notification that management believes have
changed the institution's category.


<TABLE>
<CAPTION>


                                                                                                  To be "Well
                                                                                                  Capitalized"
                                                                      For Capital                 Under Prompt
                                                                       Adequacy                    Corrective
                                        Actual                         Purposes                    Provisions
---------------------------------------------------------------------------------------------------------------------
                                   Amount        Ratio       Amount         Ratio       Amount       Ratio
---------------------------------------------------------------------------------------------------------------------
<S>                              <C>             <C>      <C>              <C>      <C>             <C>
As of December 31, 1999:
  Total Core Capital
   (to Risk Weighted Assets)      $19,146,818    14.0%    $10,900,160        8.0%     $13,625,200      10.0%
   Tier 1 Capital
   (to Risk Weighted assets)      $17,997,141    13.1%    $ 5,450,080        4.0%     $ 8,175,120       6.0%
   Tier 1 Capital
   (to Average Assets)            $17,997,141     8.5%    $ 8,255,800        4.0%     $10,490,500       5.0%
---------------------------------------------------------------------------------------------------------------------
As of December 31, 1998:
  Total Core Capital
   (to Risk Weighted Assets)      $18,924,263    15.1%    $10,122,080        8.0%     $12,652,600      10.0%
   Tier 1 Capital
   (to Risk Weighted assets)      $17,985,102    14.3%    $ 5,061,040        4.0%     $ 7,591,560       6.0%
   Tier 1 Capital
   (to Average Assets)            $17,985,102     9.2%    $ 7,840,000        4.0%     $ 9,800,000       5.0%
</TABLE>

Note 16: Parent Company - Financial Information
--------------------------------------------------------------------------------
The following represents the condensed financial information of Pathfinder
Bancorp, Inc. for years ended December 31:
<TABLE>
<CAPTION>

                                               1999           1998
                                           ------------   ------------
<S>                                        <C>            <C>
Statement of Condition
----------------------

 Assets
 Cash                                                     $   121,239

</TABLE>

                                       36
<PAGE>

<TABLE>
<S>                                            <C>        <C>

Investments                                    150,000             --
Receivable from subsidiary                     318,905        390,435
  Investment in bank subsidiary                            21,906,029
 Other Assets                                   44,110          6,256
---------------------------------------------------------------------

 Total Assets                                             $22,423,959
=====================================================================

Liabilities
Accrued Liabilities                             24,469    $   137,274
---------------------------------------------------------------------
Total Liabilities                               24,469        137,274

 Shareholders' equity
   Common stock, par value $.10 per
    share; authorized 9,000,000 shares;
    2,884,720 and 2,877,470 shares
    issued and 2,639,245 and 2,745,470
    outstanding for 1999 and 1998,
    respectively.                              288,472        287,747
 Additional paid in capital                  6,912,580      6,828,836
 Retained earnings                          18,121,372     17,820,409
 Unearned stock based compensation            (981,125)    (1,428,746)
 Accumulated other comprehensive income       (895,894)     1,012,462
 Unearned ESOP shares                         (287,609)      (346,917)
 Treasury stock, at cost; 245,475 and       (3,083,184)    (1,887,106)
  132,000 shares, respectively
---------------------------------------------------------------------
   Total liaibilities and shareholders'
    equity                                 $20,099,081    $22,423,959
=====================================================================
</TABLE>
Statement of Income
-------------------
                                                  Year Ended
                                              December 31, 1999
                                              -----------------
Equity in undistributed income of
  Subsidiary
Interest Income
Income from operations
Operating Expenses
Net Income

Statement of Cash Flow
----------------------
                                                  Year Ended
                                              December 31, 1999
                                              -----------------
Operating Activities
   Net Income
   Equity in undistributed earnings
    Of subsidiary
   ESOP and other stock based compensation earned
   Other operating activities
    Net cash provided by operating activities
--------------------------------------------------------------------
Investing Activities
   Loan distributed to subsidiary
   Net cash used in investing activities

--------------------------------------------------------------------
Financing Activities
   Capital contribution from Oswego City Savings Bank
   Proceeds from exercise of stock option plan
   Cash dividends
   Treasury stock purchased
    Net cash used in financing activities
--------------------------------------------------------------------

                                       37
<PAGE>

   Increase in cash and cash equivalents
  Cash and cash equivalents beginning of year
   -------------------------------------------
   Cash and cash equivalents at end of year
   ===========================================

                                       38