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                                                                    Exhibit 99.1

   OPTION AGREEMENT, DATED AS OF JANUARY 25, 1999, BY AND BETWEEN SKANEATELES
                      BANCORP, INC. AND BSB BANCORP, INC.

















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                                OPTION AGREEMENT



                       THE TRANSFER OF THE OPTION GRANTED
              BY THIS AGREEMENT IS SUBJECT TO RESALE RESTRICTIONS.


                  This OPTION AGREEMENT, dated as of January 25, 1999 (this
"Agreement"), is entered into by and between SKANEATELES BANCORP, INC., a
Delaware corporation ("Issuer") and BSB BANCORP, INC., a Delaware corporation
("Grantee").

                                   WITNESSETH:

        WHEREAS, concurrently herewith Grantee and Issuer have entered into an
Agreement and Plan of Merger, dated as of January 25, 1999 (the "Plan"); and

        WHEREAS, as a condition and inducement to Grantee's entering into the
Plan and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as defined below).

        NOW,  THEREFORE,  in  consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Plan, the parties hereto
agree as follows:

         SECTION 1. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 290,142 fully paid and nonassessable shares of common stock, par value $.01
per share of Issuer ("Issuer Common Stock") (which number of shares is equal to
19.99% of the total of the number of outstanding shares of Issuer Common Stock
on the date hereof), at a price per share equal to $15.00 (the "Initial Price");
provided, however, that in the event Issuer issues or agrees to issue any
additional shares of Issuer Common Stock (other than shares issued upon the
exercise of options outstanding as of the date of the Plan in accordance with
their terms pursuant to existing stock option plans and pursuant to the SKAN
DRIP and the Purchase Plan (both terms as defined in the Plan)), or grants one
or more options to purchase additional shares of Issuer Common Stock at a price
less than the Initial Price, as adjusted pursuant to Section 5(b) hereof, such
price shall be equal to such lesser price (such price, as adjusted, is
hereinafter referred to as the "Option Price"). The number of shares of Issuer
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.

         SECTION 2. (a) Grantee may exercise the Option, in whole or part, at
any time and from time to time following the occurrence of a Purchase Event (as
defined below); provided, however, that the Option shall terminate and be of no
further force and effect upon the earliest to occur of the following events
(which are collectively referred to as an "Exercise Termination Event"):

                  (i) The time immediately prior to the Effective Time;

                  (ii) 12 months after the first occurrence of a Purchase Event;

                  (iii) 12 months after the termination of the Plan following
         the occurrence of a Preliminary Purchase Event (as defined below),
         unless clause (vii) of this Section 2(a) is applicable;

                  (iv) upon the termination of the Plan, prior to the occurrence
         of a Purchase Event or Preliminary Purchase Event, by Issuer pursuant
         to Sections 8.1(d), (e), (f), (g) or (h)of the Plan, both parties
         pursuant to Section 8.1(a) of the Plan, or by either party pursuant to
         Section 8.1(b) or (c) of the Plan;


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                  (v) 12 months after the termination of the Plan, by either
         party pursuant to Section 8.1(d) of the Plan based on the required vote
         of Issuer's shareholders not being received, if no Purchase Event or
         Preliminary Purchase Event has occurred prior to the meeting of
         shareholders (or any adjournment or postponement thereof) held to vote
         on the Plan;

                  (vi) 12 months after the termination of the Plan, by Grantee
         pursuant to Section 8.1(e) or (f) thereof as a result of a breach by
         Issuer, unless such breach was willful or intentional; or

                  (vii) 24 months after the termination of the Plan, by Grantee
         pursuant to Section 8.1(e) or (f) thereof as a result of a willful or
         intentional breach by Issuer, or by Grantee pursuant to Section 8.1(g)
         or (i) of the Plan.

         (b) The term "Preliminary Purchase Event" shall mean any of the
following events or transactions occurring on or after the date hereof and prior
to an Exercise Termination Event:

                  (i) Issuer without having received Grantee's prior written
         consent, shall have entered into any letter of intent or definitive
         agreement to engage in an Acquisition Transaction (as defined below)
         with any Person (as defined below) other than Grantee or any of its
         subsidiaries (each a "Grantee Subsidiary") or the Board of Directors of
         Issuer shall have recommended that the shareholders of Issuer approve
         or accept any Acquisition Transaction with any Person (as the term
         "person" is defined in Section 3(a)9 and 13(d)(3) of the Securities
         Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
         regulations thereunder) other than Grantee or any Grantee Subsidiary.
         For purposes of this Agreement "Acquisition Transaction" shall mean (x)
         a merger, consolidation or other business combination involving Issuer,
         (y) a purchase, lease or other acquisition of all or substantially all
         of the assets of Issuer, (z) a purchase or other acquisition (including
         by way of merger, consolidation, share exchange or otherwise) of
         Beneficial Ownership (as the term "beneficial ownership" is defined in
         Regulation 13d-3(a) of the Exchange Act) of securities representing
         10.0% or more of the voting power of Issuer; provided, however, that
         "Acquisition Transaction" shall not include a transaction entered into
         after the termination of the Plan in which the Issuer is the surviving
         entity, if in connection with such transaction, no person acquires
         Beneficial Ownership of 10.0% or more of the total voting power of the
         Issuer to be outstanding after giving effect to such transaction and in
         which the aggregate voting power of Issuer acquired by all persons is
         less than 15% of the total voting power of Issuer;

                  (ii) Any Person (other than Grantee, any Grantee Subsidiary or
         any current affiliate of Issuer) shall have acquired Beneficial
         Ownership of 10.0% or more of the outstanding shares of Issuer Common
         Stock;

                  (iii) (a) Any Person (other than Grantee or any Grantee
         Subsidiary) shall have made a bona fide proposal to Issuer or, by a
         public announcement or written communication that is or becomes the
         subject of public disclosure, to Issuer's shareholders to engage in an
         Acquisition Transaction (including, without limitation, any situation
         in which any Person other than Grantee or any Grantee Subsidiary shall
         have commenced (as such term is defined in Rule 14d-2 under the
         Exchange Act), or shall have filed a registration statement under the
         Securities Act of 1933, as amended (the "Securities Act"), with respect
         to a tender offer or exchange offer to purchase any shares of Issuer
         Common Stock such that, upon consummation of such offer, such person
         would have Beneficial Ownership of 10.0% or more of the then
         outstanding shares of Issuer Common Stock (such an offer being referred
         to herein as a "Tender Offer" or an "Exchange Offer", respectively)),
         and (b) the shareholders of Issuer do not approve the Merger, as
         defined in the Plan, at the Special Meeting, as defined in the Plan;

                  (iv) There shall exist a willful or intentional breach under
         the Plan by Issuer and such breach would entitle Grantee to terminate
         the Plan;

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                  (v) The special meeting of Issuers' shareholders held for the
         purpose of voting on the Plan shall not have been held pursuant to the
         Plan or shall have been canceled prior to termination of the Plan, or
         for any reason whatsoever Issuer's Board of Directors shall have failed
         to recommend, or shall have withdrawn or modified in a manner adverse
         to Grantee the recommendation of Issuer's Board of Directors, that
         Issuer's shareholders approve the Plan, or if Issuer or Issuer's Board
         of Directors fails to oppose any proposal by any Person (other than
         Grantee or any Grantee Subsidiary); or

                  (vi) Any Person (other than Grantee or any Grantee Subsidiary)
         shall have filed an application or notice with the Board of Governors
         of the Federal Reserve System (the "FRB"), the Federal Deposit
         Insurance Corporation (the "FDIC"), the Superintendent of Banks of New
         York State (the "New York Superintendent"), or other regulatory or
         administrative agency or commission (each, a "Governmental Authority")
         for approval to engage in an Acquisition Transaction.

         (c) The term "Purchase Event" shall mean any of the following events or
transactions occurring on or after the date hereof and prior to an Exercise
Termination Event:

                  (i) The acquisition by any Person (other than Grantee or any
         Grantee Subsidiary) of Beneficial Ownership (other than on behalf of
         the Issuer) of 25% or more of the then outstanding Issuer Common Stock;

                  (ii) The occurrence of a Preliminary Purchase Event described
         in Section 2(b)(i) except that the percentage referred to in clause (z)
         thereof shall be 25%; or

                  (iii) The termination of the Plan by Grantee pursuant to
         Section 8.1(e) or (f) thereof as a result of a willful or intentional
         breach by Issuer, or by Grantee pursuant to Section 8.1(g) or (i) of
         the Plan.

        (d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Preliminary Purchase Event or Purchase Event known to Issuer; provided,
however, that the giving of such notice by Issuer shall not be a condition to
the right of Grantee to exercise the Option.

        (e) In the event that Grantee is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the "Option Notice," the date
of which being hereinafter referred to as the "Notice Date") specifying (i) the
total number of shares of Issuer Common Stock it will purchase pursuant to such
exercise and (ii) the time (which shall be on a business day that is not less
than three nor more than 10 business days from the Notice Date) on which the
closing of such purchase shall take place (the "Closing Date"); such closing to
take place at the principal office of the Issuer; provided, however, that, if
prior notification to or approval of the FDIC, the FRB, or the New York
Superintendent or any other Governmental Authority is required in connection
with such purchase (each, a "Notification" or an "Approval," as the case may
be), (a) Grantee shall promptly file the required notice, application or waiver
request for approval ("Notice/Application"), (b) Grantee shall expeditiously
process the Notice/Application and (c) for the purpose of determining the
Closing Date pursuant to clause (ii) of this sentence, the period of time that
otherwise would run from the Notice Date shall instead run from the later of (x)
in connection with any Notification, the date on which any required notification
periods have expired or been terminated and (y) in connection with any Approval,
the date on which such approval has been obtained and any requisite waiting
period or periods shall have expired. For purposes of Section 2(a) hereof, any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto. On or prior to the Closing Date, Grantee shall have the right to revoke
its exercise of the Option by written notice to the Issuer given not less than
three business days prior to the Closing Date.

        (f) At the closing referred to in Section 2(e) hereof, Grantee shall pay
to Issuer the aggregate purchase price for the number of shares of Issuer Common
Stock specified in the Option Notice in immediately available funds by wire
transfer to a bank account designated by Issuer; provided, however, that failure
or refusal of Issuer to designate such a bank account shall not preclude Grantee
from exercising the Option.

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        (g) At such closing, simultaneously with the delivery of immediately
available funds as provided in Section 2(f) hereof, Issuer shall deliver to
Grantee a certificate or certificates representing the number of shares of
Issuer Common Stock specified in the Option Notice and, if the Option should be
exercised in part only, a new Option evidencing the rights of Grantee thereof to
purchase the balance of the shares of Issuer Common Stock purchasable hereunder.

        (h) Certificates for Issuer Common Stock delivered at a closing
hereunder shall be endorsed with a restrictive legend substantially as follows:

                  The transfer of the shares represented by this certificate is
         subject to resale restrictions arising under the Securities Act of
         1933, as amended, and applicable state securities laws and to certain
         provisions of an agreement between BSB Bancorp, Inc. and Skaneateles
         Bancorp, Inc. dated as of January 25, 1999. A copy of such agreement is
         on file at the principal office of BSB Bancorp, Inc., and will be
         provided to the holder hereof without charge upon receipt by BSB
         Bancorp, Inc. of a written request therefor.

It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the Securities and Exchange
Commission (the "SEC") or Governmental Authority responsible for administering
any applicable state securities laws or an opinion of counsel, in form and
substance satisfactory to Issuer's counsel, to the effect that such legend is
not required for purposes of the Securities Act or applicable state securities
laws; (ii) the reference to the provisions of this Agreement in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the shares have been sold or transferred in compliance with the provisions of
this Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In addition
such certificates shall bear any other legend as may be required by law.

        (i) Upon the giving by Grantee to Issuer of an Option Notice and the
tender of the applicable purchase price in immediately available funds on the
Closing Date, unless prohibited by applicable law, Grantee shall be deemed to be
the holder of record of the number of shares of Issuer Common Stock specified in
the Option Notice, notwithstanding that the stock transfer books of Issuer shall
then be closed or that certificates representing such shares of Issuer Common
Stock shall not then actually be delivered to Grantee. Issuer shall pay all
expenses and other charges that may be payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 2 in
the name of Grantee.

         SECTION 3. Issuer agrees: (i) that it shall at all times until the
termination of this Agreement have reserved for issuance upon the exercise of
the Option that number of authorized and reserved shares of Issuer Common Stock
equal to the maximum number of shares of Issuer Common Stock at any time and
from time to time issuable hereunder, all of which shares will, upon issuance
pursuant hereto, be duly authorized, validly issued, fully paid, non-assessable,
and delivered free and clear of all claims, liens, encumbrances and security
interests and not subject to any preemptive rights; (ii) that it will not, by
amendment of its certificate of incorporation or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; (iii) promptly to take all reasonable action as may from time to time be
requested by the Grantee, at Grantee's expense (including (x) complying with all
premerger notification, reporting and waiting period requirements specified in
15 U.S.C. ss. 18a and regulations promulgated thereunder and (y) in the event
prior approval of or notice to the FDIC, the FRB, the New York Superintendent or
any other Governmental Authority, under the Change in Bank Control Act of 1978,
as amended, the Bank Holding Company Act, as amended, or any other applicable
federal or state banking law, is necessary before the Option may be exercised,
cooperating with Grantee in preparing such applications or notices and providing
such information to each such Governmental Authority as it may require in order
to permit Grantee to exercise the Option and Issuer duly and effectively to
issue shares of Issuer Common Stock pursuant hereto; and (iv) to take all action
provided herein to protect the rights of Grantee against dilution.

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         SECTION 4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer, for other
agreements providing for Options of different denominations entitling the holder
thereof to purchase, on the same terms and subject to the same conditions as are
set forth herein, in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any agreements and related options for which this Agreement (and the
Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date.

         SECTION 5. The number of shares of Issuer Common Stock purchasable upon
the exercise of the Option shall be subject to adjustment from time to time as
follows:

         (a) In the event of any change in the type or number of shares of
Issuer Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or other issuances of additional shares (other than pursuant to the exercise of
the Option), the type and number of shares of Issuer Common Stock purchasable
upon exercise hereof shall be appropriately adjusted and proper provision shall
be made so that, in the event that any additional shares of Issuer Common Stock
are to be issued or otherwise become outstanding as a result of any such change
(other than pursuant to an exercise of the Option), the number of shares of
Issuer Common Stock that remain subject to the Option shall be increased or
decreased (as applicable) so that, after such issuance and together with the
shares of Issuer Common Stock previously issued pursuant to the exercise of the
Option (as adjusted on account of any of the foregoing changes in the Issuer
Common Stock), the Option shall equal the sum of 19.99% of the total of the
number of shares of Issuer Common Stock then issued and outstanding.

         (b) Whenever the number of shares of Issuer Common Stock purchasable
upon exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Issuer Common Stock
purchasable prior to the adjustment and the denominator of which shall be equal
to the number of shares of Issuer Common Stock purchasable after the adjustment.

         SECTION 6. (a) Upon the occurrence of a Purchase Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of Grantee
(whether on its own behalf or on behalf of any subsequent holder of the Option
(or part thereof) or of any of the shares of Issuer Common Stock issued pursuant
hereto), promptly prepare, file and keep current a shelf registration statement
with the SEC, under the Securities Act covering any shares issued and issuable
pursuant to the Option and shall use its reasonable best efforts to cause such
registration statement to become effective, and to remain current and effective
for a period not in excess of 180 days from the day such registration statement
first becomes effective, in order to permit the sale or other disposition of any
shares of Issuer Common Stock issued upon total or partial exercise of the
Option ("Option Shares") in accordance with any plan of disposition requested by
Grantee. Grantee shall have the right to demand two such registrations which
right shall be transferable. Grantee shall provide all information reasonably
requested by Issuer for inclusion in any offering circular or, if applicable,
registration statement to be filed hereunder. In connection with any such
offering circular or, if applicable, registration statement, Issuer and Grantee
shall provide each other with representations, warranties, indemnities and other
agreements customarily given in connection with such registration. If requested
by Grantee in connection with such registration, Issuer and Grantee shall become
a party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating themselves in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements. Notwithstanding the foregoing, if Grantee revokes any
exercise notice or fails to exercise any Option with respect to any exercise
notice pursuant to Section 2(e) hereof, Issuer shall not be obligated to
continue any registration process with respect to the sale of Option Shares
issuable upon the exercise of such Option and Grantee shall not be deemed to
have demanded registration of Option Shares.

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        (b) In the event that Grantee requests Issuer to prepare an offering
circular or, if applicable, to file a registration statement following the
failure to obtain any approval required to exercise the Option as described in
Section 9 hereof, the closing of the sale or other disposition of the Issuer
Common Stock or other securities pursuant to such offering circular or, if
applicable, registration statement shall occur substantially simultaneously with
the exercise of the Option.

        (c) Concurrently with the preparation and filing of a registration
statement under Section 6(a) hereof, Issuer shall also make all filings required
to comply with state securities laws in such number of states as Grantee may
reasonably request.

         SECTION 7. (a) Upon the occurrence of a Purchase Event that occurs
prior to an Exercise Termination Event, (i) at the request (the date of such
request being the "Option Repurchase Request Date") of Grantee, Issuer shall
repurchase, subject to compliance with applicable law and out of funds legally
available therefor, the Option from Grantee at a price (the "Option Repurchase
Price") equal to the amount by which (A) the market/offer price (as defined
below) exceeds (B) the Option Price, multiplied by the number of shares for
which the Option may then be exercised and (ii) at the request (the date of such
request being the "Option Share Repurchase Request Date") of the owner of Option
Shares from time to time (the "Owner"), Issuer shall repurchase such number of
the Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the market/offer price multiplied by
the number of Option Shares so designated. The term "market/offer price" shall
mean the highest of (i) the price per share of Issuer Common Stock at which a
tender offer or exchange offer therefor has been made after the date hereof and
on or prior to the Option Repurchase Request Date or the Option Share Repurchase
Request Date, as the case may be, (ii) the price per share of Issuer Common
Stock paid or to be paid by any third party pursuant to an agreement with Issuer
(whether by way of a merger, consolidation or otherwise), (iii) the average of
the 20 highest last sale prices for shares of Issuer Common Stock as reported
within the 90-day period ending on the Option Repurchase Request Date or the
Option Share Repurchase Request Date, as the case may be, and (iv) in the event
of a sale of all or substantially all of Issuer's assets, the sum of the price
paid in such sale for such assets and the current market value of the remaining
assets of Issuer as determined by an investment banking firm selected by Grantee
or the Owner, as the case may be, and reasonably acceptable to Issuer, divided
by the number of shares of Issuer Common Stock outstanding at the time of such
sale. In determining the market/offer price, the value of consideration other
than cash shall be the value determined by an investment banking firm selected
by Grantee or the Owner, as the case may be, and reasonably acceptable to
Issuer. The investment banking firm's determination shall be conclusive and
binding on all parties.

        (b) Grantee or the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and/or any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Grantee or
the Owner, as the case may be, elects to require Issuer to repurchase the Option
and/or the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within 30 business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to Grantee the Option Repurchase Price or to the Owner the
Option Share Repurchase Price.

        (c) Issuer hereby undertakes to use its reasonable best efforts to
obtain all required regulatory, shareholder and legal approvals and to file any
required notices as promptly as practicable in order to accomplish any
repurchase contemplated by this Section 7. Nonetheless, to the extent that
Issuer is prohibited under applicable law or regulation from repurchasing any
Option and/or any Option Shares in full, Issuer shall promptly so notify Grantee
and/or the Owner and thereafter deliver or cause to be delivered, from time to
time, to Grantee and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that it is
no longer prohibited from delivering, within five business days after the date
on which Issuer is no longer so prohibited; provided, however, that if Issuer at
any time after delivery of a notice of repurchase pursuant to Section 7(b)
hereof is prohibited as referred to above, from delivering to Grantee and/or the
Owner, as appropriate, the Option Repurchase Price or the Option Share
Repurchase Price, respectively, in full, Grantee or the Owner, as appropriate,
may revoke its notice of repurchase of the Option or the Option 

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Shares either in whole or in part whereupon, in the case of a revocation in
part, Issuer shall promptly (i) deliver to Grantee and/or the Owner, as
appropriate, that portion of the Option Purchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering after taking into
account any such revocation and (ii) deliver, as appropriate, either (A) to
Grantee, a new Agreement evidencing the right of Grantee to purchase that number
of shares of Issuer Common Stock equal to the number of shares of Issuer Common
Stock purchasable immediately prior to the delivery of the notice of repurchase
less the number of shares of Issuer Common Stock covered by the portion of the
Option repurchased or, (B) to the Owner, a certificate for the number of Option
Shares covered by the revocation.

        (d) Issuer shall not enter into any agreement with any Person (other
than Grantee or a Grantee Subsidiary) for an Acquisition Transaction unless the
other Person assumes all the obligations of Issuer pursuant to this Section 7 in
the event that Grantee or the Owner elects, in its sole discretion, to require
such other Person to perform such obligations.

         SECTION 8. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into a letter of intent or definitive agreement (i) to
consolidate or merge with any Person (other than Grantee or a Grantee
Subsidiary), and Issuer shall not be the continuing or surviving corporation of
such consolidation or merger, (ii) to permit any Person (other than Grantee or a
Grantee Subsidiary) to merge into Issuer, and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of any other Person or cash or any other property or the then
outstanding shares of Issuer Common Stock shall after such merger represent less
than 50% of the outstanding shares and share equivalents of the merged company,
or (iii) to sell or otherwise transfer all or substantially all of its assets to
any Person (other than Grantee or a Grantee Subsidiary) then, and in each such
case, such letter of intent or definitive agreement governing such transaction
shall make proper provision so that the Option shall, upon the consummation of
such transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute Option"), at the
election of Grantee, of either (x) the Acquiring Corporation (as defined below)
or (y) any person that controls the Acquiring Corporation (the Acquiring
Corporation and any such controlling person being hereinafter referred to as the
"Substitute Option Issuer").

        (b) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock (as is hereinafter defined) as is equal to the
market/offer price (as defined in Section 7 hereof) multiplied by the number of
shares of Issuer Common Stock for which the Option was theretofore exercisable,
divided by the Average Price (as hereinafter defined). The exercise price of the
Substitute Option per share of the Substitute Common Stock (the "Substitute
Purchase Price") shall then be equal to the Option Price multiplied by a
fraction in which the numerator is the number of shares of Issuer Common Stock
for which the Option was theretofore exercisable and the denominator is the
number of shares for which the Substitute Option is exercisable.

        (c) The Substitute Option shall otherwise have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to Grantee, provided, further that the terms
of the Substitute Option shall include (by way of example and not limitation)
provisions for the repurchase of the Substitute Option and Substitute Common
Stock by the Substitute Option Issuer on the same terms and conditions as
provided in Section 7 hereof.

        (d)    The following terms have the meanings indicated:

                  (i) "Acquiring Corporation" shall mean (i) the continuing or
         surviving corporation of a consolidation or merger with Issuer (if
         other than Issuer), (ii) Issuer in a merger in which Issuer is the
         continuing or surviving corporation, and (iii) the transferee of all or
         any substantial part of Issuer's assets.

                  (ii) "Substitute Common Stock" shall mean the common stock
         issued by the Substitute Option Issuer upon exercise of the Substitute
         Option.

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                  (iii) "Average Price" shall mean the average closing price of
         a share of Substitute Common Stock for the one-year period immediately
         preceding the consolidation, merger or sale in question, but in no
         event higher than the closing price of the shares of Substitute Common
         Stock on the day preceding such consolidation, merger or sale;
         provided, that if Issuer is the issuer of the Substitute Option, the
         Average Price shall be computed with respect to a share of Issuer
         Common Stock issued by Issuer, the corporation merging into Issuer or
         by any company which controls or is controlled by such merging
         corporation, as Grantee may elect.

        (e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.99% of the shares of
Substitute Common Stock outstanding immediately prior to the issuance of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than such number of shares of Substitute Common Stock but for this
clause (e), the Substitute Option Issuer shall make a cash payment to Grantee
equal to the excess of (i) the value of the Substitute Option without giving
effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee and the Substitute Option Issuer. In addition,
the provisions of Section 5(a) hereof shall not apply to the issuance of any
Substitute Option and for purposes of applying Section 5(a) hereof thereafter to
any Substitute Option, the percentage referred to in Section 5(a) hereof shall
thereafter equal the percentage that the percentage of the shares of Substitute
Common Stock subject to the Substitute Option bears to the number of shares of
Substitute Common Stock outstanding.

         SECTION 9. Notwithstanding Sections 2, 6 and 7 hereof, if Grantee has
given the notice referred to in one or more of such Sections, the exercise of
the rights specified in any such Section shall be extended (a) if the exercise
of such rights requires obtaining regulatory approvals (including any required
waiting periods) to the extent necessary to obtain all regulatory approvals for
the exercise of such rights, and (b) to the extent necessary to avoid liability
under Section 16(b) of the Exchange Act by reason of such exercise; provided,
that in no event shall any closing date occur more than 12 months after the
related notice date, and, if the closing date shall not have occurred within
such period due to the failure to obtain any required approval by the FRB, the
FDIC, the New York Superintendent or any other Governmental Authority despite
the best efforts of Issuer or the Substitute Option Issuer, as the case may be,
to obtain such approvals, the exercise of the rights shall be deemed to have
been rescinded as of the related notice date. In the event (a) Grantee receives
official notice that an approval of the FRB, the FDIC, the New York
Superintendent or any other Governmental Authority required for the purchase and
sale of the Option Shares will not be issued or granted or (b) a closing date
has not occurred within 12 months after the related notice date due to the
failure to obtain any such required approval, Grantee shall be entitled to
exercise the Option in connection with the concurrent resale of the Option
Shares pursuant to a registration statement as provided in Section 6 hereof.
Nothing contained in this Agreement shall restrict Grantee from specifying
alternative means of exercising rights pursuant to Sections 2, 6 or 7 hereof in
the event that the exercising of any such rights shall not have occurred due to
the failure to obtain any required approval referred to in this Section 9.

         SECTION 10. Issuer hereby represents and warrants to Grantee as
follows:

        (a) Issuer has the requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly approved by the Board of
Directors of Issuer and no other corporate proceedings on the part of Issuer are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly executed and delivered by, and
constitutes a valid and binding obligation of, Issuer, enforceable against
Issuer in accordance with its terms, subject to any required Governmental
Approval, and except as enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought.

                                       8
<PAGE>   10

        (b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Issuer Common Stock equal to the maximum number of shares of Issuer Common Stock
at any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
non-assessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.

         SECTION 11. (a) Neither of the parties hereto may assign any of its
rights or delegate any of its obligations under this Agreement or the Option
created hereunder to any other Person without the express written consent of the
other party, except that Grantee may assign this Agreement to a wholly owned
subsidiary of Grantee and Grantee may assign its rights hereunder in whole or in
part after the occurrence of a Preliminary Purchase Event. The term "Grantee" as
used in this Agreement shall also be deemed to refer to Grantee's permitted
assigns.

        (b) Any assignment of rights of Grantee to any permitted assignee of
Grantee hereunder shall bear the restrictive legend at the beginning thereof
substantially as follows:

                  The transfer of the option represented by this assignment and
         the related option agreement is subject to resale restrictions arising
         under the Securities Act of 1933, as amended, and applicable state
         securities laws and to certain provisions of an agreement between BSB
         Bancorp, Inc. and Skaneateles Bancorp, Inc., dated as of January ___,
         1999. A copy of such agreement is on file at the principal office of
         BSB Bancorp, Inc., and will be provided to any permitted assignee of
         the Option without charge upon receipt of a written request therefor.

         SECTION 12. Each of Grantee and Issuer will use its reasonable efforts
to make all filings with, and to obtain consents of, all third parties and
Governmental Authorities necessary to the consummation of the transactions
contemplated by this Agreement, including, without limitation, applying to the
FDIC, the FRB, the New York Superintendent and any other Governmental Authority
for approval to acquire the shares issuable hereunder.

         SECTION 13. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief. Both parties further agree
to waive any requirement for the securing or posting of any bond in connection
with the obtaining of any such equitable relief and that this provision is
without prejudice to any other rights that the parties hereto may have for any
failure to perform this Agreement.

         SECTION 14. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that Grantee is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7 hereof, the full number of shares of Issuer
Common Stock provided in Section 1 hereof (as adjusted pursuant hereto), it is
the express intention of Issuer to allow Grantee to acquire or to require Issuer
to repurchase such lesser number of shares as may be permissible without any
amendment or modification hereof.

         SECTION 15. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in the manner and at the respective addresses of the parties set forth in the
Plan.

         SECTION 16. This Agreement, the rights and obligations of the parties
hereto, and any claims or disputes relating thereto shall be governed by and
construed in accordance with the laws of the State of Delaware (but not
including the choice of law rules thereof).

                                       9
<PAGE>   11

         SECTION 17. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement and shall be effective at the time of execution and
delivery.

         SECTION 18. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder.

         SECTION 19. Except as otherwise expressly provided herein or in the
Plan, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.

         SECTION 20. Capitalized terms used in this Agreement and not defined
herein but defined in the Plan shall have the meanings assigned thereto in the
Plan.

         SECTION 21. Nothing contained in this Agreement shall be deemed to
authorize or require Issuer or Grantee to breach any provision of the Plan or
any provision of law applicable to the Grantee or Issuer.

         SECTION 22. In the event that any selection or determination is to be
made by Grantee or the Owner hereunder and at the time of such selection or
determination there is more than one Grantee or Owner, such selection shall be
made by a majority in interest of such Grantees or Owners.

         SECTION 23. In the event of any exercise of the option by Grantee,
Issuer and such Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.

         SECTION 24. Except to the extent Grantee exercises the Option, Grantee
shall have no rights to vote or receive dividends or have any other rights as a
shareholder with respect to shares of Issuer Common Stock covered hereby.

                            [SIGNATURE PAGE FOLLOWS]


                                       10
<PAGE>   12







        IN WITNESS WHEREOF, each of the parties has caused this Option Agreement
to be executed and delivered on its behalf by their respective officers
thereunto duly authorized, all as of the date first above written.


                                     SKANEATELES BANCORP, INC.


                                     By:    /s/ John P. Driscoll
                                         ------------------------------------
                                              Name: John P. Driscoll
                                              Title:Chairman, President & CEO




                                     BSB BANCORP, INC.


                                     By:    /s/ Alex S. DePersis 
                                         ------------------------------------
                                              Name: Alex S. DePersis
                                              Title: President & CEO