<PAGE>   1

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC. 20549

                                  FORM 10-K

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1996
                                             ------------------

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                         Commission file number 0-18513
                                               --------

                            CENTER BANKS INCORPORATED
                            -------------------------
             (Exact name of registrant as specified in its charter)

DELAWARE                                                            16-1368745
--------                                                            -----------
(State of incorporation)                                       (I.R.S. Employer
                                                         Identification Number)

               33 E. Genesee St. Skaneateles, New York, 13152-0460
               ---------------------------------------------------
                (Address of principal executive office-Zip Code)

        Registrant's Telephone Number including Area Code: (315) 685-2265

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, Par Value $0.01
                          -----------------------------
                                 Title of Class

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X   No
                                      ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [ ]

As of March 14, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $16,015,000.

As of March 14, 1997, 950,501 shares of registrant's common stock were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>

<S>                                             <C>
     Document                                   Part of 10-K into which incorporated
     --------                                   ------------------------------------

Portions of the Annual Report to Shareholders
for the year ended December 31, 1996            Parts II and IV

Portions of the definitive Proxy Statement
for Annual Meeting of Shareholders to be
held April 15, 1997                             Part III

</TABLE>


<PAGE>   2
<TABLE>
<CAPTION>

                                TABLE OF CONTENTS
                          FORM 10-K ANNUAL REPORT 1996
                            CENTER BANKS INCORPORATED



                                                                                      PAGE
                                                                                      ----
PART I.
<S>           <C>                                                                       <C>
         Item 1.  Business............................................................  1
         Item 2.  Properties.......................................................... 18
         Item 3.  Legal Proceedings................................................... 18
         Item 4.  Submission Of Matters To A Vote Of Security Holders................. 18

PART II.
         Item 5.  Market For The Registrant's Common Stock And Related Stockholder
                       Matters........................................................ 19
         Item 6.  Selected Financial Data............................................. 19
         Item 7.  Management's Discussion And Analysis Of Financial Condition
                       And Results Of Operations ..................................... 19
         Item 8.  Financial Statements And Supplementary Data......................... 19
         Item 9.  Changes In And Disagreements With Accountants On Accounting
                       And Financial Disclosure....................................... 19

PART III.
         Item 10. Directors And Executive Officers Of The Registrant ..................20
         Item 11. Executive Compensation ..............................................20
         Item 12. Security Ownership Of Certain Beneficial Owners And Management ......20
         Item 13. Certain Relationships and Related Transactions ......................20

PART IV.
       Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K .....20

</TABLE>

<PAGE>   3



                                                         1

PART I.

ITEM 1.           BUSINESS

                                     GENERAL

         Center Banks Incorporated ("Center Banks" or the "Company") is a
Delaware-chartered bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), the primary business of which is
the ownership and operation of its sole subsidiary, Skaneateles Savings Bank
("Skaneateles" or the "Bank"). Skaneateles is a New York-chartered stock savings
bank headquartered in the Village of Skaneateles, Onondaga County, New York.
Deposit accounts of the Bank are insured by the Bank Insurance Fund ("BIF"), as
administered by the Federal Deposit Insurance Corporation ("FDIC"). In
continuous operation since 1866, the Bank conducts business from eight
full-service banking offices located in Onondaga and Oswego counties of New York
State. Historically, Skaneateles has been engaged in the business of attracting
deposits from the general public and earning income on those funds through
various lending and investment activities.

       The Bank operated as a single office savings bank in Skaneateles, New
York until 1967 when it opened its first branch office in Camillus, a suburb of
Syracuse. During 1988, the Bank opened an office in downtown Syracuse. In
December 1994, the Bank purchased a second branch in Syracuse. The Bank opened
three in-store branches in newly constructed or renovated supermarkets in
Onondaga and Oswego counties during the fourth quarter of 1994 and first four
months of 1995. The in-store branches provide all of the same products and
services as the Bank's traditional branches, with the exception of safe
deposit boxes.

       On July 1, 1996, the Bank acquired substantially all of the assets and
assumed the deposit liabilities of Cicero Bank ("Cicero"). Total assets acquired
were $19.1 million, consisting of loans ($14.0 million), cash ($4.0 million) and
other assets ($1.1 million). Total deposit liabilities assumed were $19.1
million, consisting of time accounts ($9.9 million), money market accounts ($2.3
million) and savings and demand accounts ($6.9 million). The excess of the
purchase price over the fair value of assets acquired ("goodwill") amounted to
$494,000 and is included in other assets. Goodwill is being amortized over the
expected useful life of seven years on a straight line basis.

         The Company's financial performance depends primarily on the Bank's net
interest income, which is the difference between interest income on
interest-earning assets, primarily loans, investments and securities, and
interest expense on interest-bearing liabilities, primarily deposits and
borrowings. The relative amounts of interest-earning assets, deposits and
borrowings also impact net interest income. The Company's financial performance
is also affected by the establishment of provisions for loan losses and the
level of its other income, including fees on loans sold, deposit service
charges, the results of foreclosed real estate activities, gains or losses from
the sale of loans as well as its other operating expenses and income tax
provisions. The Company's financial performance has historically been affected
by local economic and competitive conditions, primarily in the market area of
Metropolitan Syracuse. Changes in market interest rates, government legislation
and policies concerning monetary and fiscal affairs, housing and financial
institutions and the attendant actions of the regulatory authorities all have an
impact on the Company's financial performance.


                               LENDING ACTIVITIES

         The lending activities of Skaneateles are affected principally by the
demand for such loans, competition and the supply of funds available for lending
purposes. These factors are in turn affected by general economic conditions,
monetary policies of the Federal government, including the Federal Reserve
Board, legislative tax policies and governmental budgetary matters.

         RESIDENTIAL REAL ESTATE LENDING. Most of Skaneateles' residential loan
portfolio is secured by first mortgages on real estate located in the greater
Syracuse area, and to a lesser extent, the greater Rochester area. Most local
residential loans are originated directly by Skaneateles. The Bank also
purchases loans for its portfolio from time to time, although no purchases were
made in 1996 or 1995.

                                       1
<PAGE>   4

       A large portion of the residential mortgages originated in 1996 and 1995
was referred to the Bank by third-party brokers in areas contiguous to the
Bank's designated lending area. Brokers were used to supplement the Bank's own
direct originations in order to meet mortgage lending goals. Increasing
competition in mortgage lending, however, has squeezed margins and
profitability. As a result, the Bank has shifted its lending focus, placing more
emphasis on consumer and commercial loans. In the third quarter of 1996, the
Bank effectively suspended the use of mortgage brokers, focusing instead on its
designated lending area for residential mortgages. It is expected that future
mortgage production will decrease as a result. Loans purchased or originated
through a broker are subject to the same underwriting standards as loans
originated directly by the Bank.

         It is Skaneateles' policy to require borrowers to obtain title
insurance naming the Bank as the insured party on certain real estate loans.
Borrowers are required to obtain hazard insurance prior to closing. Borrowers
typically are required to advance funds on a monthly basis together with each
payment of principal and interest to a mortgage escrow account from which
Skaneateles makes disbursements for items such as real estate taxes, hazard
insurance and private mortgage insurance premiums as they are due.

        The Bank originates both fixed and adjustable rate residential mortgages
with a maximum maturity of 30 years, and for fixed rate loans, a monthly or
bi-weekly payment option. The bi-weekly mortgages require the borrower to
maintain a deposit account with the Bank from which mortgage payments are
automatically deducted. Loans will be granted in amounts up to 95% of appraised
value; however, all loans with a loan-to-value ratio in excess of 80% are
required to carry private mortgage insurance sufficient to reduce the Bank's
exposure to 75% of appraised value.

         Fixed rate mortgages are predominately underwritten in accordance with
secondary market standards, and therefore can be sold at any time in response to
changes in interest rates or to meet liquidity needs. Fixed rate mortgages with
terms of 15 years or less are originated for portfolio as long as they fit the
Company's established asset/liability mix, while fixed rate mortgages with terms
greater than 15 years are sold on the secondary market to control the Company's
interest rate risk. The Bank retains servicing on all loans sold.

        The Bank offers adjustable rate loans, indexed to the one-year or
three-year U.S. Treasury Note, with rates that adjust annually (1 year ARM), or
once every three years (3 year ARM). The Bank also offers a 5/1 ARM. The 5/1
ARM is a loan with a fixed rate of interest for the first five years. On the
loan's fifth anniversary, the rate converts to the current rate for a 1-year
ARM, and adjusts annually over the remaining term of the loan.  Adjustable rate
loans are  generally retained for portfolio.

         MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. Skaneateles originates
loans secured by multi-family (over four units) and commercial properties, such
as small office buildings, which are generally owner-occupied.

         The majority of loans on income-producing property currently offered by
Skaneateles carry an adjustable rate tied to the one-, three- or five-year U.S.
Treasury Note, typically with a maximum amortization period of 20 years. In
setting interest rates and origination fees on new loans and loan extensions,
management considers both current conditions and its analysis of the risk
associated with the particular project.

         Skaneateles' underwriting policies with respect to loans on income
producing properties are designed to ensure that a project's cash flow will be
sufficient to cover operating expenses and debt service payments. A detailed
analysis of the project is undertaken by Skaneateles' commercial real estate
loan underwriters. Loan-to-value ratios on commercial real estate loans made by
Skaneateles generally do not exceed 75%. All income producing properties are
appraised by an independent appraiser approved by the Board of Directors.
Skaneateles requires that the borrower obtain title insurance and hazard
insurance in the amount of the loan, naming Skaneateles as loss payee.

         COMMERCIAL LENDING. The Bank makes loans to small and medium-sized
businesses in its primary market area of Onondaga County, eastern Cayuga County
and the city of Oswego, New York, offering mortgages, secured and unsecured
working capital loans, term loans, leases and lines of credit. In January 1997,
the Bank expanded its

                                       2

<PAGE>   5

commercial loan products by offering dealer floor plans. Through this program
the Bank offers revolving credit lines to local automobile, boat and
recreational vehicle dealerships to finance inventory purchases. Rates, terms,
compensatory balances, fees and charges are based upon market conditions and the
risk involved for each loan. The risks involved are determined based upon a
credit analysis performed on the potential borrower which emphasizes economic
conditions as well as the availability of cash flow from operations to support
the credits, and collateral.

          Commercial loans generally involve a higher degree of risk than
residential mortgage loans. Unlike residential mortgage loans, which are
generally made on the basis of the borrower's ability to make repayment from
employment and other income, and which are secured by real property whose value
tends to be easily ascertainable, commercial loans typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
business and are generally secured by business assets, such as accounts
receivable, equipment and inventory. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the success
of the business itself. Further, the collateral securing the loans may
depreciate over time, may not be appraised with as much precision as residential
real estate, and may fluctuate in value based on the success of the business.
The Bank attempts to mitigate the risks inherent in commercial lending through
its underwriting, documentation, financial analysis and monitoring of the
borrower's financial performance.

         CONSUMER LENDING. New York State law permits Skaneateles to engage in
various types of consumer lending. Consumer loan products include auto and boat
loans, unsecured personal loans, home equity loans and home equity lines of
credit. All consumer loans, except home equity lines of credit, carry fixed
rates of interest and terms ranging from three years to fifteen years. The
Bank's home equity line of credit program offers a credit line secured by a
second mortgage of up to 75% of appraised market value less other mortgages
outstanding on residential properties, repricing monthly indexed to the prime
rate. The Bank also originates student loans and hold them in its portfolio
while the student is in school. At the time the loan is to go into repayment, it
will be sold to the Student Loan Marketing Association under a continuing
commitment.

       To further increase consumer loan production, the Bank implemented an
indirect lending program in the third quarter of 1996, through which it receives
consumer loan applications from Bank-approved automobile, boat and recreational
vehicle dealerships on behalf of their customers to finance their purchases.
This program is expected to be an integral part of the Bank's consumer loan
origination efforts in 1997 and beyond. These applications are subject to the
Bank's normal consumer loan underwriting criteria.

         LOAN ORIGINATION FEES AND OTHER FEES. Loan origination fees vary with
the volume and type of loans made and with competitive conditions in the
mortgage market. Loan demand, new construction activity and availability of
money affect these market conditions. The Bank defers net loan fees (costs) and
amortizes such net fees (costs) over the life of the loan as an adjustment of
yield.

         DELINQUENCIES. When a borrower fails to make a scheduled payment on a
loan, Skaneateles takes steps to have the borrower cure the delinquency. Accrual
of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition precludes accrual. Generally, interest income is
not recognized on loans which are delinquent over 90 days, and income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower's ability to make periodic
interest and principal payments is back to normal, in which case the loan is
returned to accrual status. If the delinquency exceeds 90 days or is not cured
through Skaneateles' normal collection procedures, Skaneateles will institute
measures to enforce its remedies resulting from the default, including, in the
case of mortgage loans, commencing a foreclosure action. In certain cases,
Skaneateles will also consider accepting from the mortgagor a voluntary deed to
the mortgaged premises in lieu of foreclosure. Property acquired by Skaneateles
as a result of foreclosure or by deed in lieu of foreclosure is classified as
"Real Estate Owned."

         Other loan delinquencies are remedied in a similar fashion. The
collateral is repossessed and sold to pay off the loan balance. In the case of
unsecured installment and commercial business loans, Skaneateles either
commences legal action to collect the balance or negotiates a "work-out" payment
schedule over a period which may exceed the original term of the loan.


                                       3
<PAGE>   6

LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition of
Skaneateles' loan portfolio by loan type as of the dates indicated.

<TABLE>
<CAPTION>

                                                                       AT DECEMBER 31,
                          -------------------------------------------------------------------------------------------------------
                                1996                   1995                 1994                  1993                 1992
                          ----------------      ----------------     -----------------     ----------------     ----------------
                           AMOUNT     %          AMOUNT     %         AMOUNT     %          AMOUNT     %         AMOUNT     %
                         -----------------      ----------------     ----------------      ----------------     ----------------
                                                             (Dollars in Thousands)
Loans secured by first
 mortgages on real estate:
<S>                     <C>          <C>         <C>       <C>       <C>        <C>         <C>      <C>          <C>      <C>
   Residential          $ 129,651    62.74%      116,320   67.80%    110,404    66.10%      87,623   61.16%       53,033   46.92%

   Commercial              31,728    15.35%       27,357   15.94%     28,175    16.87%      25,854   18.05%       24,423   21.61%

Other loans:

   Commercial              18,861     9.13%       10,631    6.20%     13,274     7.95%      15,574   10.87%       20,571   18.20%

   Home equity and
       improvement         17,599     8.52%       14,578    8.50%     13,219     7.92%      12,454    8.69%       12,499   11.06%

   Guaranteed student        882      0.43%          858    0.50%        789     0.47%         825    0.58%        1,094    0.97%

   Other consumer           7,924     3.83%        1,821    1.06%      1,148     0.69%         928    0.65%        1,407    1.24%

---------------------------------------------------------------------------------------------------------------------------------
          Total         $ 206,645   100.00%      171,565  100.00%    167,009   100.00%     143,258  100.00%      113,027  100.00%
=================================================================================================================================
</TABLE>


       Total loans were $206.6 million at December 31, 1996, an increase of
$35.1 million or 20.5% from December 31, 1995. Gross loan growth was $20.7
million or 12.1% excluding loans acquired from Cicero. Loan originations for
1996 totaled $54.2 million, an increase of 154% from 1995's originations of
$21.3 million.

       Residential mortgage originations were $30.4 million in 1996, an increase
of 141% from 1995's originations. This represented 56.1% of 1996's total loan
originations, down from 59.2% in 1995. Approximately $15.2 million or 50.0% of
the residential loans originated in 1996 were for fixed rates of interest,
compared with $12.0 million and 63.8%, respectively, in 1995. During 1996, the
Bank sold approximately $4.8 million of fixed rate residential loans, compared
with $2.0 million in 1995. Originations of 1 year and 3 year ARM's totaled $2.2
million or 7.2% of residential mortgage originations in 1996, compared with $2.6
million or 13.8% in 1995. Originations of 5/1 ARM's totaled $7.2 million or
23.7% of residential loan originations in 1996, compared with $4.2 million or
22.4% in 1995.

       Consumer loan originations were $10.5 million or 19.4% of total loan
originations in 1996, compared with $4.7 million or 22.2% in 1995. Although the
relative level of originations is down from last year due to stronger growth in
the other loan categories, the actual origination volume of consumer loans
increased 122%, due primarily to a larger branch network and more focused
marketing efforts. The Bank opened two new in-supermarket branches in the second
quarter of 1995 and added another branch from Cicero in 1996. These three new
branches contributed significantly to consumer loan production in 1996,
accounting for approximately 41% of total originations. The Bank's marketing
strategy changed in 1996 from general media advertising to targeted mailings to
current and potential customers promoting specific products. In January 1997, a
marketing software package was purchased which allows the Bank to identify all
relationships with its customers on an individual or household level. This
software is expected to further enhance the effectiveness of the direct mail
marketing program.

       Commercial loan and mortgage originations were $13.3 million or 24.5% of
total loan originations in 1996, up from $4.0 or 18.6% in 1995. Compared with
1995, total new commercial loan and mortgage volume increased 235%. The increase
resulted largely from a strengthening of the Bank's business development
activities, including an active calling program, a new indirect leasing program
and a greater presence by the Bank in local trade and business shows.

         Contractual maturities of mortgage loans do not reflect the actual term
of Skaneateles' loan portfolio. The average life of mortgage loans is
substantially less than their contractual terms because of loan prepayments and
because of enforcement of due-on-sale clauses, which give Skaneateles the right
to declare a loan immediately due

                                       4

<PAGE>   7

and payable in the event, among other things, that the borrower sells the real
property subject to the mortgage while the loan is outstanding. The average life
of mortgage loans tends to increase, however, when current mortgage rates
substantially exceed rates on existing mortgages, and tends to decrease due to
prepayments when current mortgage interest rates are below the rates on existing
mortgages.

         The following table sets forth the contractual maturity of the
commercial loan portfolio and real estate construction loans at December 31,
1996.
<TABLE>
<CAPTION>

                                                    Within            One to              After
                                                   one year         five years         five years          Total
--------------------------------------------------------------------------------------------------------------------
                                                                           (In Thousands)

<S>                                               <C>                      <C>              <C>              <C>
Commercial loans - adjustable rate                $     4,541              5,847            2,877            13,265
Commercial loans - fixed rate                           1,201              3,269            1,126             5,596
Real estate construction loans - adjustable rate          769                  0                0               769

--------------------------------------------------------------------------------------------------------------------
     Total                                        $     6,511              9,116            4,003            19,630
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                          INTEREST SENSITIVITY ANALYSIS

       The goal of asset/liability management is to reduce the volatility of net
interest income during periods of changing market interest rates (interest rate
risk). The Company uses three methods to measure its interest rate risk: i) gap;
ii) duration; and iii) simulation analysis. Gap analysis measures the difference
between assets and liabilities which reprice and/or mature within a given time
frame, typically the cumulative one-year horizon. An asset-sensitive gap
position could lead to an increase in net interest income in a rising rate
environment, and a decrease in net interest income in a falling rate
environment, as assets reprice or mature quicker than liabilities. Conversely, a
liability-sensitive gap position could lead to a decrease in net interest income
in a rising rate environment and an increase in net interest income in a falling
rate environment. Duration analysis measures the weighted average time to
receive (pay) all cash flows (principal and interest) on a financial instrument.
The shorter the duration of a financial instrument, the quicker its cash flows
are received (paid). Simulation analysis measures the impact on net interest
income and market value of equity of hypothetical changes in interest rates.
Through simulation analysis, management can also estimate the impact on net
interest income of different investing and funding strategies.

       In February 1996, the Bank purchased an interest rate floor with a
notional amount of $18 million, to hedge a portion of its prime-based loan
portfolio. Under the agreement, which expires in February 1999, the Bank will
receive payments on a quarterly basis if the prime rate drops below 8.25% (the
"strike rate"). Payments are equal to the amount by which the prime rate falls
below the strike rate multiplied by the notional amount of the floor. The fee
paid for the floor is included in other assets and is being amortized to
interest income using the interest method over the life of the floor.

       The Company's cumulative 1 year ratio of rate sensitive assets to rate
sensitive liabilities (1 year gap) was .98 at December 31, 1996. The duration of
interest-bearing assets and liabilities was 2.19 years and 1.58 years,
respectively. These measurements indicate a slightly liability-sensitive
position.


                                       5
<PAGE>   8


        The following table sets forth, as of December 31, 1996, information
regarding the interest-sensitive assets and liabilities of the Company.
<TABLE>
<CAPTION>

                                      0 to           Over 3        Over 1         Over 5         Over
                                    3 Months      to 12 Months    to 5Years     to 10 Years    10 Years      Total
---------------------------------------------------------------------------------------------------------------------
                                                                 (Dollars in Thousands)
Interest-earning assets:
<S>                                  <C>                 <C>          <C>            <C>           <C>       <C>
  Federal funds sold                 $  3,800                0            0              0             0       3,800
  Securities                            2,041            6,961        6,123            502         1,251      16,878
  Federal Home Loan Bank stock          1,410                0            0              0             0       1,410
  Mortgage loans                       18,386           56,072       50,000         25,851        11,070     161,379
  Consumer loans                       10,656            3,009       10,283          1,941           516      26,405
  Commercial loans                     10,445            2,862        4,275              0         1,279      18,861
---------------------------------------------------------------------------------------------------------------------
Total                                  46,738           68,904       70,681         28,294        14,116     228,733
---------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
  Deposits:
     Savings and club accounts(1)       3,870           11,607       15,471          7,742             0      38,690
     Time certificates                 27,475           44,409       30,366          5,179             0     107,429
     Money market accounts             21,991                0            0              0             0      21,991
     Now and escrow accounts(1)         1,071            3,505       13,987          3,495             0      22,058
  Borrowings                            2,516            2,000       10,025          2,450         1,190      18,181
---------------------------------------------------------------------------------------------------------------------
Total                                  56,923           61,521       69,849         18,866         1,190     208,349
---------------------------------------------------------------------------------------------------------------------
Gap                                  $(10,185)           7,383          832          9,428        12,926      20,384
---------------------------------------------------------------------------------------------------------------------
Cumulative gap                       $(10,185)          (2,802)      (1,970)         7,458        20,384
---------------------------------------------------------------------------------------------------------------------
Cumulative gap as a
     percentage of
     interest-earning
     assets                            (4.45%)         (1.23%)       (0.86%)          3.26%         8.91%
---------------------------------------------------------------------------------------------------------------------
<FN>
       (1)The scheduled repricing of savings and Now accounts is based on FDIC
          guidelines. These guidelines state savings and Now accounts may be
          distributed across any of the first four time bands, with a maximum of
          20 percent in the 5 to 10 year time band and no more than 40 percent
          combined in years 3 through 10.
</TABLE>



                                       6
<PAGE>   9


                              RATE/VOLUME ANALYSIS

         The following table presents changes in interest income and expense
attributable to (i) changes in volume (change in volume multiplied by old rate),
and (ii) changes in rate (change in rate multiplied by old volume). The net
change attributable to the combined impact of volume and rate has been allocated
in proportion to the absolute change due to volume and the change due to rate.
Interest earned on non-accruing loans is included in interest income on loans
only when collected, but the average balances of such loans are included in the
average balances of loans.
<TABLE>
<CAPTION>

                                                         1996                                 1995
                                          -----------------------------------   ------------------------------------
                                                   Increase (Decrease)                  Increase (Decrease)
                                             Volume        Rate        Net         Volume       Rate         Net
                                          --------------------------------------------------------------------------
                                                                       (In Thousands)
Interest income on interest-earning assets:
<S>                                        <C>              <C>        <C>          <C>          <C>         <C>
     Mortgage loans                        $      860          44        904         1,266         949        2,215
     Other loans                                  793        (263)       530           (69)        422          353
     Securities                                  (151)        (31)      (182)          105         127          232
     Federal funds sold                            55         (16)        39           126           5          131
--------------------------------------------------------------------------------------------------------------------
  Total                                         1,557        (266)     1,291         1,428       1,503        2,931
--------------------------------------------------------------------------------------------------------------------

Interest expense on interest-bearing liabilities:
Deposits:
     Savings and club accounts             $      100           3        103          (108)         50          (58)
     Time certificates                            369         (59)       310         1,481         712        2,193
     Money market accounts                        (35)          0        (35)         (142)        137           (5)
     Now and escrow accounts                       75         (12)        63            41          24           65
--------------------------------------------------------------------------------------------------------------------
  Total deposits                                  509         (68)       441         1,272         923        2,195
Borrowings                                         94         (32)        62           (13)         77           64
--------------------------------------------------------------------------------------------------------------------
  Total                                           603        (100)       503         1,259       1,000        2,259
--------------------------------------------------------------------------------------------------------------------

Net interest income                        $      954        (166)       788           169         503          672
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       7

<PAGE>   10
The following table sets forth information with respect to loans delinquent 90
days or more, nonaccrual loans, restructured loans, and real estate owned as of
the dates indicated.
<TABLE>
<CAPTION>
                                         ------------------------------------------------
                                                           December 31,
                                         ------------------------------------------------
                                           1996     1995     1994       1993      1992
                                         ------------------------------------------------
                                                         (In Thousands)
<S>                                      <C>        <C>       <C>       <C>       <C>
Nonaccruing loans
     Residential real estate mortgages   $1,359       271       317       291       582
     Commercial (1)                       1,626     1,757     2,894     2,481     1,900
     Consumer                               186       110        40        10        63
---------------------------------------------------------------------------------------
Total                                    $3,171     2,138     3,251     2,782     2,545
---------------------------------------------------------------------------------------
Other loans past due 90 days or more
  and still accruing:
     Consumer (2)                        $   29         1         0        12        16
     Commercial (1)                         370         0       447         0         0
     Lease loans                              0         0         0         0         0
---------------------------------------------------------------------------------------
Total                                    $  399         1       447        12        16
---------------------------------------------------------------------------------------
Restructured loans, not included above        0     1,125       932     1,006       901
---------------------------------------------------------------------------------------
Real estate owned                           717       397       984     1,807     1,578
---------------------------------------------------------------------------------------
Total assets containing specific risk
elements                                 $4,287     3,661     5,614     5,607     5,040
---------------------------------------------------------------------------------------
Ratio of total loans past due
90 days or more to gross loans             1.73%     1.25%     2.05%     1.95%     2.27%
---------------------------------------------------------------------------------------
Ratio of assets containing specific
risk elements to total assets              1.77%     1.74%     2.78%     3.21%     2.98%
---------------------------------------------------------------------------------------
<FN>
(1) Includes commercial real estate loans
(2) Consists primarily of Guaranteed Student Loans.
</TABLE>
         The following table sets forth the amounts of interest income not
recognized on nonaccruing loans during each period (not including the effect of
loans charged off during the period).
<TABLE>
<CAPTION>

                                                                          December 31,
                                              ----------------------------------------------------------------------
                                                 1996           1995          1994           1993           1992
                                              -----------    -----------   -----------    -----------    -----------
                                                                         (In Thousands)
<S>                                            <C>               <C>           <C>            <C>            <C>
Income that would have been accrued
at original contract rates                     $  283            155           172            104            112
</TABLE>


       Nonperforming (nonaccrual loans and real estate owned) assets totaled
$3.9 million, or 1.6% of total assets at December 31, 1996, compared with $2.5
million, or 1.2% of total assets at December 31, 1995. Included in nonperforming
assets at December 31, 1996 were nonaccrual loans of $3.2 million or 1.5% of
gross loans, compared with $2.1 million or 1.2% at December 31, 1995. Nonaccrual
loans acquired in the Cicero transaction accounted for approximately 56% of the
increase in 1996. Excluding the loans acquired from Cicero, the Bank's
nonperforming loans would have been $2.5 million or 1.3% of gross loans at
December 31, 1996.

                                       8
<PAGE>   11

         Potential problem loans at December 31, 1996 amounted to $1.8 million.
"Potential problem loans" are defined as loans which are not included with past
due and non-accrual loans discussed above, but about which management, through
normal internal credit review procedures, has information about possible credit
problems which may result in the borrower's inability to comply with the present
loan repayment terms. There have been no loans classified for regulatory
purposes as loss, doubtful, or substandard that are not included above or which
caused management to have serious doubts as to the ability of the borrower to
comply with repayment terms. In addition, there were no material commitments to
lend additional funds to borrowers whose loans were classified as
non-performing.

         ALLOWANCE FOR LOAN LOSSES. Skaneateles uses the allowance method of
accounting for loan losses. Under this method, provisions for loan losses are
charged to operations and actual loan losses (recoveries) are charged (credited)
to the allowance. The allowance for loan losses represents amounts provided to
absorb anticipated future loan losses in the existing loan portfolio. The
adequacy of the allowance for loan losses is evaluated monthly, and is
determined primarily by management's informed judgment concerning the amount of
risk inherent in the portfolio. Management's judgment is based upon a number of
factors including historical loan loss experience, the present and prospective
financial condition of borrowers, estimated value of underlying collateral,
industry and geographic concentrations, and current and prospective economic
conditions.

       The Bank utilizes a risk rating system in its credit quality estimation
process. This system involves an ongoing review of business loans and commercial
real estate loans that culminates in loans being assigned a risk rating based
upon various credit criteria. If the review indicates a sufficient level of
risk, an allowance is established proportionate to the perceived risk for each
loan. Loans not having an individually established allowance are aggregated by
the type of loan, and an allowance is estimated based upon aging statistics,
past experience and economic factors.

       Generally, all commercial mortgage loans and commercial loans in a
delinquent payment status (90 days or more delinquent) are considered impaired.
The Bank estimates losses on impaired loans based on the present value of
expected future cash flows (discounted at the loan's effective interest rate) or
the fair value of the underlying collateral if the loan is collateral dependent.
An impairment loss exists if the recorded investment in a loan exceeds the value
of the loan as measured by the aforementioned methods. A loan is considered
impaired when it is probable that the Bank will be unable to collect all amounts
due according to the contractual terms of the loan agreement. Residential
mortgage loans, consumer loans, home equity lines of credit and education loans
are evaluated collectively since they are homogenous and generally carry smaller
individual balances.

       As with any financial institution, poor economic conditions, high
interest rates, high unemployment and other matters outside of the Bank's
control may lead to increased losses in the loan portfolio. Management has
various controls in place designed in an effort to limit losses, such as: 1) a
comprehensive "watch list" of possible loan problems, 2) a fully documented
policy concerning loan administration (loan file documentation, disclosures,
approvals, etc.) and 3) a loan review department to audit for adherence to
established Bank controls and to review the quality and anticipated
collectibility of the portfolio. The loan review department reports monthly to
the Executive Committee of the board of directors, which in turn, reports to the
full board of directors. The power to authorize charge-offs rests solely with
the board of directors.

        Impaired loans, which included troubled debt restructured loans, were
$1.9 million and $4.0 million at December 31, 1996 and 1995, respectively.
Included in these amounts are $832,000 and $2.7 million of impaired loans for
which the related allowance for loan losses is $216,000 and $884,000,
respectively. In addition, included in the total impaired loans at December 31,
1996 and 1995 are $1.1 million and $1.3 million of impaired loans for which no
allowance is recorded due to the adequacy of collateral values in accordance
with SFAS 114. The average recorded investment in impaired loans during 1996 and
1995 was approximately $2.9 million and $3.9 million, respectively. The amount
of interest income recognized on impaired loans in 1996 and 1995 was
approximately $166,000 and $281,000, respectively. The Bank is not committed to
lend additional funds to these borrowers.

                                       9
<PAGE>   12

        The Company recognizes interest income on impaired loans using the cash
basis of income recognition. Cash receipts on impaired loans are generally
applied according to the terms of the loan agreement, or as a reduction of
principal, based upon management judgment and other factors.

       Management believes the allowance for loan losses as of December 31, 1996
was adequate based upon the quality of the loan portfolio at that date. Future
additions to the allowance will be based, among other factors, on changes in
economic conditions and financial stress of the Company's borrowers.

         The following table sets forth the activity in the allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>

                                                                          December 31,
                                              ---------------------------------------------------------------------

                                                 1996          1995          1994           1993           1992
                                              -----------    ----------   -----------    -----------    -----------
                                                                         (In Thousands)

<S>                                            <C>               <C>           <C>            <C>            <C>
Beginning Balance                              $   2,667         3,040         2,938          2,847          4,019

Provision                                            175           235           360            600            455

Charge-offs
-----------
     Residential mortgages                           (74)            0           (18)             0              0
     Commercial mortgages                           (168)         (569)            0           (237)          (522)
     Business                                       (999)         (153)         (331)          (428)         1,145)
     Other consumer                                  (60)          (10)          (17)           (64)           (30)
-------------------------------------------------------------------------------------------------------------------
                                                  (1,301)         (732)         (366)          (729)        (1,697)
-------------------------------------------------------------------------------------------------------------------

Recoveries
----------
     Commercial mortgages                              0             0             0              4              0
     Business                                        118           118            96            203             60
     Other consumer                                    8             6            12             13             10
-------------------------------------------------------------------------------------------------------------------

                                                     126           124           108            220             70
-------------------------------------------------------------------------------------------------------------------
Net Charge-offs                                   (1,175)         (608)         (258)          (509)        (1,627)
-------------------------------------------------------------------------------------------------------------------

Allowance of acquired bank                           447             0             0              0              0

-------------------------------------------------------------------------------------------------------------------
Ending Balance                                 $    2,114        2,667         3,040          2,938          2,847
-------------------------------------------------------------------------------------------------------------------

Ratio of net charge-offs during the year
  to average loans outstanding during the          0.62%          0.36%         0.17%          0.41%          1.43%
  year
-------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       10
<PAGE>   13


               The following table sets forth the allocation of the allowance
        for loan losses as of the dates indicated.

<TABLE>
<CAPTION>

                                                                         DECEMBER 31,
                                              --------------------------------------------------------------------
                                                 1996          1995           1994          1993          1992
                                              -----------   -----------    -----------   -----------   -----------
                                                                        (IN THOUSANDS)

<S>                                            <C>               <C>            <C>           <C>           <C>
Consumer                                       $     178            80             59            34            39
Commercial   (1)                                   1,822         2,517          2,926         2,850         2,670
Residential                                          114            70             55            54           138
------------------------------------------------------------------------------------------------------------------
                                               $   2,114         2,667          3,040         2,938         2,847
------------------------------------------------------------------------------------------------------------------
<FN>
 (1)     Includes commercial real estate loans.
</TABLE>


                                   SECURITIES

         Skaneateles  has authority to purchase a wide range of securities,
subject to various restrictions. See "Regulation - New York Law."

         Historically, Skaneateles' investment strategy was primarily to hold
securities for the purpose of providing liquidity and generating income. Such
securities consisted primarily of U.S. Treasury Notes, high grade corporate
bonds and mortgage-backed securities (primarily fixed rate and variable rate
pass through certificates issued and guaranteed by the Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC)).
Pursuant to the Bank's investment policy, all purchases for the investment
portfolio must be investment grade securities that are included in one of the
top four bond rating categories. At December 31, 1996, all of the corporate bond
portfolio consisted of investments which were included in such a category.

       The Company classifies its debt securities as either available-for-sale
or held-to-maturity, as the Company does not hold any securities considered to
be trading. Equity securities are classified as available-for-sale.
Held-to-maturity securities are those debt securities that the Company has the
ability and intent to hold until maturity. All other securities not included as
held-to-maturity are classified as available-for-sale. The Company expects to
re-evaluate the appropriateness of its portfolio designations, and may consider
reclassifying its held-to-maturity portfolio to available-for-sale sometime in
the future.


       Available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost. Unrealized gains and
losses, net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. Transfers of securities between categories are recorded
at fair value at the date of transfer. Unrealized gains or losses associated
with transfers of securities from held-to-maturity to available-for-sale are
recorded as a separate component of stockholders' equity until realized. The
unrealized gains or losses included in the separate component of equity for
securities transferred from available-for-sale to held-for-maturity are
maintained and amortized into earnings over the remaining life of the security
as an adjustment to yield in a manner consistent with the amortization or
accretion of premium or discount on the associated security.

                                       11
<PAGE>   14


         Presented below are the carrying values (in thousands) of the
securities portfolio as of the dates indicated.
<TABLE>
<CAPTION>

                                                                                    DECEMBER 31,
                                                                  ------------------------------------------------
                                                                       1996             1995              1994
                                                                  ---------------   -------------    -------------
SECURITIES AVAILABLE FOR SALE:
<S>                                                                 <C>                 <C>                <C>
  U.S. government and Federal agency obligations                    $ 5,027              6,106              8,942
  Mortgage-backed securities:
    FNMA                                                                  0                  0                191
    FHLMC                                                                 0              2,547              8,143
  Other asset-backed securities                                         982                  0                  0
------------------------------------------------------------------------------------------------------------------
                                                                    $ 6,009              8,653             17,276
==================================================================================================================

SECURITIES HELD TO MATURITY:
U.S. government and Federal agency obligations                      $ 4,992              6,026              1,963
Mortgage-backed securities:
  FNMA                                                                  145                170                  0
  FHLMC                                                               3,674              4,493                  0
Obligations of states and political subdivisions                      1,782              1,714              1,731
Corporate bonds, notes and debentures                                   300                401                901
------------------------------------------------------------------------------------------------------------------
                                                                    $10,893             12,804              4,595
==================================================================================================================
</TABLE>


                                    DEPOSITS

         Skaneateles attracts both short-term and long-term deposits of
individuals and businesses by providing a wide assortment of accounts. Included
among these products are savings accounts, demand deposit accounts, NOW
accounts, money market deposit accounts (MMDA) and certificates of deposit.
Skaneateles has no brokered deposits. The Bank's most direct competition for
deposits has historically come from commercial banks and other savings
institutions located in its market area. The Bank faces additional significant
competition for investors' funds from short-term money market mutual funds and
issuers of corporate and government securities. Skaneateles competes for
deposits principally by offering depositors a wide variety of deposit programs
with competitive terms, convenient branch locations and hours, tax deferred
retirement programs and other services. Skaneateles does not rely upon any
individual group or entity for a material portion of its deposits.

         Skaneateles offers fixed rate certificates of deposit with maturities
of 91 days to seven years. A minimum of $500 is required to open a certificate
of deposit. Generally, interest rates on these certificates are determined by
the combination of open market interest rates, rates offered by competitors, and
the Bank's liquidity needs. Interest is compounded and credited monthly on such
certificates.

         The Bank currently offers a tiered money market deposit account.
Accounts with balances $50,000 and over earn an annual yield equal to 90% of the
average discount rate set weekly at the 91-day Treasury Bill auction. Accounts
with lower balances earn interest based on a graduated scale. Interest is
compounded and credited monthly on these accounts.

         Regular savings accounts currently earn interest at an annual rate of
2.85%, which accrues daily and is compounded and credited monthly. No minimum
balance is required to earn interest on these accounts.

        Skaneateles offers a wide array of checking accounts, including a
non-interest bearing account which has no minimum balance requirement, no
monthly maintenance fee and no per check charge. The Bank also offers interest
bearing checking accounts whose rates and fees vary based on the type of the
account and amount on deposit.


                                       12

<PAGE>   15

         Skaneateles also offers non-deposit products including annuities and
mutual funds through an arrangement with a third party agent. These products are
not insured by the FDIC.

         The following table sets forth deposits by type of account as of the
dates indicated:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                        ---------------------------------------------------------------------------
                                                1996                     1995                        1994
                                        -----------------------  -----------------------   -------------------------
                                                   Percent of                Percent of                Percent of
                                                       total                    total                    total
                                          Amount     deposits      Amount     deposits      Amount     deposits
                                        ---------------------------------------------------------------------------
                                                                  (Dollars in Thousands)
<S>                                      <C>           <C>            <C>       <C>            <C>         <C>
Savings and club accounts                $  38,690     18.87%         33,016    18.43%         36,255       21.24%

Time certificates                          107,429     52.39%         99,474    55.54%         85,909       50.33%

Money market accounts                       21,991     10.73%         21,448    11.98%         25,502       14.94%

NOW accounts                                20,314      9.91%         13,244     7.39%         13,488        7.90%

Demand accounts                             14,861      7.25%          9,927     5.54%          7,645        4.48%

Escrow accounts                              1,744      0.85%          2,010     1.12%          1,897        1.11%
------------------------------------------------------------------------------------------------------------------
          Total                          $ 205,029    100.00%        179,119   100.00%        170,696      100.00%
------------------------------------------------------------------------------------------------------------------
</TABLE>

         The Bank offers preferred rates on certificates of deposit of $100,000
or more. These rates are determined daily based upon the factors noted above.
The Bank does not rely heavily on these deposits. At December 31, 1996, 1995 and
1994, the aggregate amounts of certificates of deposit in denominations of
$100,000 or more were approximately $13,065,000, $9,074,000 and $7,839,000,
respectively.

         The following table presents the amounts of certificates of deposit in
denominations of $100,000 or more at December 31, 1996 which mature during the
periods indicated.
<TABLE>
<CAPTION>

     MATURITY                                        AMOUNT
     --------                                        ------

<S>                                                     <C>
3 months or less                                        $ 4,590
3 to 6 months                                             3,101
6 to 12 months                                            2,330
Over 12 months                                            3,044
----------------------------------------------------------------
Total                                                   $13,065
----------------------------------------------------------------
</TABLE>

       Total deposits, including escrow, were $205.0 million at December 31,
1996, an increase of $25.9 million or 14.5% from the end of 1995. Excluding
deposits assumed from Cicero, deposits increased $6.9 million or 3.9% in 1996.
The Bank changed its strategy for deposit growth in 1996, placing more emphasis
on savings and checking accounts, which carry lower rates of interest than time
accounts and tend to be less sensitive to changes in interest rates. In February
1996, the Bank developed seven new checking account products, each targeted to
specific demographic groups and supported by an active direct mail marketing
campaign. As a result, the Bank's total checking account balances increased $7.8
million or 33.4% in 1996, while its savings account balances were up $2.9
million or 8.9%. Both gains were exclusive of accounts assumed from Cicero. More
than 7,700 new checking accounts were opened in 1996 as a result of this
program, representing a 133% increase in the number of accounts compared with
the end of 1995. The direct mail marketing program will be a key part of the
Bank's deposit growth strategy for the foreseeable future. In addition to the
lower interest cost of these deposits, the accounts generate fee income which
will provide a stable source of revenue regardless of fluctuations in interest
rates. Also, the increase in checking account customers provides a significant
opportunity to cross-sell other deposit and loan products.


                                       13
<PAGE>   16



        The following table sets forth the average amount of and the average
rate paid on each category of deposits which is in excess of ten percent of
average total deposits.

<TABLE>
<CAPTION>
                                                                  Years ended December 31,
                                              1996                     1995                    1994
                                          ------------------------ -----------------------  -----------------------
                                            Average     Average      Average     Average      Average    Average
                                            Balance       Rate       Balance      Rate        Balance      Rate
                                          ------------------------ -----------------------  -----------------------
                                                                   (Dollars In Thousands)
<S>                                        <C>           <C>          <C>        <C>          <C>         <C>
  Savings and club accounts              $ 36,576        2.84%        33,133     2.83%        37,045      2.59%

  Time certificates                       104,023        5.68%        97,596     5.74%        70,395      4.84%

  Money market accounts                    21,919        3.33%        23,000     3.33%        27,652      2.79%

</TABLE>


                                   BORROWINGS

         The Bank occasionally borrows funds to invest in assets to manage its
asset/liability position and its net interest income. Additionally, the Bank
also borrowed $2.0 million from the Federal Home Loan Bank of New York (FHLB) in
1987 at 10.51% for 15 years to fund the purchase of the downtown Syracuse
banking center.

         The following table sets forth the borrowings of Skaneateles as of the
dates indicated.
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                 ---------------------------------------------------
                                                                     1996              1995               1994
                                                                 -------------     --------------     --------------
                                                                                   (In Thousands)

<S>                                                                <C>                     <C>                <C>
Securities sold under repurchase agreements                        $    2,516              1,651              1,229
Overnight advances from the FHLB of New York                                0                  0                  0
Advances from the FHLB of New York                                     14,000             11,000             11,000
Municipal securities sold with put options                              1,665              1,735              1,755
--------------------------------------------------------------------------------------------------------------------
                                                                    $  18,181             14,386             13,984
--------------------------------------------------------------------------------------------------------------------

Weighted average interest cost of
  borrowings during the year                                            6.48%              6.70%              6.17%
--------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       14
<PAGE>   17


                           SELECTED PERFORMANCE RATIOS

         Selected performance ratios of the Company are as follows:
<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                                         ------------------------------------------
                                                                            1996           1995           1994
                                                                         ------------   ------------   ------------
<S>                                                                         <C>            <C>            <C>
Return on Assets
     Net Income / Average Total Assets                                      0.65%          0.51%          0.54%

Return on Equity
     Net Income / Average Stockholders' Equity                              9.43%          7.24%          7.27%

Dividend Payout Ratio
     Cash Dividends Declared / Net Income                                  17.83%         16.81%         11.32%

Equity to Asset Ratio
     Average Stockholders' Equity /Average Total Assets                     6.91%          7.03%          7.38%
</TABLE>



                                    PERSONNEL

         As of December 31, 1996 Skaneateles had 99 full-time equivalent
employees. The employees are not represented by a collective bargaining unit,
and Skaneateles considers its relationship with its employees to be good.

         EXECUTIVE  OFFICERS.  The following  information is supplied with
respect to the executive officers of the Company as of December 31, 1996.

<TABLE>
<CAPTION>

       NAME                                   AGE         TITLE
       ----                                   ---         -----
<S>                                            <C>
       John P. Driscoll                        56         Chairman, President and Chief Executive Officer
       J. David Hammond                        52         Executive Vice President & Secretary
       J. Daniel Mohr                          31         Treasurer
       William J. Welch                        47         Asst. Secretary & Asst. Treasurer
</TABLE>


                                   REGULATION

General

         As a bank holding company, Center Banks Incorporated is subject to
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). The Company is also required to file certain reports and
otherwise comply with the rules and regulations of the Securities and Exchange
Commission (the "Commission") under the federal securities laws. Skaneateles
Savings Bank is a banking corporation chartered under the laws of the State of
New York, and its deposits are insured by the Bank Insurance Fund ("BIF"), as
administered by the FDIC. It is also a member of the FHLB System. As such,
Skaneateles is subject to the regulation, examination and supervision of the
Banking Department of the State of New York (the "Department") and the FDIC. The
Bank is further subject to the regulation of the Federal Reserve Board with
respect to reserves required to be maintained against deposits and certain other
matters. The Federal Reserve Board, the Department and the FDIC issue
regulations and require the filing of reports describing the activities and
financial condition of the institutions under their jurisdiction. Each agency
conducts periodic examinations to test compliance with various regulatory
requirements and generally supervises the operations of such institutions. This
supervision and regulation is intended primarily for the protection of
depositors. Certain of the regulatory requirements applicable to the Company and
to Skaneateles are referred to below or elsewhere herein.

                                       15
<PAGE>   18

         FEDERAL BANK HOLDING COMPANY REGULATION. Center Banks is required to
file with the Federal Reserve Board annual reports and such additional
information as the Federal Reserve Board may require pursuant to the Bank
Holding Company Act of 1956, as amended (the "BHCA"). The Federal Reserve Board
may conduct examinations of Center Banks and its subsidiary. Under the BHCA and
regulations adopted by the Federal Reserve Board, a bank holding company and its
subsidiaries are prohibited from requiring certain tie-in arrangements in
connection with any extension of credit, lease, or sale of property or
furnishing of services.

         Under the BHCA, Federal Reserve Board approval is required for any
action which causes a bank or other company to become a bank holding company and
for any action which causes a bank to become a subsidiary of a bank holding
company. A bank holding company must obtain Federal Reserve Board approval
before it acquires direct or indirect ownership or control of any voting shares
of any bank if, after such acquisition, it will own or control directly or
indirectly more than 5% of the voting stock of such bank unless it already owns
a majority of the voting stock of such bank. Federal Reserve Board approval must
also be obtained before a bank holding company acquires all or substantially all
of the assets of a bank or merges or consolidates with another bank holding
company. Any acquisition, directly or indirectly, by a bank holding company or
its subsidiaries of more than 5% of the voting shares of, or interest in, or all
or substantially all of the assets of any bank located outside of the state in
which the operations of the bank holding company's banking subsidiaries are
principally conducted may not be approved by the Federal Reserve Board unless
the laws of the state in which the bank to be acquired is located expressly
authorize such an acquisition.

         A bank holding company is prohibited, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company which is not a bank or bank
holding company, and from engaging directly or indirectly in activities other
than those of banking, managing or controlling banks, or furnishing services to
its subsidiaries.

         The Federal Reserve Board has adopted capital adequacy guidelines
pursuant to which it assesses the adequacy of capital in examining and
supervising a bank holding company and in analyzing its applications to the
Federal Reserve Board. In addition, the Federal Reserve Board has the power to
issue capital directives (having the force of cease and desist orders) to
mandate the maintenance of adequate capital levels. The Company is in compliance
with Federal Reserve Board capital requirements.

         FEDERAL DEPOSIT INSURANCE CORPORATION. Skaneateles' deposit accounts
are insured by the FDIC up to a maximum of $100,000 per insured depositor. As an
insured bank, Skaneateles is subject to certain FDIC requirements designed to
maintain the safety and soundness of individual banks and the banking system.
The FDIC periodically conducts examinations of insured institutions and, based
upon evaluations, may revalue assets of an insured institution and require
establishment of specific reserves in amounts equal to the difference between
such revaluation and the book value of the assets. In addition, the FDIC has
adopted regulations and a statement of policy which define and establish certain
minimum requirements for capital adequacy. Under the regulations, insured state
nonmember banks such as Skaneateles are required to maintain minimum risk-based
capital and leverage capital. The Bank is in compliance with FDIC capital
requirements.

                                       16
<PAGE>   19


       The annual premium charge for FDIC insurance is based on the level of
capital maintained by the institution and results of periodic regulatory
examinations. The following table sets forth the annual premium charge for the
periods indicated for FDIC insurance per $100 of the Bank's total deposits.
<TABLE>
<CAPTION>

                 Date                       Premium per $100 of total deposits
-------------------------------------------------------------------------------
<S>                                                          <C>
January 1, 1996 to present (*)                               $.00
June 1, 1995 to December 31, 1995                            $.04
January 1, 1995 to May 30, 1995                              $.23
January 1, 1993 to December 31, 1994                         $.26

<FN>
        (*) The Bank's FDIC insurance premium was reduced to the legal minimum
          of $2,000 per year effective January 1, 1996. Effective January 1,
          1997 the FDIC eliminated the $2,000 per year legal minimum. Beginning
          January 1, 1997, the Bank is paying a fee for Financing Corporation
          (FICO) debt service at an annual rate of $.013 per $100 of insurable
          deposits. This fee is not an FDIC insurance premium.
</TABLE>

         FEDERAL RESERVE SYSTEM. Skaneateles is subject to regulation of certain
matters by the Federal Reserve Board. The Federal Reserve Board requires
depository institutions, including savings banks the deposits of which are
insured by the FDIC, to maintain reserves in accordance with applicable
regulations for the purpose of facilitating the implementation of monetary
policy by the Federal Reserve System. Generally, the Federal Reserve Board
establishes reserve requirements for net transaction accounts. It also has
authority, subject to the satisfaction of certain conditions, to impose
emergency reserve and supplemental reserve requirements. As of December 31,
1996, net transaction accounts (transaction accounts, primarily NOW and regular
checking accounts, less certain permitted deductions) in the amount of $0 to
$49.3 million are subject to a reserve requirement of 3% of said amount. Net
transaction accounts over $49.3 million are subject to a reserve requirement of
$1,479,000 plus 10% of the total in excess of $49.3 million. However, $4.4
million of otherwise reservable liabilities are subject to an exemption from
reserve requirements. The amount of this exemption is subject to adjustment by
the Federal Reserve Board each calendar year. The Bank was in compliance with
its reserve requirements throughout 1996.

         FEDERAL HOME LOAN BANK SYSTEM. In 1986, Skaneateles became a member of
the Federal Home Loan Bank System, which consists of twelve regional Federal
Home Loan Banks each subject to Federal Housing Finance Board supervision and
regulation. The Federal Home Loan Banks provide a central credit facility
primarily for member institutions. Skaneateles, as a member of the FHLB of New
York, is required to acquire and hold shares of capital stock in that Bank in an
amount at least equal to 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts, and similar obligations at
the beginning of each year, or 5% of its advances (borrowings) from the FHLB,
whichever is greater. Skaneateles is in compliance with this requirement.

New York Law

         The Bank derives its lending and investment authority primarily from
the applicable provisions of the New York Banking Law and the General
Regulations of the Banking Board of the State of New York. Under these laws and
regulations, savings banks may invest in real estate mortgage, commercial and
consumer loans, home improvement and educational loans, certain types of debt
securities, including certain corporate debt securities and the federal and
state government and agency obligations, certain types of corporate equity
securities and certain other assets.

         Savings banks have the power to make commercial, corporate and business
loans, to make secured and unsecured installment loans for personal, family and
household purposes, and to exercise trust powers upon approval of the Banking
Board. These lending powers are not subject to percentage of asset limitations,
although there are limits applicable to single borrowers.

                                       17

<PAGE>   20


Item 2.           PROPERTIES

         Skaneateles conducts its business from eight full-service offices and
one administrative office. The following table sets forth certain information
relating to each of Skaneateles' offices as of December 31, 1996.
<TABLE>
<CAPTION>

                                                                  Lease Expiration          Net Book
                                              Owned                Date Including           Value at
                                            or Leased                 Options           December 31, 1996
                                     -------------------------------------------------------------------------------
Branch Office Location                                                                   (In Thousands)
------------------------------
<S>                                           <C>                       <C>                     <C>
33 E. Genesee Street
Skaneateles, New York   13152                 Owned                     n/a                     $478

431 E. Fayette Street
Syracuse, New York   13202                    Owned                     n/a                    3,064

5791 East Seymour Street
Cicero, New York 13039                        Owned                     n/a                      597

100 Kasson Road
Camillus, New York   13031                    Leased                    2000                      50

Teall Ave. & Grant Blvd.
Syracuse, New York   13206                    Leased                    2014                     196

3803 Brewerton Road
North Syracuse, New York 13212                Leased                    2009                     195

7785 Frontage Road
Cicero, New York 13039                        Leased                    2010                     190

137 East State Street
Oswego, New York 13126                        Leased                    2010                     207

Administrative Office
------------------------------

27 Fennell Street
Skaneateles, New York   13152                 Leased                    2005                     253

</TABLE>


Item 3.           Legal Proceedings

         The Company is not involved in any material legal proceedings other
than routine legal proceedings undertaken in the ordinary course of business. In
the opinion of management, after consultation with counsel, the aggregate amount
involved in such proceedings is not material to the financial condition or
results of operations of the Company.


                                       18

<PAGE>   21


Item 4.  Submission Of Matters To A Vote Of Security Holders

         During the fourth quarter of 1996, there were no matters submitted to a
vote of the shareholders of Center Banks.


PART II.

Item 5.  Market For The Registrant's Common Stock And Related Stockholder
         Matters

         The information contained on the inside back cover of the Company's
Annual Report to Shareholders for the year ended December 31, 1996 (the "Annual
Report") and page 1 of the definitive Proxy Statement are incorporated herein by
reference.


Item 6.   Selected Financial Data
<TABLE>
<CAPTION>
                                                       1996           1995          1994         1993         1992
                                                     ---------       -------       -------       ------       ------

<S>                                                   <C>             <C>           <C>            <C>          <C>
Cash dividends declared per share                     $ 0.28          0.19          0.12             0            0
</TABLE>


         Other required  information  contained in the table on page 8 of the
Annual Report is incorporated herein by reference.


Item 7.  Management's Discussion And Analysis Of Financial Condition And Results
         Of Operations

         The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operation" in the
Annual Report is incorporated herein by reference.


Item 8.  Financial Statements And Supplementary Data

         The consolidated financial statements contained in the 1996 Annual
Report are incorporated herein by reference.


Item 9.  Changes In And Disagreements With Accountants On Accounting And
         Financial Disclosure

         Not applicable.



                                       19
<PAGE>   22


PART III.

Item 10. Directors And Executive Officers Of The Registrant

         Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the reporting of transactions by insiders in the Company's common stock
to the Securities and Exchange Commission (the "Commission") within required
time frames. All filings required under Section 16 of the Exchange Act during
1996 were made in a timely manner, except for a Form 4 for Ann G. Higbee,
Director, which was filed late due to an oversight. In making these statements,
the Company has relied on written representations of its incumbent executive
officers and directors.

         Additional information regarding directors of the Company is
incorporated by reference from pages 2 to 5 of the definitive Proxy Statement.


Item 11. Executive Compensation

         The information  required  herein is  incorporated by reference from
pages 6 to 8 of the definitive Proxy Statement.


Item 12. Security Ownership Of Certain Beneficial Owners And Management

         The information  required  herein is  incorporated by reference from
pages 2 to 4 of the definitive Proxy Statement.


Item 13. Certain Relationships and Related Transactions

         The information required herein is incorporated by reference from page
8 of the definitive Proxy Statement.


PART IV.
--------
Item 14.  Exhibits, Financial Statement Schedules And Reports On Form 8-K

(a)(1) The following financial statements are incorporated herein by reference:

Independent Auditors' Report

Consolidated Balance Sheets as of December 31, 1996 and 1995

Consolidated Statements of Income for the Years Ended December 31, 1996, 1995
and 1994.

Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1996, 1995 and 1994.

Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994.

Notes to Consolidated Financial Statements

(a)(2) There are no financial statement schedules which are required to be filed
       as a part of this form since they are not applicable.

(a)(3) See (c) below for all exhibits filed herewith.

                                       20
<PAGE>   23

(b) During the three-month period ended December 31, 1996, the Registrant filed
    a Form 8-K announcing the establishment of a Dividend Reinvestment Plan. No
    financial statements were filed with this report.

(c) Exhibits. The following exhibits are either filed as part of this annual
    report on Form 10-K, or are incorporated herein by reference:

NO.      EXHIBIT

3.1       Certificate of Incorporation of Center Banks Incorporated(1)

3.2       Certificate of Amendment of Certificate of Incorporation of Center
          Banks Incorporated(1)

3.3       Bylaws of the Company

10.1      Employment Agreement dated as of January 1, 1996 between Skaneateles
          Savings Bank and John P. Driscoll(2)

10.2      Employment Agreement dated as of March 19, 1996 between Skaneateles
          Savings Bank and J. David Hammond(2)

10.3      Employment Agreement dated as of March 19, 1996 between Skaneateles
          Savings Bank and Karen E. Lockwood(2)

10.4      Employment Agreement dated as of March 19, 1996 between Skaneateles
          Savings Bank and John A. Mason(2)

10.5      Employment Agreement dated as of March 19, 1996 between Skaneateles
          Savings Bank and J. Daniel Mohr(2)

10.6      Employment Agreement dated as of March 11, 1996 between Skaneateles
          Savings Bank and William J. Welch(2)

13        Annual Report to Shareholders for the Year Ended December  31, 1996

21        List of Registrant's Subsidiaries

23        Consent of KPMG Peat Marwick LLP

27        Financial Data Schedule

---------
(1)  Exhibit is incorporated herein by reference to the identically numbered
     exhibit to the 1990 Form 10-K filed by the Company with the Securities and
     Exchange Commission on April 1, 1991.

(2)  Exhibit is incorporated herein by reference to the identically numbered
     exhibit to the 1995 Form 10-K filed by the Company with the Securities and
     Exchange Commission on April 1, 1996.


                                       21

<PAGE>   24


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

CENTER BANKS INCORPORATED
-------------------------
Registrant


By:      /s/ John P. Driscoll                          Date:  March 25, 1997
         -----------------------------------                  --------------
         John P. Driscoll
         Chairman, President and Chief
         Executive Officer

By:      /s/ J. Daniel Mohr                            Date: March 25, 1997
         -----------------------------------                 --------------
         J. Daniel Mohr
         Chief Financial Officer
         and Treasurer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

        /S/ Clifford C. Abrams                         Date: March 25, 1997
        ----------------------------                         --------------
         Clifford C. Abrams
         Director

        ----------------------------                   Date:
         Israel Berkman                                     ----------------
         Director

        ----------------------------                   Date:
         David E. Blackwell                                 -----------------
         Director

        /s/ Walter D. Copeland                       Date: March 25, 1997
        ----------------------------                       --------------
         Walter D. Copeland
         Director

        /s/ Carl W. Gerst                            Date: March 25, 1997
        ----------------------------                      ---------------
         Carl W. Gerst
         Director

        /s/ John Bernard Henry                       Date: March 25, 1997
        ----------------------------                      ---------------
         John Bernard Henry
         Director

        ----------------------------                 Date:
         Ann G. Higbee                                    ----------------
         Director

        ----------------------------                 Date:
         Bruce H. Leslie                                  -----------------
         Director

                                       22
<PAGE>   25



        /s/ Howard J. Miller                         Date: March 25, 1997
        ------------------------------------               ---------------
        Howard J. Miller
        Director

        /s/ Raymond C. Traver, Jr., M.D.             Date: March 25, 1997
        --------------------------------                  ---------------
        Raymond C. Traver, Jr., M.D.
        Director

        /s/ Anne E. O'connor                         Date: March 25, 1997
        ----------------------------                      ---------------
        Anne E. O' Connor
        Director

                                       23