<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, 1997
                                             -----------------
     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                         Commission file number 0-18513
                                                -------
                            SKANEATELES BANCORP, INC.
                            -------------------------
             (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 18, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $25,274,000.

As of March 18, 1998, 1,438,960 shares of registrant's common stock were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

             Document                      Part of 10-K into which incorporated
             --------                      ------------------------------------

Portions of the Annual Report to
Shareholders for the year ended
December 31, 1997                                 Parts II and IV

Portions of the definitive Proxy
Statement  for Annual Meeting of
Shareholders to be held April 21, 1998            Part III



<PAGE>   2

<TABLE>

                                TABLE OF CONTENTS
                          FORM 10-K ANNUAL REPORT 1997
                            SKANEATELES BANCORP, INC.
<CAPTION>
                                                                                                    Page
                                                                                                    ----
<S>          <C>                                                                                      <C>
PART I.
        Item 1. Business ...........................................................................  1
        Item 2. Properties ......................................................................... 18
        Item 3. Legal Proceedings .................................................................. 19
        Item 4. Submission Of Matters To A Vote Of Security Holders ................................ 19

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 7A  Quantitative and Qualitative Disclosures About Market Risk......................... 19
        Item 8.  Financial Statements And Supplementary Data ....................................... 19
        Item 9. Changes In And Disagreements With Accountants On Accounting
                       And Financial Disclosure .................................................... 20

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 .................... 21
</TABLE>


<PAGE>   3


PART I.

Item 1. BUSINESS

                                     GENERAL

        Skaneateles Bancorp, Inc. (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 nine 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 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 of the Bank and the Company.

       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. Since
1994, the Bank acquired or opened six branch offices in and around Syracuse.
Three of these branches are in-store facilities in newly constructed or
renovated supermarkets 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.

       The Company was incorporated as Center Banks Incorporated. On April 15,
1997, stockholders approved the Company's proposal to change its name from to
Skaneateles Bancorp, Inc. The name change was effective April 16, at which time
the Company's stock began trading under the symbol "SKAN" on the NASDAQ National
Market System.

        In October, 1997, the Company declared a three-for-two stock split in
the form of a 50% stock dividend, payable on November 28, 1997 to shareholders
of record on November 12. The total number of shares outstanding increased by
approximately 478,000 as a result of the split. All share and per-share
information has been retroactively adjusted to reflect the split.

       Certain statements in this discussion are forward-looking. These may be
identified by the use of forward-looking words or phrases, such as "believe,"
"expect," "anticipate," "should," "planned," "estimated," and "potential." These
forward-looking statements are based on the Company's current expectations. The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
such statements. To comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause actual results and experience to differ
materially from the anticipated results or other expectations expressed in such
forward-looking statements. Among the risks and uncertainties that may affect
the operations, performance and results of the business of the Company and the
Bank are prevailing market rates of interest for both loans and deposits, loan
prepayments by, and the financial health of, the Bank's borrowers, general
economic conditions in the Bank's designated lending area, and competition from
banks and other financial institutions with greater resources operating in the
Bank's marketplace.


                               LENDING ACTIVITIES

                                       1
<PAGE>   4

        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
residential loans are originated directly by Skaneateles. The Bank has also
purchased loans for its portfolio from time to time, although no such purchases
were made in 1997 or 1996.

        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 were originated for portfolio prior to January, 1998.
Beginning in January, 1998, the Bank began selling all conforming fixed rate
mortgages at the time of origination due to the relatively low interest rate
environment and the resulting increased interest rate risk associated with long
term fixed rate assets. The Bank generally retains servicing on sold loans.

        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 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



                                       2
<PAGE>   5

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.

       The Bank also originates consumer loans through an indirect lending
program through which it receives loan applications from Bank-approved
automobile, boat and recreational vehicle dealerships on behalf of their
customers to finance their purchases. 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.

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

                                       3
<PAGE>   6
<TABLE>
<CAPTION>
                                                                      At December 31,
                               ------------------  ----------------  ------------------  -----------------   -----------------
                                      1997               1996              1995                1994                1993
                               ------------------  ----------------  ------------------  -----------------   -----------------
                                Amount      %      Amount     %        Amount      %      Amount      %       Amount     %
                               -----------------  -----------------  ------------------  -----------------   -----------------

                                                             (Dollars in Thousands)
<S>                             <C>       <C>      <C>       <C>      <C>        <C>      <C>       <C>      <C>       <C>
Loans secured by first mortgages
  on real estate:
   Residential ...............  $119,350   55.63%  129,651    62.74%  116,320     67.80%  110,404    66.10%   87,623    61.16%
   Commercial ................    33,962   15.83%   31,728    15.35%   27,357     15.94%   28,175    16.87%   25,854    18.05%
Other loans:
   Commercial ................    22,995   10.72%   18,861     9.13%   10,631      6.20%   13,274     7.95%   15,574    10.87%
   Home equity and improvement    20,624    9.61%   17,599   14,578      8.52%     8.50%   13,219     7.92%   12,454     8.69%
   Guaranteed student ........     1,059    0.49%      882      858      0.43%     0.50%      789     0.47%      825     0.58%
   Other consumer ............    16,565    7.72%    7,924    1,821      3.83%     1.06%    1,148     0.69%      928     0.65%
------------------------------------------------------------------------------------------------------------------------------
          Total ..............  $214,555  100.00%  206,645   100.00%  171,565    100.00%  167,009   100.00%  143,258   100.00%
==============================================================================================================================
</TABLE>

       Total loans were $214.6 million at December 31, 1997, an increase of $8
million, or 3.9% from December 31, 1996. Loan originations for 1997 totaled $50
million, a decrease of 7.7% from 1996's originations of $54.2 million.
Substantial increases in both consumer and commercial loan originations were
offset by a decrease in residential lending.

       Residential mortgage originations were $9.7 million in 1997, a decrease
of 68.3% from 1996's originations. Residential mortgages represented 19.3% of
1997's total loan originations, down from 56.1% in 1996. As a result of
increasing competition in mortgage lending, which squeezed margins and
profitability, the Bank shifted its lending focus late in 1996, placing more
emphasis on consumer and commercial loans. To that end, the Bank effectively
suspended the use of mortgage brokers, who had been used to supplement the
Bank's direct originations, especially outside of the Bank's designated lending
area. Accordingly, as expected, residential mortgage originations dropped
significantly in 1997.

       Approximately $7.9 million, or 81.4% of the residential loans originated
in 1997 were for fixed rates of interest, compared with $15.2 million and 50%,
respectively, in 1996. Fixed rate mortgages with terms of 15 years or less were
originated for portfolio prior to January, 1998. Beginning in January, 1998, the
Bank began selling all conforming fixed rate mortgages at the time of
origination due to the relatively low interest rate environment and the
resulting increased interest rate risk associated with long term fixed rate
assets.

       Consumer loan originations were $20.8 million, or 41.6% of total loan
originations in 1997, compared with $10.5 million, or 19.4% in 1996. The Bank
has seen a substantial increase in deposit customers through its Checking
Account Marketing Program ("CHAMP"). Cross-sales of consumer loan products to
these new customers was a significant factor behind the loan growth in 1997. The
CHAMP program is a long-term marketing program and cross-selling to new
customers obtained through the program is expected to be an important component
of consumer loan growth in future years. The Bank's indirect lending program was
also an important factor, accounting for approximately 33.5% of the Bank's total
consumer loan originations in 1997.

       Commercial loan and mortgage originations were $19.6 million, or 39.1% of
total loan originations in 1997, up from $13.3 million, or 24.5% in 1996. The
increase resulted largely from the Bank's dealer floor plan program begun in
January, 1997. Through the program, the Bank provides lines of credit to local
boat, automobile, and recreational vehicle dealers to finance inventory
purchases. At December 31, 1997, total outstanding balances on dealer floor
plans was $4.7 million.

        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 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.



                                       4
<PAGE>   7

        The following table sets forth the contractual maturity of the
commercial loan portfolio and real estate construction loans at December 31,
1997.

<TABLE>
<CAPTION>
                                                       Within        One to         After
                                                      one year     five years     five years      Total

---------------------------------------------------------------------------------------------------------
                                                                          In Thousands)
<S>                                                     <C>           <C>            <C>          <C>
Commercial loans - adjustable rate                      $7,721         6,783         2,672        17,176
Commercial loans - fixed rate                              284         4,117         1,418         5,819
Real estate construction loans - adjustable rate            56             0             0            56
---------------------------------------------------------------------------------------------------------
     Total                                              $8,061        10,900         4,090        23,051
=========================================================================================================
</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 1.10 at December 31, 1997. This indicates
a slightly asset-sensitive position.




                                        5
<PAGE>   8

        The following table sets forth, as of December 31, 1997, 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 5 Years   to 10 Years   10 Years      Total
------------------------------------------------------------------------------------------------------------
                                                                 (Dollars in Thousands)
<S>                                <C>           <C>          <C>           <C>          <C>         <C>
Interest-earning assets:
  Federal funds sold               $ 6,700            0            0             0            0        6,700
  Securities                         4,489        4,183        4,027           677        2,705       16,081
  Federal Home Loan Bank stock       1,561            0            0             0            0        1,561
  Mortgage loans                    20,085       57,457       49,519        20,956        5,295      153,312
  Consumer loans                    11,748        5,542       19,715         1,243            0       38,248
  Commercial loans                  16,996        1,357        4,642             0            0       22,995
------------------------------------------------------------------------------------------------------------
Total                               61,579       68,539       77,903        22,875        8,001      238,897
------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
  Deposits:
     Savings and club accounts(1)    4,245       12,735       16,976         8,495            0       42,451
     Time certificates              21,376       41,145       40,754         1,797            0      105,072
     Money market accounts          24,234            0            0             0            0       24,234
     Now and escrow accounts(1)      1,290        4,220       16,837         3,678            0       26,025
  Borrowings                         2,204        7,005        7,015           936          897       18,057
------------------------------------------------------------------------------------------------------------
Total                               53,349       65,105       81,582        14,906          897      215,839
------------------------------------------------------------------------------------------------------------
Gap                                $ 8,230        3,434       (3,679)        7,969        7,104       23,058
------------------------------------------------------------------------------------------------------------
Cumulative gap                     $ 8,230       11,664        7,985        15,954       23,058
------------------------------------------------------------------------------------------------------------
Cumulative gap as a
     percentage of
     interest-earning assets                       3.44%        4.88%         3.34%        6.68%        9.65%
============================================================================================================
</TABLE>

       (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.





                                       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>
                                                                     1997                                    1996
                                                      ----------------------------------     -----------------------------------
                                                              Increase (Decrease)                     Increase (Decrease)
                                                       Volume         Rate          Net        Volume        Rate         Net
                                                      --------------------------------------------------------------------------
                                                                       (In Thousands)
<S>                                                   <C>             <C>         <C>          <C>           <C>         <C>
Interest income on interest-earning assets:
     Mortgage loans                                   $   374          151          525          860           44          904
     Other loans                                        1,548          (22)       1,526          793         (263)         530
     Securities                                          (235)         (28)        (263)        (151)         (31)        (182)
     Federal funds sold                                    (4)          19           15           55          (16)          39
-------------------------------------------------------------------------------------------------------------------------------
  Total                                                 1,683          120        1,803        1,557         (266)       1,291
===============================================================================================================================

Interest expense on interest-bearing liabilities:
Deposits:
     Savings and club accounts                        $   125            4          129          100            3          103
     Time certificates                                     24         (158)        (134)         369          (59)         310
     Money market accounts                                 21           70           91          (35)           0          (35)
     Now and escrow accounts                              103          (15)          88           75          (12)          63
-------------------------------------------------------------------------------------------------------------------------------
  Total deposits                                          273          (99)         174          509          (68)         441
Borrowings                                                152           (2)         150           94          (32)          62
-------------------------------------------------------------------------------------------------------------------------------
  Total                                                   425         (101)         324          603         (100)         503
===============================================================================================================================
Net interest income                                   $ 1,258          221        1,479          954         (166)         788
===============================================================================================================================
</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,
                                                           --------------------------------------------------------
                                                             1997        1996        1995        1994        1993
                                                           --------    --------    --------    --------    --------
                                                                                (In Thousands)
<S>                                                          <C>          <C>           <C>       <C>         <C>
Nonaccruing loans
     Residential real estate mortgages                       $1,091       1,359         271         317         291
     Commercial (1)                                           2,573       1,626       1,757       2,894       2,481
     Consumer                                                   253         186         110          40          10
-------------------------------------------------------------------------------------------------------------------
Total                                                        $3,917       3,171       2,138       3,251       2,782
===================================================================================================================

Other loans past due 90 days or more and still accruing:
     Consumer (2)                                            $    0          29           1           0          12
     Commercial (1)                                               0         370           0         447           0
     Lease loans                                                  0           0           0           0           0
-------------------------------------------------------------------------------------------------------------------
Total                                                        $    0
===================================================================================================================

Restructured loans, not included above                            0           0       1,125         932       1,006
===================================================================================================================

Real estate owned                                               951         717         397         984       1,807
===================================================================================================================

Total assets containing specific risk                        $4,868       4,287       3,661       5,614       5,607
===================================================================================================================

Ratio of total loans past due
90 days or more to gross loans                                 1.83%       1.73%       1.25%       2.05%       1.95%
===================================================================================================================

Ratio of assets containing specific
risk elements to total assets                                  1.90%       1.77%       1.74%       2.78%       3.21%
===================================================================================================================

(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,
                                              ----------------------------------------------------------------------
                                                 1997           1996          1995           1994           1993
                                              -----------    -----------   -----------    -----------    -----------
                                                                         (In Thousands)
<S>                                            <C>                 <C>           <C>            <C>            <C>
Income that would have been accrued
at original contract rates                     $    274            283           155            172            104
</TABLE>

       Nonperforming assets (nonaccrual loans and real estate owned) totaled
$4.9 million, or 1.9% of total assets at December 31, 1997, compared with $3.9
million, or 1.6% of total assets at December 31, 1996. Included in nonperforming
assets at December 31, 1997 were nonaccrual loans of $3.9 million, or 1.8% of
gross loans, compared with $3.2 million, or 1.5% of gross loans at December 31,
1996.

        Potential problem loans at December 31, 1997 amounted to $779,000.
"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



                                        8
<PAGE>   11

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,
respectively, 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 function to audit for adherence to
established Bank controls and to review the quality and anticipated
collectibility of the portfolio. Loan review reports are presented 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
$2,079,000 and $1,929,000 at December 31, 1997 and 1996, respectively. Included
in these amounts are $1,911,000 and $832,000 of impaired loans for which the
related allowance for loan losses is $219,000 and $216,000, respectively. In
addition, included in the total impaired loans at December 31, 1997 and 1996 are
$168,000 and $1,097,000 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 1997, 1996 and 1995 was
approximately $1,480,000, $2,923,000, and $3,859,000, respectively. The amount
of interest income recognized on impaired loans in 1997, 1996 and 1995 was
approximately $84,000, $166,000, and $281,000, respectively. The Bank is not
committed to lend additional funds to these borrowers.

        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, 1997
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.


                                       9
<PAGE>   12
<TABLE>
<CAPTION>

                                                                            December 31,
                                                  ---------------------------------------------------------------
                                                    1997          1996          1995           1994          1993
                                                  --------      --------      --------      --------      --------
                                                                      (In Thousands)
<S>                                                <C>            <C>            <C>           <C>           <C>
Beginning Balance                                  $ 2,114         2,667         3,040         2,938         2,847

Provision                                              500           175           235           360           600

Charge-offs
-----------
   Residential mortgages                               (92)          (74)            0           (18)            0
   Commercial mortgages                               (237)         (168)         (569)            0          (237)
   Business                                           (137)         (999)         (153)         (331)         (428)
   Credit Card                                          (1)            0             0             0             0
   Other consumer                                     (106)          (60)          (10)          (17)          (64)
-------------------------------------------------------------------------------------------------------------------
                                                      (573)       (1,301)         (732)         (366)         (729)
-------------------------------------------------------------------------------------------------------------------
Recoveries
----------
   Residential mortgages                                 2             0             0             0             0
   Commercial mortgages                                  5             0             0             0             4
   Business                                            496           118           118            96           203
   Other consumer                                       16             8             6            12            13
-------------------------------------------------------------------------------------------------------------------
                                                       519           126           124           108           220
-------------------------------------------------------------------------------------------------------------------
Net Charge-offs                                        (54)       (1,175)         (608)         (258)         (509)
-------------------------------------------------------------------------------------------------------------------

Allowance of acquired bank                               0           447             0             0             0

-------------------------------------------------------------------------------------------------------------------
Ending Balance                                     $ 2,560         2,114         2,667         3,040         2,938
===================================================================================================================
Ratio of net charge-offs during the year
  to average loans outstanding during the year        0.03%         0.62%         0.36%         0.17%         0.41%
===================================================================================================================
</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,
                    ----------------------------------------------------------
                     1997         1996         1995         1994         1993
                    ------       ------       ------       ------       ------
                                          (In Thousands)
<S>                 <C>           <C>          <C>          <C>          <C>
Consumer            $  428          178           80           59           34
Commercial (1)       2,039        1,822        2,517        2,926        2,850
Residential             93          114           70           55           54
--------------------------------------------------------------------------------
                    $2,560        2,114        2,667        3,040        2,938
================================================================================
 (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."

        Skaneateles' investment strategy is primarily to hold securities for the
purpose of providing liquidity and generating income. The Bank invests primarily
in 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, 1997, 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.

       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,
                                                    ---------------------------------------------
                                                         1997            1996           1995
                                                    -------------   -------------   -------------
<S>                                                 <C>              <C>             <C>
Securities Available for Sale:
U.S. government and Federal agency obligations            $ 6,026            5,027            6,106
Mortgage-backed securities:
  FNMA                                                        752                0                0
  FHLMC                                                         0                0            2,547
Other asset-backed securities                               1,638              982                0
----------------------------------------------------------------------------------------------------
                                                          $ 8,416            6,009            8,653
====================================================================================================

Securities Held to Maturity:
U.S. government and Federal agency obligations            $ 3,007            4,992            6,026
Mortgage-backed securities:
  FNMA                                                        130              145              170
  FHLMC                                                     2,998            3,674            4,493
Obligations of states and political subdivisions            1,470            1,782            1,714
Corporate bonds, notes and debentures                         100              300              401
----------------------------------------------------------------------------------------------------
                                                          $ 7,705           10,893           12,804
====================================================================================================
</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.

        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.



                                       12
<PAGE>   15

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

<TABLE>
<CAPTION>

                                                                      December 31,
                                   -------------------------------------------------------------------------------------------
                                            1997                            1996                              1995
                                   --------------------------  -------------------------------  ------------------------------
                                                 Percent                         Percent                              Percent
                                     Amount      of total           Amount       of total           Amount            of total
                                                 deposits                        deposits                             deposits
                                   -------------------------------------------------------------------------------------------
                                                                  (Dollars in Thousands)
<S>                                <C>             <C>              <C>           <C>               <C>                <C>
Savings and club accounts          $ 42,451        19.47%            38,690        18.87%            33,016             18.43%
Time certificates                   105,072        48.19%           107,429        52.39%            99,474             55.54%
Money market accounts                24,234        11.12%            21,991        10.73%            21,448             11.98%
NOW accounts                         24,456        11.22%            20,314         9.91%            13,244              7.39%
Demand accounts                      20,236         9.28%            14,861         7.25%             9,927              5.54%
Escrow accounts                       1,569         0.72%             1,744         0.85%             2,010              1.12%
------------------------------------------------------------------------------------------------------------------------------
          Total                    $218,018       100.00%           205,029       100.00%           179,119            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, 1997, 1996 and
1995, the aggregate amounts of certificates of deposit in denominations of
$100,000 or more were approximately $13,427,000, $13,065,000 and $9,074,000,
respectively.

        The following table presents the amounts of certificates of deposit in
denominations of $100,000 or more at December 31, 1997 which mature during the
periods indicated.

      Maturity                                       Amount
      --------                                       ------
3 months or less                                    $ 4,615

3 to 6 months                                         2,301

6 to 12 months                                        2,040

Over 12 months                                        4,471
-----------------------------------------------------------
Total                                                13,427
-----------------------------------------------------------

        Deposit growth was the primary source of funds for the Bank in 1997.
Total deposits, including escrow, were $218 million at December 31, 1997, an
increase of $13 million or 6.3% from the end of 1996. The Bank experienced an
increase of $6.1 million in December 1997 alone, at least half of which were
short-term increases in personal and commercial demand accounts which were
withdrawn in January 1998.

        The Bank's strategy for deposit growth is focused 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. The Bank offers seven
checking account products, each targeted to specific demographic groups and
supported by an active direct mail marketing campaign (CHAMP). Total checking
account balances increased $9.5 million, or 27.1% in 1997, on top of a $7.8
million or 33.4% increase in 1996 (excluding accounts acquired from Cicero
Bank). The Bank opened more than 6,400 new checking accounts in 1997 as a result
of the CHAMP program.

        Savings account balances increased $3.8 million, or 9.7% in 1997,
compared with an increase of $2.9 million or 8.9% in 1996 (excluding accounts
acquired from Cicero Bank). The gains resulted primarily from cross-sales to new
checking account customers.

        The CHAMP 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

                                       13
<PAGE>   16

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.

        Time certificates of deposit totaled $105.1 million at December 31,
1997, compared with $107.4 million at the end of 1996. The Bank generally kept
its rates on time certificates at or slightly above the average rates in its
market area during 1997. The Bank expects to continue this practice in 1998.
Premium rates may be offered from time to time for specific branch promotions or
in the event loan demand so justifies.

        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,
                                              1997                     1996                    1995
                                          ------------------------ -----------------------  -----------------------
                                            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                 $   41,004      2.85%     $  36,576     2.84%        33,133      2.83%

  Time certificates                            104,447      5.53%       104,023     5.68%        97,596      5.74%

  Money market accounts                         22,551      3.64%        21,919     3.33%        23,000      3.33%
</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,
                                                                 ---------------------------------------------------
                                                                     1997              1996               1995
                                                                 -------------     --------------     --------------
                                                                                   (In Thousands)
<S>                                                              <C>                     <C>                <C>
Securities sold under repurchase agreements                      $      2,204              2,516              1,651
Overnight advances from the FHLB of New York                                0                  0                  0
Advances from the FHLB of New York                                     14,486             14,000             11,000
Municipal securities sold with put options                              1,367              1,665              1,735
--------------------------------------------------------------------------------------------------------------------
                                                                       18,057             18,181             14,386
====================================================================================================================
Weighted average interest cost of
  borrowings during the year                                             6.47%              6.48%              6.70%
====================================================================================================================
</TABLE>




                                       14
<PAGE>   17


                           SELECTED PERFORMANCE RATIOS

        Selected performance ratios of the Company are as follows:

<TABLE>
<CAPTION>

                                                                                  Year ended December 31,
                                                                         ------------------------------------------
                                                                            1997           1996           1995
                                                                         ------------   ------------   ------------
<S>                                                                      <C>            <C>            <C>
Return on Assets
     Net Income / Average Total Assets                                         0.68%          0.65%          0.51%

Return on Equity
     Net Income / Average Stockholders' Equity                                 9.66%          9.43%          7.24%

Dividend Payout Ratio
     Cash Dividends Declared / Net Income                                     23.28%         17.78%         16.67%

Equity to Asset Ratio
     Average Stockholders' Equity /Average Total Assets                        7.01%          6.91%          7.03%
</TABLE>



                                    PERSONNEL

        As of December 31, 1997 Skaneateles had 119 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, 1997.

<TABLE>
<CAPTION>

       Name                   Age      Title
       ----                   ---      -----
<S>                            <C>     <C>
       John P. Driscoll        57      Chairman, President and Chief Executive Officer
       J. David Hammond        53      Executive Vice President & Secretary
       J. Daniel Mohr          32      Treasurer
       William J. Welch        48      Asst. Secretary & Asst. Treasurer
</TABLE>


                                   REGULATION

General

        As a bank holding company, Skaneateles Bancorp, Inc. 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. Skaneateles Bancorp, Inc. 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 Skaneateles Bancorp, Inc. 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,
1997, net transaction accounts (transaction accounts, primarily NOW and regular
checking accounts, less certain permitted deductions) in the amount of $0 to
$47.8 million are subject to a reserve requirement of 3% of said amount. Net
transaction accounts over $47.8 million are subject to a reserve requirement of
$1,434,000 plus 10% of the total in excess of $47.8 million. However, $4.7
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 nine full-service offices and one
administrative office. The following table sets forth certain information
relating to each of Skaneateles' offices as of December 31, 1997.
<TABLE>
<CAPTION>
                                                                  Lease Expiration          Net Book
                                              Owned                Date Including           Value at
                                            or Leased                 Options           December 31, 1997
                                     --------------------------------------------------------------------
Branch Office Location                                                                   (In Thousands)
------------------------------
<S>                                           <C>                      <C>             <C>
33 E. Genesee Street
Skaneateles, New York   13152                 Owned                     n/a                      $441

431 E. Fayette Street
Syracuse, New York   13202                    Owned                     n/a                     2,932

5791 East Seymour Street
Cicero, New York 13039                        Owned                     n/a                       583

100 Kasson Road
Camillus, New York   13031                    Leased                    2000                       37

Teall Ave. & Grant Blvd.
Syracuse, New York   13206                    Leased                    2014                      171

3803 Brewerton Road
North Syracuse, New York 13212                Leased                    2009                      180

7785 Frontage Road
Cicero, New York 13039                        Leased                    2010                      176

137 East State Street
Oswego, New York 13126                        Leased                    2010                      192

5100 West Taft Road
Liverpool, New York  13088                    Leased                    2007                      190



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

27 Fennell Street
Skaneateles, New York                         Leased                    2005                      222
13152

</TABLE>


                                       18
<PAGE>   21

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.


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

        During the fourth quarter of 1997, there were no matters submitted to a
vote of the shareholders of Skaneateles Bancorp, Inc..


PART II.

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

        The information contained on page 40 of the Company's Annual Report to
Shareholders for the year ended December 31, 1997 (the "Annual Report") and page
1 of the definitive Proxy Statement are incorporated herein by reference.

<TABLE>

Item 6. Selected Financial Data
<CAPTION>

                                                       1997           1996          1995         1994         1993
                                                     ---------       -------       -------       ------       ------
<S>                                                   <C>              <C>           <C>          <C>             <C>
Cash dividends declared per share                     $  0.27          0.19          0.13         0.08            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" in the Annual Report is incorporated herein by
reference.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

        The information required by this item is included in the section
captioned "Interest Sensitivity Analysis" in this report.

Item 8. Financial Statements And Supplementary Data

        The consolidated financial statements contained in the 1997 Annual
Report are incorporated herein by reference.



                                       19
<PAGE>   22



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

        Not applicable.


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
1997 were made in a timely manner, except for a Form 4 due for the month of
January 1997 for the following directors: Clifford C. Abrams, Israel Berkman,
David E. Blackwell, Walter D. Copeland, Carl W. Gerst, Jr., Ann G. Higbee,
Howard J. Miller and Raymond C. Traver, Jr. The required forms were 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
5 to 7 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 7
of the definitive Proxy Statement.


                                       20
<PAGE>   23




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, 1997 and 1996

Consolidated Statements of Income for the Years Ended December 31, 1997, 1996
and 1995.

Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1997, 1996 and 1995.

Consolidated Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995.

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.

(b) During the three-month period ended December 31, 1997, the Registrant filed
    a Form 8-K announcing a three-for-two stock split effected through a 50%
    stock dividend paid on November 28, 1997. 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 Skaneateles Bancorp, Inc. (1)

3.2     Certificate of Amendment of Certificate of Incorporation of Skaneateles
        Bancorp, Inc.

3.3     Bylaws of the Company (2)

10.1    Employment Agreement dated as of January 1, 1998 between Skaneateles
        Savings Bank and John P. Driscoll

10.2    Employment Agreement dated as of March 25, 1998 between Skaneateles
        Savings Bank and J. David Hammond

10.3    Employment Agreement dated as of March 25, 1998 between Skaneateles
        Savings Bank and Karen E. Lockwood

10.4    Employment Agreement dated as of March 25, 1998 between Skaneateles
        Savings Bank and J. Daniel Mohr

10.5    Employment Agreement dated as of March 25, 1998 between Skaneateles
        Savings Bank and William J. Welch

10.6    Supplemental Retirement Agreement dated as of January 1, 1998 between
        Skaneateles Savings Bank and John P. Driscoll

10.7    Trust Under Supplemental Retirement Agreement Dated January 1, 1998
        between Skaneateles Savings Bank and John P. Driscoll

10.8    Amendment To Long Term Incentive And Capital Accumulation Plan dated
        October 28, 1997



                                       21
<PAGE>   24

10.9    Amendment to Long Term Incentive And Capital Accumulation Plan dated
        October 28, 1997

10.10   Amendment to 1995 Non-Employee Directors Stock Plan dated October 28,
        1997

10.11   Amendment to 1995 Non-Employee Directors Warrant Plan dated October 28,
        1997

10.12   Amendment to Center Banks Incorporated Employee Stock Purchase Plan
        dated October 28, 1997

10.13   Amendment to Center Banks Incorporated Dividend Reinvestment Plan dated
        October 28, 1997

13      Annual Report to Shareholders for the Year Ended December 31, 1997

21      List of Registrant's Subsidiaries

23      Consent of KPMG Peat Marwick LLP

27      Financial Data Schedule

27.1996 Financial Data Schedule - Restated 1996

27.1995 Financial Data Schedule - Restated 1995

---------

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 1996 Form 10-K filed by the Company with the Securities and
    Exchange Commission on March 31, 1997.


                                       22
<PAGE>   25
                                   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.

SKANEATELES BANCORP, INC.
Registrant


By:     /s/ John P. Driscoll                      Date: March 30, 1998
    ----------------------------------                  --------------
        John P. Driscoll
        Chairman, President and Chief
        Executive Officer

By:     /s/ J. Daniel Mohr                        Date: March 30, 1998
    ----------------------------------                  --------------
        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.

                                                  Date:
    ----------------------------------                  -------------
        Clifford C. Abrams
        Director

        /s/ Israel Berkman                        Date: March 30, 1998
    ----------------------------------                  --------------
        Israel Berkman
        Director

        /s/ David E. Blackwell                    Date: March 30, 1998
    ----------------------------------                  --------------
        David E. Blackwell
        Director

                                                  Date:
    ----------------------------------                  -------------
        Walter D. Copeland
        Director

        /s/ Carl W. Gerst                         Date: March 30, 1998
    ----------------------------------                  --------------
        Carl W. Gerst
        Director

        /s/ John B. Henry                         Date: March 30, 1998
    ----------------------------------                  --------------
        John Bernard Henry
        Director

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



                                       23
<PAGE>   26



        /s/ Howard J. Miller                      Date: March 30, 1998
    ----------------------------------                  --------------
        Howard J. Miller
        Director

        /s/ Raymond C. Traver, Jr., M.D.          Date: March 30, 1998
    ------------------------------------                --------------
        Raymond C. Traver, Jr., M.D.
        Director

        /s/ Anne E. O' Connor                     Date: March 30, 1998
    ----------------------------------                  --------------
        Anne E. O' Connor
        Director


                                       24