<PAGE>
                                  EXHIBIT 13

                                 ANNUAL REPORT

<PAGE>

BSB Bancorp, Inc. 1999 Annual Report

Company Profile

BSB Bancorp, Inc., a Delaware corporation, is the bank holding company for BSB
Bank & Trust Co. BSB Bancorp, Inc. had 10,225,322 shares of common stock
outstanding at December 31, 1999. The stock is traded over-the-counter and is
listed on The Nasdaq Stock Market National Market under the symbol BSBN. BSB
Bancorp, Inc. is subject to regulation by the Federal Reserve Board. BSB Bank &
Trust is the principal subsidiary of BSB Bancorp, Inc.

Incorporated as a state-chartered mutual savings bank in 1867, BSB Bank & Trust
was converted to a state-chartered stock savings bank in 1985, and in 1995
completed a charter change to that of a state-chartered commercial bank. It is
headquartered in Binghamton, New York and conducts business in Broome, Tioga,
Chenango, Onondaga, Oswego, and Chemung Counties, and adjacent areas in New York
State.

BSB Bank & Trust is a diversified financial services institution providing a
broad range of deposit and loan products as well as trust and investment
services to area businesses and consumers. In particular, BSB Bank & Trust is a
major provider of financial services to the business community, as well as
offering banking services to school districts and cooperative education centers,
cities, towns, villages, and numerous municipal agencies. Deposits of BSB Bank &
Trust are insured by the Federal Deposit Insurance Corporation to applicable
limits. The Bank is subject to supervision and regulation by the Federal Deposit
Insurance Corporation and the State of New York Banking Department. BSB Bank &
Trust is also a member of the Federal Home Loan Bank System.
<PAGE>

BSB BANCORP, INC.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands - Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                                             1999             1998         % Change
                             ---------------------------------------------------------------------------------------
<S>                          <C>                                        <C>             <C>
PERFORMANCE                  Net interest income                        $    87,145    $       81,380           7.1%
                             Income, exclusive of acquisition charges        21,542            21,519           0.1
                             Net income                                      18,225            21,519         (15.3)
                             Return on average equity, exclusive
                                of acquisition charges                        13.48%            14.79%         (8.9)
                             Diluted earnings per share,
                                 exclusive of acquisition charges       $      2.09     $        2.08            .5
                             Diluted earnings per share                        1.77              2.08         (14.9)
--------------------------------------------------------------------------------------------------------------------
SELECTED                     Interest rate margin                              4.12%             4.30%         (4.2)
FINANCIAL                    Dividend payout ratio, exclusive of
DATA                             acquisition charges                          44.81             38.28          17.1
                             Efficiency ratio, exclusive of
                             acquisition charges                              45.21             45.93          (1.6)
--------------------------------------------------------------------------------------------------------------------
PER SHARE                    Book value                                 $     15.11     $       15.35          (1.6)
                             Dividends declared                                0.95              0.83          14.5
--------------------------------------------------------------------------------------------------------------------
FINANCIAL                    Total assets                               $ 2,240,948     $   2,135,327           5.0
CONDITION                    Total loans                                  1,722,252         1,577,909           9.1
DATA                         Deposits                                     1,901,204         1,709,860          11.2
(at December 31)             Shareholders' equity                           154,493           154,091           0.3
                             Allowance for possible credit losses            29,134            25,030          16.4
                             Non-performing loans to total loans               0.67%             1.08%        (38.0)
--------------------------------------------------------------------------------------------------------------------
OFF-BALANCE                  Mortgage serviced loans                    $   559,915     $     513,287           9.1
SHEET                        Trust assets under management                  343,326           299,188          14.8
(at December 31)
</TABLE>

                                       2
<PAGE>

Message to Shareholders

This past year was a difficult year for bank stocks in general. Unfortunately,
our stock was not an exception to that trend. That being said, I want to
highlight the significant achievements your Company posted in 1999 and briefly
outline the reasons we are well positioned for the future.

Foremost among these was the acquisition of Skaneateles Bancorp, effective July
1, 1999. We are very pleased with all aspects of the acquisition, including the
positive response of former Skaneateles' customers and the achievement of our
initial strategic goals. The addition of the Skaneateles franchise boosted BSB's
market share in Onondaga County from less than 1% to approximately 4%. This
greater Syracuse area is three times larger than the Bank's primary market in
the Southern Tier and offers us an important opportunity for further growth and
profitability. Your Company is committed to significantly increasing its share
of market in that region during the next few years.

In addition to the Skaneateles purchase, your Bank was able to increase
deposits, loans, and trust assets to record levels last year. Our reserve
against loans outstanding was at an all-time high at year-end 1999, and
non-performing loans were reduced to the lowest levels in many years. These
trends are positive for the institution and shareholder value.

We are pleased with our performance in the fourth quarter of 1999. Net income
for the quarter ended December 31, 1999 was $6,228,000, compared to $5,659,000
for the same quarter in 1998, an increase of 10.1%. Diluted earnings per share
increased 10.9% for the quarter ended December 31, 1999 to $0.61, compared to
$0.55 for the same period in 1998.

Our interest rate margin rose to 4.29%, compared to 4.25% for the fourth quarter
of 1998, and we realized a 54.1% increase in non-interest income to $4,095,000
for the fourth quarter of 1999, compared to $2,658,000 for the fourth quarter of
1998.

Net income for the year ended December 31, 1999 was $21,542,000, or $2.09 per
diluted share, before giving effect to non-recurring after-tax acquisition
charges of $3,317,000, compared to net income of $21,519,000, or $2.08 per
diluted share for 1998. Third quarter charges affecting 1999 results included
after-tax charges of $700,000, or $0.07 per diluted share, as a result of the
write-down of a mortgage-backed security and $2,000,000, or $0.19 per diluted
share, as a result of the write-down of a commercial loan.

Initiatives directed toward enhancing our overall financial strength were
evident during 1999. The allowance for possible credit losses increased to
$29,134,000, or 1.69% of period-end loans outstanding at December 31, 1999, from
$25,030,000, or 1.59% of period-end loans at December 31, 1998. Non-performing
assets also were reduced from $20,114,000, or 0.94% of assets at December 31,
1998 to $12,517,000, or 0.56% of assets at December 31, 1999.

We are mindful that BSB needs to remain progressive and attuned to our
customers' needs in order to compete in the rapidly changing environment of
financial service and product delivery. Our goal is to excel at the options we
provide to our customers. We have an unwavering commitment to make continual
improvements to our multiple service delivery channels, including 24-hour online
MachineTeller ATM service, StoreTeller Banking at Giant Markets, TelephoneTeller
banking by phone, and, most recently, Internet Banking.

I would like to offer my personal welcome to John P. Driscoll, former Chief
Executive Officer of Skaneateles Savings Bank, and Ann G. Higbee, former
Skaneateles Director, to the Boards of Directors of BSB Bancorp, Inc. and BSB
Bank & Trust.

On February 14, 2000, BSB Bancorp announced the retirement of its President and
Chief Executive Officer, Alex S. DePersis. During his tenure as Chief Executive
Officer, Alex provided vision that was instrumental to the success of a number
of initiatives. Foremost among them was the Company's significant expansion of
both its commercial banking activities and its market area. His leadership in
the acquisition and successful assimilation of Skaneateles Bancorp, Inc. in 1999
has positioned BSB for important growth opportunities in Central New York. We
thank Alex for his many contributions and wish him well.

At that same time, Thomas L. Thorn was appointed Acting President and Chief
Executive Officer. Mr. Thorn has been a Director of BSB Bancorp since 1995 and
is currently a member of the Executive Committee.

                                       3
<PAGE>

We are very fortunate to have a strong senior management team. They are
committed to the continued implementation of our sound strategic programs.

These are exciting and promising times for our Company. We have just completed a
challenging yet productive year, bringing to completion a number of initiatives
supporting continued growth and future profitability. We are confident we have
the people, know-how, facilities, capital, technology, and market opportunities
to drive our Company to higher levels of performance.

I want to offer my sincere gratitude to our Board of Directors for their
diligence, guidance, and support. On behalf of our Board of Directors, officers,
and staff, "thank you"--our shareholders--for your continued support.

William C. Craine
Chairman of the Board

                                       4
<PAGE>

Lending Operations

The best way to describe 1999 from a Lending Operations point of view might be
to call it a year of carefully managed, moderate growth. The result was an
overall increase of 9.1% in loans outstanding over year-end 1998 totals. We
approached the year with intentionally modest growth objectives for a number of
reasons. To begin with, we knew that proper integration of the newly acquired
Skaneateles Savings Bank ("SSB") loan portfolio was a top priority, as was the
transitioning of the SSB lending staff into the BSB operational structure. These
tasks were expedited by the presence of the existing BSB office in downtown
Syracuse. As part of the process, that office was consolidated with the former
Skaneateles Savings office located nearby. Both the portfolio assimilation and
the staff integration have gone very smoothly, and we are excited about the
growth potential the Syracuse market offers us.

In addition to allowing for the absorption of the former Skaneateles Savings
Bank loan activity, one other important consideration guided our strategy for
the year. As a result of the aggressive growth in loan originations during the
past few years, our loan portfolio increased at a rate that was greater than the
sustainable growth rate of core deposits. By embarking on a plan of moderate
growth in the loan portfolio, we are bringing the two growth curves back in
line.

Despite significant improvements in key loan quality measures, such as the
relationship of loan loss reserves to total loans, and the level of
non-performing assets versus a year ago, the Bank did incur higher levels of
loan losses in 1999. Nevertheless, management believes that the current level of
loan loss reserve provides adequate protection for the risk inherent in the loan
portfolio.

The Bank's consumer loan portfolio grew by 13.9% or $57.2 million in 1999. Again
in 1999, the majority of our growth came from the indirect auto and mobile home
loan portfolios. Our vast network of auto dealers throughout the Southern Tier
and Central New York Region continues to provide a significant volume of loans.
This type of lending remains highly competitive, with profitability being
dependent on sound underwriting standards and originating a large enough volume
of quality loans to achieve efficiency of operations. BSB demands a high level
of loan quality versus volume. As a result, loan originations can be affected
adversely during periods of intensified competitive pressure. Such was the case
in the latter half of 1999, when competition for this kind of loan activity was
particularly fierce. We believe that our "quality over quantity" approach will
yield the most favorable results over the long term.

In addition to continued strength in the indirect loan portion of our loan
portfolio, we anticipate significant direct lending activity, particularly from
loans originated by the branch-banking network. These loans showed good growth
during 1999 and they are especially attractive due to their higher net yield.
Our plans for the year 2000 call for further development of these loans,
especially at the former Skaneateles branch offices.

Originations in 1999 were $118.4 million, considerably below 1998 originations
of $198.0 million. This decline was due to rising interest rates and a decline
in mortgage loan refinancing activity compared to 1998. These factors, combined
with the Bank's decision to sell a significant portion of the residential
mortgage loans originated, led to a decrease in the size of this portfolio at
year-end 1999 to $176.4 million from $196.5 million at year-end 1998.

We had continued growth in our portfolio of serviced loans in 1999. These are
loans originated by BSB but sold into the secondary mortgage market with BSB
retaining the right to collect payments and provide other services to the
customers. This activity generated $1.4 million in servicing fee income in 1999,
an increase of 4.8% over 1998. The Bank remains the largest originator of
residential mortgage loans in its Broome County home market and is taking action
to increase its market share in the Onondaga market, as well.

The Bank's commercial loan portfolio grew by 12.7% or $102.2 million in 1999,
with the majority of the growth occurring in the first part of the year. This is
a lower growth rate than in past years, in large part for the reasons mentioned
previously. Originations remained strong at $286.0 million in 1999, down from
the originations of $346.9 million in 1998. The referral base, which has been
built over many years, continues to perform very well in generating significant
loan opportunities for the Bank. This referral network is considered a valuable
asset for the Bank, as is the highly experienced staff of lenders and support
personnel who enjoy an excellent reputation for service and responsiveness in
the business community. In particular, the longevity and continuity of the loan
officers is important to business owners and their professional staff, alike. In
addition, BSB has proven its willingness to provide loans of various types,
including working capital lines, equipment term loans, accounts receivable
financing, and real estate construction and acquisition commitments, to
companies of all sizes across a wide range of industries.

                                       5
<PAGE>

The commercial real estate loan portfolio grew by 3.0% or $5.1 million in 1999.
Much of the Bank's success can be attributed to the experience and dedication of
our lending staff. Their focus has been on originating loans to finance
acquisitions, to make improvements on existing commercial properties, and for
new construction. Through their efforts, we have established a strong presence
in the Binghamton, Syracuse, and Rochester markets, specializing in
moderate-sized loans to owners and developers with recourse, as these loans
involve comparatively lower risk and a higher net yield.

Retail Banking

The mid-year acquisition of Skaneateles Savings Bank was the centerpiece of an
exciting and rewarding year for the Retail Banking Division. The addition of
nine banking offices in greater Syracuse and Central New York has given us a
greatly expanded sales platform with thousands of new customers, accounts, and
households. As important as their business is to us today, these customers will
be the source of important future growth from our continually growing menu of
products and services. In addition, our expanded physical presence will greatly
facilitate our efforts to broaden the relationships we already have with over
10,000 indirect loan customers in the Central New York Region. It will also
provide important support to our new business development efforts as we seek to
expand retail, small business, and commercial relationships.

Towards the end of the year, we further solidified our presence in our core
market with the opening of our newest full-service banking office in the Giant
Plaza on Rano Boulevard in the Town of Vestal. This facility places us in the
heart of Broome County's rapidly expanding, new retail hub that attracts
shoppers from throughout the region. From this site, we will be better able to
serve customers who live and work in the western Broome County area. If the
results achieved during the first few weeks of operation of our new office are
any indication, our customers are in complete agreement.

In the future, we will continue to strengthen our branch presence where we can
achieve the best results. Given the solid concentration of branch locations and
resulting market share we enjoy in our core market, we will primarily seek to
expand our presence and market share in the Syracuse area and elsewhere.

BSB Bank & Trust has been acknowledged as leading the way with its highly
developed Retail Banking Delivery System. We have long recognized the importance
of offering our customers the convenience of any time, anywhere banking. As
such, we have an unwavering commitment to making continual improvements to our
multiple service delivery channels including 24-hour online MachineTeller ATM
service, StoreTeller Banking at Giant Markets, TelephoneTeller banking by phone,
and our Payday Deposit and Direct Deposit services. We have most recently added
Internet Banking. To date, the response to our Internet Banking has far exceeded
our most ambitious expectations and we will soon be introducing a web browser
product that will make it possible for commercial banking customers to access
the Bank via the Internet. Work site ATMs will receive priority attention in the
year ahead as they provide an invaluable first step toward more significant
banking relationships with both employees and the sponsoring company.

We continually upgrade the technology in our branches to improve customer
service, create operating efficiencies, and facilitate communication. Recent
software changes, for example, have reduced account opening time by nearly one
half allowing our representatives to spend more time building relationships with
their customers.

Technology notwithstanding, a retail banking operation still is only as good as
its people. Day in and day out, it is our staff of banking professionals that is
responsible for satisfying customers, for making sure that new products and
services have the benefit of a proper introduction, and insuring the Bank's
sales goals are reached. To those ends, we continue to work hard to be the
banking sector's preferred employer in our region. We also continue to place a
great deal of emphasis on training and upgrading job skills. By establishing a
genuine "sales culture" in our branches, we are preparing our employees to
assess the financial needs of each customer and to provide them with appropriate
BSB product solutions. We will continue to link pay to performance and to
strengthen our incentive programs by creating sales goals that are "branch
specific" and suited to the demographic make up of the trading area for each
branch.

Perhaps it goes without saying that 1999 was a very exciting and rewarding year
for the Retail Banking Division. But, the Skaneateles Savings Bank acquisition
is only the beginning.

With 22 full-service banking offices and 50 ATMs in six counties, we now have
the critical mass and geographic reach to bring our brand of banking to
thousands of new customers in the Central and Southern Tier Regions of

                                       6
<PAGE>

New York and the Northern Tier of Pennsylvania. We truly believe we have the
people, the products, the services, and the responsiveness to make the most of
those opportunities and to create new ones during 2000 and in the years ahead.
We look forward to the challenge!

                                       7
<PAGE>

BSB BANCORP, INC.
SELECTED FINANCIAL AND OTHER DATA
(Dollars in Thousands-Except Share Amounts)

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                            1999         1998         1997         1996        1995
                    ---------------------------------------------------------------------------------------------------
<S>                 <C>                                   <C>          <C>          <C>          <C>         <C>
FINANCIAL           Total assets                          $2,240,948   $2,135,327   $1,816,672   $1,605,302  $1,449,683
CONDITION           Total loans                            1,722,252    1,577,909    1,420,352    1,215,185   1,098,581
DATA                Investment securities                    401,723      427,537      302,671      305,977     269,852
                    Deposits                               1,901,204    1,709,860    1,457,526    1,323,081   1,185,584
                    Borrowings and mandatorily
                      redeemable preferred securities        172,045      259,736      196,701      138,683     113,335
                    Shareholders' equity                     154,493      154,091      138,538      124,957     131,713
                    Allowance for possible credit losses      29,134       25,030       21,768       19,168      17,179

<CAPTION>
                                                             1999         1998         1997          1996       1995
                    ---------------------------------------------------------------------------------------------------
<S>                 <C>                                   <C>          <C>          <C>          <C>         <C>
OPERATIONS          Total interest income                  $ 176,721   $  166,166   $  141,348   $  123,414  $  114,905
DATA                Total interest expense                    89,576       84,786       71,452       61,582      59,029
                    ---------------------------------------------------------------------------------------------------
                    Net interest income                       87,145       81,380       69,896       61,832      55,876
                    Provision for credit losses               19,137       12,931       10,814       10,146       7,568
                    ---------------------------------------------------------------------------------------------------
                    Net interest income after provision
                        for credit losses                     68,008       68,449       59,082       51,686      48,308
                    Gains (losses) on sale of securities        (231)        (851)         380        1,285          (2)
                    Gains (losses) on sale of mortgages         (363)        (573)        (297)                     (27)
                    Non-interest income                       12,965       10,019        8,065        9,145       7,344
                    Operating expense                         45,255       41,983       36,940       35,463      33,450
                    ---------------------------------------------------------------------------------------------------
                    Income before acquisition charges and
                       income taxes                           35,124       35,061       30,290       26,653      22,173
                    Acquisition charges                        5,408
                    ---------------------------------------------------------------------------------------------------
                    Income before income taxes                29,716       35,061       30,290       26,653      22,173
                    Income tax expense                        11,491       13,542       11,641        9,968       8,527
                    ---------------------------------------------------------------------------------------------------
                    Net income                             $  18,225   $   21,519   $   18,649   $   16,685  $   13,646
                    ===================================================================================================

<CAPTION>
                                                                                Years Ended December 31,
                                                                1999         1998         1997         1996        1995
                    ---------------------------------------------------------------------------------------------------
<S>                 <C>                                         <C>          <C>          <C>         <C>         <C>
SELECTED            Weighted average yield of all
FINANCIAL AND            interest-earning assets                8.35%        8.77%        8.79%        8.68%       8.66%
OTHER DATA          Weighted average cost of all
                         interest-bearing liabilities           4.36         4.63         4.63         4.58        4.75
                    Interest rate spread during the period      3.99         4.14         4.16         4.10        3.91
                    Interest rate margin during the period      4.12         4.30         4.35         4.35        4.21
                    Return on average assets                    0.82         1.08         1.10         1.11        0.98
                    Return on average equity                   11.41        14.79        14.01        12.99       10.48
                    Average equity to average assets            7.16         7.28         7.84         8.54        9.32
                    Dividend payout ratio                      52.95        38.28        36.48        33.09       31.05
                    Efficiency ratio                           50.61        45.93        47.38        49.96       52.91
                    Book value per share                    $  15.11     $  15.35    $   13.92      $ 12.76     $ 12.29
                    Basic earnings per share                $   1.80     $   2.15    $    1.88      $  1.63     $  1.25
                    Diluted earnings per share              $   1.77     $   2.08    $    1.82      $  1.59     $  1.21
</TABLE>

                                       8
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FINANCIAL REVIEW
--------------------------------------------------------------------------------
BSB Bancorp, Inc. (the "Company") is the bank holding company of BSB Bank &
Trust Company, Binghamton, New York (the "Bank"). The Bank, a New York-chartered
commercial bank and trust company, operates 22 branches in Broome, Chemung,
Chenango, Onondaga, Oswego, and Tioga Counties of New York State. The Bank is in
the business of providing a wide variety of loan and deposit products to its
commercial and consumer customers. In addition, the Bank provides mortgage
banking, trust, municipal, and other related services. Unless otherwise
specified, references to the Company are intended also to include the activities
of the Bank.

     In July 1999, the Company completed its acquisition of Skaneateles Bancorp,
Inc. Pursuant to the terms of the merger, each share of Skaneateles Bancorp
common stock was exchanged for .97 shares of the Company's common stock. The
acquisition constituted a tax-free reorganization and has been accounted for as
a pooling of interests under Accounting Principles Board Opinion No. 16,
"Business Combinations." Accordingly, the consolidated financial statements for
the periods presented have been restated to include the combined results of
operations, financial position and cash flows of BSB Bancorp, Inc. and
Skaneateles Bancorp, Inc. prior to the merger. Certain reclassifications were
made to Skaneateles Bancorp's prior year financial statements to conform to the
Company's presentation.

     Net income for the year ended December 31, 1999 was $21.5 million, or $2.09
per diluted share, before giving effect to non-recurring after-tax acquisition
charges of $3.3 million, compared to prior earnings of $21.5 million, or $2.08
per diluted share for 1998. Third quarter charges affecting 1999 results also
included after-tax charges of $0.7 million, or $0.07 per diluted share, as a
result of a write-down of a mortgage-backed security, and an after-tax
charge-off of $2.0 million, or $0.19 per diluted share, as a result of
write-down of a $9.7 million loan. The return on average equity decreased from
14.79% in 1998 to 11.41% in 1999, and the return on average assets decreased
from 1.08% in 1998 to 0.82% in 1999.

     Net interest income increased 7.1% in 1999 to $87.1 million from $81.4
million in 1998, mainly as a result of an increase in the average balance of
interest-earning assets. The interest rate margin decreased from 4.30% in 1998
to 4.12% in 1999. Non-interest income increased 29.4% from $10.0 million in 1998
to $13.0 million in 1999. Included in the 1999 results is the pre-tax recovery
in the fourth quarter of approximately $1.0 million on a letter of credit that
had initially been reserved for in 1993. Net gains and losses on the sale of
securities and loans produced a loss of $594,000 in 1999, compared to a loss of
$1.4 million in 1998. The provision for credit losses increased from $12.9
million in 1998 to $19.1 million in 1999. Net charge-offs increased from $9.7
million in 1998 to $15.0 million in 1999, the largest of which was a $3.3
million pre-tax charge as previously noted as occurring in the third quarter of
1999. Operating expense increased 20.7% from $42.0 million in 1998 to $50.7
million in 1999. This increase was mainly the result of pre-tax acquisition
charges of $5.4 million.

     Total assets increased from $2.1 billion at December 31, 1998 to $2.2
billion at December 31, 1999, an increase of 5.0%. Total loans increased 9.1%
from $1.6 billion at December 31, 1998 to $1.7 billion at December 31, 1999.
This growth was due primarily to the Company's ability to originate commercial
and consumer loans in its lending market. The Company's management strategy is
designed to accommodate earning asset growth while controlling overall risk to
the institution. Both liquidity and interest rate sensitivity are constantly
monitored. The Company's loan originations decreased 15.6%, from $845.5 million
in 1998 to $713.4 million in 1999. Loan sales and securitizations decreased from
$184.5 million in 1998 to $114.7 million in 1999. The allowance for possible
credit losses (reserves) increased from $25.0 million at December 31, 1998 to
$29.1 million at December 31, 1999, an increase of 16.4%. Deposits increased
11.2% from $1,709.9 million at December 31, 1998 to $1,901.2 million at December
31, 1999. Borrowings decreased from $229.7 million at December 31, 1998 to
$142.0 million at December 31, 1999, a decrease of 38.2%. Shareholders' equity
increased 0.3% from $154.1 million at December 31, 1998 to $154.5 million at
December 31, 1999.

     The Company operates as an independent, community, commercial bank focusing
on the origination of commercial and consumer loans. The Company provides a
broad range of deposit and loan products to area businesses and consumers
through its Retail Branch network. In addition, the Company's Trust Department
provides full trust services to individuals, corporations, and non-profit
organizations. The Bank's wholly owned subsidiary, BSB Financial Services, Inc.,
markets brokerage services. The Company expects to continue to focus on
enhancing shareholder value through increasing market share as well as
developing new geographic market areas. Emphasis will continue to center on
originating commercial and selected consumer loan products.

     A fundamental objective of the Company is to manage its liquidity
effectively. Prudent liquidity management insures that the Company can meet all
its contractual obligations, meet its customers' loan demands, fund all of its
operations, and minimize the effects of interest rate fluctuations on earnings.
To enhance its funding and its funding

                                       9
<PAGE>

capabilities, the Company has expanded its market area through bank and branch
acquisitions, promoted an active and effective municipal deposit program, and
increased its borrowing capabilities through retail repurchase agreements and a
variety of other borrowing sources.

     To assist in managing the average cost of funds, the Company continues an
aggressive campaign to produce new low cost checking and NOW account deposits.
This effort produced growth in average NOW account deposit levels by
approximately 8% for the year 1999 and 10% for the year 1998. Non-interest
bearing commercial checking accounts average balances increased approximately
35% for the year 1999. This is a by-product of the strong growth in commercial
loan relationships during the year. The growth in these low cost funding
sources, coupled with the continued effort to originate higher yielding consumer
and commercial loan assets, resulted in the Company producing an average
interest rate margin of 4.12% for the year 1999.

     As the evolution of the financial services industry continues, more and
more emphasis has been placed on the use of customer information and cost
effective use of technologies in new delivery and processing systems. In
addition, the acquisition of Skaneateles Bancorp, Inc. has provided greater
access for the Bank's customers in the Central New York Region. The Company
expanded its electronic delivery systems by adding ATMs to our new branches and
enhancing its Internet Banking, a personal interactive banking service via
personal computer.

     This Annual Report, including certain statements made in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, may
include "forward-looking statements". Any statements with regard to the
Company's expectations as to its financial results, and other aspects of its
business, and general economic conditions, may constitute forward-looking
statements. Although the Company makes such statements based on assumptions
which it believes to be reasonable, there can be no assurance that actual
results will not differ materially from the Company's expectations. Some of the
important factors which could cause its results to differ from any results which
might be projected, forecasted, or estimated based on such forward-looking
statements include: (i) general economic and competitive conditions in the
markets in which the Company operates, and the risks inherent in its operations;
(ii) the Company's ability to continue to control its provision for credit
losses and operating expense, increase earning assets and non-interest income,
and maintain its margin; and (iii) the level of consumer demand for new and
existing products. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described in the forward-looking statements. The
Company does not intend to update forward-looking statements.

                                       10
<PAGE>

FINANCIAL CONDITION
-------------------

The following table sets forth information regarding average balances of the
Company's assets and liabilities, and shareholders' equity, as well as changes
in such amounts from period to period.

<TABLE>
<CAPTION>
                                         1999                                1998                              1997
                                      Average   Increase (Decrease)       Average    Increase (Decrease)    Average
(Dollars in Thousands)                Balance       Amount     %          Balance      Amount      %        Balance
-------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>        <C>        <C>            <C>       <C>      <C>
Interest-earning assets:
  Commercial loans                $   870,304     $138,513    18.9%   $   731,791    $135,696    22.8%  $   596,095
  Consumer loans
      Passbook                            124          (59)  (32.2)           183         (88)  (32.5)          271
      Overdraft checking                  867         (374)  (30.1)         1,241         377    43.6           864
      Business line of credit           1,240          219    21.4          1,021         932 1,047.2            89
      Credit cards                      9,564          (93)   (1.0)         9,657         556     6.1         9,101
      Personal-direct                  83,338        7,530     9.9         75,808      11,300    17.5        64,508
      Personal-indirect-new auto       56,464        7,668    15.7         48,796       2,102     4.5        46,694
      Personal-indirect-used auto     175,482       38,277    27.9        137,205      45,455    49.5        91,750
      Personal-indirect-mobile homes   60,273       10,453    21.0         49,820      14,258    40.1        35,562
      Personal-indirect-other          24,450       10,353    73.4         14,097       9,971   241.7         4,126
      Home Equity Line of Credit       31,481       (1,892)   (5.7)        33,373         451     1.4        32,922
      Checkcard reserve                 2,099          630    42.9          1,469         535    57.3           934
      Student                           2,621       (1,056)  (28.7)         3,677         130     3.7         3,547
-------------------------------------------------------------------------------------------------------------------
  Total consumer loans                448,003       71,656    19.0        376,347      85,979    29.6       290,368
-------------------------------------------------------------------------------------------------------------------
  Mortgage loans
      Residential-fixed               104,590       (6,960)   (6.2)       111,550       5,502     5.2       106,048
      Commercial-fixed                  8,687        2,134    32.6          6,553        (809)  (11.0)        7,362
      Residential-adjustable           79,847      (22,997)  (22.4)       102,844     (24,005)  (18.9)      126,849
      Commercial-adjustable           162,217        7,361     4.8        154,856     (13,365)   (7.9)      168,221
-------------------------------------------------------------------------------------------------------------------
  Total mortgage loans                355,341      (20,462)   (5.4)       375,803     (32,677)   (8.0)      408,480
-------------------------------------------------------------------------------------------------------------------
  Investment securities               420,488       40,054    10.5        380,434      75,515    24.8       304,919
  Mortgages held for sale               8,304       (5,737)  (40.9)        14,041       9,619   217.5         4,422
  Federal funds sold                   13,888       (1,970)  (12.4)        15,858      12,334   350.0         3,524
-------------------------------------------------------------------------------------------------------------------
  Total interest-earning assets     2,116,328      222,054    11.7      1,894,274     286,466    17.8     1,607,808
-------------------------------------------------------------------------------------------------------------------
  Non-interest-earning assets         116,170       10,352     9.8        105,818      16,168    18.0        89,650
-------------------------------------------------------------------------------------------------------------------
      Total assets                 $2,232,498     $232,406    11.6%    $2,000,092    $302,634    17.8%   $1,697,458
===================================================================================================================

Interest-bearing liabilities:
  Deposits
      Savings                     $   191,719    $   8,424     4.6%   $   183,295   $   7,516     4.3%  $   175,779
      Money market                    329,143       28,751     9.6        300,392      23,163     8.4       277,229
      Certificates of deposit       1,055,370      114,632    12.2        940,738     203,821    27.7       736,917
      NOW                              98,882        7,325     8.0         91,557       8,444    10.2        83,113
      Commercial checking             124,989       32,217    34.7         92,772      18,786    25.4        73,986
-------------------------------------------------------------------------------------------------------------------
  Total deposits                    1,800,103      191,349    11.9      1,608,754     261,730    19.4     1,347,024
  Borrowings                          225,787       18,129     8.7        207,658      11,860     6.1       195,798
  Mandatorily redeemable
      preferred securities             30,000       16,671   125.1         13,329      13,329
-------------------------------------------------------------------------------------------------------------------
  Total interest-bearing
      liabilities                   2,055,890      226,149    12.4      1,829,741     286,919    18.6     1,542,822
-------------------------------------------------------------------------------------------------------------------
Non-interest-bearing liabilities       16,845       (7,989)  (32.2)        24,834       3,340    15.5        21,494
  Shareholders' equity                159,763       14,246     9.8        145,517      12,375     9.3       133,142
-------------------------------------------------------------------------------------------------------------------
      Total liabilities and
        shareholders' equity      $ 2,232,498    $ 232,406    11.6%   $ 2,000,092   $ 302,634    17.8%  $ 1,697,458
===================================================================================================================
</TABLE>

                                       11
<PAGE>

USES OF FUNDS
--------------------------------------------------------------------------------

The Company's principal use of funds is originating loans, primarily to
individuals and small- and medium-sized companies in its lending area. Comparing
1998 to 1999, in general, loan originations have declined, especially in the
second half of 1999. As demand for loans softened, competition for the available
loans increased. The Company continues to stress strong underwriting standards
and has been able to show increases in outstanding balances from December 31,
1998 to December 31, 1999, while lowering the balance of non-performing loans.
Commercial loans tend to increase the interest rate sensitivity of the loan
portfolio, because interest rates on these loans are generally tied to the
Company's Prime Rate (the "Prime Rate"). Commercial loan originations decreased
from $346.9 million in 1998 to $286.0 million in 1999. The average balance of
commercial loans increased from $731.8 million in 1998 to $870.3 million in
1999, an increase of $138.5 million, or 18.9%. The increase in portfolio size in
1999 over 1998 was due primarily to an increase in activity in the Syracuse
market.

     Consumer loan originations were $244.6 million in 1998 and $262.3 million
in 1999. The average balance of consumer loans increased from $376.3 million in
1998 to $448.0 million in 1999, an increase of $71.7 million, or 19.0%. This
increase resulted mainly from the Company's continuing efforts to expand its
direct consumer lending as well as its indirect financing through local and
surrounding area automobile dealers. These types of loans typically earn among
the highest yields of the Bank's assets, as is the case of indirect used auto
loans which yielded 9.39% for 1999. These loans also tend to have a higher
credit risk. Indirect used auto loan originations decreased 2.4%, from $105.3
million in 1998 to $102.8 million in 1999. Direct loan originations decreased
from $39.3 million for 1998 to $38.2 million for 1999, a decrease of $1.1
million, or 2.8%.

     The Company originated residential mortgage loans of $198.0 million in 1998
and $118.4 million in 1999, a decrease of 40.2%. Commercial real estate
originations decreased from $56.0 million in 1998 to $46.6 million in 1999.

     The Company's policy of selling or securitizing fixed-rate residential
mortgages to improve the liquidity of the portfolio and to build the servicing
income portfolio resulted in sales and securitizations of $179.9 million in
1998. In 1999, $111.7 million of fixed-rate residential mortgages were sold to
aid in managing liquidity and collateral needs. The average balance of
fixed-rate residential mortgage loans decreased from $111.6 million in 1998 to
$104.6 million in 1999, a decrease of 6.2%. The average balance of
adjustable-rate residential mortgage loans decreased from $102.8 million in 1998
to $79.8 million in 1999, a decrease of 22.4%. The average balance of
adjustable-rate commercial real estate loans increased from $154.9 million in
1998 to $162.2 million in 1999, an increase of 4.8%.

     The Company has authority to invest in a wide range of investment and
mortgage-backed securities, including corporate and municipal bonds, and a
limited amount of common and preferred stock. The portfolio consists primarily
of U.S. Government Agency securities and mortgage-backed securities issued by
U.S. Government agencies such as Freddie Mac and Fannie Mae. The average balance
of investment securities increased from $380.4 million in 1998 to $420.5 million
in 1999.

SOURCES OF FUNDS
--------------------------------------------------------------------------------

Funding for the Company's assets is derived primarily from deposits from
individuals, business customers, municipalities, and borrowings. The average
balance of all deposits increased 11.9% from $1,608.8 million in 1998 to
$1,800.1 million in 1999. The average balance of all borrowings increased 8.7%
from $207.7 million in 1998 to $225.8 million in 1999. Within deposits, the
average balance of brokered deposits increased $73.1 million to $154.5 million
at December 31, 1999, while the average balance of other deposits increased
$118.2 million to $1,645.6 million at December 31, 1999.

ASSET QUALITY
--------------------------------------------------------------------------------

The Company has maintained its focus on sound credit quality in the loan
portfolio. The Company utilizes a system to rate substantially all of its loans
based on their respective risks. This assists management in determining and
maintaining the desired blend of assets with varying risks within the loan
portfolio, and helps in assessing the adequacy of the allowance for possible
credit losses. Loan ratings are continually reviewed to determine the propriety
of the respective ratings.

                                       12
<PAGE>

Allowance for Possible Credit Losses
A loan is considered impaired, based on current information and events, if it is
probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based upon the present
value of expected future cash flows discounted at the historical effective
interest rate, except that all loans that have become collateral-dependent are
measured for impairment based on the fair value of the collateral. Loans not
deemed impaired continue to be classified based on their risk-rating and general
reserves are maintained accordingly. Management considers the current level of
reserves adequate to cover potential credit losses.

The following table summarizes activity in the Company's allowance for possible
credit losses during the periods indicated:

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
(Dollars in Thousands)                                                         1999           1998          1997
----------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>           <C>
Average total loans outstanding                                          $1,699,850     $1,507,493    $1,313,576
================================================================================================================

Allowance at beginning of period                                            $25,030        $21,768       $19,168

Charge-offs:
    Commercial loans                                                         11,635          6,389         5,314
    Consumer loans                                                            5,110          3,280         2,244
    Residential real estate loans                                               267            238           175
    Commercial real estate loans                                                381          1,083         2,718
----------------------------------------------------------------------------------------------------------------
        Total loans charged-off                                              17,393         10,990        10,451
Recoveries
    Commercial loans                                                          1,173            456         1,348
    Consumer loans                                                            1,087            785           588
    Residential real estate loans                                                83              9             2
    Commercial real estate loans                                                 17             71           299
----------------------------------------------------------------------------------------------------------------
        Total recoveries                                                      2,360          1,321         2,237
----------------------------------------------------------------------------------------------------------------
Net charge-offs                                                              15,033          9,669         8,214
----------------------------------------------------------------------------------------------------------------
Provision for credit losses charged to
    operating expenses                                                       19,137         12,931        10,814
----------------------------------------------------------------------------------------------------------------
Allowance at end of period                                                  $29,134        $25,030       $21,768
================================================================================================================

Ratio of net charge-offs to:
    Average total loans outstanding                                            0.88%          0.64%         0.63%
-----------------------------------------------------------------------------------------------------------------
Ratio of allowance to:
    Non-performing loans                                                     251.00%        146.43%       128.86%
-----------------------------------------------------------------------------------------------------------------
    Year-end total loans outstanding                                           1.69%          1.59%         1.53%
=================================================================================================================
</TABLE>


The provision for credit losses increased from $12.9 million in 1998 to $19.1
million in 1999. As previously noted, in the third quarter of 1999, the Company
had a write-down of $3.3 million on a $9.7 million commercial loan. This loan
was sold in the fourth quarter of 1999 with no additional charge-off. The
Company chose to maintain the reserve level at the time of the write-down and,
in fact, raised the ratio of allowance to loans outstanding at December 31, 1999
to its current level. The allowance for possible credit losses increased to
$29.1 million, or 1.69% of total loans at December 31, 1999, from $25.0 million,
or 1.59% at year-end 1998. Net charge-offs in 1999 amounted to $15.0 million, or
0.88% of average total loans outstanding, compared to $9.7 million, or 0.64% in
1998. Non-performing loans at December 31, 1999 were $11.6 million, or 0.67% of
total loans outstanding, as compared to $17.1 million, or 1.08% of total loans
outstanding at December 31, 1998.

                                       13
<PAGE>

Non-Performing Assets

The  Company's accounting and classification policies regarding non-accrual
loans reflect the importance of recognizing problems early.

     Loans are placed on a non-accrual status when, in the judgment of
management, the probability of collection of principal or interest is deemed to
be insufficient to warrant further accrual. Such loans include potential problem
loans where known information about possible credit problems of borrowers has
caused management to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms. When a loan is placed in a non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
The Company does not accrue interest on loans greater than 90 days past due
unless the estimated fair value of the collateral and active collection efforts
are believed to be adequate to result in full recovery.

     At December 31, 1999, the Company had $945,000 of consumer loans greater
than 90 days past due on which it was accruing interest, as compared to $818,000
and $557,000 at December 31, 1998 and 1997, respectively. At each such date,
consumer loans were the only accruing loans 90 days or more past due.

     The following table sets forth information regarding non-accrual loans,
loans which are 90 days or more overdue, and other real estate owned ("ORE")
held by the Company at the dates indicated:


<TABLE>
<CAPTION>
                                                                                           December 31,
(Dollars in Thousands)                                                             1999        1998         1997
----------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>        <C>          <C>
Commercial loans:
   Non-accrual loans                                                            $ 8,448     $11,732      $11,037
Consumer loans:
   Accruing loans 90 days overdue                                                   945         818          557
Residential real estate loans:
   Non-accrual loans                                                              2,161       2,813        2,400
Commercial real estate loans:
     Non-accrual loans                                                               53       1,730        2,899
----------------------------------------------------------------------------------------------------------------
       Total non-performing loans and accruing
           loans 90 days overdue                                                $11,607     $17,093      $16,893
================================================================================================================
Total non-performing loans to total loans                                          0.67%       1.08%        1.19%
-----------------------------------------------------------------------------------------------------------------
Total real estate acquired in settlement of loans at lower of
     cost or fair value                                                         $   910     $ 3,021      $ 3,735
----------------------------------------------------------------------------------------------------------------
Total non-performing loans and real estate acquired in
     settlement of loans at fair value to total assets                             0.56%       0.94%        1.14%
=================================================================================================================
</TABLE>

Total non-performing loans and other real estate owned decreased to $12.5
million, or 0.56% of total assets at December 31, 1999, compared to $20.1
million, or 0.94% of total assets at December 31, 1998.

     At December 31, 1998, non-performing residential real estate loans totaled
$2.8 million. At December 31, 1999, non-performing residential real estate loans
totaled $2.2 million.

     At December 31, 1998, non-performing commercial real estate loans totaled
$1.7 million. At December 31, 1999, non-performing commercial real estate loans
decreased to $53,000. This decline resulted primarily from Skaneateles Bancorp
loans that had matured by December 31, 1998, but had not been renewed or paid
off as of that date. At December 31, 1999, these loans had been paid off or
renewed and were currently performing.

     Non-performing commercial loans at December 31, 1998 totaled $11.7 million.
At December 31, 1999, non-performing commercial loans decreased to $8.4 million
and consisted of 34 individual loans ranging in size from $6,000 to $1.2
million. The decline in non-performing commercial loans was accomplished through
continued aggressive workout programs, the applications of payments to principal
reduction, and charge-offs. During the last quarter of 1999, only four loans
were added to non-performing, the largest being a $178,000 loan. These loans and
all other non-performing loans have been internally risk-rated.

     The Company's non-performing loans decreased from $17.1 million at December
31, 1998 to $11.6 million at December 31, 1999, and the ratio of non-performing
loans to total loans decreased from 1.08% to 0.67%. At December 31, 1998, the
recorded investment in loans for which impairment has been recognized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 114
totaled $10.6 million with a valuation allowance aggregating $4.1 million. For
the twelve months ended December 31, 1998, the average recorded investment in
impaired loans was approximately $9.0 million. The Company recognized, on a cash
basis, $256,000 of interest on impaired loans during the portion of the year
they were impaired. At December 31, 1999, the recorded investment in loans for
which impairment has been recognized in accordance with SFAS No. 114 totaled
$5.5 million with a valuation allowance aggregating $1.8 million. For the twelve
months ended December 31, 1999, the average

                                       14
<PAGE>

recorded investment in impaired loans was approximately $10.1 million. The
Company recognized, on a cash basis, $151,000 of interest on impaired loans
during the portion of the year they were impaired.

     At December 31, 1998, ORE, which is defined to include property acquired by
foreclosure or by deed in lieu of foreclosure, totaled $3.0 million, which
consisted of 8 single-family residential properties with a book value totaling
$271,000 and 13 commercial real estate properties with a book value totaling
$2.7 million. At December 31, 1999, ORE totaled $0.9 million and consisted of 10
single-family residential properties with a book value totaling $526,000 and 4
commercial real estate properties with a book value totaling $384,000. The
largest single property in ORE at December 31, 1999 was $204,000.

     During 1999, 8 single-family residential properties with a book value
totaling of $247,000 were sold. At December 31, 1999, 17 single-family
residential properties with a book value totaling of $864,000 were added to the
ORE portfolio from 1998. In 1999, 13 residential real estate ORE properties were
written down by $390,000.

     During 1999, 7 commercial real estate properties with a book value totaling
$1.5 million were sold, 3 commercial real estate properties with a book value of
$167,000 were charged off, and 4 commercial real estate properties valued at
$1.1 million were partially charged off. During 1999, 2 commercial real estate
properties with a book value totaling $57,000 were added to the portfolio.
During the year, 11 commercial real estate ORE properties were written down by
$887,000. All ORE charge-offs are recorded as other real estate expenses. All
real estate carried in the Company's ORE portfolio are supported by recent
independent appraisals.

LIQUIDITY AND MARKET RISK
--------------------------------------------------------------------------------

A fundamental objective of the Company is effective management of its liquidity.
The goal of liquidity management is to maintain the Company's ability to meet
its contractual obligations, to meet its customers' loan demands, fund all its
operations, and minimize the effects of interest rate fluctuations on earnings.

     The major factor which determines the exposure of the Company's earnings to
interest rate risk is the relationship between the maturities and repricing
characteristics of its interest-earning assets and interest-bearing liabilities.
The management of the Company continues to employ strategies designed to achieve
a favorable match between those assets and liabilities. The Board authorizes the
Asset and Liability Management Committee (the "Committee") of the Company to
manage the sources and uses of the Company's cash flow, and establish the
pricing of its products. The Committee's primary goal is to structure the
Company's assets and liabilities in a manner that produces a favorable interest
rate spread and also provides net interest income protection against significant
volatility in the general level of interest rates.

     Accordingly, the Committee focuses on effectively managing the Bank's gap,
which is a measure of the mismatch between the dollar amount of the Company's
interest-earning assets and interest-bearing liabilities which mature or reprice
within certain time frames. If those assets exceed the liabilities within a
prescribed time period, a "positive" gap results. This could tend to have a
favorable impact on earnings during a period of rising interest rates and could
have an unfavorable impact during a period of declining rates. Conversely, if
those liabilities exceed the assets during the time period in question, a
"negative" gap results, in which case a rise in the general level of interest
rates could have an unfavorable impact on earnings, while a decline in rates
could have a favorable influence on earnings.

     To accommodate asset growth during 1999, deposits and borrowing balances
increased; the greatest of these was an increase of $120.0 million in
certificates of deposits, primarily from the addition of brokered deposits.
Non-interest-bearing deposits increased $26.5 million to $141.9 million, and
money market accounts increased $129.1 million to $430.0 million at December 31,
1999. The other primary source of funding is borrowed funds which decreased from
$259.7 million at December 31, 1998 to $172.0 million at December 31, 1999. See
Note 9 in Notes to Consolidated Financial Statements for further discussion on
borrowed funds.

                                       15
<PAGE>

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1999, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown:

<TABLE>
<CAPTION>
                                                  More         More       More        More
                                                  than         than       than        than        More          Not
                                      3 mos   3 mos to      1 yr to   3 yrs to    5 yrs to        than         Rate
(Dollars in Thousands)              or less     12 mos        3 yrs      5 yrs      10 yrs      10 yrs    Sensitive         Total
---------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>       <C>           <C>        <C>        <C>         <C>          <C>          <C>
Interest-earning assets:
   Commercial and
      consumer loans               $644,753  $ 118,083     $287,594   $176,243   $  84,685   $  61,260                 $1,372,618
   Mortgage loans                    58,166     88,134      131,016     20,555      38,617      15,231                    351,719
   Mortgage-backed securities         2,629      2,956       10,369     13,875      65,834      64,082                    159,745
   Investment securities             83,142     33,478       68,864     18,334       7,629      30,531                    241,978
Other assets                                                                                               $114,888       114,888
---------------------------------------------------------------------------------------------------------------------------------
      Total assets                  788,690    242,651      497,843    229,007     196,765     171,104      114,888     2,240,948
---------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
   Money market accounts            107,498    107,498      107,498    107,497                                            429,991
   Savings accounts                  46,700     46,700       46,700     46,699                                            186,799
   Demand and NOW accounts            7,799      7,799        7,799      7,800                              141,907       173,104
   Certificate accounts             309,481    612,294      112,654     16,127      60,754                              1,111,310
   FHLB advances                     15,540      2,000        2,000                 70,443         555                     90,538
   Borrowed funds                    49,218                                          2,289                                 51,507
   Preferred securities                                                                         30,000                     30,000
Other liabilities                                                                                            13,206        13,206
Shareholders' equity                                                                                        154,493       154,493
---------------------------------------------------------------------------------------------------------------------------------
      Total liabilities and
         shareholders' equity       536,236    776,291      276,651    178,123     133,486      30,555     $309,606    $2,240,948
---------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap
   per period                      $252,454  $(533,640)    $221,192   $ 50,884   $  63,279    $140,549
=================================================================================================================================
Cumulative interest
   sensitivity gap                 $252,454  $(281,186)    $(59,994)  $ (9,110)  $  54,169    $194,718
=================================================================================================================================
Cumulative interest
   sensitivity gap as a
   percentage of total assets         11.27%    (12.55)%      (2.68)%    (0.41)%      2.42%       8.69%
================================================================================================================================
</TABLE>

With the exception of certain categories described below, the amounts of assets
and liabilities shown which reprice or mature during a particular period were
determined in accordance with their contractual terms. All assets and
liabilities are placed in time periods which represent the earlier of their next
repricing or scheduled maturity. Adjustable-rate loans, for example, are placed
in the time periods which correspond to their next scheduled rate change.
Prepayment assumptions are made to indicate the rate at which these loans prepay
in excess of scheduled amortization.

     Money market accounts, which increased from $300.9 million at December 31,
1998 to $430.0 million at December 31, 1999, and savings accounts, which
decreased from $188.3 million at December 31, 1998 to $186.8 million at December
31, 1999, are included in interest-bearing liabilities anticipated to reprice
within 5 years. Demand and NOW accounts, decreased from $229.4 million at
December 31, 1998 to $173.1 million at December 31, 1999. NOW accounts are
assumed to be withdrawn within 5 years; these assumed withdrawal rates are based
upon management's estimate of the impact of a substantial and sustained rise in
interest rates. At December 31, 1999, the Company had outstanding $90.5 million
of borrowings from the Federal Home Loan Bank of New York (the "FHLB"), a
decrease of $97.9 million from December 31, 1998, and had $81.5 million in other
borrowings at December 31, 1999 compared to $71.3 million at December 31, 1998.

     Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods of repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict the magnitude of changes in interest rates on a
short-term basis and over the life of the asset. Further, in the event of
changes in interest rate, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table. Finally,
should interest rates increase, the ability of borrowers to service their debt
may decrease.

                                       16
<PAGE>

     As part of the Company's management of interest rate risk, interest rate
swap agreements are utilized to modify the repricing characteristics of certain
portions of the deposit portfolio. Revenue and expense arising from these
agreements are reflected in the rates paid on deposits. The notional amount of
the interest rate swaps outstanding at December 31, 1999 was $60.0 million.
Under the terms of the swap agreements, the Company pays a variable rate of
interest and receives a fixed rate of interest based upon the notional amount
outstanding. The Company estimates that as of December 31, 1999, it would have
paid approximately $1.5 million if all interest rate swaps entered into had been
terminated. This estimated fair value of the interest rate swaps results from
the effects of changing interest rates and should be considered in the context
of the entire balance sheet and the Company's overall interest rate risk
profile. Changes in the estimated fair value of the interest rate swaps are not
reflected in the consolidated financial statements.

     At year end, the Bank conducted a rate shock test of all rate-sensitive
assets and liabilities. The test is a simulation of the impact an instantaneous
change in interest rates would have on the Bank's net interest income. The test
is conducted in two parts. First, all rates are raised 1 percent and annualized
net interest income is determined, then rates are lowered by 1 percent and net
interest income is again measured. The results are compared with anticipated
results when interest rates do not change. With rates raised 1 percent, the test
indicated an increase in net interest income of $119,000. When rates were
lowered 1 percent, the test indicated an increase in net interest income of
$202,000. The test assumes that all categories of rates will move at the same
time and by the same amount. The test further assumes that depositor and
borrower preferences will not change, and therefore the composition of the
Company's balance sheet, will remain unchanged. There can be no assurance that
if interest rates did move by 1% that the Company's results of operations would
be impacted as indicated by these tests.

     The Company's primary sources of funds have consisted of deposits,
amortization and prepayments of outstanding loans and mortgage-backed
securities, bond maturities, and such other sources as long- and short-term
borrowings, and sales of investment securities, loans, and mortgage-backed
securities. Scheduled maturities of borrowings during 2000 are $119.0 million.
Of these borrowings, $67.5 million are advances from the Federal Home Loan Bank
which are anticipated to be renewed. See Note 9 of Notes to Consolidated
Financial Statements for details. The remainder of borrowings are short-term in
nature, and the Company anticipates these to be renewed. Savings certificates
which are scheduled to mature during 2000 total $981.8 million. Management
expects that a substantial portion of these maturing certificates will remain on
deposit with the Company. At December 31, 1999, the Company had $53.0 million of
long-term borrowings. See Note 9 of Notes to Consolidated Financial Statements
for details.

     The liquidity of the Company's operations, measured by the ratio of cash
and cash equivalents (not committed, pledged or required to liquidate specific
liabilities) to the sum of net withdrawable deposits and borrowings payable
within one year, averaged 3.95% in 1997, 4.36% in 1998, and 4.32% in 1999.

     The primary source of cash and cash equivalent resources for the Company on
an unconsolidated basis is dividends from the Bank. During 1999, the Bank paid
$9.7 million of dividends to the Company. The payment of such dividends by the
Bank is subject to various regulatory and other restrictions.

CAPITAL
--------------------------------------------------------------------------------

Shareholders' equity increased from $154.1 million in 1998 to $154.5 million in
1999. The 1999 net income of $18.2 million and $2.0 million in new capital
received as a result of the exercise of stock options, were offset by the
unrealized depreciation of $10.2 million recognized under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," and cash
dividends paid on common stock of $9.7 million. At year-end 1997, 1998, and
1999, the Company's book value per common share was $13.92, $15.35, and $15.11,
respectively.

     Capital adequacy is an important indicator of financial stability and
performance. Overall, the Company's capital position remains strong with a ratio
of total shareholders' equity to total assets of 6.89% at December 31, 1999, and
7.22% at December 31, 1998.

     Banking industry regulators define minimum capital ratios for bank holding
companies and their bank subsidiaries. The Board of Governors of the Federal
Reserve System and the Federal Deposit Insurance Corporation (the "FDIC") also
have adopted regulations which group holding companies and banks into five broad
categories based on certain capital ratios. The five categories are "well
capitalized," "adequately capitalized," "under capitalized," "significantly
undercapitalized," and "critically undercapitalized." The Company and the Bank
met the requirements for "well capitalized" at December 31, 1999. Under the
capital rules, the Bank's Tier I and total capital to risk-adjusted assets
ratios at December 31, 1999 were 9.83% and 11.08%, respectively. These compare
favorably with the minimum requirements of 4.00% for Tier I and 8.00% for total
capital. At December 31, 1999, the Bank's leverage ratio was 7.85%,
substantially higher than the minimum requirement of 4.00%.

                                       17
<PAGE>

     The following table presents the Bank's capital position at the dates
indicated based on the current capital guidelines:

<TABLE>
<CAPTION>
Capital Analysis                                                                Years Ended December 31,
(Dollars in Thousands)                                                     1999           1998           1997
-----------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>             <C>
Tier I:
    Common Shareholders' Equity                                        $   170,060    $   159,759     $  137,439
    Adjusted for FASB No. 115                                                9,758           (425)           768
    Adjusted for unamortized goodwill                                       (1,598)        (1,983)        (2,370)
-----------------------------------------------------------------------------------------------------------------
       Total Tier I capital                                                178,220        157,351        135,837
-----------------------------------------------------------------------------------------------------------------

Tier II:
    Allowable portion of reserve for possible credit losses                 22,748         20,962         18,337
-----------------------------------------------------------------------------------------------------------------
       Total Tier II capital                                                22,748         20,962         18,337
-----------------------------------------------------------------------------------------------------------------
           Total risk-based capital                                    $   200,968    $   178,313     $  154,174
=================================================================================================================

 Risk-adjusted assets                                                   $1,813,436     $1,672,848     $1,463,023
-----------------------------------------------------------------------------------------------------------------
 Total average assets                                                    2,269,046      2,114,384      1,771,420
-----------------------------------------------------------------------------------------------------------------

Amount by which capital exceeds minimum requirements:
   Tier I capital/risk-adjusted assets                                 $   105,683   $     90,437    $    77,316
-----------------------------------------------------------------------------------------------------------------
   Total risk-based capital/risk-adjusted assets                            55,893         44,485         37,132
-----------------------------------------------------------------------------------------------------------------
   Tier I capital/total average assets (leverage ratio)                    110,149         93,919         82,694
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
Capital Ratios                                       Regulatory                    Years Ended December 31,
                                                      Minimums               1999            1998           1997
-----------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                    <C>             <C>            <C>
Tier I capital/risk-adjusted assets                       4.0%               9.83%           9.41%          9.28%
-----------------------------------------------------------------------------------------------------------------
Total risk-based capital/risk-adjusted assets             8.0               11.08           10.66          10.54
-----------------------------------------------------------------------------------------------------------------
Tier I capital/total average assets (leverage ratio)     3.0 to 5.0          7.85            7.44           7.67
=================================================================================================================
</TABLE>

EARNINGS PERFORMANCE
--------------------------------------------------------------------------------
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, mainly loans and investments, and interest expense on interest-bearing
liabilities, primarily deposits and borrowings. The Company's operating results
also are affected by credit losses, operating expenses, the level of other
income, including gains or losses on sale of loans and securities, and other
fees.

                                       18
<PAGE>

     The following table sets forth, for and at the periods indicated,
information regarding (i) the total dollar amount of interest income from
interest-earning assets and the resulting average yields, (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost, (iii) net interest income, (iv) interest rate spread, (v) interest
rate margin, and (vi) ratio of interest-earning assets to interest-bearing
liabilities. No tax equivalent adjustments were made.

<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                      1999                      1998                      1997
(Dollars in Thousands)                        Interest     Yield/Rate  Interest      Yield/Rate   Interest    Yield/Rate
--------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>         <C>           <C>          <C>         <C>
Interest-earning assets:
    Commercial loans                         $  78,619         9.03%   $  70,634         9.65%    $  58,265        9.77%
    Consumer loans:
       Passbook                                     15        12.10           20        10.93            33       12.18
       Overdraft checking                          116        13.38          144        11.60           174       20.14
       Business line of credit                     138        11.13          111        10.87             9       10.11
       Credit cards                              1,560        16.31        1,559        16.14         1,416       15.56
       Personal-direct                           7,958         9.55        7,409         9.77         6,340        9.83
       Personal-indirect-new auto                4,674         8.28        4,247         8.70         3,998        8.56
       Personal-indirect-used auto              16,484         9.39       12,914         9.41         8,502        9.27
       Personal-indirect-mobile homes            5,986         9.93        4,802         9.64         3,393        9.54
       Personal-indirect-other                   2,090         8.55        1,298         9.21           403        9.77
       Home Equity Line of Credit                2,704         8.59        3,056         9.16         3,082        9.36
       Checkcard reserve                           930        44.31          622        42.34           269       28.80
       Student                                     203         7.75          291         7.91           170        4.79
--------------------------------------------------------------------------------------------------------------------------
         Total consumer loans                   42,858         9.57       36,473         9.69        27,789        9.57
--------------------------------------------------------------------------------------------------------------------------
    Mortgage loans:
       Residential-fixed                         7,607         7.27        8,577         7.69         8,637        8.14
       Commercial-fixed                            726         8.36          518         7.90           651        8.84
       Residential-adjustable                    6,131         7.68        7,782         7.57        10,035        7.91
       Commercial-adjustable                    14,281         8.80       14,263         9.21        15,021        8.93
--------------------------------------------------------------------------------------------------------------------------
         Total mortgage loans                   28,745         8.09       31,140         8.29        34,344        8.41
--------------------------------------------------------------------------------------------------------------------------
    Investment securities                       25,038         5.95       25,926         6.81        20,398        6.69
    Mortgages held for sale                        779         9.38        1,127         8.03           352        7.96
    Federal funds sold                             682         4.91          866         5.46           200        5.68
--------------------------------------------------------------------------------------------------------------------------
         Total interest-earning assets       $ 176,721         8.35%    $166,166         8.77%     $141,348        8.79%
--------------------------------------------------------------------------------------------------------------------------

Interest-bearing liabilities:
    Deposits:
       Savings                               $   4,930         2.57%  $    5,189         2.83%    $   5,071        2.88%
       Money market                             13,357         4.06       12,900         4.29        12,435        4.49
       Certificates of deposit                  55,655         5.27       52,829         5.62        41,426        5.62
       NOW                                       1,600         1.62        1,469         1.60         1,248        1.50
--------------------------------------------------------------------------------------------------------------------------
         Total deposits                         75,542         4.20       72,387         4.50        60,180        4.47
--------------------------------------------------------------------------------------------------------------------------
  Borrowings                                    11,548         5.11       11,324         5.45        11,272        5.76
  Mandatorily redeemable
    preferred securities                         2,486         8.29        1,075         8.07
--------------------------------------------------------------------------------------------------------------------------
         Total interest-bearing liabilities     89,576         4.36       84,786         4.63        71,452        4.63
--------------------------------------------------------------------------------------------------------------------------
Net interest income                          $  87,145                 $  81,380                 $   69,896
==========================================================================================================================
Interest rate spread                                           3.99%                     4.14%                     4.16%
==========================================================================================================================
Interest rate margin                                           4.12                      4.30                      4.35
==========================================================================================================================
Ratio of interest-earning assets
  to interest-bearing liabilities                              1.03x                     1.04x                     1.04x
==========================================================================================================================
</TABLE>

                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                   1999 Compared to 1998                 1998 Compared to 1997
                                                      Increase (Decrease)                 Increase (Decrease)
(Dollars in Thousands)                           Volume       Rate           Net       Volume       Rate        Net
-------------------------------------------------------------------------------------------------------------------
<S>                                             <C>        <C>          <C>           <C>          <C>      <C>
Interest income on interest-
    earning assets:
    Commercial loans                            $12,736    $(4,751)     $  7,985      $13,093      $(724)   $12,369
    Consumer loans                                6,843       (458)        6,385        8,331        353      8,684
    Mortgage loans                               (1,660)      (735)       (2,395)      (2,719)      (485)    (3,204)
    Investment securities and other               2,065     (3,485)       (1,420)       6,548        421      6,969
-------------------------------------------------------------------------------------------------------------------
       Total                                     19,984     (9,429)       10,555       25,253       (435)    24,818
-------------------------------------------------------------------------------------------------------------------
Interest expense on interest-
    bearing liabilities:
    Savings                                         231       (490)         (259)         159        (41)       118
    Money market                                  1,179       (722)          457          477        (12)       465
    Certificates of deposit                       6,228     (3,402)        2,826       11,403                11,403
    NOW                                             113         18           131          133         88        221
-------------------------------------------------------------------------------------------------------------------
       Total deposits                             7,751     (4,596)        3,155       12,172         35     12,207
    Borrowings                                    1,906       (271)        1,635        1,162        (35)     1,127
-------------------------------------------------------------------------------------------------------------------
       Total                                      9,657     (4,867)        4,790       13,334                13,334
-------------------------------------------------------------------------------------------------------------------
 Net interest income                            $10,327    $(4,562)       $5,765      $11,919      $(435)   $11,484
===================================================================================================================
</TABLE>

The above table presents changes in interest income and interest 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
proportionately to the change due to volume and the change due to rate.

Net Interest Income

Net interest income is determined by the difference between rates earned on
interest-earning assets and the rates paid on interest-bearing liabilities
(interest rate spread), and the relative amounts of interest-earning assets and
interest-bearing liabilities. The interest income and the cost of funds of
financial institutions are significantly affected by general economic
conditions, policies of regulatory authorities, and other factors.

     The Company earned net interest income of $69.9 million, $81.4 million, and
$87.1 million in 1997, 1998, and 1999, respectively. The Company's interest rate
spread decreased from 4.16% in 1997 to 4.14% in 1998 to 3.99% in 1999. The
increase in average balances offset the decrease in the interest rate spread to
produce a 16.4% increase in net interest income from 1997 to 1998 and a 7.1%
increase from 1998 to 1999.

Interest on Commercial Loans

Growth in commercial lending continued in 1999 with the average balance of
commercial loans increasing from $596.1 million in 1997, to $731.8 million in
1998, and to $870.3 million in 1999. The yields on these loans decreased from
9.77% in 1997 to 9.65% in 1998 to 9.03% in 1999. The Prime Rate was 8.50% in
1997, decreased to 7.75% in 1998, and increased to 8.50% in 1999. During this
three year period, the interest on commercial loans was $58.3 million, $70.6
million, and $78.6 million, respectively, due to the steady growth in the
balance of this portfolio. The yield on approximately 80% of the commercial loan
portfolio fluctuates with changes in Prime. Yields on the balance of the
portfolio are fixed for up to five years with adjustments based on other market
indices.

Interest on Consumer Loans

Interest on consumer loans consists of interest on passbook, personal, direct
and indirect auto and mobile home, student loans, credit cards, overdraft
checking, checkcard reserve, and home equity line of credit.

     The consumer loan portfolio has continued to grow and has continued to be
among the highest yielding assets of the Company. Average balances for the years
1997, 1998, and 1999 were $290.4 million, $376.3 million, and $448.0 million,
respectively. Yields on all consumer loans for 1997, 1998, and 1999 were 9.57%,
9.69%, and 9.57%, respectively. Interest income on all these loans continued to
increase for the three-year period 1997 through 1999 with income of $27.8
million in 1997, $36.5 million in 1998, and $42.9 million in 1999.

     The Company continues to emphasize the origination of direct and indirect
auto and mobile home loans. The single biggest area of consumer loan growth has
been in indirect used auto loans. The average balance of these loans have grown
from $91.8 million in 1997, to $137.2 million in 1998, and to $175.5 million in
1999. The average rates

                                       20
<PAGE>

paid on these loans remains relatively high as well, providing yields of 9.27%,
9.41%, and 9.39% for the years 1997, 1998, and 1999, respectively. Accordingly,
income provided from these loans has also risen from $8.5 million in 1997 to
$12.9 million in 1998, and finally $16.5 million in 1999. Indirect mobile home
loans have shown a 24.7% growth in interest income from 1998 to 1999. This has
resulted from an increase in average balance from $49.8 million in 1998 to $60.3
million in 1999, with yields of 9.64% in 1998 to 9.93% in 1999. Direct personal
loans have steadily increased for 1997, 1998, and 1999. Average balances have
increased from $64.5 million in 1997, to $75.8 million in 1998, and to $83.3
million in 1999. This has generated interest income of $6.3 million in 1997 with
an average yield of 9.83%, $7.4 million in 1998 with an average yield of 9.77%,
and $8.0 million in 1999 with an average yield of 9.55%.

Interest on Mortgage Loans

Interest on mortgage loans consists of interest on fixed- and adjustable-rate
residential mortgages and fixed- and adjustable-rate commercial real estate
mortgages.

     Interest on mortgage loans declined $3.2 million from 1997 to 1998, and
declined $2.4 million from the twelve months ended December 31, 1998 to $28.7
million for the twelve months ended December 31, 1999. The average balance of
all mortgage loans declined from $408.5 million at December 31, 1997 to $375.8
million at December 31, 1998, to $355.3 million at December 31, 1999, and was
the primary cause of the decline in the interest income earned on these loans.
Yields on mortgage loans declined from 8.41% for 1997 to 8.29% for 1998, and
declined to 8.09% for the twelve months ended December 31, 1999. The Bank
continues to sell fixed-rate residential mortgage loans, with $111.7 million of
loans sold in 1999 compared to $136.2 million in 1998. No residential mortgage
loans were securitized in 1999, while $43.8 million were securitized in 1998.
The decrease in sales and securitizations was a result of the $80.3 million
decline of fixed-rate residential mortgage loan originations from 1998 to 1999.

     The average balance of adjustable-rate residential mortgages decreased from
$126.8 million in 1997 to $102.8 million in 1998, and declined to $79.8 million
in 1999. Adjustable-rate residential mortgage originations declined from $8.6
million in 1997 to $4.1 million in 1998, and increased to $4.8 million in 1999.
The fluctuation in origination levels is primarily a result of changing consumer
preferences for fixed-versus adjustable-rate loans as changes occur from time to
time in the rate differential between the two.

     The average balance of adjustable-rate commercial real estate loans
decreased from $168.2 million in 1997 to $154.9 million in 1998. The yields on
these loans increased from 8.93% in 1997 to 9.21% in 1998. This resulted in a
decrease in interest income from these loans from $15.0 million in 1997 to $14.3
million in 1998. Although the average balance of adjustable-rate commercial real
estate loans increased $7.4 million to $162.2 million in 1999, the average yield
decreased to 8.80% resulting in interest income of $14.3 million for the year.

Interest and Dividends on Investments

The practice of the Company has been to reduce fixed-rate, long-term investments
and to acquire assets with shorter maturities or shorter estimated lives. The
average balance of investment securities was $304.9 million in 1997, $380.4
million in 1998, and $420.5 million in 1999. Interest and dividends on
investment securities were $20.4 million in 1997, $25.9 million in 1998, and
$25.0 million in 1999. The yields on these assets increased from 6.69% in 1997
to 6.81% in 1998, and decreased to 5.95% in 1999.

Interest on Deposits

Deposit balances continued to rise. In 1997, the average balance of all deposits
was $1,347.0 million, rising to $1,608.8 million in 1998. In 1999, average
balances rose $191.3 million to $1,800.1 million. Customer preference fuels
changes in deposit balances; this is reflected in an increase in savings account
average balances from $175.8 million in 1997 to $191.7 million in 1999, with a
minimal change in the rates during that time. Augmenting this level in savings
average balances was a growth in the average balance of money market deposits.
Average balances for these deposits for the years 1997, 1998, and 1999 were
$277.2 million, $300.4 million, and $329.1 million. This increase in money
market average balances accompanied a decrease in the rates from 4.49% in 1997
to 4.29% in 1998. Interest expense was $12.4 million for 1997 rising to $12.9
million in 1998. With the increase in average balance and the decrease in the
average rate paid in 1999 to 4.06%, interest expense rose to $13.4 million for
the year. The growth in the certificates of deposit balances was the major
reason why the interest expense on these products rose from $52.8 million in
1998 to $55.7 million in 1999. Average balances of certificates of deposits have
steadily increased from $736.9 million, $940.7 million, and $1,055.4 million in
1997, 1998, and 1999, respectively. With the average rate of certificates of
deposit remaining constant at 5.62% in 1997 and 1998, the average rate declined
to 5.27% in 1999. The Bank continues to monitor the cost and the availability of
deposits against the cost and levels of borrowing to determine the best funding
sources for the growth seen in the loan portfolios.

                                       21
<PAGE>

Interest on Borrowings

The average balance of borrowings increased from $195.8 million in 1997 to
$207.7 million in 1998. The cost of borrowings decreased from 5.76% in 1997 to
5.45% in 1998, and interest paid on borrowings remained constant at $11.3
million from 1997 to 1998. The average balance of borrowings during 1999
increased to $225.8 million, and offset with a decrease in the average interest
rate paid on borrowings to 5.11%, caused interest paid on borrowings to increase
marginally to $11.5 million. This source of funding is used to supplement or
enhance retail and business deposits that in turn provide the funds for asset
growth. See Note 9 in Notes to Consolidated Financial Statements.

Provision for Credit Losses

The provision for credit losses was $10.8 million, $12.9 million, and $19.1
million for the years 1997, 1998, and 1999, respectively. The growth in the
commercial and consumer loan portfolio continued, and management increased the
allowance for possible credit losses in 1998 to $25.0 million. Net charge-offs
increased from $8.2 million in 1997, to $9.7 million in 1998, and to $15.0
million in 1999. Impacting the 1999 provision was the charge-off of a single
commercial loan for $3.3 million, as previously noted. In 1999, as the
commercial and consumer loan portfolios continued to increase, management
increased the allowance for possible credit losses to $29.1 million. With this
provision increase in 1999, the Bank was able to increase the allowance for
possible credit losses to 1.69% of loans outstanding at December 31, 1999 from
1.59% at December 31, 1998.

Gains (Losses) on Sale of Investments

As a result of investment security sales, the Company had net security gains of
$380,000 in 1997. During 1998, the Company had net losses of $851,000, and in
1999, had net losses of $231,000.

Gains (Losses) on Sale of Loans

The losses on the sale of mortgages were $297,000 in 1997 and $573,000 in 1998.
These losses were principally the result of the Company selling and securitizing
mortgages. During 1999, the losses on sale of mortgages was $363,000.

Non-interest Income

As shown in the chart below, non-interest income increased from $8.1 million in
1997 to $10.0 million in 1998, and increased to $13.0 million in 1999. Trust
fees, service charges on deposit accounts, and other fees and commissions
reflected significant increases for 1997 and 1998. Mortgage servicing fees
continued to rise as the servicing portfolio continued to increase. Fees and
commissions from brokerage services increased as investors using this service
had more activity in the market increasing in 1997 through 1998 and 1999. Other
charges, commissions, and fees was enhanced by a $1.0 million recovery on a
letter of credit that had initially been reserved for in 1993.

<TABLE>
<CAPTION>
                                                 Analysis of Non-Interest Income         Percent Change
(Dollars in Thousands)                          1999           1998          1997      1999-98   1998-97
----------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>         <C>       <C>
Service charges on deposit accounts          $ 4,382        $ 3,714        $3,297         18.0%     12.6%
Credit card fees                               1,667          1,275           893         30.7      42.8
Mortgage servicing fees                        1,356          1,294         1,142          4.8      13.3
Fees and commissions-brokerage services          796            518           407         53.7      27.3
Trust fees                                     1,104            994           709         11.1      40.2
Other charges, commissions, and fees           3,660          2,224         1,617         64.6      37.5
----------------------------------------------------------------------------------------------------------------
                                             $12,965        $10,019        $8,065         29.4%     24.2%
=================================================================================================================
</TABLE>

Operating Expense

     Operating expense increased from $36.9 million in 1997 to $42.0 million in
1998 and to $50.7 million in 1999. The increase from 1997 to 1998 reflected the
growth of interchange fees on credit cards to $925,000 which is consistent with
the growth of credit card fee income to $1.3 million for 1998. The increase in
operating expenses from 1998 to 1999 was largely the result of $5.4 million of
costs relating to the acquisition of Skaneateles Bancorp, Inc. The largest
components of this transaction were $1.3 million for severance agreements and
$2.0 million for exit costs.

     Since a substantial portion of operating expense relates directly to income
generation, an effective measurement of the control of operating expense is the
Efficiency Ratio. This ratio consists of operating expense divided by recurring
revenues (net interest income and non-interest income) on a pre-tax basis. The
Efficiency Ratio for the

                                       22
<PAGE>

Company, excluding acquisition charges of $5.4 million for 1999, was 47.38%,
45.93%, and 45.21% for 1997, 1998, and 1999, respectively. The Company's ratio
of operating expense to average assets was 2.18% in 1997, 2.10% in 1998, and
2.27% in 1999. Both ratios reflect the attention paid to expense control by
management and staff.

INCOME TAXES
--------------------------------------------------------------------------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
an asset and liability approach to recognizing the tax effects of temporary
differences between tax and financial reporting. See Note 14 of Notes to
Consolidated Financial Statements for details.

     The Company is subject to New York State and Delaware franchise taxes.
State taxes amounted to $2.5 million in 1997, $2.7 million in 1998, and $2.4
million in 1999.

IMPACT OF INFLATION AND CHANGING PRICES
--------------------------------------------------------------------------------
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the price of goods and services.

OTHER MATTERS
--------------------------------------------------------------------------------
New Accounting Pronouncements

The Statement on Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities", will be
effective for the Company's fiscal year beginning on January 1, 2001. This
statement requires all derivative instruments to be carried on the balance sheet
at fair value. Changes in fair value are recorded in either comprehensive income
or net income, depending on the nature of the derivative instrument. The Company
currently holds interest rate swaps which it expects will qualify as hedges
under SFAS No. 133. The Company does not expect this pronouncement to have a
significant effect on its financial statements.

Year 2000

Prior to December 31, 1999, the Company had implemented a review and a strategic
plan to deal with the issues related to the arrival of the year 2000. This
review and strategic plan was successful as no problems were noted with the
arrival of 2000.

MARKET PRICES AND RELATED SHAREHOLDER MATTERS
--------------------------------------------------------------------------------
The common stock of the Company is listed on The Nasdaq Stock Market National
Market Tier under the symbol "BSBN". As of December 31, 1999, the Company had
2,330 shareholders of record and 10,225,322 shares of common stock issued and
outstanding. The number of shareholders does not reflect persons or entities who
hold their stock in nominee or "street" name through various brokerage firms.

     Payment of dividends on the Company's common stock is subject to various
restrictions and limitations which may affect the Company's ability to pay cash
dividends in the future.

                                       23
<PAGE>

The following table sets forth the market price information for the common stock
and the cash dividends paid per share:

<TABLE>
<CAPTION>
                                            1999
                                         Price Range        Cash Dividends
                                     High            Low         Per Share
--------------------------------------------------------------------------
<S>                                <C>            <C>       <C>
First Quarter                      $32.68         $24.25             $0.22
Second Quarter                      28.00          24.25              0.23
Third Quarter                       27.63          24.00              0.25
Fourth Quarter                      24.88          18.50              0.25

<CAPTION>
                                            1998
                                         Price Range        Cash Dividends
                                     High            Low         Per Share
--------------------------------------------------------------------------
<S>                                <C>            <C>       <C>
First Quarter                      $36.00         $28.00             $0.20
Second Quarter                      35.25          27.50              0.20
Third Quarter                       32.75          25.63              0.20
Fourth Quarter                      33.00          22.00              0.23
</TABLE>


                                       24
<PAGE>

REPORT OF INDEPENDENT AUDITORS


THE BOARD OF DIRECTORS
BSB BANCORP, INC.
BINGHAMTON, NEW YORK

In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated statements of condition and the related consolidated
statements of income, changes in shareholders' equity and cash flows present
fairly, in all material respects, the financial position of BSB Bancorp, Inc.
(the "Company") and Subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements give retroactive effect to the merger of Skaneateles
Bancorp, Inc. on July 1, 1999 in a transaction accounted for as a pooling of
interests, as described in Note 1 to the consolidated financial statements. We
did not audit the financial statements of Skaneateles Bancorp, Inc., which
statements reflect total assets of $276,148,000 as of December 31, 1998 and net
interest income of $10,642,000 and $9,532,000 for the years ended December 31,
1998 and 1997, respectively. Those statements were audited by other auditors
whose report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Skaneateles Bancorp, Inc., is
based solely on the report of the other auditors. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


PricewaterhouseCoopers LLP


Syracuse, New York
January 21, 2000

                                       25
<PAGE>

BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION

<TABLE>
<CAPTION>
                                                                                                       December 31,
(Dollars in Thousands, Except Share Data)                                                    1999              1998
-------------------------------------------------------------------------------------------------------------------
<S>                   <C>                                                            <C>                <C>
ASSETS                Cash and due from banks                                        $     70,065       $    45,987
                      Federal funds sold                                                                     24,300
                      ---------------------------------------------------------------------------------------------
                          Total cash and cash equivalents                                  70,065            70,287
                      Investment securities available for sale                            387,251           415,000
                      Investment securities held to maturity                               14,472            12,537
                      Mortgages held for sale                                               2,085            16,806
                      Loans:
                          Commercial                                                      904,632           802,474
                          Consumer                                                        467,986           410,787
                          Real estate                                                     349,634           364,648
                      ---------------------------------------------------------------------------------------------
                            Total loans                                                 1,722,252         1,577,909
                      Less: Net deferred fees and costs                                      (636)             (507)
                            Allowance for possible credit losses                           29,134            25,030
                      ---------------------------------------------------------------------------------------------
                                Net loans                                               1,693,754         1,553,386
                      Bank premises and equipment                                          15,988            15,864
                      Accrued interest receivable                                          14,612            16,352
                      Other real estate                                                       910             3,021
                      Intangible assets                                                     1,598             1,984
                      Other assets                                                         40,213            30,090
                      ---------------------------------------------------------------------------------------------
                                                                                       $2,240,948        $2,135,327
                      =============================================================================================

LIABILITIES           Due to depositors                                                $1,901,204        $1,709,860
AND                   Borrowings                                                          142,045           229,736
SHAREHOLDERS'         Other liabilities                                                    13,206            11,640
EQUITY                Company obligated mandatorily redeemable preferred
                          securities of subsidiary, Capital Trust I, holding
                          solely junior subordinated debentures
                          of the Company                                                   30,000            30,000
                      Commitments
                      Shareholders' Equity:
                          Preferred stock, par value $.01 per share;
                            2,500,000 shares authorized; none issued
                          Common stock, par value $.01 per share;
                            30,000,000 shares authorized; 11,398,991 and
                            11,237,470 shares issued                                          114               112
                      Additional paid-in capital                                           37,287            35,202
                      Undivided profits                                                   140,295           131,723
                      Accumulated other comprehensive income                               (9,757)              425
                      Treasury stock, at cost; 1,173,669 and 1,196,396 shares             (13,446)          (13,371)
                      ---------------------------------------------------------------------------------------------
                      Total shareholders' equity                                          154,493           154,091
                      ---------------------------------------------------------------------------------------------
                                                                                       $2,240,948        $2,135,327
                      =============================================================================================
</TABLE>

                      The accompanying notes are an integral part of the
financial statements.
                                       26
<PAGE>

BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
(Dollars in Thousands, Except Share Data)                                   1999             1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>               <C>
Interest income:
   Interest and fees on loans                                           $150,222         $138,247          $120,398
   Interest on federal funds sold                                            682              866               200
   Interest on investment securities                                      25,038           25,926            20,398
   Interest on mortgages held for sale                                       779            1,127               352
-------------------------------------------------------------------------------------------------------------------
     Total interest income                                               176,721          166,166           141,348
-------------------------------------------------------------------------------------------------------------------
Interest expense:
   Interest on savings deposits                                            4,930            5,189             5,071
   Interest on time accounts                                              55,655           52,829            41,426
   Interest on money market deposit accounts                              13,357           12,900            12,435
   Interest on NOW accounts                                                1,600            1,469             1,248
   Interest on borrowed funds                                             11,548           11,324            11,272
   Interest on mandatorily redeemable securities of subsidiary             2,486            1,075
-------------------------------------------------------------------------------------------------------------------
     Total interest expense                                               89,576           84,786            71,452
-------------------------------------------------------------------------------------------------------------------
Net interest income                                                       87,145           81,380            69,896
Provision for credit losses                                               19,137           12,931            10,814
-------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses                     68,008           68,449            59,082
Gains (losses) on sale of securities                                        (231)            (851)              380
Losses on sale of loans                                                     (363)            (573)             (297)
Non-interest income:
   Service charges on deposit accounts                                     4,382            3,714             3,297
   Credit card fees                                                        1,667            1,275               893
   Mortgage servicing fees                                                 1,356            1,294             1,142
   Fees and commissions-brokerage services                                   796              518               407
   Trust fees                                                              1,104              994               709
   Other charges, commissions, and fees                                    3,660            2,224             1,617
-------------------------------------------------------------------------------------------------------------------
     Total non-interest income                                            12,965           10,019             8,065
-------------------------------------------------------------------------------------------------------------------
Operating expense:
   Salaries, pensions, and other employee benefits                        20,386           19,528            17,121
   Building occupancy                                                      4,607            4,377             3,925
   Dealer commission expense                                                 940              996             1,626
   Computer service fees                                                   1,930            2,027             1,358
   Services                                                                6,001            4,086             2,716
   FDIC insurance                                                            222              199               163
   Goodwill                                                                  386              386               386
   Interchange fees                                                        1,286              925               573
   Other real estate                                                         441              127               976
   Acquisition charges                                                     5,408
   Other expenses                                                          9,056            9,332             8,096
-------------------------------------------------------------------------------------------------------------------
     Total non-interest expense                                           50,663           41,983            36,940
-------------------------------------------------------------------------------------------------------------------
Income before income taxes                                                29,716           35,061            30,290
Provision for income taxes                                                11,491           13,542            11,641
-------------------------------------------------------------------------------------------------------------------
NET INCOME                                                              $ 18,225         $ 21,519          $ 18,649
===================================================================================================================
Earnings per share:
   Basic                                                                $   1.80         $    2.15         $   1.88
   Diluted                                                              $   1.77         $    2.08         $   1.82
===================================================================================================================
</TABLE>

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


                                       27
<PAGE>

BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                            Accumulated
                                                                      Additional                                  Other
                                                     Number    Common    Paid-In    Undivided   Treasury  Comprehensive
(Dollars in Thousands, Except Share Data)        of  Shares     Stock    Capital      Profits      Stock         Income       Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>      <C>           <C>         <C>        <C>       <C>              <C>
Balance at December 31, 1996,
   as previously stated                           7,344,427      $ 73    $27,824     $111,465   $(29,757)     $    (876)   $108,729
Adjustments to reflect acquisition                                         4,738       (4,867)    16,415            (58)     16,228
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996, as restated         7,344,427        73     32,562      106,598    (13,342)          (934)    124,957
Comprehensive income:
   Net income                                                                          18,649                                18,649
   Other comprehensive income, net of taxes:
   Unrealized appreciation in
        available for sale securities                                                                               166         166
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income                                                                   18,649                       166      18,815
Effect of three-for-two stock split               3,714,246        37        (37)
Stock options exercised                             101,251         1      1,431                                              1,432
Tax benefit on stock options                                                 138                                                138
Cash dividend paid on common
   stock ($0.69 per share)                                                             (6,804)                               (6,804)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                     11,159,924       111     34,094      118,443    (13,342)          (768)    138,538
Comprehensive income:
   Net income                                                                          21,519                                21,519
   Other comprehensive income, net of taxes:
   Unrealized appreciation in
        available for sale securities                                                                             1,193       1,193
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income                                                                   21,519                     1,193      22,712
Stock options exercised                              77,546         1      1,000                                              1,001
Tax benefit on stock options                                                 108                                                108
Cash dividend paid on common
   stock ($0.83 per share)                                                             (8,239)                               (8,239)
Treasury stock purchased                                                                             (29)                       (29)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                     11,237,470       112     35,202      131,723    (13,371)           425     154,091
Comprehensive income:
   Net income                                                                          18,225                                18,225
   Other comprehensive income, net of taxes:
   Unrealized depreciation in
        available for sale securities                                                                           (10,182)    (10,182)
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income                                                                   18,225                   (10,182)      8,043
Stock options exercised                             161,521         2      1,976                                              1,978
Tax benefit on stock options                                                 109                                                109
Cash dividend paid on common
   stock ($0.95 per share)                                                             (9,653)                               (9,653)
Treasury stock purchased                                                                             (75)                       (75)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                     11,398,991      $114    $37,287     $140,295   $(13,446)     $  (9,757)   $154,493
===================================================================================================================================
</TABLE>

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



                                       28
<PAGE>

BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                              Years Ended December 31,
(Dollars in Thousands)                                                                   1999           1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>              <C>            <C>
Operating activities:
    Net income                                                                       $ 18,225        $21,519        $18,649
       Adjustments to reconcile net income to net cash provided (used)
          by  operating activities:
              Deferred taxes                                                             (528)        (1,662)          (629)
              Provision for credit losses                                              19,137         12,931         10,814
              Realized losses (gains) on available for sale investment securities         231            851           (380)
              Other losses, net                                                           357             23             59
              Depreciation and amortization                                             2,869          2,581          2,423
              Net amortization of premiums and discounts on investment securities        (617)        (1,532)          (194)
              Net (accretion) of premiums and discounts on loans                         (130)          (780)
              Sales of loans originated for sale                                       53,722         83,144         48,150
              Net increase in loans originated for sale                               (39,945)      (102,564)       (53,606)
              Writedowns of other real estate                                           1,276            943          1,011
              Net change in other assets and liabilities                                  934        (24,064)        (2,143)
---------------------------------------------------------------------------------------------------------------------------
                 Net cash provided (used) by operating activities                      55,531         (8,610)        24,154
---------------------------------------------------------------------------------------------------------------------------
Investing activities:
    Proceeds from calls of held to maturity investment securities                       5,284         11,295         17,046
    Purchases of held to maturity investment securities                               (11,872)        (3,939)        (6,159)
    Principal collected on held to maturity investment securities                         647            745          2,101
    Proceeds from sales of available for sale investment securities                    71,196        192,642        182,700
    Purchases of available for sale investment securities                             (89,964)      (305,896)      (219,988)
    Principal collected on available for sale investment securities                    33,367         26,608         30,113
    Net increase in longer-term loans                                                (220,812)      (260,085)      (254,942)
    Proceeds from sales of loans                                                       60,654         57,046         35,126
    Proceeds from sales of other real estate                                            1,763          2,136          1,747
    Other                                                                              (2,608)        (2,402)        (2,517)
---------------------------------------------------------------------------------------------------------------------------
                 Net cash used by investing activities                               (152,345)      (281,850)      (214,773)
---------------------------------------------------------------------------------------------------------------------------
Financing activities:
    Net increase in demand deposits, NOW accounts, savings
       accounts, and money market deposit accounts                                     71,351         64,025         53,837
    Net increase in time deposits                                                     119,993        188,528         80,608
    Net change in short-term borrowings                                               (36,224)       (33,943)        57,935
    Net change in long-term borrowings                                                (50,778)        66,980             82
    Net proceeds from issuance of capital securities                                                  30,000
    Proceeds from exercise of stock options                                             1,978          1,001          1,432
    Purchases of treasury stock                                                           (75)           (29)
    Dividends paid                                                                     (9,653)        (8,239)        (6,804)
---------------------------------------------------------------------------------------------------------------------------
                 Net cash provided by financing activities                             96,592        308,323        187,090
---------------------------------------------------------------------------------------------------------------------------
                 (Decrease) increase in cash and cash equivalents                        (222)        17,863         (3,529)
Cash and cash equivalents at beginning of year                                         70,287         52,424         55,953
---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                             $ 70,065        $70,287        $52,424
===========================================================================================================================
Supplemental disclosures of cash flow information:
    Cash paid during the year for:
       Interest credited on deposits and paid on other borrowings                    $ 87,559        $83,734        $70,294
---------------------------------------------------------------------------------------------------------------------------
       Income taxes                                                                  $ 13,043        $15,917        $11,655
---------------------------------------------------------------------------------------------------------------------------
    Non-cash investing activity:
       Securitization of mortgage loans and transfers to other real estate                922        $45,613        $ 5,781
---------------------------------------------------------------------------------------------------------------------------
       Unrealized (depreciation) appreciation in securities                          $(17,543)       $ 2,016        $   262
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

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


                                       29
<PAGE>

BSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

Business Combination

In July 1999, BSB Bancorp, Inc., (the "Company") completed its acquisition of
Skaneateles Bancorp, Inc. Pursuant to the terms of the merger, each share of
Skaneateles Bancorp common stock was converted into .97 share of the Company's
common stock, which amounted to approximately 1.4 million shares. The
acquisition constituted a tax-free reorganization and has been accounted for as
a pooling of interests under Accounting Principles Board Opinion No. 16,
"Business Combinations". Accordingly, the consolidated financial statements for
the periods presented have been restated to include the combined results of
operations, financial position and cash flows of BSB Bancorp, Inc. and
Skaneateles Bancorp, Inc. prior to the merger. Certain reclassifications were
made to Skaneateles Bancorp's prior year financial statements to conform to the
Company's presentation.

The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements follow:

<TABLE>
<CAPTION>
                                                                Six Months Ended       Year Ended        Year Ended
                                                                        June 30,     December 31,      December 31,
(Dollars in Thousands)                                                      1999             1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                  <C>               <C>
Net interest income
BSB Bancorp, Inc.                                                        $37,192          $70,738           $60,364
Skaneateles Bancorp, Inc.                                                  5,629           10,642             9,532
-------------------------------------------------------------------------------------------------------------------
Combined                                                                 $42,821          $81,380           $69,896
===================================================================================================================

Net income
BSB Bancorp, Inc.                                                        $10,679          $19,870           $16,987
Skaneateles Bancorp, Inc.                                                   (358)           1,649             1,662
-------------------------------------------------------------------------------------------------------------------
Combined                                                                 $10,321          $21,519           $18,649
===================================================================================================================
</TABLE>

In conjunction with the acquisition, the Company recorded a 1999 charge to
operating expenses of $5.4 million ($3.3 million after tax, or $0.32 per diluted
common share) for direct costs relating to the acquisition. Details of the
acquisition related costs follow:

<TABLE>
<CAPTION>
(Dollars in Thousands)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                                          <C>
Merger transaction costs                                                                                     $2,127
Restructuring costs:
    Employee severance                                                                                        1,318
    Exit costs                                                                                                1,963
-------------------------------------------------------------------------------------------------------------------
                                                                                                             $5,408
===================================================================================================================
</TABLE>

Nature of Operations

The Company is the bank holding company of BSB Bank & Trust Company (the
"Bank"). The Bank is a New York-chartered commercial bank and trust company and
operates 22 full-service branches in Broome, Chemung, Chenango, Onondaga, Oswego
and Tioga Counties of New York State. The Bank is in the business of providing a
wide variety of loan and deposit products to its commercial and consumer
customers, and also provides mortgage banking, trust, municipal, and other
related services.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of the
Bank and the Bank's wholly owned subsidiaries, after elimination of intercompany
accounts and transactions.

                                       30
<PAGE>

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

Cash equivalents include cash and due from banks and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.

Investment Securities

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

     Purchases and sales of securities are recorded as of the settlement date.
Premiums and discounts on securities are amortized and accreted, respectively,
on a systematic basis over the period to maturity, estimated life, or earliest
call date of the related security. Gains or losses on securities sold are
computed based on identified cost.

Mortgages Held For Sale

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

Income Recognition on Impaired and Nonaccrual Loans

Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days. While a loan is classified as nonaccrual and the future
collectibility of the recorded loan balance is doubtful, collections of interest
and principal are generally applied as a reduction to principal outstanding.
When future collectibility of the recorded loan balance is expected, interest
income may be recognized on a cash basis.

Deferred Loan Fees and Costs

Nonrefundable loan fees and related direct costs are deferred and amortized over
the life of the loan as an adjustment of loan yield.

Allowance for Possible Credit Losses

The allowance for possible credit losses is maintained at a level considered
adequate to provide for potential credit losses related to lending activities.
The allowance is increased by provisions charged to expense. The level of the
allowance is based upon management's evaluation of potential losses relating to
outstanding loans, as well as prevailing economic conditions. Loans are charged
against the allowance for possible credit losses when management believes that
the collectibility of principal is unlikely.

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

Banking Premises and Equipment

Banking premises and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related assets (15-50
years for bank premises and 3-10 years for furniture and equipment). Maintenance
and repairs are charged to operating expenses as incurred.

Other Real Estate

Other real estate is comprised of real estate acquired through foreclosure and
is recorded at the lower of cost or fair value (net of estimated costs to sell)
at the date of acquisition.

                                       31
<PAGE>

Intangible Assets

Intangible assets result from acquisitions under the purchase method of
accounting consists of goodwill which is being amortized, on a straight-line
basis, over periods ranging from 7 to 10 years.

Earnings Per Share

Basic and diluted earnings per share are presented for each period in which an
income statement is presented. Basic earnings per share is based on the weighted
average shares actually outstanding for the period. Diluted earnings per share
reflects the dilutive effect of stock options.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:

   Cash and cash equivalents: The carrying amounts reported in the statements of
condition for cash and short-term instruments approximate those assets' fair
value.

   Investment securities: Fair values for investment securities are based on
quoted market prices or dealer quotes.

   Loans and mortgages held for sale: Fair values for loans are estimated using
a discounted cash flow analysis, based on interest rates approximating those
currently being offered for loans with similar terms and credit quality. The
fair value of accrued interest approximates carrying value.

   Deposits: The fair values disclosed for non-interest bearing accounts and
accounts with no stated maturities are, by definition, equal to the amount
payable on demand at the reporting date. The fair value of time deposits was
estimated by discounting expected monthly maturities at interest rates
approximating those currently being offered on time deposits of similar terms.
The fair value of accrued interest approximates carrying value.

   Borrowings and mandatorily redeemable securities: The carrying amounts of
repurchase agreements and other short-term borrowings approximate their fair
values. Fair values of long-term borrowings are estimated using discounted cash
flows, based on current market rates for similar borrowings.

   Off-balance sheet instruments: Off-balance sheet financial instruments
consist of letters of credit, commitments to extend credit, and interest rate
swaps. Letters of credit and commitments to extend credit are fair valued based
on fees and interest rates currently charged to enter into agreements with
similar terms and credit quality. Interest rate swaps are fair valued based upon
amounts receivable or payable to settle outstanding positions. The Company would
expect to receive or pay to terminate such contracts.

Comprehensive Income

Comprehensive income consists of net income and the net change in unrealized
gains or losses on securities available for sale, net of taxes. The Company
reports comprehensive income in the Statements of Changes in Shareholders'
Equity.

Reclassifications

Certain data for prior years has been reclassified to conform to the current
year's presentation. These reclassifications had no effect on net income.

                                       32
<PAGE>

NOTE 2-INVESTMENT SECURITIES
--------------------------------------------------------------------------------

The carrying value and market value of the investment securities portfolio at
December 31 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                   1999
-------------------------------------------------------------------------------------------------------------------
                                                                           Gross            Gross
                                                      Carrying        Unrealized       Unrealized            Market
(Dollars in Thousands)                                   Value             Gains           Losses             Value
-------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>             <C>                 <C>
Available for sale portfolio:
   U.S. Government Agencies                           $201,886          $      6         $  9,455          $192,437
   Municipal obligations                                12,922                 2              347            12,577
   Mortgage-backed securities                          164,156               295            7,226           157,225
   Equity securities                                    25,032                40               60            25,012
-------------------------------------------------------------------------------------------------------------------
                                                      $403,996          $    343         $ 17,088          $387,251
-------------------------------------------------------------------------------------------------------------------
Held to maturity portfolio:
   U.S. Government Agencies                           $  1,020                           $      2          $  1,018
   Corporate debt securities                             1,372                                                1,372
   Municipal obligations                                 9,560          $     74               17             9,617
   Mortgage-backed securities                            2,520                62                1             2,581
-------------------------------------------------------------------------------------------------------------------
                                                      $ 14,472          $    136         $     20          $ 14,588
===================================================================================================================

<CAPTION>
                                                                                  1998
-------------------------------------------------------------------------------------------------------------------
                                                                           Gross            Gross
                                                      Carrying        Unrealized       Unrealized            Market
(Dollars in Thousands)                                   Value             Gains           Losses             Value
-------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>                  <C>
Available for sale portfolio:
   U.S. Government Agencies                           $216,642           $ 1,243         $  1,098          $216,787
   Municipal obligations                                10,359               215                             10,574
   Mortgage-backed securities                          168,704             1,186              811           169,079
   Equity securities                                    18,497                64                1            18,560
-------------------------------------------------------------------------------------------------------------------
                                                      $414,202           $ 2,708         $  1,910          $415,000
-------------------------------------------------------------------------------------------------------------------
Held to maturity portfolio:
   U.S. Government Agencies                           $  1,019           $     5                           $  1,024
   Corporate debt securities                             1,020               300         $    270             1,050
   Municipal obligations                                 7,155               250                1             7,404
   Mortgage-backed securities                            3,343               118                              3,461
-------------------------------------------------------------------------------------------------------------------
                                                      $ 12,537           $   673         $    271          $ 12,939
===================================================================================================================
</TABLE>

The following reflects the net unrealized gains (losses) on available for sale
securities on a before and net of tax basis, including it's effect on other
comprehensive income:

<TABLE>
<CAPTION>
(Dollars in Thousands)                                                      1999             1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>                 <C>
Net unrealized gains (losses) on securities                             $(17,312)         $ 2,867             $(118)
Reclassification adjustment for net realized
    gains (losses) included in net income                                   (231)            (851)              380
-------------------------------------------------------------------------------------------------------------------
Other comprehensive income, before tax                                   (17,543)           2,016               262
Income tax benefit (expense)                                               7,361             (823)              (96)
-------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax                                  $(10,182)         $ 1,193             $ 166
===================================================================================================================
</TABLE>

                                       33
<PAGE>

The carrying value and market value of debt securities at December 31, 1999, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
certain obligations with or without penalties.

<TABLE>
<CAPTION>
                                                                                Carrying            Market
(Dollars in Thousands)                                                             Value             Value
----------------------------------------------------------------------------------------------------------
<S>                                                                           <C>               <C>
Securities available for
    Within one year                                                           $    3,188        $    3,160
    After one year but within five years                                          67,976            66,804
    After five years but within ten years                                        166,126           157,969
    After ten years                                                              141,674           134,306
----------------------------------------------------------------------------------------------------------
                                                                              $  378,964          $362,239
==========================================================================================================

Securities held to maturity:
    Within one year                                                           $    7,476        $    7,467
    After one year but within five years                                           1,359             1,366
    After five years but within ten years                                            952             1,001
    After ten years                                                                4,685             4,754
----------------------------------------------------------------------------------------------------------
                                                                              $   14,472        $   14,588
==========================================================================================================
</TABLE>

The gross realized gains and gross realized losses on investment securities
transactions (dollars in thousands) are summarized below:

<TABLE>
<CAPTION>
                                                                               Available           Held To
Year ended December 31, 1999                                                    For Sale          Maturity
----------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                <C>
Gross gains                                                                      $   253            $    4
Gross losses                                                                         488
----------------------------------------------------------------------------------------------------------
    Net gains                                                                    $  (235)           $    4
==========================================================================================================

Year ended December 31, 1998
----------------------------------------------------------------------------------------------------------
Gross gains                                                                      $   823            $  166
Gross losses                                                                       1,821                19
----------------------------------------------------------------------------------------------------------
    Net gains                                                                    $  (998)           $  147
==========================================================================================================

Year ended December 31, 1997
----------------------------------------------------------------------------------------------------------
Gross gains                                                                      $ 1,159            $    6
Gross losses                                                                         785
----------------------------------------------------------------------------------------------------------
    Net gains                                                                    $   374            $    6
==========================================================================================================
</TABLE>

Investment securities at December 31, 1999 and 1998 include approximately $349.2
million and $351.2 million, respectively, pledged under various agreements,
principally municipal deposits, letters of credit, lines of credit, and
municipal option put securities.

NOTE 3-LOANS
--------------------------------------------------------------------------------

Substantially all of the Bank's loans are granted to borrowers concentrated
primarily within Broome, Chemung Chenango, Onondaga, Oswego, and Tioga Counties,
and other communities located in upstate New York.

                                       34
<PAGE>

NOTE 4-ALLOWANCE FOR POSSIBLE CREDIT LOSSES
--------------------------------------------------------------------------------

Changes in the allowance for possible credit losses at December 31 are presented
in the following summary:

<TABLE>
<CAPTION>
(Dollars in Thousands)                                             1999                  1998                  1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                   <C>                   <C>
Balance at beginning of year                                   $ 25,030              $ 21,768              $ 19,168
Recoveries credited                                               2,360                 1,321                 2,237
Provision for credit losses                                      19,137                12,931                10,814
Loans charged off                                               (17,393)              (10,990)              (10,451)
--------------------------------------------------------------------------------------------------------------------
     Balance at end of year                                    $ 29,134              $ 25,030              $ 21,768
===================================================================================================================
</TABLE>

At December 31, 1999 and 1998, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 totaled $5.5
million and $12.1 million, respectively. A valuation allowance aggregating $1.8
million and $4.4 million was recorded against impaired loans at December 31,
1999 and 1998, respectively. The average recorded investment in impaired loans
was approximately $10.1 million in 1999,$11.0 million in 1998, and $10.4 million
in 1997. The Bank recognized, on a cash basis, $151,000, $347,000, and $356,000
of interest on impaired loans during 1999, 1998, and 1997, respectively (during
the portion of the year they were impaired).

NOTE 5-LOAN SERVICING
--------------------------------------------------------------------------------

Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
mortgage loans serviced for others were $560.0 million and $513.3 million at
December 31, 1999 and 1998, respectively.
     Mortgage servicing rights capitalized and amortization recognized on those
rights were not significant.

NOTE 6-LOANS TO RELATED PARTIES
--------------------------------------------------------------------------------

At December 31, 1999, loans to directors and officers or to entities (or other
shareholders of such entities) which owned or controlled 10% or more of the
Company's voting stock were $24.8 million. During 1999, new loans to such
related parties amounted to $15.2 million and repayments amounted to $2.0
million.

NOTE 7-BANK PREMISES AND EQUIPMENT
--------------------------------------------------------------------------------

A summary of bank premises and equipment at December 31 is shown as follows:

<TABLE>
<CAPTION>
(Dollars in Thousands)                                                                   1999            1998
-------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>             <C>
Land                                                                                 $  1,698        $  1,698
Banking premises                                                                       19,735          18,707
Furniture and equipment                                                                16,766          15,737
-------------------------------------------------------------------------------------------------------------
                                                                                       38,199          36,142
Less: Accumulated depreciation                                                         22,211          20,278
-------------------------------------------------------------------------------------------------------------
                                                                                      $15,988         $15,864
=============================================================================================================
</TABLE>

                                       35
<PAGE>

NOTE 8-DUE TO DEPOSITORS
--------------------------------------------------------------------------------

A summary of amounts due to depositors at December 31 is shown as follows:

<TABLE>
<CAPTION>
(Dollars in Thousands)                                 1999                 1998
--------------------------------------------------------------------------------
<S>                                             <C>                  <C>
Savings accounts                                $   186,799          $   188,254
Money market deposit accounts                       429,991              300,911
Certificates of deposit                           1,111,310              991,317
NOW accounts                                         31,197              113,949
Non-interest bearing deposit accounts               141,907              115,429
--------------------------------------------------------------------------------
                                                $ 1,901,204          $ 1,709,860
================================================================================
</TABLE>

Time deposits with balances in excess of $100,000 amounted to approximately
$305.8 million and $300.8 million at December 31, 1999 and 1998, respectively.
The approximate maturity of time deposits at December 31, 1999 follows:

<TABLE>
<CAPTION>
(Dollars in Thousands)
--------------------------------------------------------------------------------
Years of Maturity                                           Amount       Percent
--------------------------------------------------------------------------------
<S>                                                    <C>               <C>
1                                                      $   981,776         88.4%
2                                                           72,723          6.5
3                                                           39,931          3.6
4                                                            9,402          0.8
5 and over                                                   7,478          0.7
--------------------------------------------------------------------------------
                                                       $ 1,111,310        100.0%
================================================================================
</TABLE>

NOTE 9-BORROWINGS
--------------------------------------------------------------------------------

The following is a summary of borrowings at December 31:

<TABLE>
<CAPTION>
(Dollars in Thousands)                                      1999           1998
-------------------------------------------------------------------------------
<S>                                                    <C>            <C>
Federal Home Loan Bank advances                        $  90,538      $ 188,465
Mandatorily redeemable preferred securities               30,000         30,000
Securities sold under repurchase agreements               49,218         38,638
Other                                                      2,289          2,633
-------------------------------------------------------------------------------
                                                       $ 172,045      $ 259,736
===============================================================================
</TABLE>

Borrowings at December 31, 1999 have maturity dates as follows:

<TABLE>
<CAPTION>
                                                          Weighted
(Dollars in Thousands)                                Average Rate        Amount
--------------------------------------------------------------------------------
<S>                                                   <C>               <C>
Borrowings maturing or callable in 2000                       5.45%     $119,048
December 23, 2002                                            10.51         2,000
October 6, 2003                                               4.73        20,000
February 5, 2007                                              7.08           443
January 11, 2019                                              6.08           554
Mandatorily redeemable preferred securities - 2028            8.13        30,000
--------------------------------------------------------------------------------
                                                              5.90%     $172,045
================================================================================
</TABLE>

Information related to short-term borrowings at December 31 is as follows:

<TABLE>
<CAPTION>
(Dollars in Thousands)                             1999        1998        1997
--------------------------------------------------------------------------------
<S>                                            <C>         <C>         <C>
Outstanding balance at end of year             $119,048    $155,272    $189,215
Average interest rate                              5.45%       5.00%       6.10%
Maximum outstanding at any month end           $256,863    $187,758    $230,860
Average amount outstanding during year         $179,499    $153,242    $182,990
Average interest rate during year                  5.11%       5.48%       5.68%
================================================================================
</TABLE>

                                       36
<PAGE>

Average amounts outstanding and average interest rates are computed using
weighted monthly averages.

     On July 24, 1998, the Company formed a wholly owned subsidiary business
trust, BSB Capital Trust I, L.L.C. (the "Trust"), for the purpose of issuing
preferred securities which qualify as Tier I capital. Concurrent with its
formation, the Trust issued $30.0 million at par value of 8.125% preferred
securities in an exempt offering. The preferred securities are non-voting,
mandatorily redeemable in 2028, and guaranteed by the Company. The Company's
guarantee, together with its other obligations under the relevant agreements,
constitute a full, irrevocable, and unconditional guarantee by the Company of
the securities issued by the Trust. The entire net proceeds to the Trust from
the offering were invested in junior subordinated obligations of the Company,
which are the sole assets of the Trust. The costs related to the issuance of
these securities are capitalized and amortized over the life of the period to
redemption on a straightline basis. The net proceeds were used to fund
commercial and consumer loan growth.

     The Bank has assigned mortgage-backed securities as collateral for certain
other borrowings. Such securities have a market value aggregating $2.3 million,
and $12.9 million at December 31, 1999 and 1998, respectively.

     At December 31, 1999, the Bank had available a line of credit with the
Federal Home Loan Bank of New York ("FHLB") subject to the amount of available
collateral, of which $15.5 million is outstanding as of December 31, 1999. This
outstanding balance is collateralized by certain mortgage loans, mortgage-backed
securities, and other investment securities under a blanket pledge agreement
with the FHLB. The Bank also had available a $15.0 million unsecured line of
credit with First Union Corp., which requires daily repayment.

     Securities sold under repurchase agreements represent the purchase of
interests in government securities by commercial checking customers which are
repurchased by the Bank on the following business day. The government securities
continue to be held by the Bank and the purchaser is precluded from engaging in
repurchase transactions or otherwise pledging or hypothecating these securities.

NOTE 10-EMPLOYEE BENEFITS
--------------------------------------------------------------------------------

The Bank has a noncontributory qualified defined benefit pension plan covering
substantially all employees. Under the plan, retirement benefits are primarily a
function of both the years of service and the level of compensation. The Bank's
policy is to fund the plan in amounts sufficient to pay liabilities. The pension
plan assets consist primarily of listed stocks, governmental securities, and
cash equivalents.

     The Bank also provides certain life and health insurance benefits to
substantially all employees and eligible retirees through an unfunded plan. The
Bank makes contributions to the plan as premiums are due.

                                       37
<PAGE>

The following table represents a reconciliation of the funded status of the
plans at October 1:

<TABLE>
<CAPTION>
                                                             Pension Benefits      Life and Health Benefits
(Dollars in Thousands)                                         1999      1998               1999       1998
-----------------------------------------------------------------------------------------------------------
<S>                                                         <C>       <C>          <C>              <C>
Change in benefit obligation:
  Benefit obligation at beginning of year                   $18,867   $16,607            $ 4,513    $ 3,471
  Service cost                                                  791       634                176        123
  Interest cost                                               1,227     1,162                288        240
  Actuarial (gains) losses                                   (1,994)    1,286               (158)       830
  Annuity payments                                             (842)     (817)
  Premiums paid                                                                             (195)      (150)
  Settlements                                                   (17)       (5)
-----------------------------------------------------------------------------------------------------------
Benefit obligations at end of year                           18,032    18,867              4,624      4,514
-----------------------------------------------------------------------------------------------------------

Change in plan assets:
  Fair value of plan assets at beginning of year             18,339    19,127
  Actual return on plan assets                                3,279        34
  Employer contributions                                                                     195        150
  Annuity payments                                             (842)     (817)
  Premiums paid                                                                             (195)      (150)
  Settlements                                                   (17)       (5)
-----------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                     20,759    18,339
-----------------------------------------------------------------------------------------------------------

Funded status                                                 2,727      (528)            (4,624)    (4,514)
Unrecognized transition (asset) obligation                                 (5)             2,251      2,425
Unrecognized (gains) losses                                  (1,933)    1,702               (354)      (195)
Unrecognized past service liability                            (119)     (144)
-----------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost                              $   675   $ 1,025            $(2,727)   $(2,284)
===========================================================================================================
</TABLE>

The benefit obligations and prepaid (accrued) benefit costs presented in the
above table were determined using the following weighted-average assumptions at
October 1:

<TABLE>
<CAPTION>
                                                                 1999           1998           1999           1998
------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>            <C>           <C>
Weighted-average assumptions:
Discount rate                                                   7.75%           6.50%          7.75%         6.50%
Expected return on plan assets                                  8.75%           8.75%
Rate of compensation increase                                   5.50%           4.50%          5.50%         4.50%
</TABLE>

The net periodic pension cost and the net postretirement benefit cost for the
years ended December 31, 1999, 1998, and 1997 are as follows:

<TABLE>
<CAPTION>
                                                              Pension Benefits             Life and Health Benefits
(Dollars in Thousands)                                  1999        1998        1997       1999       1998     1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>         <C>            <C>        <C>      <C>
Service cost                                        $    791    $    634    $    551       $176       $123     $107
Interest cost                                          1,228       1,162       1,085        288        240      232
Expected return on assets                             (1,639)     (1,544)     (1,328)
Unrecognized transition (asset) obligation                (5)       (167)       (167)       173        173      173
Unrecognized (gain) loss                                                                               (59)     (76)
Unrecognized past service liability                      (25)        (25)        (25)
-------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                            $   350    $     60    $    116       $637       $477     $436
===================================================================================================================
</TABLE>

    For measurement purposes, a 6.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2000. The rate was assumed
to decrease gradually to 5.0% for 2003 and remain at that level thereafter.

                                       38
<PAGE>

A one-percentage-point change in assumed health care cost trend rates would have
the following effect on life and health benefits at October 1, 1999:

<TABLE>
<CAPTION>                                                        1-Percentage-       1-Percentage-
(Dollars in Thousands)                                           Point Increase      Point Decrease
---------------------------------------------------------------------------------------------------
<S>                                                              <C>                 <C>
Effect on total of service and interest cost components               $  23             $  (28)
Effect on postretirement benefit obligation                             202               (138)
</TABLE>

The Bank also has a defined contribution employee savings 401(k) plan. Full-time
salaried employees, age twenty-one and older who have completed one year of
service, are eligible to join the 401(k) plan. The Bank matches 100% of basic
contributions up to 2.0% of each participant's annual contribution and 50% of
contribution over 2.0% with the Bank's total match not to exceed 3%.
Contributions to the plan amounted to $368,542 in 1999, $416,415 in 1998, and
$328,350 in 1997.

NOTE 11-DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

The Company uses interest rate swap agreements as a part of its overall interest
rate risk management strategy. The swaps modify the repricing characteristics of
certain brokered certificate of deposit liabilities. Under terms of the
agreements, the Company receives a fixed rate of interest and pays a variable
rate of interest. The swaps are entered into with a counterparty that meets the
Company's established credit standards and the agreements contain collateral
provisions protecting the at-risk party. The Company considers the credit risk
inherent in these contracts to be negligible. The swaps match the related
brokered certificates of deposit in notional/face amount, fixed interest rate,
interest payment date, and maturity date. At December 31, 1999, the Company has
swaps outstanding with a notional amount of $60.0 million and a fair value of
$(1.5) million. Investment securities with a fair value of $1.7 are pledged as
collateral against the swaps at December 31, 1999.

    The Company accounts for the interest rate swaps on the accrual method,
whereby the net receivable or payable is recognized on a periodic basis and is
included as a component of interest on time accounts.

NOTE 12-COMMITMENTS
--------------------------------------------------------------------------------

The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments consist primarily of commitments to extend credit and
letters of credit, which involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the consolidated statements of condition. The
contract amount of those commitments and letters of credit reflects the extent
of involvement the Bank has in those particular classes of financial
instruments. The Bank's exposure to credit loss in the event of nonperformance
by the counterparty to the financial instrument for commitments to extend credit
and letters of credit is represented by the contractual amount of the
instruments. The Bank uses the same credit policies in making commitments and
letters of credit as it does for on-balance-sheet instruments.

Financial instruments whose contract amounts represent credit risk:

<TABLE>
<CAPTION>
(Dollars in Thousands)                                   1999           1998
------------------------------------------------------------------------------
<S>                                                    <C>            <C>
Commitments to extend credit                           $422,499       $488,687
Letters of credit                                        29,488         25,166
</TABLE>

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitment amounts are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.

     Standby and other letters of credit written are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements, including bond financing and similar transactions. Most of these
guarantees extend for periods ranging from three months to five years. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Since some of the
letters of credit are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.

                                       39
<PAGE>

     For both commitments to extend credit and letters of credit, the amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation of the counterparty. Collateral held
varies, but includes residential and commercial real estate. Outstanding loans
sold with recourse approximated $13.6 million as of December 31, 1999.

     As required by certain letters of credit agreements, the Bank has pledged
as collateral mortgage-backed securities having a market value of approximately
$4.9 million at December 31, 1999. The Company is required to maintain a reserve
balance, as established by the Federal Reserve Board of New York. The required
average total reserve for the 14-day maintenance period ended December 29, 1999
was $16.0 million of which $2.1 million was required to be on deposit with the
Federal Reserve Bank of New York. The remaining $13.9 million was represented by
cash on hand and other adjustments.

     The Bank rents facilities under leases expiring at various dates through
2016. Rent expense totaled approximately $786,000 in 1999, $784,000 in 1998, and
$737,000 in 1997.

Approximate minimum rental commitments under existing noncancelable leases with
remaining terms of one year or more are presented below:

<TABLE>
<CAPTION>
Years ending December 31,                                 (Dollars in Thousands)
--------------------------------------------------------------------------------
<S>                                                       <C>
2000                                                                      $  847
2001                                                                         772
2002                                                                         693
2003                                                                         450
2004                                                                         443
Later years                                                                2,032
--------------------------------------------------------------------------------
    Total minimum lease payment                                           $5,237
================================================================================
</TABLE>

NOTE 13-LIMITS ON DIVIDENDS
--------------------------------------------------------------------------------

The Company's ability to pay dividends to its shareholders is largely dependent
on the Bank's ability to pay dividends to the Company. In addition to state law
requirements and the capital requirements discussed below, the circumstances
under which the Bank may pay dividends are limited by federal statutes,
regulations, and policies. The Bank must obtain the approval of the Federal
Deposit Insurance Corporation (FDIC) for payment of dividends if the total of
all dividends declared in any calendar year would exceed the total of the Bank's
net profits as defined by applicable regulations, for that year, combined with
its retained net profits for the preceding two years. Furthermore, the Bank may
not pay a dividend in an amount greater than its undivided profits then on hand
after deducting its losses and bad debts, as defined by applicable regulations.
At December 31, 1999, the Bank had approximately $33.7 million in undivided
profits legally available for the payment of dividends.

     In addition, the Federal Reserve Board and the FDIC are authorized to
determine under certain circumstances that the payment of dividends would be an
unsafe or unsound practice and to prohibit payment of such dividends. The
payment of dividends that deplete a bank's capital base could be deemed to
constitute such an unsafe or an unsound practice. The Federal Reserve Board has
indicated that banking organizations could generally pay dividends only out of
current operating earnings. There are also statutory limits on the transfer of
funds to the Company by its banking subsidiary whether in the form of loans or
other extensions of credit, investments, or asset purchases. Such transfers by
the Bank to the Company generally are limited in amount to 10% of the Bank's
capital and surplus, or 20% in the aggregate. Furthermore, such loans and
extensions of credit are required to be collateralized in specific amounts.

NOTE 14-INCOME TAXES
--------------------------------------------------------------------------------

The Company provides for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" which requires an asset and liability approach to
recognizing the tax effects of temporary differences between tax and financial
reporting.

                                       40
<PAGE>

The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
(Dollars in Thousands)                                  1999     1998      1997
--------------------------------------------------------------------------------
<S>                                                 <C>       <C>       <C>
Current                                             $12,019   $15,204   $12,270
Deferred (benefit)                                     (528)   (1,662)     (629)
--------------------------------------------------------------------------------
                                                    $11,491   $13,542   $11,641
================================================================================
</TABLE>

The components of deferred income taxes at December 31, which are included in
other assets are:

<TABLE>
<CAPTION>
(Dollars in Thousands)                                             1999     1998
--------------------------------------------------------------------------------
<S>                                                            <C>       <C>
Assets:
    Available for sale investments                             $  7,361
    Allowance for possible credit losses                         11,945  $10,437
    Postretirement benefits                                       1,118      959
    Contingent liabilities                                                 1,219
    Other                                                         1,002    1,052
--------------------------------------------------------------------------------
                                                                 21,426   13,667
--------------------------------------------------------------------------------

Liabilities:
    Depreciation                                                    700      768
    Other                                                         1,440    1,809
--------------------------------------------------------------------------------
                                                                  2,140    2,577
--------------------------------------------------------------------------------
       Net deferred tax asset                                   $19,286  $11,090
================================================================================
</TABLE>


A reconciliation between the federal statutory income tax rate and the effective
income tax rate at December 31 follows:

<TABLE>
<CAPTION>
                                                       1999      1998      1997
--------------------------------------------------------------------------------
<S>                                                   <C>       <C>       <C>
Federal statutory income tax rate                     35.00%    35.00%    35.00%
State income taxes, net of federal benefit             4.60      5.30      5.10
Tax-exempt interest income                            (1.10)    (0.80)    (1.30)
Dividends received deduction                                              (0.10)
Other                                                  0.20     (0.90)    (0.30)
--------------------------------------------------------------------------------
    Effective income tax rate                         38.70%    38.60%    38.40%
================================================================================
</TABLE>

NOTE 15-EARNINGS PER SHARE
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                                              Net           Weighted   Earnings
(Dollars in Thousands, Except Share Data)    Income   Average Shares   Per Share
--------------------------------------------------------------------------------
<S>                                          <C>      <C>              <C>
1997:     Basic earnings per share           $18,649       9,905,340       $1.88
          Effect of stock options                  -         352,600           -
--------------------------------------------------------------------------------
          Diluted earnings per share         $18,649      10,257,940       $1.82
================================================================================
1998:     Basic earnings per share           $21,519      10,006,369       $2.15
          Effect of stock options                  -         358,813           -
--------------------------------------------------------------------------------
          Diluted earnings per share         $21,519      10,365,182       $2.08
================================================================================
1999:     Basic earnings per share           $18,225      10,137,625       $1.80
          Effect of stock options                  -         174,488           -
--------------------------------------------------------------------------------
          Diluted earnings per share         $18,225      10,312,113       $1.77
================================================================================
</TABLE>

                                       41
<PAGE>

NOTE 16-OPTIONS AND SHAREHOLDER RIGHTS
--------------------------------------------------------------------------------

The Company has a Long-Term Incentive and Capital Accumulation Plan (the
"Incentive Plan") for the benefit of officers and certain other employees of the
Company and its subsidiary. The Plan, as approved by shareholders at the 1996
Annual Meeting of Shareholders and as amended at the 1998 and 1999 Annual
Meetings of Shareholders, provides for options to purchase a total of 1.3
million shares of authorized common stock, of which options to purchase 582,525
shares have been granted as of December 31, 1999. At December 31, 1999, there
were 717,475 options to purchase shares available for future grant under the
Plan. Four kinds of rights are contained in the Incentive Plan and are available
for grant: incentive stock options, non-qualified options, stock appreciation
rights, and performance share awards. Options under this Plan have a 10 year
term, and vest and become exercisable at 25% per year at the end of each of the
first four years following the grant date, or as otherwise determined by the
Company's Compensation Committee.

     The Directors' Stock Option Plan (the "Directors' Plan"), as approved by
shareholders at the 1994 Annual Meeting of Shareholders, provides for options to
purchase 393,750 shares of authorized but unissued common stock by incumbent and
future non-employee directors of the Company; 222,750 options to purchase shares
have been granted as of December 31, 1999. At December 31, 1999, 171,000 options
to purchase shares are available for future grant under the Directors' Plan. All
options granted under the Directors' Plan are intended to be non-qualified
options. Vesting occurs on the grant date, and options may be exercised six
months after the grant date. Under the Directors' Plan, to the extent options
remain available for grant, upon initial election or appointment as a director,
new non-employee directors of the Company will each receive a grant of an option
to purchase 6,750 shares of common stock. Furthermore, in January of each year,
each non-employee director, including any director who becomes a non-employee
director prior to such anniversary, shall be granted an option to purchase 2,250
shares of common stock.

Activity in the Plans during 1997, 1998, and 1999 was as follows:

<TABLE>
<CAPTION>
                                                              Number of         Option Price
(Dollars in Thousands, Except Share Data)                        Shares            Per Share         Aggregate
--------------------------------------------------------------------------------------------------------------
<S>                                                           <C>              <C>                   <C>
          Outstanding options at December 31, 1996              407,890        $ 3.61-$17.17           $ 6,819
1997:     Effect of three-for-two stock split                   232,161
          Options forfeited                                      (6,934)          8.53-18.83               (67)
          Options exercised                                    (150,414)          4.52-18.83            (1,432)
          Options granted                                       182,795          12.19-18.83             3,265
--------------------------------------------------------------------------------------------------------------
          Outstanding options at December 31, 1997              665,498           3.61-18.83             8,585
1998:     Options forfeited                                      (2,444)               15.62               (38)
          Options exercised                                     (85,093)          4.52-18.83            (1,001)
          Options granted                                       208,799          20.05-32.75              5,977
--------------------------------------------------------------------------------------------------------------
          Outstanding options at December 31, 1998              786,760           3.61-32.75            13,523
1999:     Options exercised                                    (187,647)          3.61-23.10            (1,978)
          Options granted                                       227,100          26.63-28.75             6,178
--------------------------------------------------------------------------------------------------------------
          Outstanding options at December 31, 1999              826,213        $ 3.61-$32.75           $17,723
==============================================================================================================
</TABLE>

Since the option price per share at the date of grant approximates the fair
market value of the shares on the grant date, no expense is recognized as the
stock options are exercised.

    The Company maintains a shareholders' rights plan pursuant to which the
Company's Board of Directors declared a dividend of one right for each
outstanding share of common stock. These rights will also be attached to common
stock issued subsequent to the adoption of the plan. The rights can only be
exercised when an individual or group intends to acquire or has acquired a
defined amount of the Company's outstanding common shares. Each right will
entitle the holder to receive common stock having a market value equivalent to
two times the exercise price (as defined). The rights will expire on June 4,
2009 and may be redeemed by the Company in whole at a price of $.01 per right.

                                       42
<PAGE>

NOTE 17-STOCK-BASED COMPENSATION
--------------------------------------------------------------------------------

The Company has two stock-based compensation plans, as described in Note 16. The
Company has elected to follow APB Opinion No. 25 and related interpretations in
accounting for stock options granted under these plans. Under APB No. 25,
because the exercise price of the Company's stock options approximates the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Had compensation cost for these plans been determined
based on the fair value at the grant dates for awards under those plans, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:

<TABLE>
<CAPTION>
(Dollars in Thousands, Except Share Data)                                 1999             1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>               <C>
Net Income:
    As reported                                                         $ 18,225          $21,519           $18,649
    Pro forma                                                             17,062           20,552            18,091
-------------------------------------------------------------------------------------------------------------------

Earnings Per Share:
   As reported:
      Basic                                                             $   1.80          $  2.15           $  1.88
      Diluted                                                           $   1.77          $  2.08           $  1.82
   Pro forma:
      Basic                                                             $   1.68          $  2.05           $  1.83
      Diluted                                                           $   1.65          $  1.98           $  1.76
</TABLE>

The  weighted average fair value of options granted during 1999, 1998, and 1997
was $6.51, $6.91, and $6.68, respectively.

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997, respectively: dividend
yield of 3.3% for 1999, 3.1% for 1998 and 1997; expected volatility of 24.9% for
1999, 24.2% for 1998, and 25.1% for 1997; risk-free interest rates of 4.7% for
1999, 5.7% in 1998, and 6.5% in 1997; and expected lives of 7.4 years in 1999,
1998, and 1997.

     Options exercisable under the plans at December 31, 1999, 1998, and 1997
amounted to 506,705, 435,223, and 375,124, respectively. The weighted average
exercise price of options exercisable at December 31, 1999, 1998, and 1997 were
$18.43, $12.72, and $10.27, respectively.

The following table summarizes information about options outstanding at December
31, 1999:

<TABLE>
<CAPTION>
                                                 [---------Outstanding---------]    [--------Exercisable---------]
                                                       Weighted
                                                        Average       Weighted                             Weighted
Range of                                              Remaining        Average                              Average
Exercise                            Options         Contractual       Exercise             Number          Exercise
Prices                           Outstanding      Life in Years          Price        Exercisable             Price
-------------------------------------------------------------------------------------------------------------------
<S>                              <C>              <C>                 <C>             <C>                  <C>
$3.61 to $5.84                        10,825               0.3          $ 4.60             10,825            $ 4.60
$9.33 to $12.33                      176,077               4.3          $10.81            176,077            $10.81
$15.08 to $19.85                     229,661               6.8          $18.04            167,778            $17.87
$26.63 to $32.75                     409,650               8.7          $28.39            152,025            $28.86
-------------------------------------------------------------------------------------------------------------------
                                     826,213                                              506,705
===================================================================================================================
</TABLE>

                                       43
<PAGE>

NOTE 18-SELECTED QUARTERLY FINANCIAL DATA
--------------------------------------------------------------------------------

Summarized quarterly financial information for the years ended December 31, 1999
and 1998 are as follows:

<TABLE>
<CAPTION>
(Dollars in Thousands, Except Share Data)             Three Months Ended                     Three Months Ended
-------------------------------------------------------------------------------------------------------------------
                                   3/31/99   6/30/99   9/30/99  12/31/99      3/31/98   6/30/98   9/30/98  12/31/98
-------------------------------------------------------------------------------------------------------------------
<S>                                <C>       <C>       <C>      <C>          <C>        <C>       <C>      <C>
Total interest income              $42,505   $43,733   $44,262   $46,221     $38,436    $41,480   $43,148   $43,102
Total interest expense              21,393    21,981    22,835    23,367      19,622     21,227    22,090    21,847
-------------------------------------------------------------------------------------------------------------------
Net interest income                 21,112    21,752    21,427    22,854      18,814     20,253    21,058    21,255
Provision for credit losses          3,461     3,695     7,054     4,927       2,885      3,069     3,533     3,444
-------------------------------------------------------------------------------------------------------------------
Net interest income after
   provision for credit losses      17,651    18,057    14,373    17,927      15,929     17,184    17,525    17,811
Gains (losses) on sale of
   securities                         (401)      185         1       (16)       (150)      (365)      (15)     (321)
Gains (losses) on sale of loans          6      (310)      (32)      (27)       (226)      (110)       47      (284)
Non-interest income                  2,784     3,007     3,080     4,095       2,196      2,587     2,578     2,658
Operating expense                   11,163    12,658    15,374    11,468       9,791     10,557    10,906    10,729
-------------------------------------------------------------------------------------------------------------------
Income before income taxes           8,877     8,281     2,048    10,511       7,958      8,739     9,229     9,135
Income taxes                         3,341     3,496       372     4,283       3,101      3,317     3,648     3,476
-------------------------------------------------------------------------------------------------------------------
    Net income                     $ 5,536   $ 4,785   $ 1,676   $ 6,228     $ 4,857    $ 5,422   $ 5,581   $ 5,659
===================================================================================================================
Earnings per share:
Basic                              $  0.55   $  0.48   $  0.16   $  0.61     $  0.49    $  0.54   $  0.56   $  0.56
===================================================================================================================
Diluted                            $  0.54   $  0.46   $  0.16   $  0.61     $  0.47    $  0.52   $  0.54   $  0.55
===================================================================================================================
</TABLE>

NOTE 19-FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

SFAS No. 107 requires disclosure of fair value information about financial
instruments, whether or not recognized in the statement of condition, for which
it is practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the certain derived value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Bank. The fair value of off- balance-sheet financial instruments is not
significant.

The net carrying amount and fair values of financial instruments (in thousands
of dollars) at December 31 are as follows:

<TABLE>
<CAPTION>

                                                               1999                              1998
                                                      Carrying           Fair          Carrying             Fair
                                                        Amount          Value            Amount            Value
----------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>                <C>             <C>
Financial assets:
    Cash and cash equivalents                     $     70,065   $     70,065       $    70,287     $     70,287
    Investment securities                              241,979        242,033           255,114          255,400
    Mortgage-backed securities                         159,744        159,806           172,423          172,542
    Loans                                            1,722,252      1,686,948         1,577,909        1,591,771
       Allowance for possible credit losses            (29,134)                         (25,030)
----------------------------------------------------------------------------------------------------------------
          Net loans                                  1,693,118      1,686,948         1,552,879        1,591,771
    Mortgages held for sale                              2,085          2,085            16,806           16,806
----------------------------------------------------------------------------------------------------------------
        Total financial assets                    $  2,166,991   $  2,160,937       $ 2,067,509     $  2,106,806
================================================================================================================

Financial liabilities:
    Deposits                                      $  1,901,204   $  1,879,477       $ 1,709,860     $  1,712,739
    Borrowings                                         172,045        177,029           259,736          262,319
    Interest rate swap agreements                                       1,548
----------------------------------------------------------------------------------------------------------------
        Total financial liabilities               $  2,073,249   $  2,058,054       $ 1,969,596     $  1,975,058
================================================================================================================
</TABLE>

                                       44
<PAGE>

NOTE 20-REGULATORY MATTERS
--------------------------------------------------------------------------------

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

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

<TABLE>
<CAPTION>
                                                                                                  To Be Well
                                                                                               Capitalized Under
                                                                        For Capital            Prompt Corrective
                                                     Actual          Adequacy Purposes:       Action Provisions:
(Dollars in Thousands)                         Amount      Ratio       Amount     Ratio          Amount    Ratio
----------------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>          <C>         <C>         <C>
As of December 31, 1999
    Total capital/to risk-weighted assets    $200,968    11.08%      *$145,075    *8.0%       *$181,344   *10.0%
    Tier I capital/to risk-weighted assets   $178,220     9.83%      *$ 72,537    *4.0%       *$108,806   * 6.0%
    Tier I capital/to average assets         $178,220     7.85%      *$ 90,762    *4.0%       *$113,452   * 5.0%

As of December 31, 1998
----------------------------------------------------------------------------------------------------------------
    Total capital/to risk-weighted assets    $178,313    10.66%      *$133,828    *8.0%       *$167,285   *10.0%
    Tier I capital/to risk-weighted assets   $157,351     9.41%      *$ 66,914    *4.0%       *$100,371   * 6.0%
    Tier I capital/to average assets         $157,351     7.44%      *$ 84,575    *4.0%       *$105,719   * 5.0%
</TABLE>

* = greater than or equals to

                                       45
<PAGE>

NOTE 21-FINANCIAL INFORMATION-PARENT COMPANY
--------------------------------------------------------------------------------

STATEMENTS OF CONDITION

<TABLE>
<CAPTION>
                                                                                                       December 31,
(Dollars in Thousands, Except Share Data                                                     1999              1998
-------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                                            <C>               <C>
ASSETS                   Cash and due from banks                                        $  15,633         $  24,619
                         Investment in Bank, at equity                                    170,063           159,837
                         Investment in trust subsidiary                                       928               928
                         Prepaid expenses                                                     752               720
                         Other assets                                                          52                53
                         ------------------------------------------------------------------------------------------
                                                                                        $ 187,428         $ 186,157
                         ==========================================================================================

LIABILITIES AND          Accrued interest payable                                       $   1,104         $   1,108
SHAREHOLDERS'            Other liabilities                                                    903                30
EQUITY                   Junior subordinated debentures                                    30,928            30,928
                         Shareholders' Equity:
                            Preferred stock, par value $.01 per share;
                              2,500,000 shares authorized, none issued
                            Common stock, par value $.01 per share;
                              30,000,000 shares authorized;
                              11,398,991 shares and 11,237,470 shares issued                  114               112
                         Additional paid-in capital                                        37,287            35,202
                         Undivided profits                                                140,295           131,723
                         Accumulated other comprehensive income                            (9,757)              425
                         Treasury stock at cost; 1,173,669 and 1,196,396 shares           (13,446)          (13,371)
                         ------------------------------------------------------------------------------------------
                            Total shareholders' equity                                    154,493           154,091
                         ------------------------------------------------------------------------------------------
                                                                                        $ 187,428         $ 186,157
                         ==========================================================================================
</TABLE>

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
(Dollars in Thousands)                                                      1999             1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                         <C>                                         <C>              <C>               <C>
INCOME                      Dividends from Bank                         $  9,653         $  8,239          $  6,804
                            Interest on investments                           77               33
                            Equity in undistributed net income of Bank,
                                net of dividends                          12,445           14,525            12,344
                            ---------------------------------------------------------------------------------------
                                   Total income                           22,175           22,797            19,148
                            ---------------------------------------------------------------------------------------

EXPENSES                    Interest on long term debentures               2,563            1,108
                            Acquisition charges                            2,941
                            Other expenses                                 1,146            1,020               839
                            ---------------------------------------------------------------------------------------
                                   Total expense                           6,650            2,128               839
                            ---------------------------------------------------------------------------------------
                            Income before tax benefit                     15,525           20,669            18,309
                            Tax benefit                                    2,700              850               340
                            ---------------------------------------------------------------------------------------
                            NET INCOME                                  $ 18,225         $ 21,519          $ 18,649
                            =======================================================================================
</TABLE>

                                       46
<PAGE>

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
(Dollars in Thousands)                                                                   1999         1998          1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                                          <C>           <C>           <C>
OPERATING                Net income                                                   $ 18,225      $ 21,519      $ 18,649
ACTIVITIES               Adjustments to reconcile net income to net cash
                            provided by operating activities:
                                Equity in undistributed net income
                                   of Bank, net of dividends                           (15,145)      (15,375)      (12,684)
                                Net change in other assets and liabilities                 684           377           (26)
                         ----------------------------------------------------------------------------------------------------
                                      Net cash provided by operating activities          3,764         6,521         5,939
                         ----------------------------------------------------------------------------------------------------

INVESTING                Capital contributions to subsidiaries                          (5,000)       (6,650)
                         ----------------------------------------------------------------------------------------------------
ACTIVITIES                            Net cash used by investing activities             (5,000)       (6,650)
                         ----------------------------------------------------------------------------------------------------

FINANCING                Proceeds from issuance of junior subordinated debentures
ACTIVITIES                  to subsidiaries                                                           30,928
                         Dividends paid to shareholders                                 (9,653)       (8,239)       (6,804)
                         Purchases of treasury stock                                       (75)          (29)
                         Proceeds from exercise of stock options                         1,978         1,001         1,432
                         ----------------------------------------------------------------------------------------------------
                                   Net cash provided (used) by financing activities     (7,750)       23,661        (5,372)
                         ----------------------------------------------------------------------------------------------------
                         Net increase in cash and cash equivalents                      (8,986)       23,532           567
                         Cash and cash equivalents at beginning of year                 24,619         1,087           520
                         ----------------------------------------------------------------------------------------------------
                         CASH AND CASH EQUIVALENTS AT END OF YEAR                     $ 15,633      $ 24,619      $  1,087
                         ====================================================================================================
</TABLE>

                                       47
<PAGE>

BSB Bank & Trust (Subsidiary of BSB Bancorp, Inc.)
Officers

Executive
Thomas L. Thorn, Acting President & Chief Executive Officer
Larry G. Denniston, Senior Vice President & Corporate Secretary
Cynthia A. Hicks, Assistant Corporate Secretary

Banking Operations
Arthur C. Smith, Executive Vice President--Retail Banking Officer
Branch Administration
Michael V. Radicchi, Administrative Vice President--Branch Administrator
Jacqueline L. Speicher, Vice President, Branch Lending, Sales & Business
Development
James E. Dove, Assistant Vice President--Branch Lending, Sales & Business
Development
Craig J. Nessel, Supermarket Banking Officer
James A. Berry, Assistant Vice President--Regional Business Development Officer
Margaret J. Murray, Assistant Vice President--Regional Business Development
Officer
Calvin L. Corriders, Assistant Vice President--Community Development Officer
Lori A. Micha, Assistant Vice President--Main Banking Office

<TABLE>
<S>                                               <C>
Elizabeth I. Donahue, Senior Branch Officer       Denise G. Mughetti, Senior Branch Officer
Richard L. Pitman, Senior Branch Officer          Joan M. Rozycko, Senior Branch Officer
Gerald F. Walker, Senior Branch Officer           Marian M. Avery-Tierno, Branch Officer
Patricia A. Blair, Branch Officer                 Jeanine M. Cianciosi, Branch Officer
Jodi A. DeAugustine, Branch Officer               Christine M. Ferranti, Branch Officer
Lucille E. Roberts, Branch Officer                Kelly L. Valenti, Branch Officer
LoriAnne Welch, Branch Officer
</TABLE>

Bank Operations
Robert N. Keller, Jr., Vice President--Banking Support Services
Thomas J. Lamphere, Assistant Vice President--Risk Management
James H. DiMascio, Assistant Vice President--Facilities & Services
Janet L. McHenry, Assistant Vice President--Special Services

Systems
Matthew W. Schaefer, Administrative Vice President
Paul F. Santodonato, Assistant Vice President--Technology
Joyce E. Burke, Assistant Vice President--Computer Services

Accounting
Rexford C. Decker, Senior Vice President & Chief Financial Officer

<TABLE>
<S>                                               <C>
Donald R. Schmitt, Vice President & Controller    Kevin P. Harty, Vice President--Finance
Keith A. Martin, Assistant Controller
</TABLE>

BSB Financial Services
Trust
Douglas R. Johnson, Senior Vice President & Senior Trust Officer
Leslie J. Distin, Vice President & Trust Officer
John P. Riesbeck, Vice President--Trust Investment Officer
Bradley S. Eaton, Trust Investment Officer

Brokerage
Pamela A. Kelley, Vice President

                                       48
<PAGE>

Lending Operations
Glenn R. Small, Executive Vice President--Senior Credit Officer

Commercial Lending

<TABLE>
<S>                                                   <C>
John B. Westcott, Administrative Vice President       F. Mathew Zlomek, Administrative Vice President
Edward P. Bahrenburg, Vice President                  Susan A. Burtis, Vice President
Marvin F. Mastrangelo, Vice President                 Edward P. Michalek, Vice President
Kevin P. O'Hara, Vice President                       Kenneth J. Scott, Vice President
Carl J. Speicher, Assistant Vice President            James J. Frawley, Commercial Loan Officer
John S. Gibbs, Commercial Loan Officer
Ann Marie F. Smith, Assistant Vice President--Commercial Credit
Melody A. Gardner, Assistant Vice President--Commercial Loan Operations
</TABLE>

Commercial Real Estate

<TABLE>                                               <C>
<S>
Gary K. Hart, Administrative Vice President           William B. Meredith, Vice President
</TABLE>

Consumer Lending
William T. Slote, Administrative Vice President
Joseph Diorio, Assistant Vice President--Business Development
Joseph D. Dempsey, Assistant Vice President--Consumer Credit
Arthur L. Dunning, Jr., Assistant Vice President-Credit Card Officer
Karen L. Thurber, Assistant Vice President-Consumer Loans Operations
Matthew J. Parsons, Business Development Officer
James W. Rowlands, Assistant Vice President--Adjustments/Recovery

Residential Mortgage Lending
Gary T. Drabo, Administrative Vice President
Allen E. Fuller, Assistant Vice President--Mortgage Servicing
John J. Saraceno, Assistant Vice President--Business Development
Robert L. Anderson, Jr., Assistant Vice President--Mortgage Processing
Arthur R. Truesdell, Residential Collections Officer

Treasury Operations
John P. Driscoll, Executive Vice President & Treasurer
Jonathan  J. Hullick, Interim Assistant Treasury Administration Officer
Christopher B. Loughridge, Interim Assistant Treasury Administration Officer
Lawrence M. Harris, Vice President--Municipal Services
Louis M. Petrilli, Municipal Development Officer

Auditing
Bruce R. Hayes, Administrative Vice President & Auditor
Penne M. Gaeta, Assistant Vice President--Assistant Auditor

Human Resources

<TABLE>
<S>                                                   <C>
Patricia A. Phelps, Administrative Vice President     Roy W. Brock, Assistant Vice President
Patrick M. Gleason, Training Officer
</TABLE>

Loan Review
Phyllis K. Gilroy, Vice President
John A. Savelli, Loan Review Officer

Marketing
Stephanie Garrison, Vice President--Marketing Director
Kimberly A. Maietta, Assistant Marketing Director

<PAGE>

BSB Bancorp, Inc.
Board of Directors

Ferris G. Akel: President, Binghamton, Giant Markets, Inc.
Robert W. Allen: General Partner, Allen Family Limited Partnership
Diana J. Bendz: IBM Endicott Senior Location Executive
William C. Craine: Chairman of the Board; Chairman, Granite Capital Holdings,
Inc.
John P. Driscoll: Executive Vice President & Treasurer
Ann G. Higbee: Managing Partner, Public Relations Services, Eric Mower and
Associates
Thomas F. Kelly, Ph.D.: Vice President, Binghamton University, State University
of New York
David A. Niermeyer: President & Chief Executive Officer, Stakmore Co., Inc.
Mark T. O'Neil, Jr.: President & Chief Executive Officer, United Health
Services, Inc.
William H. Rincker: Former Chairman & Chief Executive Officer, BSB Bancorp
Thomas L. Thorn: Acting President & Chief Executive Officer

The membership of the Board of Directors of BSB Bank & Trust Company is
identical. All members serve on both boards.

Officers
Thomas L. Thorn: Acting President & Chief Executive Officer
John P. Driscoll: Executive Vice President & Treasurer
Glenn R. Small: Executive Vice President, Senior Credit Officer
Arthur C. Smith: Executive Vice President, Retail Banking Officer
Rexford C. Decker: Senior Vice President & Chief Financial Officer
Larry G. Denniston: Senior Vice President & Corporate Secretary
Douglas R. Johnson: Senior Vice President

Directors Emeriti
Aubrey S. Bowen                              Charles G. Brink
John J. Consey                               Vincent J. Earley
Helen A. Gamble                              Floyd H. Lawson, Jr.
Herbert R. Levine                            Robert J. Nash
Dr. William L. Roberts                       Edgar E. Severson
John V. Smith                                Dr. J. Glezen Watts

Shareholder Information
Corporate Headquarters:                      Mailing Address:
BSB Bancorp, Inc.                            P. O. Box 1056
58-68 Exchange Street                        Binghamton, New York 13902
Binghamton, New York 13901

Annual Meeting:
The Annual Meeting of Shareholders
of BSB Bancorp, Inc. will be held at 10:00 A.M. on April 24, 2000, in the South
Ballroom at the Binghamton Regency Hotel and Conference Center, One Sarbro
Square, 225 Water Street, Binghamton, New York.

Form 10-K Annual Report:
A copy of BSB Bancorp, Inc. Form 10-K Annual Report may be obtained without
charge upon written request to Larry G. Denniston, Senior Vice President &
Corporate Secretary, Shareholder Relations Department, BSB Bancorp, Inc., 58-68
Exchange Street, Binghamton, New York 13901.

Registrar and Transfer Agent:
American Stock Transfer and Trust Company
40 Wall Street--46th Floor
New York, New York 10005

                                       50
<PAGE>

Stock Listing:
BSB Bancorp, Inc. common stock is traded over the counter and is listed on The
Nasdaq Stock Market under the symbol BSBN. High, low, and closing prices and
daily trading volume are reported in most major newspapers as "BSB Bcp."

Auditors:                                   General Counsel:
PricewaterhouseCoopers LLP                  Hinman, Howard & Kattell, L.L.P.
One Lincoln Center                          Security Mutual Building
Syracuse, New York 13202                    Binghamton, New York 13901

Special Counsel:                            Shareholder Relations Department:
Hogan & Hartson L.L.P.                      BSB Bancorp, Inc.
Columbia Square                             58-68 Exchange Street
555 13th Street, N.W.                       Binghamton, New York 13901
Washington, D.C. 20004                      607-779-2406
                                            Toll Free (877) 289-0221

                                       51