<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
           EXCHANGE ACT OF 1934.

           For the quarterly period ended December 31, 1998

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

           For the transition period from               to               .
                                          -------------    --------------
Commission file number 333-43697

                   Adirondack Financial Services Bancorp, Inc.
             (Exact name of registrant as specified in its charter)

         Delaware                                           14-1801465
(State or other jurisdiction of                           (IRS Employer   
 incorporation or organization)                        Identification No.)
                                                       
                               
                               

52 North Main Street, Gloversville, NY 12078 
(Address of principal executive offices)

(518) 725-6331
(Registrants telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last
report.)

Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes    NA      No
    -------       -------

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE 
PRECEDING FIVE YEARS

Check whether the  registrant  filed all  documents  and reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court.       Yes            No
                                                        -------       -------
APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each issuer's classes of common
equity, as of the latest practicable date.

            Class                           Outstanding as of February 12, 1999
Common Stock, $.01 par value                           689,055 shares

<PAGE>

                                TABLE OF CONTENTS


                                                                           Page
Part I.       Financial Information

  Item 1. Consolidated Interim Financial Statements

        Consolidated Interim Statements of Financial Condition
        December 31, 1998 (unaudited) and September 30, 1998                1

        Consolidated Interim Statements of Income (unaudited) 
        Three Months Ended December 31, 1998 and 1997                       2

        Consolidated Interim Statements of Cash Flows (unaudited)
        Three Months Ended December 31, 1998 and 1997                       3

        Summarized Notes to Consolidated Interim Financial 
        Information                                                         4


  Item 2.  Management's Discussion and Analysis of Financial 
           Condition and Results of Operations                              6

  Item 3.  Quantitative and Qualitative Disclosures
           About Market Risk                                               11 

Part II. Other Information                                                 12

  Item 1.  Legal Proceedings                                               12

  Item 6.  Exhibits and Reports on Form 8-K                                12

Signatures                                                                 13
      
Exhibits Index                                                             14

<PAGE>

Part I. Financial Information

Item 1. Financial Statements 
Adirondack Financial Services Bancorp, Inc.
Consolidated Interim Statements of Financial Condition

                                  December 31, 1998          September 30, 1998
                                  -----------------          ------------------
                                     (unaudited)

Assets
Cash and due from banks             $ 3,247,224                $ 2,635,158
Interest bearing deposits               615,036                  2,109,873
                                     ----------                 ----------
     Total cash and cash
      equivalents                     3,862,260                  4,745,031
Securities available for sale        14,081,162                 11,172,412
Net loans receivable                 50,049,806                 50,200,660
Accrued interest receivable             333,480                    297,959
Other real estate owned                 550,475                    256,125
Net premises and equipment            1,204,376                  1,278,383
Prepaid expenses and other
 assets                                 224,269                    290,843
                                    -----------                -----------
     Total Assets                   $70,305,828                $68,241,413
                                    ===========                ===========
Liabilities and Shareholders'
 Equity

Liabilities:

Deposits:

   Demand and N.O.W. accounts       $ 5,445,140                $ 5,741,821
   Savings and money market
    accounts                         24,483,948                 23,860,849
   Time deposit accounts             26,447,560                 27,190,796
                                    -----------                -----------
     Total deposits                  56,376,648                 56,793,466

Borrowings                            4,463,225                  2,000,000
Accrued expenses and other
 liabilities                            234,326                    292,982
                                    -----------                -----------
     Total liabilities               61,074,199                 59,086,448
                                    -----------                -----------

Shareholders' equity:

    Preferred Stock, $.01 par
     value 100,000 shares
     authorized, none
     outstanding                         -                            -

    Common Stock, $.01 par
      value, 1,200,000 shares
      authorized, 689,055
      outstanding at December
      31,1998 and 663,243
      outstanding at September
      30, 1998                            6,639                      6,632
   
    Additional Paid-in Capital        6,059,085                  6,049,293
    Retained earnings,
     substantially restricted         3,639,613                  3,535,134
    Unearned ESOP shares               (476,100)                  (476,100)
    Accumulated Other
     Comprehensive Income                 2,392                     40,006
                                     ----------                -----------
     Total shareholders' equity       9,231,629                  9,154,965
                                     ----------                -----------
       Total liabilities and
        shareholders' equity        $70,305,828                $68,241,413
                                    ===========                ===========


  The accompanying notes are an integral part of these unaudited consolidated
                         interim financial statements.







                                       1




<PAGE>

Adirondack Financial Services Bancorp, Inc.
Consolidated Interim Statements of Income (Unaudited)


                                              Three Months Ended
                                  ---------------------------------------------
                                  December 31, 1998           December 31, 1997 
                                  -----------------          ------------------ 
                                                                                
Interest and dividend income:
                                                                          
     Interest and fees on loans     $ 1,102,802                $ 1,074,077      
     Securities available
      for sale                          184,057                    108,247      
     Interest-bearing deposits           31,918                      1,731
                                    -----------                -----------

       Total interest and 
        dividend income               1,318,776                  1,184,055
                                    -----------                -----------

Interest expense:

     N.O.W. accounts                     15,671                     15,637
     Savings and money
      market accounts                   220,814                    216,631
     Time deposit accounts              363,508                    371,806
     Borrowings                          45,492                     23,168
                                    -----------                -----------
       Total interest expense           645,485                    627,242
                                    -----------                -----------
       Net interest income              673,291                    556,813

Provision for loan losses                 4,000                     15,000
                                    -----------                -----------
     Net interest income after
      provision for loan losses         669,291                    541,813
                                    -----------                -----------
Other income:

     Fees and service charges            44,454                     40,307
     Other                               13,581                     13,455
                                    -----------                -----------
       Total other income                58,035                     53,762
                                    -----------                -----------

Operating expenses:

     Compensation and employee
      benefits                          261,822                    234,415
     Occupancy expense                   48,893                     54,905
     Federal deposit insurance
      premiums                           16,450                     13,397
     Advertising expenses                39,217                     22,401
     Directors' fees and expenses        24,446                     24,485
     Equipment and data processing
      expenses                           70,491                     75,308
     Other real estate owned
      expenses                          (29,347)                     7,816
     Other operating expenses           119,976                    123,737
                                    -----------                  ---------
       Total operating expenses         551,948                    556,464
                                    -----------                  ---------
Income (loss) before income
 tax expense                            175,379                     39,111
Income tax expense                       70,900                     15,800
                                    -----------                  ---------
Net income (loss)                   $   104,479                     23,311
                                    ===========                  =========

Basic earnings per common share           $0.17                      N/A
Diluted earnings per common share         $0.16                      N/A

                                  
                                                                                
  The accompanying notes are an integral part of these unaudited consolidated   
                         interim financial statements.                          



                                       2


<PAGE>



Adirondack Financial Services Bancorp, Inc.
Consolidated Interim Statements of Cash Flows (Unaudited)

<TABLE>
<CAPTION>
                                                                                Three Months Ended December 31,
                                                                                -------------------------------
                                                                                     1998              1997
                                                                                     ----              ----
<S>                                                                                   <C>               <C>
Cash flows from operating activities:
         Net income (loss)                                                      $    104,479         $   23,311
         Adjustments to reconcile net income (loss)
           to net cash provided by (used by) operating activities
                  Depreciation expense                                                71,032             74,168
                  Provision for loan losses                                            4,000             15,000
                  Loss on disposal of equipment                                        4,687                  -
                  Net gain on sale of other real estate owned                        (34,350)           (23,215)
                  (Increase) decrease in accrued interest receivable                 (35,521)            18,156
                  Decrease (increase) in prepaid expenses and other assets            98,878           (179,208)
                  (Decrease) increase in accrued expenses
                     and other liabilities                                           (58,656)             5,283
                                                                                ------------          --------- 
                         Net cash provided by (used by) operating activities         154,549            (66,505)

Cash flows from investing activities:
         Proceeds from principal repayment and maturity of securities
                  available for sale                                               2,561,040            179,760

         Purchase of securities available for sale                                (5,539,708)                 -
         Net (decrease) increase in loans receivable                                (228,146)           565,856
         Proceeds from sale of other real estate owned                               115,000            293,890
         Capital expenditures                                                         (1,712)           (14,680)
                                                                                ------------         ----------
                         Net cash (used by) provided by investing activities      (3,093,526)         1,024,826
                                                                                ------------         ----------

Cash flows from financing activities:
         Net proceeds from issuance of stock                                           9,799                  -
         Net decrease in deposits                                                   (416,818)        (1,845,769)
         Net increase in borrowings                                                2,463,225            400,000
                                                                                ------------         ----------
                         Net cash provided by (used by) financing activities       2,056,206         (1,445,769)
                                                                                ------------         ----------
Net decrease in cash and cash equivalents                                           (882,771)          (487,448)
Cash and cash equivalents at beginning of period                                   4,745,031          1,922,386
                                                                                ------------         ----------
Cash and cash equivalents at end of period                                      $  3,862,260         $1,434,938
                                                                                ============         ==========
Cash paid during the period for:

Interest                                                                        $    637,127         $  604,075
Taxes                                                                           $          -         $    5,471
</TABLE>

 
  The accompanying notes are an integral part of these unaudited consolidated
                          interim financial statements.


                                       3


<PAGE>

     Summarized Notes to Unaudited Interim Consolidated Financial Statements

Note 1

In management's opinion, the financial information, which is unaudited as of and
for the three months ended December 31, 1998 and 1997, reflects all adjustments,
consisting solely of normal recurring adjustments, necessary for a fair
presentation of the financial information for the three month periods ended
December 31, 1998 and December 31, 1997 in conformity with generally accepted
accounting principles. These consolidated financial statements should be read in
conjunction with Adirondack Financial Services Bancorp, Inc.'s ( the "Company"
herein) 1998 Annual Report on Form 10-K. The results of operations for the
interim periods are not necessarily indicative of the results of operations to
be expected for the full fiscal year that ends September 30, 1999.

Note 2

Amounts in the prior periods' consolidated interim financial statements are
reclassified whenever necessary to conform to the current period presentation.

Note 3 - Common Stock Shares Outstanding

As of December 31,1998, common stock shares outstanding totaled 689,055, which
included 25,123 shares granted to directors, officers, and non-officer employees
of the Company and the Association on October 7, 1998 under the Company's 1998
Recognition and Retention Plan ("RRP"). The 1998 RRP was approved by the
Company's shareholders at a Special Meeting of Stockholders held on October 7,
1998.

Note 4 - Earnings Per Share

On June 30, 1998, the Company adopted the provisions of Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings per Share," which establishes
standards for computing and presenting earnings per share. SFAS No. 128
supersedes Accounting Principles Board Opinion No. 15, "Earnings per Share" and
related interpretations. SFAS No. 128 requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all entities
with a complex capital structure and specifies additional disclosure
requirements. Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the period. Unvested restricted stock awards
are considered outstanding common shares and included in the computation of
basic EPS as of the date that they are fully vested. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity, such as restricted stock and stock options. Unallocated ESOP shares are
not included in the weighted average number of common shares outstanding for
either the basic or diluted earnings per share calculations.

For the three month period ended December 31, 1998, the basic earnings per share
was $0.17, calculated using 615,846 weighted average common shares outstanding.
The diluted earnings per share was $0.16, calculated using 642,663 weighted
average common shares outstanding. Earnings per share are not presented for
periods prior to the Company's initial stock offering since the Company was a
mutual savings association and no stock was outstanding.

Note 5 - Comprehensive Income

On October 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components. Comprehensive
income includes the reported net income of a company adjusted for items that are
currently accounted for as direct entries to equity, such as the mark to market
adjustment on securities available for sale, foreign currency items and minimum
pension liability adjustments. At the Company, comprehensive income represents
net income plus other comprehensive income, which consists of the net change in
unrealized gains or losses on securities available for sale, net of tax, for the
period.

                                       4





<PAGE>


Accumulated other comprehensive income represents the net unrealized
gains or losses on securities available for sale as of the balance sheet dates.

Comprehensive income (loss) for the three month periods ended December 31, 1998
and 1997 was $66,865 and $41,769, respectively. The following summarizes the
components of other comprehensive income:
<TABLE>
<CAPTION>

                                                                            The three months ended
                                                                                December 31,
                                                                          1998                   1997
                                                                          ---------------------------
<S>                                                                    <C>                     <C>  
Unrealized gains (losses) on securities:

Unrealized net holding gains (losses) arising during the
    three months ended December 31, 1998 and 1997, 
    respectively, net of tax (pre-tax amount of $62,690
    and $30,763, respectively)                                         $(37,614)                 $18,458

Reclassification adjustment for net (gains) losses
    realized in net income during the three months ended
    December 31, 1998 and 1997, respectively, net of
    tax (pre-tax amount of $- and $-, respectively)                            -                       -
                                                                       ---------                 -------

Other comprehensive income (loss) during the three 
    months ended December 31, 1998 and 1997,
    respectively                                                       $(37,614)                 $18,458
                                                                       ---------                 -------
</TABLE>


Note 6 - SFAS 131

In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting by public companies of operating segments within the company,
disclosures about products and services, geographic areas and major customers.
This statement is effective for periods beginning after December 15, 1997.
Management believes that the adoption of SFAS No. 131 will not have a material
impact on the Company's consolidated financial statements.

Note 7 - SFAS 132

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132
standardizes the disclosures of SFAS No. 87 and No. 106 to the extent practical
and recommends a parallel format for presenting information about pensions and
other postretirement benefits. This Statement is applicable to all entities and
addresses disclosure only. The Statement does not change any of the measurement
or recognition provisions provided for in SFAS No. 87, No. 88 or No. 106. The
Statement is effective for fiscal years beginning after December 15, 1997.
Management anticipates providing the required disclosures in the September 30,
1999 consolidated financial statements.

Note 8 - SFAS 133

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. This Statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management is currently evaluating the impact of this Statement on the Company's
consolidated financial statements.



                                       5






<PAGE>

Note 9 - Acquisition

On January 23, 1999, the Company entered into a merger agreement with CNB
Bancorp, Inc. ("CNB"), Gloversville, New York. CNB is the parent company of City
National Bank and Trust Co. Under the terms of the agreement, the acquisition of
AFSB and its subsidiary savings association will provide AFSB shareholders with
a cash payment of approximately $15 million and will be accounted for as a
purchase transaction. The transaction is expected to close on or about June 30,
1999, subject to the Company's shareholders' and regulatory approvals.

Item 2.

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

The following discussion and analysis should be read in conjunction with the
unaudited consolidated interim financial statements and related notes and with
the statistical information and consolidated financial data appearing in this
report as well as the Company's 1998 Annual Report on Form 10-K.

Forward Looking Statements

When used in this document, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties-including, changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical results and those presently anticipated or projected.
The Company wishes to caution the reader not to place undue reliance on any such
forward looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to materially differ from any opinions or statements expressed
with respect to future periods in any current statements.

The company does not undertake -- and specifically disclaims any obligation --
to publicly release the results of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

 Acquisition

On January 23, 1999, the Company entered into amerger agreement with CNB
Bancorp, Inc. ("CNB"), Gloversville, New York. CNB is the parent company of City
National Bank and Trust Co. Under the terms of the agreement, the acquisition of
AFSB and its subsidiary savings association will provide AFSB shareholders with
a cash payment of approximately $15 million and will be accounted for as a
purchase transaction. The transaction is expected to close on or about June 30,
1999, subject to the Company's shareholders' and regulatory approvals.

Year 2000 ("Y2K") Issues

Year 2000 issues are the result of computer programs having been written using
two digits rather than four to define the applicable year. Any of the Company's
programs that have time sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company is also aware of these risks to third
parties, including vendors (and to the extent appropriate, depositors and
borrowers), and the potential adverse impact on the Company that could result
from failures by these parties to adequately address the Year 2000 issues.

The Company processes all customer information on an in-house data processing
system utilizing computer programs from several vendors. Most of the ancillary
programs have a direct interface to the core processing system. To mitigate the
Y2K risk, the Company has developed a Y2K Action Plan that




                                       6



<PAGE>



was approved by the Board in July 1998. As a part of the Plan, a Y2K Committee
was formed to conduct a review of the Company's core computer system and the 
ancillary software to identify the mission critical applications that could be 
affected by the Y2K problem. The Y2K committee reports on a quarterly basis to
the Board of Directors as to the Company's status in resolving any Y2K issues.
In order to complete the final phases of the Y2K Plan, it will be necessary to
document contingency and disaster recovery plans, which will be completed by the
Association's employees in 1999.

To date, the Y2K Committee has received Y2K compliance certifications/progress
forms from all of the Company's vendors. Of the responses received, 85% of the
vendors have certified that they are Y2K compliant, with the remaining 15%
informing the Company of their progress and anticipated compliance dates;
however, no assurance can be given as to the adequacy of such plans or to the
timeliness of their implementation.

Final versions of the Company's Y2K customer evaluation forms and the associated
risk analysis have been completed and the Y2K questionnaires have been sent to
customers. A spreadsheet has been developed that identifies significant
borrowers and their level of risk and will be monitored by the Company's Asset
Review Committee. To date, the majority of significant borrowers contacted have
indicated that they are not heavily reliant on computer systems and are,
therefore, evaluated as a low risk to Y2K.

Based on the Company's current knowledge and investigations, the expense of the
Year 2000 problem, as well as the related potential effect on the Company's
earnings, is not expected to have a material effect on the Company's financial
position or results of operation. Furthermore, the Company expects corrective
measures required to be prepared for the Year 2000 problem to be implemented on
a timely basis.

                               FINANCIAL CONDITION

Total assets were $70.3 million at December 31, 1998, an increase of $2.1
million or, 3.03%, over total assets of $68.2 million as of September 30, 1998.
The increase in total assets was primarily funded by borrowings, which increased
by $2.5 million, partially offset by a $417,000 decline in total deposits.

Investments available for sale were $13.7 million at December 31, 1998, $2.5
million or 22.45% more than the $11.2 million balance at September 30, 1998. The
increase is primarily attributable to the purchase of $5.5 million in securities
partially offset by $2.6 million received from maturities and principal
paydowns.

Total gross loans decreased by $410,000, or 0.79%, to $51.4 million at December
31, 1998 as compared to $51.8 million at September 30, 1998. Multi-family and
commercial real estate loans increased by $113,000, or 1.31%, from $8.6 million
at September 30, 1998 to $8.7 million at December 31, 1998. Commercial loans
declined $668,000, or 25.56%, during the same period. The modest increase in
multi-family and commercial real estate loans and the decline in commercial
loans are the result of the Board placing less emphasis on the growth of these
loan portfolios, which are generally subject to higher credit risks than other
types of lending. One-to-four family real estate loans declined from $35.7
million at September 30, 1998 to $35.5 million at December 31, 1998, a decline
of $185,000 or 0.52%. One-to-four family construction loans increased $587,000,
or 96.86%, from $606,000 at September 30, 1998 to $1.2 million at December 31,
1998. Home equity loan balances declined during the same period by $185,000 or
5.89%. The high level of competition for loans secured by residential
properties, which are primarily driven by the rates offered on the loans,
continues to be a significant factor in the changes in the Company's one-to-four
family, construction and home equity loan balances.

The Allowance for loan loss decreased by $250,000, or 16.70%, from September 30,
1998 to December 31, 1998. The decline was the result of net charge-offs of
$254,000 exceeding the provision of $4,000 recorded during the three months
ended December 31, 1998. Charge-offs taken during this period were primarily on
loans secured by commercial properties, either foreclosed upon or deemed
partially uncollectible. At December 31, 1998, the allowance for loan losses was
2.42% of gross loans receivable as compared to 2.89% at September 30, 1998.







                                       7






<PAGE>


Non-performing assets ("NPAs") decreased by $470,000, or 22.57%, to $1.6 million
at December 31, 1998 from $2.1 million at September 30, 1998. The improvement in
NPAs is attributable to nonperforming loans declining by $764,000, or 41.84%, to
$1.1 million at December 31, 1998 from $1.8 million at September 30, 1998,
partially offset by an increase in OREO of $456,000 during the same period.
Nonperforming loans at December 31, 1998 consisted of one-to-four family
mortgages of $756,000, multi-family and commercial real estate loans of $304,000
and commercial loans of $2,000. OREO at December 31, 1998 consisted of $175,000
in one-to-four family residences and a $375,000 commercial building.

Total deposits decreased by $417,000, or 0.73%, to $56.4 million at December 31,
1998 from $56.8 million at September 30, 1998. The following table shows the
deposit composition as of the respective balance sheet dates (in thousands):
<TABLE>
<CAPTION>

                                             December 31, 1998                           September 30, 1998
                                       -------------------------------             -------------------------------
                                       In 000's          % of Deposits             In 000's          % of Deposits
<S>                                     <C>                 <C>                    <C>                   <C>  
Passbook and statement savings          $11,619             20.61                  $11,297               19.89
Demand and NOW accounts                   5,445              9.66                    5,742               10.11
Money market Accounts                    12,865             22.82                   12,563               22.12
Time deposits                            26,448             46.91                   27,191               47.88
                                        -------            ------                  -------              ------
                                        $56,377            100.00                  $56,793              100.00
                                        =======            ======                  =======              ======
</TABLE>


Management attributes the increases in passbook and statement savings and money
market accounts primarily to customers choosing to invest their funds in
short-term interest-bearing products due to the relatively low level of interest
rates on time deposits during the quarter ended December 31, 1998. The decline
in time deposits is consistent with the Company's efforts to reduce its reliance
on higher rate time deposits for funding.

Borrowings increased from $2.0 million at September 30, 1998 by $2.5 million to
$4.5 million at December 31, 1998. The increase is attributable to the Company's
implementation of a leveraging strategy to increase the return on equity,
whereby securities were purchased with funds borrowed from the Federal Home Loan
Bank ("FHLB"). During the quarter ended December 31, 1998, the Company used $2.5
million in borrowings from the FHLB to purchase pools of mortgage-backed
securities and one callable agency note.

Total equity increased by $77,000 during the three month period ended December
31, 1998 and was $9.2 million at both December 31, 1998 and September 30, 1998.
The increase was attributable to $10,000 obtained through the issuance of common
stock to 401-K accounts and net income of $104,000 recognized for the three
months ended December 31, 1998, partially offset by a $38,000 decline in the net
after-tax unrealized gain on available for sale securities.

                              RESULTS OF OPERATIONS

Comparison of Operating Results for the Three-Month Periods Ended December 31,
1998 and 1997

General.

The results of operations of the Company's subsidiary savings association are
dependent primarily on net interest income, which is the difference between the
income earned on its loans and securities and its cost of funds, consisting of
the interest paid on deposits and borrowings. Results of operations are also
affected by the Association's provision for loan losses, net expenses on
foreclosed assets and by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities. Future changes in applicable law, regulations or
government policies may materially impact the financial condition and results of
operations of the Company and the Association.

Unless otherwise noted, discussion of operating results for the three months
ended December 31, 1998, is based on a comparison with the corresponding period
in 1997.






                                       8





<PAGE>

Net income for the three months ended December 31, 1998 was $104,000, compared
to $23,000 in 1997. The $81,000 increase was primarily attributable to an
increase of $116,000 in net interest income and a decrease of $11,000 in the
provision for loan losses less the tax effect of these changes.

Net interest income

Net interest income for the three months ended December 31, 1998 increased by
$116,000, or 20.92%, to $673,000 from $557,000 in 1997. The improvement in net
interest income was primarily attributable to an increase in the average volume
of net interest-earning assets, which increased by $5.9 million, or 412.8%, the
result of an increase in total average interest-earning assets of $8.6 million,
or 14.87%, partially offset by an increase in total average interest-bearing
liabilities of $2.7 million, or 4.78%. The positive effect derived from the
increase in the average volume of net interest-earning assets was partially
offset by a decline of 16 basis points in the Company's average net interest
rate spread to 3.56% from 3.72% in 1997. The average yield earned on
interest-earning assets during the three month period ended December 31, 1998
was 7.90%, a decrease of 24 basis points as compared to 8.14% in 1997 and the
average rate paid on interest-bearing liabilities was 4.34%, down 9 basis points
from 4.43% in 1997.

The decline in the average yield earned on total interest-earning assets was
attributable to a shift in the composition of total average interest-earning
assets to lower yielding securities and interest-earning deposits from higher
yielding loans. The average volume of securities increased by $5.3 million to
$12.3 million or 18.4% of total average interest-earning assets from 12.0% in
1997. In addition, average interest-earning deposits increased by $2.7 million
to $2.9 million or 4.4% of total average interest-earning assets for the three
months ended December 31, 1998 from 0.3% of total average interest-earning
assets in 1997. The combined average yield earned on securities and
interest-earning deposits declined by 46 basis points to 5.67% with the average
rate earned on securities decreasing by 20 basis points to 5.98%, partially
offset by an increase of 10 basis points to 4.36% in the average rate earned on
interest-earning deposits. Average loan balances for the three months ended
December 31, 1998, as compared to the same period in 1997, increased by
$594,000, or 1.17%, to $51.6 million, accompanied by an increase of 13 basis
points in the average loan yield to 8.56%. However, as a percentage of total
average interest-earning assets, average loan volume declined to 77.2% from
87.7% in 1997.

As mentioned above, the average cost of interest-bearing liabilities decreased
from 4.43% for the three months ended December 31, 1997 to 4.34% for the three
months ended December 31, 1998, with all of the component categories of average
total interest-bearing liabilities experiencing declines in average rates paid.
The declines in interest rates on interest-bearing liabilities resulted
primarily from the general decline in market interest rates since December 31,
1997.

Provision for loan losses

The provision for loans losses was $4,000 for the three months ended December
31, 1998, compared to $15,000 in 1997. The decrease in the provision expense was
attributable to management's evaluation of the adequacy of the Company's
allowance for loan losses as of December 31,1998 and a decline in the the
Association's non-performing loans. As of December 31, 1998, non-performing
loans were $1.1 million, a decrease of $2.4 million, or 69.92%, from $3.5
million at December 31,1997.

Operating expenses

Total operating expenses decreased by $4,000, or 0.81%, to $552,000 for the
three months ended December 31, 1998, from $556,000 in 1997.

Compensation and benefits expenses increased by $27,000, or 11.69%, mainly the
result of ESOP expenses and the initial expenses related to the Company's
Recognition and Retention Plan ("RRP"). In addition, advertising expenses
increased by $17,000, or 75.07%, to $39,000, the result of management's decision
to implement a branding campaign for the Association's name and the services and
products that it provides in order to increase the public's awareness of the
Association.




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<PAGE>

Income tax expense

Income tax expense increased by $55,000 to $71,000 from $16,000 in 1997. The
increase was the result of a significant increase by $136,000 in pre-tax income
to $175,000 from $39,000 in 1997.

Liquidity and Funding

Liquidity is the ability to generate cash flows to meet present and expected
future funding needs. Management monitors the Association's liquidity position
on a daily basis to evaluate its ability to meet expected and unexpected
depositor withdrawals and to make new loans and/or investments.

The Association's primary sources of funds for operations are deposits from its
market area, principal and interest payments on loans and securities, proceeds
from the maturity and sale of securities available for sale, advances from the
Federal Home Loan Bank of New York ("FHLB"), and securities sold under
agreements to repurchase ("repos"). While maturities and scheduled amortization
of loans and securities are generally predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions, and competition.

The primary investing activities of the Association are the origination of loans
and the purchase of securities. During the three months ended December 31, 1998,
the Association's loan originations totaled $2.5 million. The Association
purchased $5.5 million of securities available for sale during the same period.

The primary financing activity of the Association is the attraction of deposits.
However, during the three months ended December 31, 1998, the Association's
deposits decreased by $417,000 from September 30, 1998, primarily time deposits
("CDs"), which decreased by $743,000. Management believes that the decrease in
CDs during the three months ended December 31, 1998 resulted primarily from the
holders of maturing CDs pursuing alternative investments to obtain better
returns.

In the event the attraction of deposits is not sufficient to fund an expansion
in interest-earning assets or when the level of market interest rates for CDs is
higher than the cost of borrowed funds, the Association may utilize advances
from the FHLB and other types of borrowed funds to fund interest-earning asset
growth. During the three months ended December 31, 1998, the Association
increased its borrowed funds by $2.5 million to $4.5 million through FHLB
advances. The FHLB advances were used to purchase securities available for sale.

The Association is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which may be varied by the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required minimum liquidity ratio is
currently 4%. The Association's average daily liquidity ratio for the month of
December 1998 was 8.20%.

The Association's most liquid assets are cash and cash equivalents, which
include federal funds sold and bank deposits. The level of these assets is
dependent on the Association's operating, financing, and investing activities
during any given period. At December 31, 1998, cash and cash equivalents totaled
$4.3 million, compared to $4.7 million at September 30, 1998.

The Association anticipates that it will have sufficient funds available to meet
its current commitments. At December 31, 1998, the Association had commitments
to originate loans of $1.3 million as well as undrawn commitments of $1.2
million on home equity and other lines of credit. Time deposits that are
scheduled to mature in one year or less at December 31, 1998, totaled $16.7
million. Management believes that a significant portion of such deposits will
remain with the Association.

The Company also has a need for, and sources of, liquidity. Liquidity is
required to fund its operating expenses, as well as for the payment of any
dividends to shareholders. The primary source of the Company's liquidity on an
ongoing basis is dividends from the Association. To date no dividends have been
made by the Association to the Company.






                                       10




<PAGE>

Capital

Although there are no minimum capital ratio requirements for the Company, the
Association is required to maintain minimum regulatory capital ratios. The
following is a summary of the Association's actual capital amounts and ratios at
December 31, 1998, compared to the OTS minimum capital requirements:

                                   Actual                     Minimum
                                   ------                     -------
                          In 000's           %         In 000's          %
                          --------         -----       --------         ----
Tangible Capital           $7,177          10.44       $ 1,031          1.50
Core Capital                7,177          10.44         2,749          4.00
Risk Based Capital          9,416          20.01         3,064          8.00



Item  3.

Quantitative And Qualitative Disclosures About Market Risk

The composition of the Association's balance sheet results in maturity
mis-matches between interest-earning assets and interest-bearing liabilities.
The scheduled maturities of the Association's fixed rate interest-earning assets
are generally longer than the maturities of the Association's fixed rate
interest-bearing liabilities. This mis-match exposes the Association to interest
rate risk. In a rising rate scenario, as measured by the Office of Thrift
Supervision ("OTS") interest rate risk exposure simulation model, the estimated
market or portfolio value ("PV") of the Association's assets would decline in
value to a greater degree than the change in the PV of the Association's
liabilities, thereby reducing net portfolio value ("NPV") or equity.

Based on quarterly data provided to the OTS by the Association, as of September
30, 1998 (the most recent OTS report available) under a rate shock scenario of
plus 200 basis points ("bp"), the Association's pre-shock NPV ratio (NPV as a
percentage of the PV of assets) was calculated by the OTS model to be 15.86% and
pre-shock NPV was estimated at $11.2 million. The post-shock NPV ratio was
estimated to decrease to 14.04%, a decline of 182 bp, and the NPV amount
decreased by $1.3 million, or 14.04%, to $9.9 million.

Certain assumptions are utilized by the OTS in assessing the interest rate risk
exposure of savings associations and are employed in preparing the interest rate
risk exposure report. These assumptions are related to interest rates, loan
prepayment rates, deposit decay rates, and the market values of certain assets
and liabilities under the various interest rate scenarios. The model also
assumes that delinquency rates will not change as a result of changes in
interest rates although there can be no assurance that this will be the case.
Even if interest rates change in the designated amounts, there can be no
assurance that the Association's assets and liabilities would perform as set
forth above.

Furthermore, the Association's net interest income is sensitive to changes in
interest rates, as the rates paid on its interest-bearing liabilities generally
change faster than the rates earned on its interest-earning assets. As a result,
net interest income will frequently decline in periods of rising interest rates.

In managing its asset/liability mix, the Association, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, often places more emphasis on managing short-term net
interest margin than on better matching the interest rate sensitivity of its
assets and liabilities. Management believes that the increased net interest
income resulting from a mis-match in the maturity of its asset and liability
portfolios can, during periods of declining or stable interest rates, provide
high enough returns to justify the increased exposure to sudden and unexpected
increases in interest rates.

Other types of market risk, such as foreign exchange rate risk and commodity
price risk, do not arise in the normal course of the Association's business
activities.




                                       11



<PAGE>


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         In the ordinary course of business, the Company and the Association are
         subject to legal actions which involve claims for monetary relief.
         Management, based on the advice of counsel, does not believe that any
         currently known legal actions, individually or in the aggregate, will
         have a material effect on its consolidated financial condition or
         results of operation.


Item 6.  Exhibits and Reports on Form 8-K

          (a)  Exhibits as required by Item 601 of Regulation S-K Financial data
               schedule, Exhibit #27

          (b)  Reports on Form 8-K

               Current reports on Form 8-K were filed November 2, November
               23, January 20, January 21, and January 28.

               (i)     November 2, 1998, press release regarding Adirondack
                       Financial Services Bancorp Inc.'s earnings for fiscal
                       year ended September 30, 1998.

               (ii)    November 23, 1998, filing of Amended and Restated By-laws
                       of Adirondack Financial Services Bancorp Inc.

               (iii)   January 20, 1999, press release regarding Adirondack
                       Financial Services Bancorp Inc.'s earnings for the
                       quarter ended December 31, 1998.

               (iv)    January 21, 1999, press release regarding resignation of
                       Executive VP & COO

               (v)     January 28, 1999, press release regarding agreement to be
                       acquired by CNB Bancorp, Inc.





                                       12






<PAGE>


SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


Adirondack Financial Services Bancorp, Inc.
-------------------------------------------
(Registrant)

                  Dated:  February 12, 1999           \s\ Lewis E. Kolar
                                                      --------------------
                                                      Lewis E. Kolar
                                                      President, CEO
                                                      and Acting CFO




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